As filed with the Securities and Exchange Commission on ^May 8, 1998
Registration No. 333-48749
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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^ AMENDMENT NO. 1
^ TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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THISTLE GROUP HOLDINGS, CO.
---------------------------
(Exact name of registrant as specified in charter)
Pennsylvania 6035 ^ 23-2960768
- ---------------------------- --------------- -------------------
(State or other jurisdiction (Primary SIC No.) (I.R.S. Employer
of incorporation or Identification No.)
organization)
6060 Ridge Avenue, Philadelphia, Pennsylvania 19128
(215) 483-2800
--------------------------
(Address, including zip code, and telephone number,
including area code, of principal executive offices)
Mr. John F. McGill, Jr.
President and Chief Executive Officer
Thistle Group Holdings, Co.
6060 Ridge Avenue, Philadelphia, Pennsylvania 19128
(215) 483-2800
--------------------------
(Name, address and telephone number of agent for service)
Please send copies of all communications to:
^ Gregory A. Gehlmann, Esq.
Ruel Pile, Esq.
MALIZIA, SPIDI, SLOANE & FISCH, P.C.
1301 K Street, N.W., Suite 700 East, Washington, D.C. 20005
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, as amended (the "Securities Act"), check the following box [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box.[ ]
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act 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 THISTLE GROUP HOLDINGS, CO.
(Proposed Holding Company for Roxborough-Manayunk Federal Savings Bank)
11,902,500 Shares of Common Stock
Thistle Group Holdings, Co. (the "Company"), a Pennsylvania
corporation, is offering up to 10,350,000 shares (which may be increased to
11,902,500 shares under certain circumstances described below) of its common
stock, par value $.10 per share (the "Common Stock"), in connection with ^ the
conversion of FJF Financial, M.H.C. (the "Mutual Holding Company") ^, from a
federally chartered mutual holding company to a Pennsylvania stock corporation
pursuant to a Plan of Conversion and Reorganization and related Plans of Merger
(collectively, the "Plan" or "Plan of Conversion"). As of March 31, 1998, the
Mutual Holding Company had no material assets other than 87.29% of the common
stock ("Mid-Tier Common Stock") of Thistle Group Holdings, Inc. (the "Mid-Tier
Holding Company") ^, a Pennsylvania corporation which owns 100% of
Roxborough-Manayunk Federal Savings Bank (the "Bank") ^, a federal stock savings
bank. The remaining 12.71% of the Mid-Tier Common Stock (the "Public Mid-Tier
Shares") were publicly owned by stockholders, including the Banks employees,
directors, and stock benefit plans (together, the "Public Stockholders"). After
the Conversion and Reorganization, the Mutual Holding Company and Mid-Tier
Holding Company will cease to exist, and the Company will be the sole
stockholder of the Bank.
FOR INFORMATION ON HOW TO SUBSCRIBE,
CALL THE STOCK CENTER ^ AT 215-^ 483-4212
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY EACH
PROSPECTIVE INVESTOR, SEE "RISK FACTORS" BEGINNING ON PAGE ^ 1.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, THE OFFICE OF THRIFT SUPERVISION, OR ANY OTHER FEDERAL
AGENCY OR STATE SECURITIES COMMISSION, NOR HAS SUCH COMMISSION, OFFICE OR
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.
<TABLE>
<CAPTION>
=============================================================================================================================
Estimated
Underwriting
Commissions and Estimated
Other Fees and Net Cash
Subscription Price(1) Expenses(2) Proceeds(3)
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<S> <C> <C> <C>
Minimum Per Share........................... $10.00 $.17 $9.83
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Midpoint Per Share.......................... $10.00 $.16 $9.84
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Maximum Per Share........................... $10.00 $.15 $9.85
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Maximum Per Share, as adjusted(4)........... $10.00 $.15 $9.85
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Minimum Total............................... $66,779,270 $1,163,000 $65,616,270
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Midpoint Total.............................. $78,563,700 $1,299,000 $77,264,700
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Maximum Total.............................. $90,348,340 $1,435,000 $88,913,340
- -----------------------------------------------------------------------------------------------------------------------------
Maximum Total, as adjusted(4)............... $103,900,480 $1,590,000 $102,310,480
=============================================================================================================================
</TABLE>
SANDLER O'NEILL & PARTNERS, L.P.
<PAGE>
(1) Based on (i) the independent appraisal prepared by FinPro, Inc.
("FinPro") dated March ^ 25, 1998, which states that the estimated pro
forma market value of the Common Stock ranged from $76.5 million to
$103.5 million (subject to adjustment to $119.0 million, and (ii) the
Adjusted Majority Ownership Percentage (as defined herein), pursuant to
which 87.29% of the to-be outstanding shares of Common Stock will be
offered as Conversion Stock in the Offering. See "THE CONVERSION AND
REORGANIZATION -- Shares Exchange Ratio," and "--Stock Pricing and
Number of Shares to be Issued."
^(2) Consists of the estimated costs of the Conversion, including estimated
fixed expenses of $395,000 and market fees to be paid to Sandler
O'Neill & Partners, L.P. Actual expenses may vary from these estimates.
See "PRO FORMA DATA" for the assumptions used in arriving at these
estimates.
(3) Includes proceeds from the sale of shares of Common Stock in the
Offering to the Bank's employee stock ownership plan and trust (the
"ESOP"). The ESOP intends to purchase 8.0% of the shares sold in the
Offering. Funds to purchase such shares will be loaned to the ESOP by
the Company. See "THE CONVERSION AND REORGANIZATION--Plan of
Distribution and Selling Commissions" and "MANAGEMENT OF THE
BANK--Benefit Plans."
(4) As adjusted to give effect to the sale of up to an additional 15% of
the shares that may be offered without a resolicitation of subscribers
or any right of cancellation. See "THE CONVERSION--Stock Pricing and
Number of Shares to be Issued."
^ Of the shares of Common Stock offered hereby, (i) up to 9,034,834
shares ^(subject to adjustment to up to 10,390,048 shares) of Common Stock (the
"Conversion Stock") ^ are being offered for a subscription price of $10.00 per
share (the "Subscription Price") in a subscription and community offering as
described below, and (ii) up to 1,315,166 shares (subject to adjustment to up to
1,512,452 shares) of Common Stock (the "Exchange Shares") will be issued to
Public Stockholders pursuant to an Agreement of Merger, whereby Public Mid-Tier
Shares shall automatically, without further action by the holder thereof, be
converted into and become a right to receive shares of Common Stock (the "Share
Exchange"). See "THE CONVERSION AND REORGANIZATION -- The Exchange Ratio." The
simultaneous conversion of the Mutual Holding Company to stock form pursuant to
the Plan of Conversion, the exchange of all of the Public Mid-Tier Shares for
Common Stock, and the offer and sale of Conversion Stock pursuant to the Plan of
Conversion are herein referred to collectively as the "The Conversion and
Reorganization."
Non-transferable rights to subscribe for Common Stock in a subscription
offering (the "Subscription Offering") have been granted, in order of priority,
to the following: (i) depositors of the Bank with account balances of $50 or
more as of December 31, 1996 (the "Eligibility Record Date," and such account
holders "Eligible Account Holders"); (ii) the Bank's employee stock ownership
plan and related trust (the "ESOP") in an amount up to 8% of the shares sold in
the Offering; (iii) depositors with aggregate account balances of $50 or more as
of March 31, 1998 (the "Supplemental Eligibility Record Date") who are not
Eligible Account Holders ("Supplemental Eligible Account Holders"); and (iv)
depositors of the Bank as of May 5, 1998 (the "Voting Record Date") who are not
Eligible Account Holders or Supplemental Eligible Account Holders ("Other
Members"). Subscription rights are nontransferable; persons found to be
transferring subscription rights will be subject to the forfeiture of such
rights and possible further sanctions and penalties imposed by the OTS. Subject
to the prior rights of holders of subscription rights, the Company is offering ^
the shares of Common Stock not subscribed for in the Subscription Offering for
sale in a concurrent community offering (the "Community Offering") to certain
members of the general public ^ with preference given to Public Mid-Tier
Stockholders and then to natural persons residing in the Pennsylvania ^ Counties
of Philadelphia and Delaware ^(the "Local Community"). ^ The Company retains the
right, in its discretion, to accept or reject any order in the Community
Offering. The Subscription Offering and Community Offering are referred to
collectively as the "Offerings^." Unless otherwise specifically provided, the
term "Offerings" does not include the shares of Common Stock that will be issued
in the Share Exchange.
<PAGE>
The minimum number of shares that may be purchased is 25 shares. Except
for the ESOP, no Eligible Account Holder, Supplemental Eligible Account Holder
or Other Member may in their capacities as such purchase in the Subscription
Offering more than 30,000 Subscription Shares; no person, together with
associates of and persons acting in concert with such person, may purchase in
the Offerings more than 30,000 Subscription Shares; and no person together with
associates of and persons acting in concert with such person may purchase in the
aggregate more than the number of Subscription Shares that when combined with
Exchange Shares received by such person together with associates of and persons
acting in concert with such person exceeds 90,400 shares of Common Stock,
provided, however, that the maximum purchase limitation may be increased or
decreased at the sole discretion of the Company and the Bank. See "THE
CONVERSION AND REORGANIZATION^--The Offerings" and "--Limitations on Conversion
Stock Purchases and Ownership."
The Subscription Offering and Community Offering will terminate at ^
12:00 noon local time, on ______________, 1998 (the "Expiration Date")^ unless
either or both are extended by the ^ Bank and the Company, with the approval of
the OTS, if necessary. The ^ Bank and the Company may determine to extend the
Community Offering for any reason, whether or not subscriptions have been
received for shares at the minimum, midpoint, or maximum of the Offering Range,
and are not required to give subscribers notice of any such extension. The
Community Offering must be completed within 45 days after the ^ expiration of
the Subscription Offering^ unless extended by the ^ Bank and the Company with
the approval of the OTS, if necessary. ^ Orders submitted are irrevocable until
the completion ^ or termination of the Conversion; provided that all subscribers
will have their funds returned promptly, with interest, and all withdrawal
authorizations will be canceled if the Conversion is not completed within ^ 45
days after the expiration of the Subscription Offering, unless such period has
been extended with the consent of the OTS, if necessary^. See THE CONVERSION AND
REORGANIZATION^--The Offerings--Procedure for Purchasing Shares in the
Offerings."
^ The Mid-Tier Common Stock is ^ not currently quoted on any stock
exchange. After the Conversion and Reorganization, shares of the Common Stock
will trade on the Nasdaq National Market under the symbol ^("THTL"). See "MARKET
FOR COMMON STOCK."
This Prospectus contains forward-looking statements which reflect the
Primary Parties' views regarding future events and financial performance. Actual
results could differ materially from those projected in the forward-looking
statements as a result of risks and uncertainties including, but not limited to,
those found in the "RISK FACTORS" section. The words "believe," "expect," and
"anticipate" and similar expressions identify forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements which speak only as of their dates. The Primary Parties undertake no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise unless such update is
deemed material to the Public Stockholders. The Risk Factors discussion begins
on page ^ 1 of the Prospectus.
<PAGE>
SUMMARY
This summary is qualified in its entirety by the more detailed
information regarding the Company, the Mid-Tier Holding Company, the Bank, and
the Mutual Holding Company, and the Consolidated Financial Statements of the
Mid-Tier Holding Company and the Notes thereto, appearing elsewhere in this
Prospectus.
The Company
Thistle Group Holdings, Co. is a newly created Pennsylvania
corporation, organized in ^ March of 1998. It was organized at the direction of
the Board of Directors of the Bank to acquire and hold all of the Bank Common
Stock and to facilitate the Conversion and Reorganization. The Company has not
engaged in any significant business to date. The Company has applied to the OTS
for authority to acquire 100% of the Bank Common Stock and become a savings and
loan holding company. That application has been approved by the OTS subject to
certain conditions. After the Conversion and Reorganization, the Company will be
100% publicly owned and serve as a holding company of the Bank. The Common Stock
will be registered with the Securities and Exchange Commission (the "SEC") under
Section 12(g) of the Securities and Exchange Act of 1934, as amended (the
"Exchange Act").
The Mid-Tier Holding Company
Thistle Group Holdings, Inc. is a Pennsylvania corporation organized in
May of 1997. It is currently the mid-tier holding company (the "Mid-Tier Holding
Company") for the Bank. At present, 87.29% of the Mid-Tier Common Stock is held
by the Mutual Holding Company. The other 12.71% of the Mid-Tier Common Stock is
held by the Public Stockholders. The Mid-Tier Holding Company has no other
material business or activities other than acting as the holding company of
Roxborough- Manayunk Federal Savings Bank and holding certain equity securities.
Pursuant to the Conversion and Reorganization, the Mid-Tier Holding Company
will, after a series of transactions, merge with the Bank, with the Bank as the
survivor, and the Mid-Tier Holding Company will cease to exist and its
successor, the Company, will be 100% publicly owned. The Company will own 100%
of the Bank.
As of December 31, 1997, the Mid-Tier Holding Company had $276.7
million of total assets, $248.2 million of total liabilities (including $230.6
million of deposits) and $28.5 million of stockholders' equity.
Roxborough-Manayunk Federal Savings Bank
Roxborough-Manayunk Federal Savings Bank is a federally chartered stock
savings bank that was organized on December 31, 1992, as a subsidiary of the
Mutual Holding Company. In connection with the organization of the Mutual
Holding Company (the "MHC Reorganization"), Roxborough-Manayunk Federal Savings
& Loan Association transferred substantially all of its assets and liabilities
to the Bank in exchange for 1,415,000 shares of common stock (the "Bank Common
Stock") and converted its charter to that of a federal mutual holding company
known as FJF Financial, M.H.C. As part of the MHC Reorganization, the Bank sold
an additional 200,000 shares of Bank Common Stock to certain members of the
general public (including the ESOP and the Management Stock Bonus Plan).
Furthermore, 6,000 shares were subsequently issued pursuant to a restricted
stock plan and there are a total of 40,000 options to purchase shares of common
stock granted pursuant to the Bank's stock option plans.
(i)
<PAGE>
On December 31, 1997, pursuant to a reorganization, all Bank Common
Stock was exchanged on a one-for-one basis for Mid-Tier Common Stock. This
resulted in the Bank becoming the 100% owned subsidiary of the Mid-Tier Holding
Company.
Upon completion of the Conversion and Reorganization, the Bank will
change its name to Roxborough-Manayunk Bank.
FJF Financial, M.H.C.
FJF Financial, M.H.C. is a federally chartered mutual holding company
chartered on December 31, 1992, in connection with the MHC Reorganization. The
Mutual Holding Company's primary asset is 1,415,000 shares of Mid-Tier Common
Stock, which represents 87.29% of the shares of Mid-Tier Common Stock
outstanding as of December 31, 1997. As part of the Conversion and
Reorganization, the Mutual Holding Company will convert from mutual form to a
federal interim stock savings institution and, after a series of transactions,
merge into the Bank with the Bank being the surviving entity. A special
liquidation account for the benefit of Eligible Account Holders and Supplemental
Eligible Account Holders of the Bank will also be established by the Bank. The
Bank will then be acquired by the Company and become a wholly owned subsidiary
of the Company. See "THE CONVERSION AND REORGANIZATION -- Liquidation Rights"
and " -- Effect on Liquidation Rights."
Purposes of the Conversion and Reorganization
In their decision to pursue the Conversion and Reorganization, the
Primary Parties considered various regulatory uncertainties associated with the
mutual holding company structure including the ability to waive dividends in the
future as well as the general uncertainty regarding a possible elimination of
the federal savings association charter including the potential loss of unitary
thrift holding company powers. See "RISK FACTORS -- Proposed Federal
Legislation." In addition, the Primary Parties considered the various advantages
of a fully converted stock holding company form of organization including: (1)
the larger capital base of a fully converted stock holding company; (2) the
enhancement of the Mid-Tier Holding Company's future access to the capital
markets; (3) the increase in the number of outstanding shares of publicly traded
stock (which will increase the liquidity of the Common Stock); (4) a stock
holding company's ability to repurchase shares of its common stock without
increasing the Mutual Holding Company's percentage interest in the Mid-Tier
Holding Company; and (5) recent consolidations in the Pennsylvania market and
the greater ability to acquire other financial institutions or branches of other
financial institutions. For additional information see "THE CONVERSION AND
REORGANIZATION -- Purposes of the Conversion and Reorganization." Description of
the Conversion and Reorganization
On February 18, 1998, the Board of Directors of the Mid-Tier Holding
Company, the Bank and the Mutual Holding Company adopted the Plan which has
subsequently been amended and adopted by the Company. Pursuant to the Plan, ^
the Mid-Tier Holding Company ^, through a series of transactions, will cease to
exist and the ^ Bank will be acquired by a newly created Pennsylvania chartered
holding company (i.e., the Company), and become a wholly owned subsidiary of the
Company. The outstanding Public Mid-Tier Shares, which amounted to 206,000
shares or 12.71% of the outstanding Mid-Tier Common Stock at December 31, 1997,
will, subject to any dissenters' rights, 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 12.71% of the Common Stock to be
outstanding upon the completion of
(ii)
<PAGE>
the Conversion and Reorganization. ^ The remaining shares, or approximately
87.29% of the Common Stock to outstanding following the completion of the
Conversion and Reorganization shall be sold in the Offerings. For a detailed
discussion of the Conversion and Reorganization, see "THE CONVERSION AND
REORGANIZATION^."
The following diagrams outline (i) the current organization structure
of the Mutual Holding Company, the Mid-Tier Holding Company, and the Bank and
(ii) the organizational structure of the Company and the Bank following the
Conversion and Reorganization.
Current organizational structure:
- ------------------------------- ------------------------------
| | | |
| Mutual Holding Company | | Minority Stockholders |
| | | |
- ------------------------------- ------------------------------
| |
| 87.29% 12.71% |
| |
|--------------------------------------------|
| Mid-Tier |
| Holding Company |
----------------------------------------------
|
| 100%
|
----------------------------------------------
| |
| Bank |
| |
----------------------------------------------
Organizational structure following the Conversion and Reorganization:
-----------------------------------------------
| Public Stockholders |
-----------------------------------------------
| 100%
-----------------------------------------------
| Company |
-----------------------------------------------
| 100%
-----------------------------------------------
| Bank |
-----------------------------------------------
^ Conditions to the Conversion and Reorganization ^
Pursuant to OTS regulations, consummation of the Conversion and
Reorganization is conditioned upon the approval of the Plan by the OTS, as well
as (1) 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 Mutual Holding Company (which
consist of qualifying depositors and borrowers of the Bank) ("Members") as of
the close of business on
(iii)
<PAGE>
__________ ____, 1998 (the "Voting Record Date"), at a special meeting of
Members called for the purpose of submitting the Plan for approval (the
"Members' Meeting"), and (2) the approval of the holders of at least two-thirds
of the shares of the outstanding Mid-Tier Common Stock held by the Mutual
Holding Company and the Public Stockholders (collectively, the "Stockholders"),
as of the Voting Record Date, at a special meeting of stockholders called for
the purpose of considering the Plan (the "Stockholders' Meeting"). In addition,
the Primary Parties have conditioned the consummation of the Conversion and
Reorganization on the approval of the Plan by at least a majority of the votes
cast, in person or by proxy, by the Public Stockholders at the Stockholders'
Meeting. Because a significant portion of such shares are held by executive
officers or directors of the Mid-Tier Holding Company, the Plan should be
approved at the Stockholders' Meeting. The Conversion and Reorganization is also
contingent on obtaining various approvals from the OTS. The Mutual Holding
Company intends to vote its shares of Mid-Tier Common Stock, which amounts to
87.29% of the outstanding shares, in favor of the Plan at the Stockholders'
Meeting. In addition, as of December 31, 1997, directors and executive officers
of the Bank as a group (ten persons) beneficially owned 96,500 shares (excluding
options to purchase 40,000 shares) or 46.84% of the outstanding Mid-Tier Common
Stock held by persons other than the Mutual Holding Company, which shares can
also be expected to be voted in favor of the Plan at the Stockholders' Meeting.
The Offerings
Pursuant to the Plan and in connection with the Conversion and
Reorganization, the Company is offering up to 9,034,834 shares (subject to
adjustment of up to 10,390,048 shares) of Conversion Stock in the Offerings.
Conversion Stock is first being offered in the Subscription Offering, with
nontransferable subscription rights being granted, in the following order of
priority: (i) First Priority, to depositors of the Bank with account balances of
$50.00 or more as of the close of business on December 31, 1996, ("Eligible
Account Holders"); (ii) Second Priority, to the ESOP; (iii) Third Priority, to
depositors of the Bank with account balances of $50.00 or more as of the close
of business on March 31, 1998 ("Supplemental Eligible Account Holders"); and
(iv) Fourth Priority, depositors of the Bank as of the Voting Record Date (other
than Eligible Account Holders and Supplemental Eligible Account Holders) and
certain borrowers as of December 31, 1992 ("Members"). Subscription rights will
expire if not exercised by Noon, Philadelphia Time, on __________ ____ 1998,
unless extended.
Subject to the prior rights of holders of subscription rights,
Conversion Stock not subscribed for in the Subscription Offering is being
offered first to Public Stockholders and then in a Community Offering to certain
members of the general public to whom a copy of this Prospectus and order form
is delivered, with preference given to natural persons residing in the Bank's
Local Community. The Primary Parties reserve the absolute right to reject or
accept any orders in the Community Offering, 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 of all shares sold in the Offerings will occur simultaneously,
and all shares of Conversion Stock will be sold at a uniform price of $10.00 per
share.
^Purchase Limitations
The Plan sets forth various purchase limitations which are applicable
in the Offerings. The minimum purchase is 25 shares. With the exception of the
ESOP, the maximum number of shares of Conversion Stock which may be purchased by
any person (or persons through a single account) shall not exceed, when combined
with Exchange Shares, $300,000 (or 30,000 shares). Further, the Plan provides
that, except for the Tax Qualified Employee Stock Benefit Plans, the maximum
number of shares of
(iv)
<PAGE>
Conversion Stock which may be purchased in all categories in the Conversion and
Reorganization by any person (or persons through a single account), together
with any associate or group of persons acting in concert, when combined with
Exchange Shares equals $904,000 (or 90,400 shares). Directors and officers may
not purchase in the aggregate, when combined with Exchange Shares, more than 29%
of the total number of shares of Conversion Stock sold in the Offerings,
including any shares which may be issued in the event of an increase in the
maximum of the Offering Price Range to reflect changes in market, financial, or
economic conditions after the Commencement of the Subscription Offering and
prior to the completion of the Offerings. Notwithstanding anything to the
contrary, except as otherwise required by the OTS, Public Stockholders will not
have to sell Common Stock or be limited in receiving Exchange Shares even if
their ownership of Common Stock, when converted pursuant to the Exchange Ratio
(as defined herein), would exceed the above limitation.
Stock Pricing and Number of Shares to be Issued in the Conversion and
Reorganization
The Plan of Conversion and Reorganization requires that the aggregate
purchase price of the Conversion Stock be based on the appraisal of the pro
forma market value of the Mid-Tier Holding Company and the Bank on a
consolidated basis, as determined on the basis of an independent valuation. The
Primary Parties have retained FinPro to prepare such independent valuation (the
"Independent Valuation"). The Independent Valuation was prepared based on the
assumption that the aggregate amount of Conversion Stock sold in the Offerings
would be equal to the estimated pro forma market value of the Mid-Tier Holding
Company and the Bank, on a consolidated basis, multiplied by the percentage of
the outstanding shares of Mid-Tier Common Stock held by the Mutual Holding
Company as of the date of the appraisal, subject to certain adjustments
described in "THE CONVERSION AND REORGANIZATION -- The Exchange Ratio." The
Independent Valuation states that as of March 16, 1998, the estimated pro forma
market value of the Company ranged from a minimum of $76.5 million to a maximum
of $103.5 million with a midpoint of $90.0 million. Based on the percentage of
the outstanding shares of Mid-Tier Common Stock held by the Mutual Holding
Company as of the date of the appraisal, and the adjustments described herein,
the estimated pro forma market value of the Mutual Holding Company was
multiplied by 87.29% to determine the dollar amount of Conversion Stock to be
offered in the Offerings, which ranges from a minimum of $66,779,270 (i.e.,
6,677,927 shares of Conversion Stock) to a maximum of $90,348,340 (i.e.,
9,034,834 shares of Conversion Stock), with a midpoint of $78,563,700 (i.e.,
785,637 shares of Conversion Stock). The range of the aggregate dollar amount
and number of shares of Conversion Stock offered in the Offerings is referred to
herein as the "Offering Price Range."
The full text of the Appraisal describes the procedures followed, the
assumptions made, limitations on the review undertaken and matters considered,
which included the lack of a trading market for Mid-Tier Common Stock, but was
not dependent thereon. The Appraisal has been filed as an exhibit to the
Registration Statement and Application for Conversion of which this Prospectus
is a part, and is available in the manner set forth under "ADDITIONAL
INFORMATION." The Appraisal is not intended and should not be construed as a
recommendation of any kind as to the advisability of purchasing such stock.
Depending upon market or financial conditions following the
commencement of the Subscription Offering, the total number of shares of
Conversion Stock to be sold in the Offerings may be increased by up to 15%, to
10,390,048 shares, without a resolicitation of subscribers. 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 Offering Price Range (i.e.
$66,779,270) or more than 15% above the maximum of such
(v)
<PAGE>
range (i.e. $103,900,480) 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 Bank's
passbook rate of interest, or be permitted to modify or rescind their
subscriptions). Based upon current market and financial conditions and recent
practices and policies of the OTS, in the event the Company receives orders for
Conversion Stock in excess of $90,348,340 (the maximum of the Offering Price
Range) and up to $103,900,480 (the maximum of the Offering Price Range, as
adjusted by 15%) the Company may be required by the OTS to accept all such
orders. No assurances, however, can be made that the Company will receive orders
for Conversion Stock in excess of the maximum of the Offering Price Range or
that, if such orders are received that all such orders will be accepted.
The Exchange Ratio
OTS regulations and policy provide that in a conversion of a mutual
holding company to stock form, stockholders other than the mutual holding
company will be entitled to exchange their shares of subsidiary savings bank (or
mid-tier holding company) common stock for common stock of the converted holding
company, provided that the bank and the mutual holding company demonstrate to
the satisfaction of the OTS that the basis for the exchange is fair and
reasonable. The Boards of Directors of the Primary Parties have determined that
each Public Mid-Tier Share will on the effective date be automatically converted
into and become the right to receive a number of Exchange Shares determined
pursuant an exchange ratio (the "Exchange Ratio") which was established as the
ratio that ensures that after the Conversion and Reorganization, subject to
certain adjustments described in "THE CONVERSION AND REORGANIZATION -- The
Exchange Ratio," the percentage of the to-be outstanding shares of Common Stock
issued to Public Stockholders in exchange for their Public Mid-Tier Holding
Company shares will be approximately equal to the percentage of the outstanding
shares of Mid-Tier Common Stock held by Public Stockholders immediately prior to
the Conversion and Reorganization, with any fractional shares being paid in
cash. The total number of shares held by Public Stockholders after the
Conversion and Reorganization would also be affected by any purchases by such
persons in the Offerings.
Based on the Independent Valuation, the percentage of the outstanding
shares of Mid-Tier Common Stock held by Mutual Holding Company as of the date of
the Independent Valuation, and adjustments described herein, the following table
sets forth, based upon the minimum, midpoint, maximum and 15% above the maximum
of the Estimated Valuation Range, the following: (i) the total number of shares
of Conversion Stock and Exchange Shares to be issued in the Conversion and
Reorganization, (ii) the percentage of the total Common Stock represented by the
Conversion Stock and the Exchange Shares, and (iii) the Exchange Ratio. The
table assumes there is no cash paid in lieu of issuing fractional Exchange
Shares.
<TABLE>
<CAPTION>
Subscription Shares Exchange Shares
to be Issued to be Issued Total Shares
------------ of Common
Stock to be Exchange
Amount Percent Amount Percent Outstanding Ratio
------ ------- ------ ------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Minimum................... 6,677,927 87.29% 972,073 12.71% 7,650,000 4.7188
Midpoint.................. 7,856,370 87.29% 1,143,630 12.71% 9,000,000 5.5516
Maximum................... 9,034,834 87.29% 1,315,166 12.71% 10,350,000 6.3843
Adjusted maximum.......... 10,390,048 87.29% 1,512,452 12.71% 11,902,500 7.3420
</TABLE>
(vi)
<PAGE>
Options to purchase Public Mid-Tier Shares will also be converted into
and become options to purchase Common Stock. As of the date of this Prospectus
there were outstanding options to purchase 40,000 shares of Mid-Tier Common
Stock at an average exercise price of $10.75 per share. The number of shares of
Common Stock to be received upon exercise of such options will be determined
pursuant to the Exchange Ratio. The aggregate exercise price, duration, and
vesting schedule of such options will not be affected. If such options are
exercised prior to the effective date of the Conversion and Reorganization, then
there will be an increase in the number of shares of Common Stock issued to
Public Stockholders in the Share Exchange, and an increase in the Exchange
Ratio. The Mid-Tier Holding Company has no plans to grant additional stock
options prior to the Effective Date.
Delivery and Exchange of Certificates
Upon consummation of the Conversion and Reorganization, holders of
Public Mid-Tier Shares in certificate form (other than the Mutual Holding
Company) will receive a transmittal letter with instruction on delivery of
certificates for exchange. See "THE CONVERSION AND REORGANIZATION -- Delivery
and Exchange of Certificates." Upon surrender of such certificates to an agent
appointed by the Company (the "Exchange Agent") the Public Stockholder will be
entitled to receive in exchange therefore a certificate or certificates
representing the number of full shares of Common Stock to which he or she is
entitled based on the Exchange Ratio. The Exchange Agent will provide each
stockholder of record a letter of transmittal with instructions for the exchange
of shares. Holders of Mid-Tier Common Stock should not forward shares to the
Bank or Exchange Agent until they have received instructions from the Exchange
Agent.
Comparison Of Stockholder Rights.
Pursuant to the Plan, the Company will become the stock holding company
for the Bank. The Mid-Tier Holding Company will cease to exist. Therefore, the
Articles of Incorporation and Bylaws of the Company and Pennsylvania corporate
law will govern stockholder rights after the Conversion and Reorganization. Both
the Company and the Mid-Tier Holding Company are Pennsylvania corporations. The
Articles of Incorporation of the Company ^, however, vary from those of the
Mid-Tier Holding Company. Differences in the Articles of Incorporation are
related primarily to ^ indemnification, limitation of liability and
anti-takeover provisions. See "COMPARISON OF STOCKHOLDERS' RIGHTS^" and
"RESTRICTIONS ON ACQUISITIONS OF THE COMPANY."
Benefits of Conversion and Reorganization to Directors and Officers
The Company does not intend to enter into any new employment
agreements. John F. McGill, Sr., Chairman of the Board, John F. McGill, Jr.,
President and Chief Executive Officer, and Jerry Naessens, Chief Financial
Officer, all have three-year employment agreements with the Bank. See
"MANAGEMENT OF THE BANK - -- Employment Agreements." The Company currently
intends to adopt certain stock benefit plans for the benefit of directors and
employees of the Company and the Bank. The proposed benefit plans are as
follows: (i) a Stock Option Plan (the "Stock Option Plan"), pursuant to which a
number of authorized but unissued shares of Common Stock equal to 10% of the
Conversion Stock to be sold in the Offerings (903,348 shares at the maximum of
the Offering Price Range) may be reserved for issuance pursuant to stock options
and stock appreciation rights to directors, officers and employees; and (ii) a
Management Recognition and Retention Plan (the "Recognition Plan" or "RSP"),
which may purchase a number of shares of Common Stock, with funds contributed by
the Company, either from the Company or in the open market, equal to an amount
which will equal 4.0% of the total
(vii)
<PAGE>
Conversion stock issued in the Conversion and Reorganization (361,393 shares at
the maximum of the Offering Price Range) for distribution to directors, officers
and employees. These options will be issued at no risk to the grantees and the
restricted shares will be issued at no cost to the recipients. Recipients will,
however, be required to pay both federal and applicable state taxes on the value
of Common Stock received pursuant to the Recognition Plan. The Company has not
determined when it will implement the Stock Option Plan and the Recognition
Plan. ^ Assuming the purchase by the Recognition Plan of 361,393 restricted
shares (4% at the maximum of the Offering Price Range) at $10.00 per share, the
total cost to the Company would be $3,613,930, amortized over a five-year
period. Furthermore, if they are implemented prior to one year following the
consummation of the Conversion and Reorganization, the Company will submit such
plans to stockholders for approval at an annual or special meeting held at least
six months following the consummation of the Conversion and Reorganization. In
such event, OTS regulations permit individual members of management to receive
up to 25% of the shares reserved pursuant to any stock option or non-tax
qualified stock benefit plan, and directors who are not employees to receive up
to 5% of such stock (or stock options) reserved individually and up to 30% in
the aggregate under any such plan. See "MANAGEMENT OF THE BANK -- Benefit
Plans."
In the event that the Recognition Plan purchases shares of Common Stock
in the open market with funds contributed by the Company, the cost of such
shares initially will be deducted from the stockholders' equity of the Company,
but the number of outstanding shares of Common Stock will not increase and
stockholders accordingly will not experience dilution of their ownership
interest. In the event that the Recognition Plan purchases shares of Common
Stock from the Company with funds contributed by the Company, total
stockholders' equity would neither increase or decrease, but under such
circumstances stockholders would experience dilution of their ownership
interests (by approximately ^ 3.74% at the maximum of the Offering Price Range)
and per share stockholders' equity and per share net earnings would decrease as
a result of an increase in the number of outstanding shares of Common Stock. In
either case, the Company will incur operating expense and increases in
stockholders' equity as the shares held by the Recognition Plan are granted and
issued in accordance with the terms thereof. For a presentation of the effects
of anticipated purchases of Common Stock by the Recognition Plan, see "PRO FORMA
DATA."
In addition, the ESOP intends to purchase up to 8.0% of the Conversion
Stock issued in the Conversion and Reorganization (e.g., 722,788 shares or $7.2
million of Conversion Stock at the maximum of the Offering Price Range) with a
loan from the Company. See "USE OF PROCEEDS." In the event that there are
insufficient shares available to fill the ESOP's order due to an
oversubscription by Eligible Account Holders, the offering range will be
increased above the maximum and the ESOP shall have a priority right to purchase
any shares exceeding the maximum of the Offering Valuation Range, up to an
aggregate of 8% of the Conversion Stock. See "MANAGEMENT OF THE BANK -- Employee
Stock Ownership Plan" and "RISK FACTORS -- Possible Dilutive Effective of
Issuance of Additional Shares."
The foregoing plans are in addition to a stock option plan and a
directors' stock option plan; which were adopted by the Bank in 1992. After the
creation of the Mid-Tier Holding Company as the Mid-Tier Holding Company of the
Bank, these plans remained as benefit plans of the Bank. The stock options and
restricted stock awards made pursuant to these plans are currently for Mid-Tier
Common Stock. These plans will continue in existence after the Conversion and
Reorganization as plans of the Company. See "MANAGEMENT OF THE BANK -- Benefit
Plans" and "THE CONVERSION AND REORGANIZATION -- Effects of the Conversion and
Reorganization," " -- Effect on Existing Option Plans."
(viii)
<PAGE>
Use of Proceeds
Net proceeds from the sale of the Conversion Stock are estimated to be
between $65.6 million and $88.9 million, depending on the number of shares sold
and the expenses of the Conversion and Reorganization. See "PRO FORMA DATA." The
Company plans to contribute to the Bank 50% of the net proceeds from the
Offerings and retain the remainder of the net proceeds. The Company intends to
use a portion of the net proceeds retained by it to make a loan directly to the
ESOP to enable the ESOP to purchase 8.0% of the Conversion Stock to be issued in
the Conversion and Reorganization. The amount of the loan is expected to be
between $5.3 million and $7.2 million at the minimum and maximum of the Offering
Price Range, respectively. It is anticipated that the loan to the ESOP will have
a term of not less than 15 years and a fixed rate of interest at the prime rate
as of the date of the loan. See "MANAGEMENT OF THE BANK -- Benefit Plans" and "
- -- Employee Stock Ownership Plan." The remaining net proceeds will initially be
lent by the Company to the Bank and be used by the Bank to invest primarily in
short-term interest-bearing deposits and short and intermediate term marketable
securities. The funds retained by the Company may be used to support the future
expansion of operations or diversification into other banking-related businesses
and for other business or investment purposes, including the acquisition of
other financial institutions and/or branch offices, although there are no
current plans, arrangements, understandings or agreements regarding such
expansion, diversification or acquisitions. In addition, subject to applicable
limitations, such funds also may be used in the future to repurchase shares of
Common Stock, although the Company currently has no intention of effecting any
such transactions following consummation of the Conversion and Reorganization.
See "THE CONVERSION AND REORGANIZATION -- Certain Restrictions on Purchases or
Transfers of Shares after the Conversion and Reorganization." Funds contributed
to the Bank from the Company will be used for general business purposes. The
proceeds will be used to support the Bank's lending and investment activities
and thereby enhance the Bank's capabilities to serve the borrowing and other
financial needs of the communities it serves. The Bank plans to initially use
the proceeds to invest primarily in short-term interest-bearing deposits and
short and intermediate term marketable securities. See "USE OF PROCEEDS."
Dividend Policy
Since the completion of the first full quarter after the MHC
Reorganization (i.e. March 31, 1993), until the adoption of the Plan, the
Mid-Tier Holding Company or the Bank has paid a regular quarterly cash dividend.
For the fiscal year ending December 31, 1997, that dividend was $0.20 per
quarter, and $0.80 per year. Following the consummation of the Conversion and
Reorganization, the Board of Directors of the Company will consider whether to
pay cash dividends on the Common Stock. However, no assurance can be given as to
the amount of a dividend or that a dividend will be paid or if paid that the
dividend will not be reduced or eliminated in future periods. Pending the
completion of the Conversion and Reorganization, the Mid-Tier Holding Company
intends to continue paying its regular quarterly cash dividend. For a period of
one year following the completion of the Conversion and Reorganization, the
Company will not pay any dividends that would be treated for tax purposes as a
return of capital nor take any actions or propose such dividends. See "DIVIDEND
POLICY."
Dissenters' Rights and Rights of Appraisal
^ In connection with the Conversion and Reorganization, pursuant to
Pennsylvania Business Corporation Law, Public Stockholders ^ have a right to
dissent and obtain fair value of their shares as
(ix)
<PAGE>
determined by a court by complying with the terms of Subchapter D of the PBCL.
See "THE CONVERSION AND REORGANIZATION -- Dissenters' Rights."
Prospectus Delivery and Procedure for Purchasing Shares
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 be distributed only with a prospectus. The Primary Parties will
accept for processing orders submitted on original order forms with an executed
certification. In their discretion, the Primary Parties may accept photocopies
or facsimile copies of order forms or the form of certification. Payment by
cash, check, money order, bank draft or debit authorization to an existing
account at the bank must accompany the order form. In their discretion, the
Primary Parties may accept wire transfers. See "THE CONVERSION AND
REORGANIZATION."
The Primary Parties have retained Sandler as consultant and advisor in
connection with the Offerings and to assist in soliciting subscriptions in the
Offerings on a best efforts basis. See "THE CONVERSION AND REORGANIZATION -- The
Offerings" " -- Subscription Offering," "--Community
Offering," and " -- Marketing Arrangements."
(x)
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The following tables set forth selected consolidated historical
financial and other data of the Mid-Tier Holding Company (including its
subsidiaries) for the periods and at the dates indicated. The information is
derived in part from and should be read in conjunction with the Consolidated
Financial Statements and Notes thereto of the Mid-Tier Holding Company contained
elsewhere herein.
<TABLE>
<CAPTION>
At December 31,
---------------------------------------------------------------------------
1997 1996 1995 1994 1993
--------- -------- -------- -------- --------
(In Thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Total Amount of:
Assets........................................ $276,650 $294,332 $288,199 $273,571 $277,304
Loans receivable, net ........................ 96,280 98,626 100,271 95,524 98,622
Loans held for sale (1)....................... 1,155 2,147 1,613 1,199 -
Mortgage-backed securities:
Available for sale (1)...................... 111,486 93,410 98,315 98,476 108,532
Investment securities:
Held to maturity............................ 34,529 46,464 44,024 49,325 29,137
Available for sale (1)...................... 3,698 2,631 1,566 755 750
Deposits...................................... 230,558 256,546 250,179 241,230 244,306
FHLB advances................................. 7,884 7,884 7,884 7,884 7,884
Stockholders' equity.......................... 28,470 24,581 25,148 20,477 21,217
Book value per share (2)...................... 17.56 15.16 15.51 12.68 13.14
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
(In Thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Interest income................................. $20,582 $20,264 $19,790 $18,096 $18,067
Interest expense............................... 11,002 11,069 10,646 8,791 9,087
------ ------ ------ ------ ------
Net interest income........................... 9,580 9,195 9,144 9,305 8,980
Provision for loan losses....................... 120 139 135 60 94
------- ------- ------- ------- -------
Net interest income after
provision for loan losses.................... 9,460 9,056 9,009 9,245 8,886
Non-interest income............................. 2,808 583 544 475 1,230
Non-interest expense........................... 6,824 9,890(3) 7,234 6,625 6,406
Income (loss) before income taxes and
change in accounting method................... 5,444 (251) 2,319 3,095 3,710
Income tax expense.............................. 2,090 112 887 1,190 1,189
------ ------ ------ ------ ------
Income (loss) before change in accounting
method........................................ 3,354 (363) 1,432 1,905 2,521
------ ------ ------ ------ ------
Cumulative effect on prior years of change
in accounting method for income tax........... - - - - 407(4)
------- ------ ------ ------ -------
Net income (loss)............................... $ 3,354 $ (363) $ 1,432 $ 1,905 $ 2,928
====== ====== ====== ======= =======
Basic earnings (loss) per share................ $ 2.07 $ (.22) $ .88 $ 1.18 $ 1.81
====== ====== ======= ======= =======
Diluated earnings (loss) per share.............. $ 2.04 $ (.22) $ .88 $ 1.18 $ 1.81
====== ====== ====== ======= =======
Cash dividends per share........................ $ .80 $ .80 $ .80 $ .80 $ .70
====== ====== ======= ======= =======
</TABLE>
(xi)
<PAGE>
SELECTED OPERATING RATIOS AND OTHER DATA
<TABLE>
<CAPTION>
At or For the Year Ended December 31, (5)
----------------------------------------------------------------------
1997 1996 1995 1994 1993
------------- -------------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Performance Ratios:
Return on average assets (net income (loss))
divided by average total assets)........................ 1.18% (.13)%(3) ^ .51% .69% 1.11%
Return on average equity (net income (loss))
divided by average equity).............................. 12.41 (1.45)(3) 5.98 9.02 14.99
Stockholders' equity to assets............................ 10.27 8.35 8.72 7.48 7.65
Net interest margin (6)................................... 3 .50 3.29 3.37 3.84 3.34
Interest rate spread (6).................................. 3.14 2.99 3.06 3.65 3.16
Asset Quality Ratios:
Non-performing loans to total loans (7)................... .74 3.04 ^ 2.13 1.31 2.29
Non-performing assets to total assets (7)................ .30 1.08 .82 .49 .88
Allowance for loan losses as a percent of non-performing
loans at end of period ................................... 109.36 21.24 17.43 33.36 19.96
Allowance for loan losses as a percent
of total average loans at end of period................. .77 .63 .46 .43 .53
Net charge-offs (recoveries) as a percent of average loans (.08) .02 .09 .10 .03
Other Data:
Number of:
Real estate loans outstanding........................... 2,218 2,338 2,547 2,263 2,444
Deposit accounts........................................ 30,832 36,038 35,718 34,495 34,265
Full service offices.................................... 6 8 8 8 8
</TABLE>
(1) Loans classified as held for sale ^ and investment securities and
mortgage-backed securities classified as available for sale are carried at
fair value.
(2) Book value per share represents stockholders' equity divided by the number
of shares of Bank Common Stock issued and outstanding.
(3) Includes a special assessment of $1,533,000 to recapitalize the SAIF and a
$1,181,000 write- down of lease receivables.
(4) Represents the adoption of Statement of Financial Accounting Standards
("SFAS") No. 109.
(5) With the exception of end of period ratios, all ratios are based on average
monthly balances during the indicated periods.
(6) Interest rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities (which do not include non-interest-bearing accounts), and net
interest margin represents net interest income as a percent of average
interest-earnings assets.
(7) Non-performing loans consist of non-accrual loans and accruing loans 90
days or more overdue; and non-performing assets consist of non-performing
loans and real estate owned, in each case net of related reserves.
(xii)
<PAGE>
RECENT DEVELOPMENTS
Selected Consolidated Financial and Other Data
Set forth below are the summaries of historical financial and other
data. Financial data as of March 31, 1998 and for the three months ended March
31, 1998 and 1997, are unaudited. In the opinion of management, all adjustments
(consisting only of normal recurring accruals) necessary for a fair presentation
have been included. The summary of operations and other data for the three
months ended March 31, 1998 are not necessarily indicative of the results of
operations for the fiscal year ending December 31, 1998 or any other period.
<TABLE>
<CAPTION>
At At
March 31, December 31,
--------- ------------
1998 1997
--------- ------------
(In Thousands, except per share data)
<S> <C> <C>
Total Amount of:
Assets........................................ $281,439 $276,650
Loans receivable, net ........................ 95,262 96,280
Loans held for sale (1)....................... 2,761 1,155
Mortgage-backed securities:
Available for sale (1)...................... 108,206 111,486
Investment securities:
Held to maturity............................ 32,870 34,529
Available for sale (1)...................... 4,822 3,698
Deposits...................................... 238,229 230,558
FHLB advances................................. 7,884 7,884
Stockholders' equity.......................... 29,302 28,470
Book value per share (2)...................... 18.07 17.56
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1998 1997
------- ------
(In Thousands, except per share
data)
<S> <C> <C>
Interest income................................. $4,827 $5,438
Interest expense................................ 2,627 2,898
------ ------
Net interest income........................... 2,200 2,540
Provision for loan losses....................... 15 30
------ ------
Net interest income after
provision for loan losses.................... 2,185 2,510
Non-interest income............................. 121 132
Non-interest expense............................ 1,644 1,716
Income before income taxes..................... 663 925
Income tax expense.............................. 243 321
------ ------
Net income...................................... $ 420 $ 604
====== ======
Basic earnings per share........................ $ .26 $ .37
====== ======
Cash dividends per share........................ $ .20 $ .20
====== ======
</TABLE>
(xiii)
<PAGE>
Selected Operating Ratios and Other Data
<TABLE>
<CAPTION>
At or For the
Three Months Ended
March 31, (3)
-------------------------
1998 1997
--------- ---------
<S> <C> <C>
Performance Ratios:
Return on average assets (net income divided by average total assets)........... .15% .20%
Return on average equity (net income divided by average equity)................. 1.51 2.39
Stockholders' equity to assets.................................................. 10.41 10.29
Net interest margin (4)......................................................... 3.33 3.47
Interest rate spread (4)........................................................ 2.98 3.19
Asset Quality Ratios:
Non-performing loans to total loans (5)......................................... .59 1.21
Non-performing assets to total assets (5)....................................... .27 .46
Allowance for loan losses as a percent of non-performing loans at end of period 133.00 53.00
Allowance for loan losses as a percent of total average loans at end of period.. .76 .66
Net charge-offs (recoveries) as a percent of average loans (no chargeoffs)...... 0 0
Other Data:
Number of:
Real estate loans outstanding................................................. 1,761 1,804
Deposit accounts.............................................................. 31,303 36,281
Full service offices.......................................................... 6 8
</TABLE>
- ---------------------
(1) Loans classified as held for sale are carried at the lower of aggregate
cost or fair value while investment securities and mortgage-backed
securities classified as available for sale are carried at fair value.
(2) Book value per share represents stockholders' equity divided by the
number of shares of Bank Common Stock issued and outstanding.
(3) With the exception of end of period ratios, all ratios are based on
average monthly balances during the indicated periods.
(4) Interest rate spread represents the difference between the average
yield on interest-earning assets and the average cost of
interest-bearing liabilities (which do not include non-interest-bearing
accounts), and net interest margin represents net interest income as a
percent of average interest-earnings assets.
(5) Non-performing loans consist of non-accrual loans and accruing loans 90
days or more overdue; and non-performing assets consist of
non-performing loans and real estate owned, in each case net of related
reserves.
(xiv)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RECENT DEVELOPMENTS
Comparison of Financial Condition at March 31, 1998 and December 31, 1997
Total assets increased by $4.8 million or 1.7% from December 31, 1997
to March 31, 1998 primarily due to an increase of cash of $8.8 million or 4.4%
and a decrease of mortgage-backed and agency securities of $3.3 million or 3.0%.
Deposits increased $7.6 million primarily due to increases in certificates of
deposit. Total stockholders' equity increased $832,000 as a result of net income
of $420,000 and an increase in the unrealized gain on securities available for
sale of $453,000, less cash dividends paid of $41,200.
Non-Performing Assets and Delinquencies
Loans accounted for on a non-accrual basis decreased $150,000 from
$716,000 to $565,000. $76,000 of this represents three foreclosures transferred
to real estate owned. The remaining decrease involved three loans reclassified
as performing. Nonperforming assets decreased from $832,000 at December 31, 1997
to $758,000 at March 31, 1998 due to the above mentioned loans reclassified as
performing.
Comparison of the Results of Operations for the Three Months Ended March 31,
1998 and 1997
General. Net income decreased $184,000 or 30% from $604,000 for the
three months ended March 31, 1997 to $420,000 for the three months ended March
31, 1998. The return on average assets decreased from .20% to .15% for the three
months ended March 31, 1997 and 1998 respectfully.
Net Interest Income. Net interest income decreased $340,000 or 13.3%
from $2,540,000 for the three months ended March 31, 1997 to $2,200,000 for the
three months ended March 31, 1998. The decrease was primarily due to a decrease
in the average balances of loans and mortgage-backed and investment securities,
offset somewhat by a decrease in interest expenses due to a decrease in the
average balance of savings deposits due to the sale of two branch offices. The
average balance of loans decreased due to repayment, while the average balance
of mortgage-backed securities and investment securities decreased, due primarily
to the Bank's decision to accumulate liquid assets in anticipation of the Branch
Sale. In May 1997, the Bank sold $37,237,000 of deposits a local financial
institution and two branch offices ("Branch Sale"). See "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Changes in
Financial Condition."
Interest Income. Interest income decreased $611,000 for the three
months ended March 31, 1998 compared to the same period ended March 31, 1997.
The decrease can be attributed to the average balance of earning assets
decreasing $25.4 million due to the Branch Sale and average yield on
interest-earning assets decreasing from 7.43% to 7.30% due to generally
declining market rates of interest.
Interest Expense. Interest expense decreased $271,000 from March 31,
1997 to March 31, 1998 due to a decrease in the average balance of
interest-bearing liabilities by $28,938,000 as previously discussed, offset
somewhat by an increase of cost of funds from 4.24% to 4.32%.
Provision for Losses on Loans. The provision for loan losses decreased
$15,000 due to a decrease in nonperforming loans. See also "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF
(xv)
<PAGE>
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Comparison of Operating Results
for Years Ended December 31, 1997 and December 31, 1996 - Provision for Loan
Losses."
Other Income. Other income decreased $10,000 primarily due to a gain on
the sale of real estate owned in 1997 not repeated in 1998.
Other Expense. Other expenses decreased $73,000 primarily due to a
decrease in compensation and various branch expenses accrued due to the Branch
Sale.
Income Tax Expenses. Income tax expense decreased to $243,000 for the
three months ended March 31, 1998 compared to $321,000 for the three months
ended March 31, 1997 due to decreased earnings.
Liquidity and Capital Resources
Management monitors its risk-based capital and leverage capital ratios
in order to assess compliance with regulatory guidelines. At March 31, 1998, the
Bank had tangible capital, leverage, and total risk-based capital of 9.38%,
9.38%, and 27.85%, respectively, which exceeded the OTS's minimum requirements
of 1.50, 3.00% and 8.00%, respectively.
(xvi)
<PAGE>
RISK FACTORS
The following factors, in addition to those discussed elsewhere in this
Prospectus, should be considered by investors before deciding whether to
purchase the Common Stock offered hereby.
Vulnerability to Changes in Interest Rates
The Bank's profitability, like that of many financial institutions, is
dependent to a large extent upon its net interest income, which is the
difference between its interest income on interest-earning assets, such as loans
and investments, and its interest expense on interest-bearing liabilities, such
as deposits. When interest-bearing liabilities mature or reprice more quickly
than interest-earning assets in a given period, a significant increase in market
rates of interest could adversely affect net interest income. Similarly, when
interest-earning assets mature or reprice more quickly than interest-bearing
liabilities, falling interest rates could result in a decrease in net interest
income. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- Interest Rate Risk Management Activities."
Intent to Remain Independent; Unsuitability as a Short-term Investment
The Bank and its predecessors have operated as independent
community-oriented savings associations since 1939. Following the Conversion and
Reorganization, it is the Company's intent to continue to operate as an
independent financial institution. Accordingly, the Common Stock may not be a
suitable investment for individuals anticipating a rapid sale of the Company to
a third party. SEE "BUSINESS OF THE BANK."
Also due to the Company's intention to remain independent, certain
provisions in the Company's Articles of Incorporation and Bylaws may assist the
Company in maintaining its status as an independent publicly owned corporation.
These provisions, as well as the Pennsylvania General Corporation law and
certain federal banking regulations, may have certain anti-takeover effects.
These provisions include: restriction on the acquisition of the Company's equity
securities and limitations on voting rights, the classification of the terms of
the members of the Board of Directors, certain provisions relating to meetings
of stockholders, prohibition of cumulative voting by stockholders in the
election of directors, the issuance of preferred stock and additional shares of
Common Stock without stockholder approval, and supermajority provisions for the
approval of certain business combinations. See "RESTRICTIONS ON ACQUISITION OF
THE COMPANY." As a result, stockholders who might wish to participate in a
change of control transaction may not have the opportunity to do so.
Price of Common Stock Following the Conversion and Reorganization
Since the MHC Reorganization and public stock issuance on December 31,
1992, the book value of the Mid-Tier Holding Company's Common Stock and its
predecessor the Bank's common stock has increased in value. The Bank Shares
(which were exchanged for the Mid-Tier Holding Company shares) were initially
sold to the public at $10 per share with a book value of $10.17. On December 31,
1997, the book value of the Public Mid-Tier Shares was $17.56. Since the MHC
Reorganization, there have been only two known trades in the common stock of the
Bank and the Mid-Tier Holding Company. There can be no assurance that the
Conversion Stock will appreciate in value as have the Public Mid-Tier Shares.
Additionally, there can be no assurance that the Common Stock will appreciate
after the Conversion and Reorganization. The Boards of Directors of the Primary
Parties have set an offering
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price for the Conversion Stock of $10 a share. However, the pricing of this
stock should in no way be seen as an indication or assurance that the Conversion
Stock or the Common Stock will appreciate after the Conversion and
Reorganization in the same manner as the Public Mid-Tier Shares which were also
initially sold at $10 per share as shares of the Bank.
Competition
The Bank is headquartered in the City of Philadelphia, and has six
branch offices located within Philadelphia and Delaware counties in the
Philadelphia metropolitan area. The Bank operates in a highly competitive market
and experiences strong competition in its local market area in both originating
loans and attracting deposits.
Most of the Bank's mortgages are secured by properties located within
its primary market area, with the predominance of its lending in one to four
family residential mortgages. The Commonwealth of Pennsylvania has a substantial
number of financial institutions, many of which have a state-wide or regional
presence, and in some cases, a national presence. All of these institutions are
competitors of the Bank, to varying degrees. The Bank's competition for loans
comes principally from commercial banks, savings bank, savings and loan
associations, credit unions, mortgage banking companies and insurance companies.
Its most direct competition for deposits has historically come from commercial
banks, savings banks, savings and loan associations and credit unions, many of
which are significantly larger than the Bank and, therefore, have greater
financial and marketing resources than the Bank. The Bank also faces additional
competition for deposits from short-term money market funds, other corporate and
government securities funds and from other financial institutions such as
brokerage firms and insurance companies. In order to deal with the various
competitive factors, the Bank recognizes its need to monitor competition and
modify its products and services as necessary and possible, taking into
consideration the financial impact of such actions.
As a result of the level of competition in its market, the Company's
growth and profitability in the future may be adversely affected. See "BUSINESS
- - -- Market Area" and " -- Competition."
Geographical Concentration of Loans; Non-Mortgage Loans
At December 31, 1997, substantially all of the Bank's real estate
mortgage loans were secured by properties located in the Bank's primary market
area. While the Bank currently believes that its loans are adequately secured or
reserved for, in the event that real estate prices in the Bank's market area
substantially weaken or economic conditions in its market area deteriorate,
reducing the value of properties securing the Bank's loans, some borrowers may
default and the value of the real estate collateral may be insufficient to fully
secure the loans. In either event, the Bank may experience increased levels of
delinquencies and related losses having an adverse impact on net income and
liquidity. Additionally, certain of the real estate securing loans
(approximately 17% of the loan portfolio) are multi-family and commercial real
estate properties. As such, these loans have a higher level of risk than loans
secured by residential properties. The Bank has a large multi-family loan, which
has occasionally experienced delinquencies. See "BUSINESS OF THE BANK -- Lending
^ Activities -- Multi-Family and Commercial Real Estate Loans."
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Certain Anti-Takeover Provisions
General. Certain provisions of the Company's Articles of Incorporation
and Bylaws, including a provision limiting voting rights of beneficial owners of
more than 10% of the Common Stock, and the Bank's stock charter and bylaws, as
well as certain Pennsylvania laws and regulations, will assist the Company in
maintaining its status as an independent publicly owned corporation and may have
certain anti-takeover effects.
Articles of Incorporation and Bylaws of the Company. The Company's
Articles of Incorporation and Bylaws provide for, among other things, a limit on
voting and, in certain cases, acquiring, more than 10% of the Common Stock
described above, staggered terms for members of its Board of Directors, prohibit
cumulative voting for directors, limits on the calling of special meetings of
stockholders and director nominations, a prohibition on action by consent, a
fair price or super majority stockholder approval requirement for certain
business combinations and certain stockholder proposal notice requirements.
These provisions are similar to those currently in the Articles of Incorporation
and Bylaws of the Mid-Tier Holding Company.
Federal Stock Charter of the Bank. Provisions in the Bank's federal
stock charter that have an anti-takeover effect could also be applicable to
changes in control of the Company as the sole stockholder of the Bank. The
Bank's federal stock charter includes a provision applicable for five years
which prohibits the acquisition or offer to acquire directly or indirectly the
beneficial ownership of more than 10% of the Bank's securities by any person or
entity other than the Company. Any person violating this restriction may not
vote the Bank's securities in excess of 10%.
These provisions in the Company's and the Bank's governing instruments
may discourage potential proxy contests and other takeover attempts by making
the Company less attractive to a potential acquiror, particularly those takeover
attempts which have not been negotiated with the Board of Directors of the
Company and/or the Bank, as the case may be. These provisions may also have the
effect of discouraging a future takeover attempt which would not be approved by
the Company's Board, but pursuant to which stockholders may receive a
substantial premium for their shares over then current market prices. As a
result, stockholders who might desire to participate in such a transaction may
not have any opportunity to do so. In addition, certain of these provisions that
limit the ability of persons (including management or others) owning more than
10% of the shares to vote their shares will be enforced by the Board of
Directors of the Company or the Bank, as the case may be, to limit the voting
rights of 10% or greater stockholders and thus could have the effect in a proxy
contest or other solicitation to defeat a proposal that is desired by the
holders of a majority of the shares of Common Stock.
Federal Law and Regulations. Federal law also requires OTS approval
prior to the acquisition of "control" (as defined in OTS regulations) of an
insured institution, including a holding company thereof. In the event any
person or group of persons acquires shares in violation of these limitations,
such person or group may be restricted from voting his or their shares in excess
of 10% of the outstanding Common Stock. Such laws and regulations may also limit
a person's ability without regulatory approval to solicit proxies enabling him
to elect one third or more of the Company's Board of Directors or exert a
controlling influence on the operations of the Bank or the Company.
In addition, certain of these provisions may limit the ability of
persons (including management or others) owning more than 10% of the shares to
vote their shares (by proxy or otherwise) for proposals
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that they believe to be in the best interests of stockholders. See "MANAGEMENT
OF THE BANK --Benefit Plans," and " -- Description of Capital Stock."
Voting Power of Directors and Executive Officers
Directors and executive officers of the Company expect to beneficially
own approximately 755,295 shares or 7.63% of the shares of Common Stock
outstanding (on a fully diluted basis) upon consummation of the Conversion and
Reorganization based upon the midpoint of the Offering Price Range. See
"BENEFICIAL OWNERSHIP OF COMMON STOCK."
In addition, the Company may acquire Common Stock on behalf of the
Recognition Plan in an amount which will equal 4.0% of the Conversion Stock
issued in the Offering (361,393 shares based on the maximum of the Offering
Price Range). Under the terms of the Recognition Plan, individuals to whom
shares of Common Stock are awarded will be able to vote the Common Stock
immediately after it is awarded. The Company also may reserve for future
issuance pursuant to the Stock Option Plan (which will be subject to stockholder
approval if implemented prior to one year following the Conversion and
Reorganization), a number of authorized shares of Common Stock equal to an
aggregate of 10.0% of the Conversion Stock issued in the Offerings (903,483
shares, based on the maximum of the Offering Price Range). These options are in
addition to the options for 40,000 shares of Mid-Tier Common Stock which were
previously granted to directors and executive officers and remain unexercised
under the option plans adopted by the Bank in connection with the MHC
Reorganization. In addition, the ESOP intends to purchase up to 8% of the shares
of Common Stock to be issued by the Company in the Conversion and
Reorganization. See "MANAGEMENT OF THE BANK -- Benefits -- Stock Option Plans,"
"-- Management Stock Bonus Plans" and "-- Proposed Future Stock Benefit Plans."
Management's potential voting power could, together with additional
stockholder support, preclude or make more difficult takeover attempts which do
not have the support of the Company's Board of Directors and may tend to
perpetuate existing management.
Low Return on Equity Following the Conversion and Reorganization
As a result of the Bank's high capital levels and the additional
capital that will be raised by the Company in the Conversion and Reorganization,
the Company's ability to leverage the net proceeds from the Conversion and
Reorganization may be limited in the near future. Accordingly, return on equity
is initially expected to be lower than it has been in recent years.
Stock Benefit Plan Compensation Expense
An employer must 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 restricted stock plan. Assuming shares of Common Stock
appreciate in value over time, compensation expenses relating to the ESOP to be
established in connection with the Conversion and Reorganization and Recognition
Plan to be established after the Conversion will increase. The ESOP expects to
purchase between 534,234 and 722,786 shares of Common Stock in the Offerings at
an initial cost of between $5.3 million and $7.2 million with funds received
through a loan from the Company. It is impossible to determine at this time the
extent of such impact on future net income. See "PRO FORMA DATA."
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Potential Elimination ^ of Thrift Charter
The Bank is subject to extensive regulation, supervision and
examination by the Office of Thrift Supervision ("OTS") and the Federal Deposit
Insurance Corporation ("FDIC"). A bill, H.R. 10, has been reported by the U.S.
House of Representatives, Committee on Banking and Financial Services, that
would consolidate the OTS with the Office of the Comptroller of the Currency
("OCC") and eliminate the federal thrift charter under which the Bank currently
operates. If this legislation becomes law, the Bank will be forced to become a
state chartered bank or a national commercial bank. If the Bank becomes a
commercial bank, its investment authority and the ability of the Company to
engage in diversified activities would be more limited and could affect the
Bank's profitability. See "REGULATION."
^ Implementation of Proposed Stock Benefit Plans
Following the Conversion and Reorganization, the Company intends to
seek stockholder approval of the Recognition Plan and the Option Plan at a
meeting of stockholders which, under current OTS regulation, may be held no
earlier than six months after completion of the Conversion and Reorganization.
If the Recognition Plan is approved by stockholders of the Company, it will
acquire an amount of Common Stock equal to 4% of the shares of Conversion Stock
sold in the Offering. Such shares would be granted to officers and directors of
the Bank at no cost to these recipients. If such shares are acquired at a per
share price equal to the Subscription Price, the cost of such shares to the
Company would be $3.6 million, assuming the Conversion Stock is sold in the
Offerings at the maximum of the Offering Range. If the Option Plan is approved
by stockholders of the Company, the Company intends to reserve for future
issuance pursuant to such plan a number of shares of Common Stock equal to 10%
of the Common Stock sold in the Offering (903,348 shares, based on the sale at
the maximum of the Offering Price Range). Options to purchase these shares of
Common Stock will be granted to officers and directors of the Bank and the
Company at no cost to them. See "MANAGEMENT OF THE BANK-- Proposed Future Stock
Benefit Plans."
Possible Dilutive Effect of Issuance of Additional Shares
Various possible and planned issuances of Common Stock could dilute the
interests of prospective stockholders of the Company or existing stockholders of
the Company following consummation of the Conversion and Reorganization, as
noted below.
The number of shares to be sold in the Conversion and Reorganization
may be increased as a result of an increase in the Offering Price Range of up to
15% to reflect changes in market and financial conditions following the
commencement of the Offerings. In the event that the Offering Price Range is so
increased, it is expected that the Company will issue up to 10,390,048 shares of
Conversion Stock at the Purchase Price for an aggregate price of up to
$103,900,480. An increase in the number of shares will decrease net earnings per
share and stockholders' equity per share on a pro forma basis and will increase
the Company's consolidated stockholders' equity and net earnings. See
"CAPITALIZATION" and "PRO FORMA DATA."
The ESOP intends to purchase an amount of Common Stock equal to up to
8.0% of the Conversion Stock issued in the Conversion and Reorganization. In the
event that there are insufficient shares available to fill the ESOP's order due
to an oversubscription by Eligible Account Holders and the total number of
shares of Conversion Stock issued in the Conversion and Reorganization is
increased by
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up to 15%, the additional shares will first be allocated to fill the ESOP's
subscription and thereafter in accordance with the terms of the Plan of
Conversion. See "MANAGEMENT OF THE BANK -- Benefit Plans," " -- Employee Stock
Ownership Plan," and "THE CONVERSION AND REORGANIZATION -- The Offerings" " --
Subscription Offering," and " -- Priority 2: ESOP."
If the Recognition Plan is implemented, the Recognition Plan may
acquire an amount of Common Stock which will equal 4.0% of the shares of
Conversion Stock issued in the Conversion and Reorganization (361,393 shares,
based on the maximum of the Offering Price Range). Such shares of Common Stock
may be acquired in the open market with funds provided by the Company, if
permissible, or from authorized but unissued shares of Common Stock. In the
event that additional shares of Common Stock are issued to the Recognition Plan
out of authorized but unissued shares, stockholders would experience dilution of
their ownership interests by approximately 3.74% and per share stockholders'
equity and per share net earnings would decrease as a result of an increase in
the number of outstanding shares of Common Stock. See "PRO FORMA DATA" and
"MANAGEMENT OF THE BANK -- --Recognition Plan."
If the Company's Stock Option Plan is implemented, the Company may
reserve for future issuance pursuant to such plan a number of authorized shares
of Common Stock equal to an aggregate of 10% of the Conversion Stock issued in
the Offerings (903,483 shares, based on the maximum of the Offering Price
Range). In the event that authorized but unissued shares of Common Stock are
utilized upon the exercise of options, stockholders would experience dilution of
their ownership interests by approximately 9.34%. See "PRO FORMA DATA" and
"MANAGEMENT OF THE BANK -- Benefit Plans," and " -- Stock Option Plan."
In 1992 and 1994 the Bank adopted, and continues to maintain, stock
option plans (the "Option Plans") and restricted stock plans ("Restricted Stock
Plans"). Upon consummation of the Conversion and Reorganization, these plans
will remain plans of the Bank. See "MANAGEMENT OF THE BANK --Other Stock Benefit
Plans."
The OTS has required that the purchase limitations contained in the
Plan of Conversion and Reorganization include Exchange Shares to be issued to
Public Stockholders for their Public Mid-Tier Shares. As a result, certain
holders of Public Mid-Tier Shares may be limited in their ability to purchase
Conversion Stock in the Offerings. For example, a Public Stockholder which
acquires Exchange Shares in an amount equal to $300,000 or a Public Stockholder
and his Associates or a group acting in concert which acquires Exchange Shares
in an amount equal to $904,000 of Conversion Stock, will not be able to purchase
any shares of Conversion Stock in the Offerings, although such a stockholder
will be able to purchase shares of Common Stock in the market during the
Offerings and thereafter. No stockholder, except as otherwise required by the
OTS, will be required to sell shares if, as a result of receiving Exchange
Shares, his ownership percentage would exceed a purchase limitation. See "THE
CONVERSION AND REORGANIZATION -- Limitations on Conversion Stock Purchases and
Ownership."
Year 2000 Compliance
As the year 2000 approaches, an issue has emerged regarding how
existing application software programs and operating systems can accommodate
this date value. Many existing application software products were designed to
accommodate only two-digits. For example, "96" is stored on the system and
represents 1996. The Mid-Tier Holding Company and the Bank have been identifying
potential problems
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associated with the "Year 2000" issue and have implemented a plan designed to
manage data involving the transition with data from 1999 to 2000 without
functional or data abnormality and without inaccurate results related to such
data. In addition, the Bank recognizes that its ability to be Year 2000
compliant is dependent upon the cooperation of its vendors. The Bank is
requiring its computer systems and software vendors to represent that the
products provided are or will be Year 2000 compliant and has planned a program
of testing for compliance. The Bank is obtaining representations from its
primary third party vendors that they will have resolved any Year 2000 problems
and anticipates that its vendors also will have resolved any Year 2000 problems.
There can be no assurances, however, that the Bank's plan or the performance by
the Bank's vendors will be effective to remedy all potential problems. To the
extent the Mid-Tier Holding Company's systems are not fully Year 2000 compliant,
there can be no assurance that potential systems interruptions or the cost
necessary to update software would not have a materially adverse effect on the
Company's business, financial condition, results of operations, cash flows, and
business prospects. Further, any Year 2000 failure on the part of the Bank's
customers could result in additional expense or loss to the Bank. The Company
and the Bank expect to be in year 2000 compliance by the end of 1998.
Risk of Delay
The Subscription and Community Offering will expire at Noon,
Philadelphia Time, on __________ ____ 1998, unless extended by the Primary
Parties. However, unless waived by the Primary Parties, all orders will be
irrevocable unless the Conversion and Reorganization is not completed by
________ ____ 1998. In the event the Conversion and Reorganization is not
completed by ________ ____, 1998, subscribers will have the right to modify or
rescind their subscriptions and to have their subscription funds returned with
interest.
Dissenters' Rights
Pursuant to Pennsylvania Business Corporation Law, Public Stockholders
will have dissenters' rights or rights of appraisal in connection with the
Conversion and Reorganization. See "THE CONVERSION AND REORGANIZATION--
Dissenters Rights."
THISTLE GROUP HOLDINGS, CO.
Thistle Group Holdings, Co. ("the Company") was organized in March of
1998 at the direction of the Board of Directors of the Bank for the purpose of
holding all of the capital stock of the Bank in order to facilitate the
Conversion and Reorganization. The Mutual Holding Company and the Mid-Tier
Holding Company are presently subject to regulation by the OTS. After the
Conversion and Reorganization, the Company will be subject to OTS regulations.
The Company has applied to the OTS for authority to acquire 100% of the Bank
Common Stock and become the savings and loan holding company of the Bank. This
application has been approved subject to certain conditions. The Conversion and
Reorganization is contingent upon various approvals from the OTS. See
"REGULATION --Company Regulation." Upon consummation of the Conversion and
Reorganization, the Company will have no significant assets other than all of
the outstanding shares of Bank Common Stock, an outstanding loan to the ESOP, a
portion of the net proceeds of the Offering retained by the Company and various
investments previously held by the Mutual Holding Company and the Mid-Tier
Holding Company. The Company will have no significant liabilities. See "USE OF
PROCEEDS." Initially, the management of the Company and the Bank will be
substantially similar. The Company will neither own nor lease any property but
will instead use the premises, equipment and furniture of the Bank. At present
time the
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Company does not intend to employ any persons other than executive officers who
are also executive officers of the Bank. The Company will utilize the support
staff of the Bank from time to time. Additional employees will be hired as
appropriate to the extent that the Company expands or changes its future
business activities.
Management believes that the holding company structure will provide the
Company with additional flexibility to diversify its business activities through
existing or newly formed subsidiaries or through acquisitions of or mergers with
other financial institutions and financial services related companies. Although
there are no current arrangements, understandings or agreements regarding such
opportunities or transactions, the Company will be in a position after the
Conversion and Reorganization subject to regulatory limitations and the
Company's financial position to take advantage of any such acquisition and
expansion opportunities that may arise. The initial activities of the Company
are anticipated to be funded by the proceeds to be retained by the Company from
the Conversion and Reorganization and earnings thereon as well as dividends from
the Bank. See "USE OF PROCEEDS" and "DIVIDEND POLICY."
After the completion of the Conversion and Reorganization, the Company
is expected to conduct business initially as a unitary thrift holding company.
See "BUSINESS OF THISTLE GROUP HOLDINGS, CO." The Company's executive office is
located at the home office of the Bank at 6060 Ridge Avenue, Philadelphia,
Pennsylvania 19128 and its telephone number is (215) 483-2800.
THISTLE GROUP HOLDINGS, INC.
Thistle Group Holdings, Inc. (i.e., the "Mid-Tier Holding Company") was
organized in March 1997 at the direction of the Board of Directors of the Bank
for the purpose of holding all of the capital stock of the Bank. The Mid-Tier
Holding Company acquired all of the outstanding stock of the Bank in a
one-for-one stock exchange consummated on September 30, 1997. The Mid-Tier
Holding Company has received the approval of the OTS to become, and is
currently, a thrift holding company, and as such is subject to regulation by the
OTS. After the Conversion and Reorganization the Mid-Tier Holding Company will
cease to exist and the Company will become the holding company for the Bank.
The Mid-Tier Holding Company's executive office is located at the home
office of the Bank at 6060 Ridge Avenue, Pennsylvania 19128, and its telephone
number is (215) 483-2800.
ROXBOROUGH-MANAYUNK FEDERAL SAVINGS BANK
General
Roxborough-Manayunk is a federally-chartered stock savings association,
which was originally chartered as a mutual savings association through the
combination of 11 building and loan associations as Roxborough-Manayunk Federal
Savings and Loan Association (the "Association") on May 3, 1939, at which time
the Association's accounts were insured by the Federal Savings and Loan
Insurance Corporation ("FSLIC") and currently the Savings Association Insurance
Fund ("SAIF"). In 1939, the Association became a member of the FHLB System. On
December 31, 1992, the Association reorganized from a mutual savings association
into a mutual holding company named FJF Financial, M.H.C. and chartered a new
stock savings bank named Roxborough-Manayunk Federal Savings Bank. Effective as
of the close of business September 30, 1997, the Bank completed the formation of
a middle- tier stock holding company (i.e., Thistle Group Holdings, Inc.)
whereby the Bank became a wholly-
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owned subsidiary of the Mid-Tier Holding Company, which in turn is over 80%
owned by the Mutual Holding Company. The Bank serves the Pennsylvania counties
of Philadelphia and Delaware through a network of six offices, providing a full
range of retail banking services, with emphasis on the origination of
one-to-four family residential mortgages.
The Bank is primarily engaged in attracting deposits from the general
public through its offices and using those and other available sources of funds
to originate loans secured by one to four-family residences. One- to four-family
residential loans amounted to $71.4 million, or 72.4%, of the Bank's total loan
portfolio at December 31, 1997. In addition, the Bank originates consumer loans,
such as home equity loans, and multi-family and nonresidential real estate
loans. Such loans generally provide for higher interest rates and shorter terms
than single-family residential real estate loans. At December 31, 1997, the
Bank's net consumer loans amounted to $8.2 million or 8.3% of the Mid-Tier
Holding Company's total assets. To a lesser extent, the Bank originates loans
secured by existing multi-family residential and nonresidential real estate,
which amounted to $6.3 million or 6.4%, and $10.3 million or 10.4%,
respectively, of the total loan portfolio at December 31, 1997. At December 31,
1997, the Bank also held $26,327,000 of U.S. Government and federal agency
obligations and $111,486,000 of mortgage-backed securities which are insured by
federal agencies.
Regulation
The Bank is subject to examination and comprehensive regulation by the
OTS, which is the Bank's chartering authority and primary regulator, and by the
Federal Deposit Insurance Corporation ("FDIC"), which, as administrator of the
SAIF, insures the Bank's deposits up to applicable limits. The Bank also is
subject to certain reserve requirements established by the Board of Governors of
the Federal Reserve System ("Federal Reserve Board") and is a member of the
Federal Home Loan Bank ("FHLB") of Pittsburgh, which is one of the 12 regional
banks comprising the FHLB System. See "REGULATION."
Office
The Bank's principal executive office is located at 6060 Ridge Avenue,
Philadelphia, Pennsylvania 19128 and its telephone number is (215) 483-2800.
FJF FINANCIAL, M.H.C.
The Mutual Holding Company is a federally chartered mutual holding
company which was chartered on December 31, 1992, in connection with the MHC
Reorganization. The Mutual Holding Company's primary asset is 1,415,000 shares
of Mid-Tier Common Stock, which represent 87.29% of the shares of Mid-Tier
Common Stock outstanding as of December 31, 1997. Prior to the Conversion and
Reorganization, each depositor in the Bank has both a deposit account in the
institution and a pro rata ownership interest in the net worth of the Mutual
Holding Company based upon the value in his account, which interest may only be
realized in the event of a liquidation of the Mutual Holding Company. As part of
the Conversion and Reorganization, the Mutual Holding Company will convert from
mutual form to a federal interim stock savings institution and simultaneously
merge with and into the Bank, with the Bank being the surviving entity.
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USE OF PROCEEDS
Net proceeds from the sale of the Conversion Stock are estimated to be
between $65.6 million and $89.0 million ($102.4 million assuming an increase in
the Offering Price Range by 15%). See "Pro Forma Data" as to the assumptions
used to arrive at such amounts.
The Company plans to contribute to the Bank 50% of the net proceeds
from the Offerings and retain the remainder of the net proceeds. The Company
anticipates that after the loan to the ESOP and after contributing 50% of the
funds raised in the Conversion and Reorganization to the Bank, it will have
approximately $38.6 million (based upon the sale of 9,034,834 shares of Common
Stock) which it intends to loan to the Bank. The Bank will invest these funds,
initially in short interest-bearing deposits and short and intermediate term
securities. The Company intends to use a portion of the net proceeds to make a
loan directly to the ESOP to enable the ESOP to purchase 8.0% of the Conversion
Stock. Based upon the issuance of 6,677,927 shares and 9,034,834 shares of
Conversion Stock at the minimum and maximum of the Offering Price Range,
respectively, the loan to the ESOP would be $5.3 million and $7.2 million,
respectively. It is anticipated that the loan to the ESOP will have a term of
not less than 15 years and a fixed rate of interest at the prime rate as of the
date of the loan. See "MANAGEMENT OF THE BANK -- Employee Stock Ownership Plan."
The net proceeds retained by the Company also may be used to support the future
expansion of operations or diversification into other banking-related businesses
and for other business or investment purposes, including the acquisition of
other financial institutions and/or branch offices, although there are no
current plans, arrangements, understandings or agreements regarding such
expansion, diversification or acquisitions. The Bank does, however, continually
evaluate additional branching opportunities that will complement existing
operations or support expansion into growth markets. No assurance can be given,
however, that such expansion will occur during 1998. In addition, subject to
applicable regulatory limitations, the net proceeds also may be used to
repurchase shares of Common Stock. See "THE CONVERSION AND REORGANIZATION
- --Certain Restrictions on Purchase or Transfer of Shares after the Conversion
and Reorganization." The portion of the net proceeds contributed to the Bank
will be used for general corporate purposes, primarily investment in residential
real estate loans and will be initially used to invest primarily in short-term
interest-bearing deposits and marketable securities.
In addition, a portion of the proceeds may be used to fund open market
purchases of Common Stock for the Recognition Plan if such plan is approved by
stockholders. The estimated cost of such plans is dependent upon the price paid
for the shares in the open market. If Common Stock equal to 4% at the maximum of
the Offering Range, or 361,393 shares, was purchased for the Recognition Plan at
$10 per share, the cost would be $3.6 million. See "MANAGEMENT OF
ROXBOROUGH-MANAYUNK FEDERAL SAVINGS BANK -- Recognition Plan."
DIVIDEND POLICY
Upon completion of the Conversion and Reorganization, the Board of
Directors of the Company 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
Company will consider the payment of cash dividends on the Common Stock.
Declarations of dividends by the Board of Directors will depend upon a number of
factors, including the amount of the net proceeds from the Offerings retained by
the Company, investment opportunities available to the Company or the Bank,
capital requirements, regulatory limitations, the Company's and the Bank's
financial condition, results of operations, cash flows, tax considerations and
general economic conditions.
-10-
<PAGE>
Consequently, there can be no assurance that dividends will in fact be paid on
the Common Stock or that, if paid, such dividends will not be reduced or
eliminated in future periods. The Company intends to continue to pay regular
quarterly dividends through either the date of consummation of the Conversion
and Reorganization (on a pro rata basis) or the end of the fiscal quarter during
which the consummation of the Conversion and Reorganization occurs.
Dividends from the Company after the Conversion and Reorganization will
depend, in part, upon receipt of dividends from the Bank, because the Company
initially will have no source of income other than dividends from the Bank,
earnings from the investment of proceeds from the sale of Conversion Stock
retained by the Company, and interest on the ESOP loan. A regulation of the OTS
imposes limitations on "capital distributions" by savings institutions,
including cash dividends, payments by a savings institution to repurchase or
otherwise acquire its stock, payments to stockholders of another savings
institution in a cash-out merger and other distributions charged against
capital. The regulation establishes a three-tiered system, with the greatest
flexibility being afforded to well-capitalized or Tier 1 savings institutions
and the least flexibility being afforded to under-capitalized or Tier 3 savings
institutions. As of December 31, 1997, the Bank was a Tier 1 savings institution
and is expected to continue to so qualify immediately following the consummation
of the Conversion and Reorganization. However, for a period of one year
following the completion of the Conversion and Reorganization, the Bank will not
pay any dividends that would be treated for tax purposes as a return of capital
nor take any actions to pursue or propose such dividends.
Any payment of dividends by the Bank to the Company which would be
deemed to be a distribution from the Bank's pre-1988 bad debt reserves for
federal income tax purposes would require a payment of taxes at the then-current
tax rate by the Bank on the amount of earnings deemed to be removed from the
reserves for such distribution. The Bank has no current intention of making any
distribution that would create such a federal tax liability either before or
after the Conversion and Reorganization. See "REGULATION --Federal and State
Taxation."
Unlike the Bank, the Company is not subject to the aforementioned
regulatory restrictions on the payment of dividends to its stockholders,
although the source of such dividends will be, in part, dependent upon dividends
from the Bank in addition to the net proceeds retained by the Company and
earnings thereon. The Company is subject, however, to the requirements of
Pennsylvania law.
MARKET FOR COMMON STOCK
There is no established market for the Mid-Tier Common Stock. The
Company Common Stock, which will be received after the Conversion and
Reorganization in the form of Exchange Shares, will be more liquid after the
Conversion and Reorganization than the Mid-Tier Common Stock because there will
be significantly more outstanding shares owned by the public. However, there can
be no assurance that an active and liquid trading market for the Common Stock
will be maintained.
The Company has received conditional approval to have its Common Stock
listed on the Nasdaq National Market under the symbol ^"THTL." There are various
requirements for qualification and continued quotation of the Common Stock on
the Nasdaq National Market including a minimum number of market makers for the
Common Stock. The Company will seek to encourage and assist market makers to
make a market in its Common Stock, and, based upon the number of market makers
for the Public Mid-Tier Shares, believes that enough market makers will make a
market in the Common Stock in order to continue listing the Common Stock on the
Nasdaq National Market. Making a market involves
-11-
<PAGE>
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.
Sandler has advised the Company that it will assist the Company in
obtaining additional market makers, if necessary, but there can be no assurance
that additional market makers will be identified. 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. Additionally, the development
of a public market having the desirable characteristics of depth, liquidity and
orderliness depends on the existence of willing buyers and sellers, the presence
of which is not within the control of the Company, the Bank or any market maker.
In the event that institutional investors buy a relatively large proportion of
the Offering, the number of active buyers and sellers of the Common Stock at any
particular time may be limited. There can be no assurance that persons
purchasing Common Stock will be able to sell their shares at or above the
Subscription Price. Therefore, purchasers of Common Stock should have a
long-term investment intent and should recognize that a possibly limited trading
market may make it difficult to sell the Common Stock after the Conversion and
may have an adverse effect on the price of the Common Stock.
At December 31, 1997, there were 1,621,000 shares of Mid-Tier Common
Stock outstanding, including 206,000 Public Mid-Tier Shares, which were held of
record by approximately 32 stockholders (including the ESOP). There is no liquid
market for Public Mid-Tier Shares. Public Mid-Tier Shares will automatically,
without further action by such holders thereof, be converted into and become a
right to receive a number of shares of Common Stock that is determined pursuant
to the Exchange Ratio. See "The Conversion and Reorganization -- The Exchange
Ratio."
-12-
<PAGE>
CAPITALIZATION
The following table presents, as of December 31, 1997, the unaudited
historical capitalization of the Mid-Tier Holding Company and its consolidated
subsidiaries, including the Bank, and the pro forma consolidated capitalization
of the Company after giving effect to the Conversion and Reorganization, and
other assumptions set forth below and under "Pro Forma Data."
<TABLE>
<CAPTION>
Company Pro Forma Based Upon Sale at $10.00 Per share
-----------------------------------------------------
Historical 7,650,000 9,000,000^ 10,350,000^ 11,902,500^
^Capitalilzation Shares Shares Shares ^ Shares(1)
---------------- ------ ------ ------ -----------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Deposits(2) .............................. $230,558 $230,558 $230,558 $230,558 $230,558
Total Deposits and ^ borrowed funds ..... $238,442 $238,442 $238,442 $238,442 $238,442
======== ======== ======== ======== ========
Stockholders' equity:
Preferred stock, no par value,
10,000,000 shares authorized;
none to be issued(3) ................. -- -- -- -- --
Common stock, $0.10 par value,
40,000,000 authorized; shares
to be issued as reflected(3) ......... 162 ^ 765 900 1,035 1,190
Additional paid-in capital(4) .......... 18,455 ^ 64,851 76,366 87,879 101,120
Retained Earnings(5) ................... 8,463 8,463 8,463 8,463 8,463
^ Plus:
^ Net unrealized ^ gain on ^ securities
available for sale, net .............. 1,390 1,390 1,390 1,390 1,390
Less:
Common Stock acquired by ESOP(6) ....... -- 5,342 6,285 7,228 8,312
Common Stock acquired by
^ Recognition Plan(6) ................ -- 2,671 3,143 3,614 4,156
-------- -------- -------- -------- --------
Total Stockholders' equity ............... $ 28,470 $ 67,456 $ 77,691 $ 87,925 $ 99,695
======== ======== ======== ======== ========
Pro forma equity as a percent of pro
forma assets ........................... 10.44% 25.77% 27.97% 30.05% 32.30%
</TABLE>
- ---------------------
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Offering Price Range of up to 15% to
reflect changes in market and financial conditions following the
commencement of the Offering Price or to fill the order of the ESOP.
(2) Does not reflect withdrawals from deposit accounts for the purchase of
Conversion Stock in the Offerings. Such withdrawals would reduce pro forma
deposits by the amount of such withdrawals.
(3) The Mid-Tier Holding Company has 8,000,000 shares of common stock
authorized with a par value of $0.10 per share and 2,000,000 authorized
shares of preferred stock.
(4) Assumes that (i) the 206,000 Public Mid-Tier Shares outstanding at December
31, 1997 are exchanged for 4.7188, 5.5516, 6.3843, and 7.3420 shares at the
minimum midpoint maximum and 15% above the maximum of the Offering Price
Range, respectively; and (ii) that no cash in lieu of fractional Exchange
Shares will be
-13-
<PAGE>
issued by the Company. Does not include proceeds from the Offerings that
the Company intends to lend to the ESOP to enable it to purchase shares of
Common Stock in the Offerings. No effect has been given to the issuance of
additional shares of Common Stock pursuant to existing and proposed stock
option plans as opposed to purchases in the open market. See "PRO FORMA
DATA."
^(5) The pro forma retained earnings include $3,053,000 of assets of the Mutual
Holding Company. The retained earnings of the ^ Company will be
substantially restricted after the Conversion and Reorganization by virtue
of the liquidation account to be established by the Bank in connection with
the Conversion and Reorganization. See "THE CONVERSION AND REORGANIZATION
-- Liquidation Rights." In addition, certain distributions of the Bank's
retained earnings may be treated as being from its pre-1988 accumulated bad
debt reserve for tax purposes which would cause the Bank to have additional
taxable income and financial statement expense. See "REGULATION -- Federal
and State Taxation."
^(6) Assumes that 8% and 4% of the shares sold in the Offering will be purchased
by the ESOP and the Recognition Plan, respectively. No shares will be
purchased by the Recognition Plan in the Conversion and Reorganization. It
is assumed on a pro forma basis that the Recognition Plan will be adopted
by the Board of Directors, approved by the stockholders at a special or
annual meeting no earlier than six months after completion of the
Conversion and Reorganization and reviewed by the OTS. It is assumed that
the Recognition Plan will purchase Common Stock in the open market in order
to give an indication of its effects on capitalization. The pro forma
presentation does not show the impact of: (i) results of operations after
the Conversion and Reorganization; (ii) changes in market prices of shares
of the Common Stock after the Conversion and Reorganization; or (iii) a
smaller than 4% purchase by the Recognition Plan. Assumes that the funds
used to acquire the ESOP shares will be borrowed from the Company for a 15
year term. For an estimate of impact of the ESOP on earnings, see "PRO
FORMA DATA." The Bank intends to make contributions to the ESOP sufficient
to service and ultimately retire its debt. The amount to be acquired by the
ESOP and the Recognition Plan is reflected as a reduction in stockholder
equity. The issuance of authorized but unissued shares for the Recognition
Plan in an amount equal to 4% of the amount of Conversion Stock in the
Offering will have the effect of diluting existing stockholders' interests
by ^ 3.74%. There can be no assurance that approval of the Recognition Plan
will be obtained. See "MANAGEMENT OF THE BANK -- Potential Stock Benefit
Plans."
-14-
<PAGE>
HISTORICAL AND PRO FORMA CAPITAL COMPLIANCE
The following table presents the historical regulatory capital of the
Bank at December 31, 1997, and the pro forma regulatory capital of the Bank as
of that date, after giving effect to the Conversion and the Reorganization,
based upon the minimum, midpoint, maximum and 15% above the maximum of the
Offering Range, respectively. For a discussion of the assumptions underlying the
pro forma capital calculations presented below, see "USE OF PROCEEDS,"
"CAPITALIZATION" and "PRO FORMA DATA." The definitions of the terms used in the
table are those provided in the capital regulations issued by the OTS. For a
discussion of the capital standards applicable to the Bank, see "REGULATION -
Savings Institution Regulation - Regulatory Capital Requirements."
<TABLE>
<CAPTION>
Pro Forma as of December 31, 1997 - Based on Sale of
---------------------------------------------------------------------------------------
Historical, as of ^ 6,677,927 7,856,370 9,034,834 10,390,048
December 31, 1997 Shares Shares Shares Shares
----------------- ------------------- -------------------------- ------------------ --------------------
Percent Percent Percent Percent Percent
Amount of Assets Amount of Assets Amount of Assets Amount of Assets Amount of Assets
---------------- ------ --------- ------ --------- ------ ---------------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GAAP Capital........... $28,470 10.44% $53,265 17.91% $57,675 19.10% $62,085 20.27% $67,157 21.57%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
Tangible Capital(1)(2). $25,828 9.51% $50,623 17.08 $55,033 18.30 $59,443 19.48 $64,515 20.79
Tangible Capital
Requirement............ 4,074 1.50 4,446 1.50 4,512 1.50 4,578 1.50 4,654 1.50
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Excess................. $21,754 8.01% $46,177 15.58% $50,521 16.80% $54,865 17.98% $59,861 19.29%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
Core Capital(1)(2)(3).. $25,828 9.51% $50,623 17.08% $55,033 18.30% $59,443 19.48% $64,515 20.79%
Core Capital
Requirement............ 8,148 3.00 8,892 3.00 9,024 3.00 9,156 3.00 9,309 3.00
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Excess................. $17,680 6.51% $41,731 14.08% $46,009 15.30% $50,287 16.48% $55,206 17.79%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
Total Risk-Based
Capital(1)(2)(4)(5).... $26,611 28.62% $51,406 50.71% $55,816 54.26% $60,226 57.71% $65,298 61.55%
Risk-Based Capital
Requirement............ 7,438 8.00 8,110 8.00 8,229 8.00 8,349 8.00 8,487 8.00
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Excess................. $19,173 20.62% $43,296 42.71% $47,587 46.26% $51,877 49.71% $56,811 53.55%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
- -----------------
(1) Net unrealized gains or losses on securities classified as available
for sale are excluded from regulatory capital when computing core and
risk-based capital. The net unrealized gain on securities classified as
available for sale amounted to $2,058,000 as of December 31, 1997.
Assumes one-half of the net proceeds (after adjustment for ESOP and
Recognition Plan), or $24,795,000, $29,205,000, $33,615,000, and
$38,687,000, at the minimum, midpoint, maximum, and maximum, as
adjusted, respectively, is contributed to the Bank.
(2) Tangible capital is computed as a percentage of adjusted total assets
of $271,600,000 prior to the consummation of the Offerings and
$296,395,000, $300,805,000, $305,215,000 and $310,287,000 following the
issuance of 7,650,000, 9,000,000, 10,350,000 and 11,902,500 shares of
Common Stock in the Conversion and Reorganization, respectively. Core
capital is computed as a percentage of adjusted total assets of
$271,600,000 prior to the consummation of the Offerings and
$296,395,000, $300,805,000, $305,215,000 and $310,287,000 following the
issuance of 7,650,000, 9,000,000, 10,350,000 and 11,920,500 shares of
Common Stock in the Conversion and Reorganization, respectively.
Risk-based capital is computed as a percentage of adjusted
risk-weighted assets of $92,980,000 prior to the consummation of the
Offerings and $101,371,000, $102,869,000, $104,367,000 and $106,090,000
following the issuance of 7,650,000, 9,000,000, 10,350,000 and
11,920,500 shares of Common Stock in the Conversion and Reorganization,
respectively.
(3) Does not reflect proposed amendments to regulatory capital requirements
or, in the case of the core capital requirement, the 4.0% requirement
to be met in order for an institution to be "adequately capitalized"
under applicable laws and regulations. See "REGULATION - Savings
Institution Regulation - Regulatory Capital Requirements."
(4) The pro forma risked-based capital ratios (i) reflect the receipt by
the Bank of the assets held by the Mutual Holding Company and of 50% of
the estimated net proceeds from the Offerings, and a reduction due to
the Restricted Stock Plan purchase and the ESOP purchase, (ii) assume
no repayment of FHLB advances, and (iii) assume the investment of the
net remaining proceeds received by the Bank in assets that have a 20%
risk-weighting, as if such net proceeds had been received and so
applied at December 31, 1997.
(5) Risk-weighted assets on a pro forma basis are calculated based on the
percentage of risk-weighted assets to leveraged assets at December 31,
1997. Includes the ^ $382,000 of general allowance for loan losses
that was included in risk-based capital as of December 31, 1997.
-15-
<PAGE>
PRO FORMA DATA
The actual net proceeds from the sale of the Conversion Stock cannot be
determined until the Conversion and Reorganization is completed. However, net
proceeds are currently estimated to be between $65.6 million and $89.0 million
(or $102.4 million in the event the Offering Price Range is increased by 15%)
based upon the following assumptions: (i) no fees will be paid to Sandler on
shares purchased by (x) the ESOP or by (y) officers, directors and associates
thereof; (ii) Sandler will receive a fee equal to 1.25% of the aggregate
Purchase Price for sales in the Subscription and Community Offering (excluding
the sale of shares by the ESOP and to officers, directors or employees or
members of their immediate families); and (iii) total expenses, excluding the
marketing fees to be paid to Sandler, will be approximately $395,000. Actual
expenses may vary from those estimated.
Pro forma net earnings have been calculated for the year ended December
31, 1997 as if the Conversion Stock to be issued in the Offerings had been sold
(and the Exchange Shares issued) at the beginning of the respective periods and
the net proceeds had been invested at the one year Treasury Bill Rate which was
5.55% as of December 31, 1997. The Treasury Bill Rate was required to be
utilized in the Business Plan and more nearly reflects the actual and
anticipated yields available on invested funds. The effect of withdrawals from
deposit accounts for the purchase of Conversion Stock has not been reflected. An
effective combined federal and state tax rate of 42.0% has been assumed for the
periods, resulting in an after-tax yield of 3.22% for the year ended December
31, 1997. Historical and pro forma per share amounts have been calculated by
dividing historical and pro forma amounts by the indicated number of shares of
Common Stock, as adjusted to give effect to the shares purchased by the ESOP and
Recognition Plan. See Notes 1 and 2 to the tables below. No effect has been
given in the pro forma stockholders' equity calculations for the assumed
earnings on the net proceeds. As discussed under "USE OF PROCEEDS," the Company
intends to retain 50% of the net proceeds from the Offerings. The Company
intends to make a loan to fund the purchase by the ESOP an amount of Conversion
Stock equal to up to 8% of the Common Stock sold in the Conversion and
Reorganization.
At the consummation of the Conversion and Reorganization, 972,073,
1,143,630, 1,315,166, and 1,512,452 of Common Stock, at the minimum, midpoint,
maximum and 15% above the maximum, respectively, will be issued to Public
Stockholders pursuant to the Exchange. See "THE CONVERSION AND REORGANIZATION --
The Exchange Ratio."
No effect has been given in the tables to the issuance of additional
shares of Common Stock pursuant to existing and proposed stock option plans as
opposed to purchases in the open market. See "MANAGEMENT OF THE BANK -- Benefit
Plans." The tables below give effect to the Recognition Plan, which is expected
to be adopted by the Company following the Conversion and Reorganization and
presented (together with the Stock Option Plan) to stockholders for approval at
an annual or special meeting of stockholders to be held at least six months
following the consummation of the Conversion and Reorganization. If the
Recognition Plan is approved by stockholders, the Recognition Plan intends to
acquire an amount of Common Stock equal to 4.0% of the shares of Conversion
Stock issued in the Offerings, either through open market purchases or from
authorized but unissued shares of Common Stock. No effect has been given to (i)
the Company's results of operations after the Conversion and Reorganization, or
(ii) the market price of the Common Stock after the Conversion and
Reorganization.
The following pro forma information may not be representative of the
financial effects of the foregoing transactions at the dates on which such
transactions actually occur and should not be taken as being indicative of
future results of operations. Pro forma stockholders' equity represents the
difference between the stated amount of pro forma assets and liabilities of the
Company computed in accordance with generally accepted accounting principles
("GAAP"). The pro forma stockholders' equity is not intended to represent the
fair market value of the Common Stock and may be different than amounts that
would be available for distribution to stockholders in the event of liquidation.
-16-
<PAGE>
<TABLE>
<CAPTION>
At or For the Year Ended December 31, 1997
-----------------------------------------------------------------
Maximum,
Minimum Midpoint Maximum as adjusted
6,677,927 7,856,370 9,034,834 10,390,048
Shares at Shares at Shares at Shares at
$10.00 $10.00 $10.00 $10.00
Per Share Per Share Per Share Per Share(1)
--------- --------- --------- ------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Gross proceeds ...................................... $ 66,779 $ 78,564 $ 90,348 $ 103,900
Less expenses ...................................... 1,163 1,298 1,434 1,590
------------ ------------ ------------ ------------
Estimated net proceeds ............................ 65,616 77,266 88,914 102,310
Less: Common Stock purchased by ESOP(2) .......... (5,342) (6,285) (7,228) (8,312)
Less: Common Stock purchased by RSP(3) ........... (2,671) (3,143) (3,614) (4,156)
------------ ------------ ------------ ------------
Estimated net proceeds, as adjusted ............. $ 57,603 $ 67,838 $ 78,072 $ 89,842
============ ============ ============ ============
Consolidated net income
Historical(4) ..................................... $ 3,354 $ 3,354 $ 3,354 $ 3,354
Pro forma income on net proceeds .................. 1,855 2,184 2,514 2,893
Pro forma ESOP adjustment(2) ...................... (207) (243) (279) (321)
Pro forma RSP adjustment(3) ....................... (310) (365) (419) (482)
------------ ------------ ------------ ------------
Pro forma net income ............................ $ 4,692 $ 4,930 $ 5,170 $ 5,444
============ ============ ============ ============
Per share net income (reflects SOP 93-6)(5)(6)(7):
Historical ........................................ $ 0.47 $ 0.40 $ 0.35 $ 0.30
Pro forma income on net proceeds .................. 0.26 0.26 0.26 0.26
Pro forma ESOP adjustment(2) ...................... (0.03) (0.03) (0.03) (0.03)
Pro forma RSP adjustment(3) ....................... (0.04) (0.04) (0.04) (0.04)
------------ ------------ ------------ ------------
Pro forma net income per share(5) ............... $ 0.66 $ 0.59 $ 0.54 $ 0.49
============ ============ ============ ============
Purchase Price as a multiple of pro forma earnings(4) 15.15x ^ 16.95x 18.52x 20.41x
============ ============ ============ ============
Number of shares used in earnings per share
calculations ...................................... 7,419,000 8,727,000 10,036,000 11,542,000
============ ============ ============ ============
Stockholders' equity(8):
Historical ........................................ $ 28,470 $ 28,470 $ 28,470 $ 28,470
Estimated net proceeds ............................ 65,616 77,266 88,914 102,310
Add: Assets consolidated from MHC ................ 90 90 90 90
Less: Common Stock acquired by ESOP(2) ........... (5,342) (6,285) (7,228) (8,312)
Less: Common Stock acquired by RSP(3) ............ (2,671) (3,143) (3,614) (4,156)
------------ ------------ ------------ ------------
Pro forma stockholders' equity .................. $ 86,163 $ 96,398 $ 106,632 $ 118,402
============ ============ ============ ============
Book value per share(5)(6)(7):
Historical combined ............................... $ 3.72 $ 3.16 $ 2.75 $ 2.39
Estimated net proceeds ............................ 8.58 8.59 8.59 8.60
Add: Assets consolidated from MHC ................ 0.01 0.01 0.01 0.01
Less: Common Stock acquired by ESOP(2) ........... (0.70) (0.70) (0.70) (0.70)
Less: Common Stock acquired by RSP(3) ............ (0.35) (0.35) (0.35) (0.35)
------------ ------------ ------------ ------------
Pro forma stockholders' equity per share(4) ..... $ 11.26 $ 10.71 $ 10.30 $ 9.95
============ ============ ============ ============
Purchase Price as a percent of pro forma equity ..... 88.81% 93.37% 97.09% 100.50%
============ ============ ============ ============
Number of shares used in book value per share
calculations ...................................... 7,650,000 9,000,000 10,350,000 11,902,500
</TABLE>
^
(footnotes on following page)
-17-
<PAGE>
- --------------------
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to a 15% increase in the Offering Range to reflect changes
in market and financial conditions following the commencement of the
Offerings.
(2) Assumes that 8% of shares of Conversion Stock offered in the Offerings will
be purchased by the ESOP. For purposes of this table, the funds used to
acquire such shares are assumed to have been borrowed by the ESOP from the
net proceeds of the Offerings retained by the Company. The Bank intends to
make annual contributions to the ESOP in an amount at least equal to the
principal of the debt and interest due. The ESOP debt is payable over 15
years. Statement of Position ("SOP") 93-6 requires that an employer record
compensation expense in an amount equal to the fair value of the shares
committed to be released to employees. The pro forma adjustments assume
that the ESOP shares are allocated in fifteen equal annual installments and
the fair value of the Company's stock remains at the Purchase Price and the
effective tax rates are assumed to be ^ 42%. The unallocated ESOP shares
are reflected as a reduction of stockholders' equity. No reinvestment is
assumed on proceeds contributed to fund the ESOP. The pro forma net income
further assumes (i) that 36,000, 42,000, 48,000 and 54,000 shares were
committed to be released during the fiscal year ended December 31, 1997, in
each case at the minimum, midpoint, maximum, and 15% above maximum,
respectively, and (ii) in accordance with SOP 93-6, only the ESOP shares
committed to be released during the respective periods were considered
outstanding for purposes of net income per share calculations. See
"MANAGEMENT OF THE BANK -Benefits - Employee Stock Ownership Plan."
(3) Subject to the approval of the Company's stockholders, the Recognition Plan
intends to purchase an aggregate number of shares of Common Stock equal to
4% of the shares of Conversion Stock to be sold in the Offerings. The
shares may be acquired directly from the Company, or through open market
purchases. The funds to be used by the Recognition Plan to purchase the
shares will be provided by the Bank or the Company. See "MANAGEMENT OF THE
COMPANY - Proposed Future Stock Benefit Plans - Management Recognition
Plan." Assumes that the Recognition Plan acquires the shares through open
market purchases at the Purchase Price with funds contributed by the Bank,
and that 20% of the amount contributed to the Recognition Plan is amortized
as an expense during the fiscal year ended December 31, 1997. If the
Recognition Plan purchases authorized but unissued shares instead of making
open market purchases, (i) the voting interests of then existing
stockholders would be diluted by approximately 3.74%, (ii) the pro forma
net income per share for the fiscal year ended December 31, 1997 would be
$0.64, $0.58, $0.53 and $0.48 and pro forma stockholders' equity at
December 31, 1997 would be $10.88, $10.35, $9.96 and $9.61 in each case at
the minimum, midpoint, maximum, and 15% above maximum of the Offering
Range, respectively.
(4) Historical net income includes ^ $1,296,000 gain on sale of deposit
liabilities (tax imputed at 42%). Absent such $1,296,000, adjusted earnings
per share would be $20.83, $22.73, $24.39 and $27.03, at the minimum,
midpoint, maximum, and maximum, as adjusted, respectively.
(5) Per share figures include Exchange Shares that will be exchanged for Public
Mid-Tier Shares. Net income per share computations are determined by taking
the number of shares of Common Stock assumed to be issued in the Conversion
and Reorganization and, in accordance with SOP 93-6, subtracting the ESOP
shares that have not been committed for release during the respective
period. See Note 2 above. The number of Exchange Shares to be issued were
then added to such amounts. The number of shares of Conversion Stock
actually sold and the corresponding number of Exchange Shares may be more
or less than the assumed amounts.
(6) No effect has been given to the issuance of additional shares of Common
Stock pursuant to the 1998 Option Plan, which is expected to be adopted by
the Company following the Offerings and presented to stockholders for
approval at the Company's 1998 Annual Meeting. An amount equal to 10% of
the Conversion Stock sold in the Offerings will be reserved for future
issuance upon the exercise of options to be granted under the 1998 Option
Plan, if approved by stockholders. The issuance of authorized but
previously unissued shares of Common Stock pursuant to the exercise of
options under such plan would dilute existing stockholders' interests by
approximately 9.34%. Assuming stockholder approval of the 1998
-18-
<PAGE>
Option Plan, that all the options were exercised at the end of the period
at an exercise price equal to the Purchase Price per share shown for each
column, and that the Recognition Plan purchases shares in the open market
at such purchase price per share, (i) pro forma net income per share for
the year ended December 31, 1997 would be $0.60, $0.54, $0.49 and $0.45 and
pro forma stockholders' equity per share at December 31, 1997 would be
$11.16, $10.65, $10.28 and $9.95, in each case at the minimum, midpoint,
maximum and 15% above maximum of the Offering Range, respectively.
(7) Per share figures include Exchange Shares that will be exchanged for Public
Mid-Tier Shares. Book value per share calculations are based upon the sum
of (i) the number of shares of Conversion Stock assumed to be sold in the
Offering, and (ii) Exchange Shares equal to the minimum, midpoint, maximum
and 15% above maximum of the Offering Range, respectively. The Exchange
Shares reflect an Exchange Ratio of 4.7188, 5.5516, 6.3843, and 7.3420,
respectively, at the minimum, midpoint, maximum, and 15% above maximum of
the Offering Range, respectively. The number of Conversion Stock actually
sold and the corresponding number of Exchange Shares may be more or less
than the assumed amounts.
(8) The retained earnings of Mid-Tier will be substantially restricted after
the Conversion and Reorganization. See "DIVIDEND POLICY," "THE CONVERSION
AND REORGANIZATION - Effects of the Conversion and Reorganization - Effect
on Liquidation Rights" and "REGULATION - Savings Institution Regulation -
Dividend and Other Capital Distribution Limitations." Direct costs beyond
estimated offering expenses related to the sale of Common Stock, if the
Offerings are completed, will be recorded as a reduction in proceeds and
applied to paid in capital. If the Conversion and Reorganization is not
consummated, such costs will be charged to expenses. At December 31, 1997,
no such costs had been incurred or accrued. The Common Stock of the Company
is being offered in the Conversion and Reorganization.
-19-
<PAGE>
THISTLE GROUP HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
INTEREST INCOME:
Interest on loans $ 8,763,057 $ 8,602,904 $ 8,689,150
Interest on mortgage-backed securities 6,491,208 6,554,426 5,891,955
Interest and dividends on investments 5,328,034 5,106,685 5,209,146
------------ ------------ ------------
Total interest income 20,582,299 20,264,015 19,790,251
------------ ------------ ------------
INTEREST EXPENSE:
Interest on deposits 10,538,158 10,599,955 10,172,631
Other 464,284 469,178 472,932
------------ ------------ ------------
Total interest expense 11,002,442 11,069,133 10,645,563
------------ ------------ ------------
NET INTEREST INCOME 9,579,857 9,194,882 9,144,688
PROVISION FOR LOAN LOSSES 120,000 139,194 135,000
------------ ------------ ------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 9,459,857 9,055,688 9,009,688
------------ ------------ ------------
OTHER INCOME:
Gain on sales of loans 8,992 61,922
Gain on sale of deposit liabilities 2,234,268
Loss on sale of mortgage-backed securities (30,994)
Rental income 173,776 163,822 157,031
Other 391,216 419,527 356,426
------------ ------------ ------------
Total other income 2,808,252 583,349 544,385
------------ ------------ ------------
OTHER EXPENSES:
Salaries 2,718,471 2,620,365 2,576,090
Amortization of goodwill 32,544 114,547 200,461
Office occupancy 477,232 500,515 500,448
Depreciation 240,037 265,582 332,957
Telephone and postage 163,666 171,269 170,977
Pension and profit-sharing 905,145 533,898 549,697
Federal insurance premium 158,195 572,161 554,827
SAIF special assessment 1,533,127
Stationery, printing and supplies 111,996 128,070 110,155
Payroll taxes 190,507 194,422 197,174
Other employee benefits 203,601 228,570 241,470
Directors' fees 125,200 130,800 120,700
Furniture, fixture and equipment expense 215,401 215,474 204,835
Director, officer and employee expenses 172,355 157,204 159,668
Professional services 321,765 351,371 233,619
Advertising 118,265 186,013 150,064
Writedown of trustee receivable 1,180,628
Other 669,736 806,263 931,737
------------ ------------ ------------
Total other expenses 6,824,116 9,890,279 7,234,879
------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES 5,443,993 (251,242) 2,319,194
------------ ------------ ------------
INCOME TAXES:
Current 2,083,482 36,234 736,907
Deferred 6,518 75,766 149,993
------------ ------------ ------------
Total income taxes 2,090,000 112,000 886,900
------------ ------------ ------------
NET INCOME (LOSS) $ 3,353,993 $ (363,242) $ 1,432,294
============ ============ ============
BASIC EARNINGS (LOSS) PER SHARE $ 2.07 $ (0.22) $ 0.88
============ ============ ============
</TABLE>
-20-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
The Mid-Tier Holding Company's net income is primarily dependent on its
net interest income, which is the difference between interest income earned on
its loans, mortgage-backed securities and investment portfolios, and its cost of
funds consisting of interest paid on deposits and borrowings. The Mid-Tier
Holding Company's net income also is affected by its provision for loan losses,
as well as the amount of non-interest income, including gains on sales, loan
fees and service charges, and non-interest expense, such as salaries and
employee benefits, deposit insurance premiums, occupancy and equipment costs and
income taxes. Earnings of the Mid-Tier Holding Company also are affected
significantly by general economic and competitive conditions, particularly
changes in market interest rates, government policies and actions of regulatory
authorities. The discussion herein includes the Mid-Tier Holding Company and the
Bank on a consolidated basis. Unless the context requires otherwise, any
reference to the Bank, includes the Mid-Tier Holding Company on a consolidated
basis.
Business Strategy
The Bank's current business strategy is to operate as a well
capitalized, profitable and independent community savings bank dedicated to
financing home ownership and providing quality service to customers. The Bank
has sought to implement this strategy in recent years by: (1) closely monitoring
the needs of customers and providing quality customer service; (2) emphasizing
the origination of residential mortgage loans, and home equity loans and
offering other personal and family financial services; (3) reducing interest
rate risk exposure; (4) controlling operating expenses; (5) improving asset
quality; and (6) maintaining capital in excess of regulatory requirements and
controlling growth.
Upon completion of the Conversion, the Mid-Tier Holding Company will
focus on operating as a well capitalized, profitable and independent community
bank with increased products and services provided to its customers. To
implement this strategy, the Mid-Tier Holding Company will (i) use its unitary
thrift holding company structure to enhance the Bank's traditional savings
association business by building a focused portfolio of investments including
equity investments in non-bank financial services firms that complement
traditional banking activity, and demonstrate the ability to generate
non-interest sensitive forms of revenue; (ii) utilize available capital market
opportunities, such as stock repurchases, to enhance stockholder value; (iii)
expand the Bank's delivery network by implementing a branching strategy focused
on growth markets; (iv) implement a wholesale leverage strategy to enhance
earnings per share and growth by matching wholesale funding opportunities with
fixed and possibly variable rate assets that assist in the mitigation of balance
sheet interest rate sensitivity; (v) utilize stock benefit programs and other
incentive to seek experienced personnel to support asset and liability growth;
and (vi) enhance the Bank's infrastructure through technology investments to
accommodate growth in both existing and new customer segments.
Changes in Financial Condition
The Bank's assets decreased by $17,681,000 or 6.0% during the fiscal
year ended December 31, 1997, due primarily to a net decrease of cash, cash
equivalents and investments, as interest-bearing deposits and investments were
used to fund the sale to a local financial institution of $37,237,000 in
deposits and two branch buildings to a locally headquartered financial
institution in May of 1997 ("Branch
-21-
<PAGE>
Sale"). The Bank's 1996 business plan included the sale of two branches which
were outside of its core growth markets.
Investments (including those available for sale) decreased $10,868,000
or 22.1% from $49,096,000 at December 31, 1996 to $38,228,000 at December 31,
1997 due to such funds being used to fund the sale of deposits. Mortgage-backed
securities (including those available for sale) increased $18,077,000 or 19.4%
as excess liquidity was invested in mortgage-backed securities due to decreased
loan originations. Loans receivable, including loans available for sale,
decreased $3,338,000 or 3.3% from $100,773,000 to $97,435,000 due to prepayments
exceeding decreased originations.
The Bank's liabilities similarly decreased by $21,571,000 or 8.0%
during the fiscal year ended December 31, 1997, due to a decrease in deposits of
$25,988,000 from $256,547,000 to $230,558,000 primarily from the sale to a local
financial institution of $37,237,000 in deposits as previously discussed. As a
result of the Branch Sale, the Bank recognized a gain on the liabilities sold.
Accrued income taxes increased from $86,900 to $2,096,000 due to earnings
present in 1997 compared to a loss in 1996.
The Bank's total stockholders' equity increased by $3,889,000, or 15.8%
due mainly to earnings in 1997 and a $655,000 increase in unrealized gains on
securities available for sale, offset partially by dividends paid of $165,000 .
The Bank's assets increased by ^ $4,745,000 or ^ 1.64% during the
fiscal year ended December 31, 1996, due primarily to a net increase of cash due
the prepayment of mortgage-backed securities during fiscal 1997 as the Bank
accumulated liquid assets in anticipation of the Branch Sale as previously
discussed.
The Bank's liabilities increased by ^ $5,312,000 or 2.0% during the
fiscal year ended December 31, 1996, due to a $6,363,000 or 2.5% increase in
interest-bearing deposits due to management's decision to aggressively seek
certificates of deposits to accumulate funds needed for the Branch Sale.
The Bank's stockholders' equity decreased by $567,000, or 2.3% due
mainly to dividends paid of $165,000 and a $363,000 loss experienced by the Bank
in the fiscal year ended December 31, 1996.
Results of Operations
General. The earnings of the Bank depend primarily on its level of net
interest income, which is the difference between interest earned on the Bank's
interest-earning assets and the interest paid on interest-bearing liabilities.
Net interest income is a function of the Bank's interest rate spread, which is
the difference between the average yield earned on interest-earning assets and
the average rate paid on interest-bearing liabilities, as well as a function of
the average balance of interest-earning assets as compared to interest-bearing
liabilities. The Bank reported net income of $1,432,000 and $3,354,000 for the
fiscal years ended December 31, 1995 and 1997, respectively, and a net operating
loss of $363,000 for the fiscal year ended December 31, 1996.
-22-
<PAGE>
Balance Sheet. The following table sets forth certain information relating to
the Company's average balance sheet and reflects the average yield on assets and
average cost of liabilities for the periods indicated and the average yields
earned and rates paid. Such yields and costs are derived by dividing income or
expense by the average balance of assets or liabilities, respectively, for the
periods presented. Average balances are derived from month-end balances.
Management does not believe that the use of month-end balances instead of daily
average balances has caused any material differences in the information
presented.
<TABLE>
<CAPTION>
At
December 31, Year Ended December 31,
------------ ---------------------------------------------------------------------------------
1997 1997 1996 1995
----------- ------------------------- -------------------------- --------------------------
Average Average Average
Yield/ Average Yield/ Average Yield/ Average Yield/
Cost Balance Interest Cost Balance Interest Cost Balance Interest Cost
------ ------- -------- ------- ------- -------- --------- ------- -------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable(1).................... 8.24% $101,472 $ 8,763 8.64% $101,726 $ 8,603 8.46% $ 99,194 $ 8,689 8.76%
Mortgage-backed securities............. 7.01 93,427 6,491 6.95 93,925 6,554 6.98 86,653 5,892 6.80
Cash and investment securities(2)...... 6.31 72,813 4,977 6.84 77,272 4,728 6.12 80,694 4,864 6.03
Other interest-earning assets.......... 6.81 6,317 351 5.56 6,761 379 5.61 4,964 345 6.95
------- ------ ------- ------- ------- -------
Total interest-earning assets......... 7.34 274,029 $20,582 7.51 279,684 $20,264 7.25 271,505 $19,790 7.29
------- ====== ------- ====== ------- ======
Non-interest-earning assets............. 10,013 9,529 8,369
------- ------- -------
Total assets.......................... $284,042 $289,213 $279,874
======= ======= =======
Interest-bearing liabilities:
Regular savings accounts............... 3.27 $ 35,448 $ 1,133 3.20 $ 39,487 $ 1,233 3.12 $39,460 $ 1,261 3.20
Senior club savings.................... 4.06 65,868 2,673 4.06 71,117 2,886 4.06 68,953 2,797 4.06
Certificate accounts................... 5.41 116,523 6,223 5.34 112,756 5,886 5.22 106,731 5,327 4.99
Other deposit accounts................. 2.03 24,550 509 2.08 26,792 595 2.22 26,991 788 2.92
------- ------- ------- ------- ------- -------
Total deposits....................... 4.39 242,389 10,538 4.35 250,152 10,600 4.24 242,135 10,173 4.20
------- ------ ------- ------ ------- ------
FHLB borrowings........................ 5.53 7,884 436 5.53 7,884 436 5.53 7,884 436 5.53
Other liabilities (escrow)............. 1.86 1,730 28 1.62 1,772 33 1.86 1,920 37 1.93
------- -------- ------- ------ ------- -------
Total interest-bearing liabilities.... 4.41 252,003 $11,002 4.37 259,808 11,069 4.26 251,939 $10,646 4.23
------- ====== ------- ------ ------- ======
Non-interest bearing liabilities........ 5,020 4,412 4,002
------- ------- -------
Total liabilities...................... 257,023 264,220 255,941
------- ------- -------
Retained earnings....................... 27,019 24,993 23,933
------- ------- -------
Total liabilities and
retained earnings.................... $284,042 $289,213 $279,874
======= ======= =======
Net interest income..................... $ 9,580 $ 9,195 $ 9,144
====== ====== ======
Interest rate spread(3)................. 2.93% 3.14% 2.99% 3.06%
===== ====== ====== ======
Net yield on interest-
earning assets(4)..................... 4.66% 4.38% 4.49%
====== ====== ======
Ratio of average interest-
earning assets to average
interest-bearing liabilities.......... 108.74% 107.65% 107.77%
====== ====== ======
</TABLE>
- ---------------------------------
(1) Average balances include non-accrual loans.
(2) Includes interest-bearing deposits in other financial institutions.
(3) Interest-rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(4) Net yield on interest-earning assets represents net interest income as a
percentage of average interest-earning assets.
-23-
<PAGE>
Rate/Volume Analysis. The table below sets forth certain information
regarding changes in interest income and interest expense of the Company for the
periods indicated. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on changes attributable to
(i) changes in volume (changes in average volume multiplied by old rate); (ii)
changes in rates (changes in rate multiplied by old average volume); (iii)
changes in rate-volume (changes in rate multiplied by the change in average
volume).
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------
1997 vs. 1996 1996 vs. 1995
---------------------------------- -----------------------------------
Increase (Decrease) Increase (Decrease)
Due to Due to
---------------------------------- -----------------------------------
Rate/ Rate/
Volume Rate Volume Net Volume Rate Volume Net
------ ---- ------ --- ------ ---- ------ ---
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income:
Loans receivable .................... $ (21) $ 181 $-- $ 160 $ 222 $(300) $ (8) $ (86)
Mortgage-backed securities .......... (35) (28) -- (63) 494 155 13 662
Cash and investment securities ...... (273) 554 (32) 249 (206) 73 (3) (136)
Other interest earning assets ....... (25) (3) -- (28) 125 (67) (24) 34
----- ----- ----- ----- ----- ----- ----- -----
Total interest-earning assets ...... $(354) $ 704 $ (32) $ 318 $ 635 $(139) $ (22) $ 474
===== ===== ===== ===== ===== ===== ===== =====
Interest expense:
Savings accounts .................... $(329) $ 276 $ (9) $ (62) $ 337 $ 87 $ 3 $ 427
Other liabilities ................... (2) (3) -- (5) (7) 3 -- (4)
----- ----- ----- ----- ----- ----- ----- -----
Total interest-bearing liabilities $(331) $ 273 $ (9) $ (67) $ 330 $ 90 $ 3 $ 423
===== ===== ===== ===== ===== ===== ===== =====
Net change in interest income ........ $ (23) $ 431 $ (23) $ 385 $ 305 $(229) $ (25) $ 51
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
Comparison of Operating Results for Years Ended December 31, 1997 and December
31, 1996.
General. Net income for the year ended December 31, 1997 increased
$3,717,000 from a loss of $363,000 in 1996 to a profit of $3,354,000 for the
year ended December 31, 1997. The increase was primarily due to a gain from the
sale of two branch offices and the absence in 1997 of a one-time SAIF special
assessment of $1,533,000 and the write-off of trustee receivables caused by the
bankruptcy of Bennett Funding. See "- Comparison of Operating Results for Years
Ended December 31, 1996 and December 31, 1995 - Other Expenses." Furthermore,
net interest income increased $385,000 or 4.2% as the Bank's interest rate
spread improved during 1997 and other income increased $2,225,000 or 381.4% due
to a gain on the sale of deposit liabilities. These increases were offset
somewhat by an increase in total income taxed due to the Bank returning to
profitability in 1997.
Net Interest Income. Net interest income increased $385,000 or 4.2%
from $9,195,000 for the year ended December 31, 1996 to $9,580,000 during the
year ended December 31, 1997 as interest income increased and interest expense
decreased, and the Bank's interest rate spread improved 15 basis points (100
basis points equalling 1%) due primarily to increased yields on loans and
investment securities. The Bank's net interest rate spread increased from 2.99%
to 3.14%.
-24-
<PAGE>
Interest Income. Interest income increased from $20,264,000 for 1996 to
$20,582,000 for 1997, or 1.6% primarily due to an increase in income from loans
and interest and dividend on investments. Interest on loans increased $160,000
due to increased yields as the Bank emphasized equity loans. The interest on
cash and investment securities increased $221,000 during 1997 due to a 72 basis
point increase in the yield. The average balance and yield on mortgage-backed
securities remained relatively stable.
Interest Expense. Interest expense decreased $67,000 or .06% due
primarily to a decease in the average balance of deposits due to the sale of
$37,237,000 of deposits in May, 1997 which was partially offset by an increase
of the cost of funds from certificates of deposit due to management's decision
to seek funds for the Branch Sale. See "- Changes in Financial Condition."
Provision for Losses on Loans. The provision for losses on loans
decreased $19,000 from $139,000 for the year ended December 31, 1996 to $120,000
for the year ended December 31, 1997. Provisions for losses included charges to
reduce the recorded balances of mortgage loans receivable and the collateral
real estate to their estimated net realizable value or fair value, as
applicable. Such provisions are based on management's estimate of net realizable
value or fair value of the collateral, as applicable, considering the current
and currently anticipated further operating or sales conditions, thereby causing
these estimates to be particularly susceptible to changes that could result in a
material adjustment to results of operations in the near term. Recovery of the
carrying value of such loans and real estate is dependent to a great extent on
economic, operating and other conditions that may be beyond the Bank's control.
Other Income. Other income increased from $583,000 for 1996 to
$2,808,000 for the year ended December 31, 1997 primarily as a result of the
$2,234,000 gain on the sale of deposit liabilities in May, 1997. See "- Changes
in Financial Condition."
Other Expenses. Other expenses decreased by $3,066,000 or 31.0% from
$9,890,000 in 1996 to $6,824,000 for the year ended December 31, 1997. This
decrease was primarily caused by the absence in 1997 of a one-time special SAIF
assessment and a write down of $1,181,000 of a trustee receivable. See "-
Comparison of Operating Results for Years Ended December 31, 1995 and December
31, 1996 - Other Expenses." Other decreases in 1997 included a $414,000 or 72.4%
decrease in federal insurance premiums due to the resolution of the SAIF, a
$82,000 or 71.6% decrease in the amortization of goodwill as goodwill obtained
in the acquisition of Aetna Federal in 1982 was completely written off in 1997,
and a $137,000 or ^ 16.9% decrease in other operating expenses due to write off
of expenses of $350,000 related to the inability to consummate a conversion and
merger with Progress Financial Corp. Offsetting these decreases were increases
of $371,000 or 69.5% in pension and profit sharing expense due to increased
profit sharing on increased earnings compared to 1996, and $98,000 or 3.7% in
salaries due to normal salary increases offset by a decrease in the number of
employees due to the sale of the two branch offices from the Branch Sale in May
1998.
Upon completion of the Conversion, the Mid-Tier Holding Company expects
an increase in other expenses due to being a public company and the cost of
stock benefit plans, if adopted.
Income Tax Expense. Income tax expense increased significantly from
$112,000 in 1996 to $2,090,000 in 1997 due to the Mid-Tier Holding Company's
return to profitability.
-25-
<PAGE>
Comparison of Operating Results for Years Ended December 31, 1996 and December
31, 1995.
General. Net income for the year ended December 31, 1996 decreased
$1,795,000 or 125.3% to a loss of $363,000 from a profit of $1,432,000 for the
year ended December 31, 1995. The decrease was primarily due to the SAIF special
assessment of $1,533,000 and the write ^ down of trustee receivable caused by
the bankruptcy of Bennett Funding. See "BUSINESS OF THE BANK - Lending
Activities - Loans Secured by Commercial Equipment Leases."
Net Interest Income. Net interest income increased $50,000 or .5% from
$9,145,000 for the year ended December 31, 1995 to $9,195,000 during the year
ended December 31, 1996 as the average balances and yield/costs of
interest-earning assets and interest-bearing liabilities increased at a
relatively similar pace. The Bank experienced a slight decrease in the net
interest rate spread from 3.06% to 2.99% due to the Bank's aggressive marketing
of certificates of deposit during the period.
Interest Income. Interest income increased from $19,790,000 for 1995 to
$20,264,000 for 1996, or 2.4% primarily due to an increase in income from an
increase in the average balance of mortgage-backed securities. Interest on loans
and interest and dividends on investments remained relatively stable, decreasing
$86,000 or .9% and $102,000 or 2.0%, respectively, due primarily to a slight
increase in the average balance of loans receivable and the yield on cash and
investment securities.
Interest Expense. Interest expense increased $424,000 or 4.0% due
primarily to an increase in the average balance of deposits, in particular
certificates of deposit due to management's effort to accumulate funds for the
Branch Sale. The average balance of certificates of deposit increased $6,025,000
or 5.6% as the Bank emphasized certificate of deposit products during 1996.
Provision for Losses on Loans. The provision for losses on loans
increased $4,000 from $135,000 for the year ended December 31, 1995 to $139,000
for the year ended December 31, 1996. See also "- Comparison of Operating
Results for Years Ended December 31, 1996 and December 31, 1997 - Provision for
Loan Losses."
Other Income. Other income increased from $544,000 for 1995 to $583,000
for the year ended December 31, 1996 primarily as a result of an increase in fee
income as well as an absence of any losses on the sale of mortgage-backed
securities present in 1995, offset somewhat by no gains on the sale of loans in
1996 as the Bank did not sell any loans during such period.
Other Expenses. Other expenses increased by $2,655,000 or 37% from
$7,235,000 in 1995 to $9,890,000 for the year ended December 31, 1996. This
increase was primarily the result of a $1,533,000 special assessment required to
recapitalize the SAIF. On September 30, 1996, pursuant to legislation, all
SAIF-insured institutions were charged a one-time assessment of 65.7 basis
points per $100 of insurable deposits as of March 31, 1995. The legislation also
provides that the Bank, in addition to the payment of normal deposit insurance
premium as a member of the SAIF, pay an annual amount equal to approximately 6.4
basis points of outstanding SAIF deposits toward the retirement of the Financial
Corporation Bonds ("Fico Bonds") issued in the 1980's to assist in the recovery
of the savings and loan industry. Members of the Bank Insurance Fund ("BIF"), by
contrast, will pay, in addition to their normal deposit insurance premium,
approximately 1.3 basis points toward the retirement of the Fico Bonds.
Beginning no later than January 1, 2000, the rate paid to retire the Fico Bond
will be equal for members of the BIF and the SAIF. The legislation also provided
for the merging of the BIF and the SAIF by January 1, 1999 provided there are no
financial institutions still chartered as savings associations
-26-
<PAGE>
at that time. Should the insurance funds be merged before January 1, 2000, the
rate paid by all members of this new fund to retire the Fico Bond would be
equal.
In addition, the Bank wrote down trustee receivables by $1,181,000. See
"Business of the Bank - Lending Activities - Loans Secured by Commercial
Equipment Leases." Furthermore, the Bank experienced increased advertising costs
of $36,000 or 24.0% due to home equity loan advertising; and increased
professional service fees of $118,000 due to legal fees in challenging
previously paid state taxes. Such increases were partially offset by decreased
amortization of goodwill from the acquisition of Aetna Federal in 1982 and
decreased depreciation due to the Bank's data processing system becoming fully
depreciated.
Income Tax Expense. Income tax expense decreased significantly from
$887,000 in 1995 to $112,000 in 1996 due to the loss recognized in 1996.
Year 2000^
A great deal of information has been disseminated about the global
computer year 2000. Many computer programs that can only distinguish the final
two digits of the year entered (a common programming practice in earlier years)
are expected to read entries for the year 2000 as the year 1900 and compute
payment, interest or delinquency based on the wrong date or are expected to be
unable to compute payment, interest or delinquency. Rapid and accurate data
processing is essential to the operation of the Bank. Data processing is also
essential to most other financial institutions and many other companies. See
also "RISK FACTORS - Year 2000 Compliance" and "BUSINESS OF THE BANK -
Properties and Equipment."
Liquidity and Capital Resources
The Bank's primary sources of funds are deposits and proceeds from
principal and interest payments on loans, mortgage-backed securities and other
investments. While maturities and scheduled amortization of loans and
mortgage-backed securities are a predictable source of funds, deposit flows and
mortgage prepayments are greatly influenced by general interest rates, economic
conditions, competition and the consolidation of the financial institution
industry.
The primary investment activity of the Bank is the origination and
purchase of mortgage loans, mortgage-backed securities and other investments.
During the years ended December 31, 1995, 1996, and 1997, the Bank originated
mortgage loans in the amounts of $11.5 million, $17.8 million, and $19.9 million
respectively. The Bank also purchases loans and mortgage-backed securities to
reduce liquidity not otherwise required for local loan demand. Purchases of
mortgage loans and mortgage-backed securities totaled $33.0 million, $17.8
million and $35.1 million, respectively, in those same periods. Other investment
activities include investment in short term certificates of deposit of other
financial institutions, FHLB of Pittsburgh stock, consumer loans and the U.S.
government and federal agency obligations.
The Bank has other sources of liquidity if a need for additional funds
arises. Although the Bank has historically not utilized borrowings as a source
of funds, the Bank had outstanding advances from the FHLB of Pittsburgh in 1995,
1996 and 1997. In addition, other sources of liquidity can be found in the
Bank's balance sheet, such as investment securities maturing within one year and
unencumbered mortgage-backed securities that are readily marketable.
-27-
<PAGE>
The Bank is required to maintain minimum levels of liquid assets as
defined by OTS regulations. The requirement, which may be varied at the
direction of the OTS depending upon economic conditions and deposit flows, is
based upon a percentage of deposits and short-term borrowings. The required
minimum ratio is currently 4.0%. The Bank's liquidity ^ ratio was 18.87% at
December 31, 1997.
The Bank's most liquid assets are cash and cash equivalents, which
include investments in highly liquid short-term investments. The level of these
assets are dependent on the Bank's operating, financing and investing activities
during any given period. At December 31, 1997, cash and cash equivalents
totalled ^ $20,151,000.
The Bank anticipates that it will have sufficient funds available to
meet its current commitments. As of December 31, 1997, the Bank had $761,000 in
commitments to fund loans. Certificates of deposit which were scheduled to
mature in one year or less as of December 31, 1997 totaled $89,887,000.
Management believes that a significant portion of such deposits will remain with
the Bank.
The Bank had core, tangible and risk-based capital ratios of 9.5%, 9.5%
and 28.6%, respectively, at December 31, 1997, which significantly exceeded the
OTS's respective minimum requirements of 3.00%, 1.50% and 8.00%. The Bank was
classified as a "well capitalized" institution on December 31, 1997. See
"Historical and Pro Forma Capital Compliance."
Interest Rate Risk Management Activities
General. The goal of the Bank's asset/liability policy is to manage
interest rate risk so as to maximize net interest income over time in changing
interest rate environments. Management monitors the Bank's net interest spreads
(the difference between yields received on assets and rates paid on liabilities)
and, although constrained by market conditions, economic conditions, and prudent
underwriting standards, it offers deposit rates and loan rates in an attempt to
maximize net interest income. Management also attempts to fund the Bank's assets
with liabilities of a comparable duration to minimize the impact of changing
interest rates on the Bank's net interest income. Since the relative spread
between financial assets and liabilities is constantly changing, the Bank's
current net interest income may not be an indication of future net interest
income.
The Bank has sought to manage its interest rate risk by maintaining a
high degree of liquid assets and short-term securities, coupled with the
purchase of mortgage-backed securities secured by adjustable rate mortgage
loans.
The Bank is also managing interest rate risk by the origination of
multi-family residential loans with a balloon payment after five to seven years.
In general, these loans have higher yields, shorter maturities and greater
interest rate sensitivity than traditional one- to four-family residential real
estate loans.
The Bank constantly monitors its deposits in an effort to decrease
their interest rate sensitivity. Rates of interest paid on deposits at the Bank
are priced competitively in order to meet the Bank's asset/liability management
objectives and spread requirements. As of December 31, 1997, the Bank's savings
accounts, checking accounts and money market deposit accounts totaled
$119,508,000 or 51.8% of its total deposits. The Bank believes, based on
historical experience, that a substantial portion of such accounts represent
non-interest rate sensitive core deposits.
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<PAGE>
Quantitative Interest Rate Sensitivity Analysis. The value of the
Bank's loan portfolio will change as interest rates change. Rising interest
rates will decrease the Bank's net portfolio value, while falling interest rates
increase the value of that portfolio.
The following table sets forth, quantitatively, as of December 31,
1997, (the most recent available) OTS estimate of the projected changes in net
portfolio value ("NPV") in the event of 100, 200, 300, and 400 basis points
("bp") instantaneous and permanent increases and decreases in market interest
rates. Dollar amounts are expressed in thousands.
<TABLE>
<CAPTION>
BP Change Estimated Net Portfolio Value NPV as % of PV of Assets
----------------------------------------------------- ------------------------------
in Rates $ Amount $ Change % Change NPV Ratio BP Change
-------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
+400 bp $13,521 $-22,349 -62% 5.41% -758 bp
+300 19,126 -16,743 -47 7.45 -553 bp
+200 25,004 -10,865 -30 9.49 -349 bp
+100 30,793 -5,077 -14 11.40 -159 bp
NC 35,870 12.98
-100 40,663 4,794 +13 14.42 +143 bp
-200 46,863 10,994 +31 16.20 +321 bp
-300 54,166 18,296 +51 18.19 +521 bp
-400 63,402 27,532 +77 20.58 +759 bp
</TABLE>
<TABLE>
<CAPTION>
12/31/97 12/31/96
-------- --------
* * * RISK MEASURES: 200 BP RATE SHOCK * * *
<S> <C> <C>
Pre-Shock NPV Ratio: NPV as % of PV of Assets ...................................... 12.98% 12.50%
Exposure Measure: Post-Shock NPV Ratio ............................................. 9.49% 9.78%
Sensitivity Measure: Change in NPV Ratio ........................................... -349 bp -273 bp
</TABLE>
Computations of prospective effects of hypothetical interest rate
changes are calculated by the OTS from data provided by the Bank and are based
on numerous assumptions, including relative levels of market interest rates,
loan repayments and deposit runoffs, and should not be relied upon as indicative
of actual results. Further, the computations do not contemplate any actions the
Bank may undertake in response to changes in interest rates.
Management cannot predict future interest rates or their effect on the
Bank's NPV in the future. Certain shortcomings are inherent in the method of
analysis presented in the computation of NPV. For example, although certain
assets and liabilities may have similar maturities or periods to repricing, they
may react in differing degrees to changes in market interest rates.
Additionally, certain assets, such as adjustable rate loans, which represent the
bank's primary loan product, have features which restrict changes in interest
rates during the initial term and over the remaining life of the asset. In
addition, the proportion of adjustable rate loans in the Bank's portfolio could
decrease in future periods due to refinancing activity if market interest rates
remain or decrease in future periods due to refinancing activity. Further, in
the event of a change in interest rates, prepayment and early withdrawal levels
could deviate significantly from those assumed in the table. Finally, the
ability of many borrowers to service their adjustable-rate debt may decrease in
the event of an interest rate increase.
-29-
<PAGE>
The Bank's Board of Directors is responsible for reviewing and
approving the asset and liability policies. The Board meets quarterly to review
interest rate risk and trends, as well as liquidity and capital ratios and
requirements. The Bank's management is responsible for administering the
policies and determinations of the Board of Directors with respect to the Bank's
asset and liability goals and strategies. Management expects that the Bank's
asset and liability policies and strategies will continue as described above so
long as competitive and regulatory conditions in the financial institution
industry and market interest rates continue as they have in recent years.
Recent Accounting Pronouncements
FASB Statement on Reporting Comprehensive Income. In June 1997, the
Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards ("SFAS") No. 130. SFAS No. 130 will require the Mid-Tier
Holding Company to classify items of other comprehensive income by their nature
in the financial statements and 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 changes in stockholders'
equity. SFAS No. 130 is effective for fiscal years beginning after December 15,
1997.
FASB Statement on Earnings Per Share. In March 1997, FASB issued SFAS
No. 128. The Statement establishes standards for computing and presenting
earnings per share and applies to entities with publicly held common stock or
potential common stock. This Statement simplifies the standards for computing
earnings per share previously found in Accounting Principles Board ("APB")
Opinion No. 15, Earnings per Share ("EPS"), and makes them comparable to
international EPS standards. It replaces the presentation of primary EPS with a
presentation of basic EPS. It also requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities with complex
capital structures and requires a reconciliation of the numerator and the
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation. Basic EPS excludes dilution and is computed by dividing
income available to common stockholders by the weighted-average number of common
shares outstanding for the period. Diluted EPS reflects the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the entity. Diluted EPS is computed
similarly to fully diluted EPS pursuant to APB Opinion No. 15. This statement
supersedes Opinion 15 and AICPA Accounting Interpretation 1-102 of Opinion 15.
This statement is effective for financial statements issued for periods ending
after December 15, 1997, including interim periods. SFAS No. 128 has been
adopted by Mid-Tier Holding Company.
FASB Statement on Disclosure of Information about Capital Structure. In
February 1997, the FASB issued SFAS No. 129. The Statement incorporates the
disclosure requirements of APB Opinion No. 15, Earnings per Share, and makes
them applicable to all public and nonpublic entities that have issued securities
addressed by the Statement. APB Opinion No. 15 requires disclosure of
descriptive information about securities that is not necessarily related to the
computation of earnings per share. This statement 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 FASB Statement No. 47, Disclosure of Long-Term Obligations, for
entities that were subject to the requirements of those standards. This
Statement eliminates the exemption of nonpublic entities from certain disclosure
requirements of Opinion 15 as provided by FASB Statement No. 21, Suspension of
the Reporting of Earnings per Share and Segment Information by Nonpublic
Enterprises. It supersedes specific disclosure requirements of Opinions 10 and
15 and Statement 47 and consolidates them in this
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<PAGE>
Statement for ease of retrieval and for greater visibility to nonpublic
entities. The Statement is effective for financial statements for periods ending
after December 15, 1997. SFAS No. 129 has been adopted by Mid-Tier Holding
Company.
FASB Statement on Accounting for Stock-Based Compensation. In October
1995, the FASB issued SFAS No. 123. SFAS No. 123 defines a "fair value based
method" of accounting for an employee stock option whereby compensation cost is
measured at the grant date based on the value of the award and is recognized
over the service period. FASB has encouraged all entities to adopt the fair
value based method, however, it will allow entities to continue the use of the
"intrinsic value based method" prescribed by APB Opinion No. 25. Under the
intrinsic value based method, compensation cost is the excess of the market
price of the stock at the grant date over the amount an employee must pay to
acquire the stock. However, most stock option plans have no intrinsic value at
the grant date and, as such, no compensation cost is recognized under APB
Opinion No. 25. Entities electing to continue use of the accounting treatment of
APB Opinion No. 25 must make certain pro forma disclosures as if the fair value
based method had been applied. The accounting requirements of SFAS No. 123 are
effective for transactions entered into in fiscal years beginning after December
15, 1995. Pro forma disclosures must include the effects of all awards granted
in fiscal years beginning after December 15, 1994. The Mid- Tier Holding Company
expects to use the "intrinsic value based method" as prescribed by APB Opinion
No. 25.
FASB Statement on Reporting Comprehensive Income. In June 1997, the
FASB issued SFAS No. 130, Reporting Comprehensive Income, which requires an
entity to present, as a component of comprehensive income, the amounts from
transactions and other events which currently are excluded from the statement of
income and are recorded directly to stockholders' equity. SFAS No. 130 is
applicable for years beginning after December 15, 1997. Management has not
completed an analysis of the impact, if any, the adoption of this statement will
have on the Company's consolidated financial condition or results of operations.
FASB Statement on Segments of an Enterprise and Related Information.
Also in June 1997, the FASB issued SFAS No. 131, Disclosures About Segments of
an Enterprise and Related Information. SFAS No. 131 requires an entity to
disclose financial information in a manner consistent to internally used
information and requires more detailed disclosures of operating and reporting
segments that are currently in practice. SFAS No. 131 is applicable for years
beginning after December 15, 1997. Management has not completed an analysis of
the impact, if any, the adoption of this statement will have on the Company's
consolidated financial condition or results of operations.
FASB Statement on Employers' Disclosure About Pensions and Other
Postretirement Benefits. In February 1998, the FASB issued SFAS No. 132,
Employers' Disclosure About Pensions and Other Postretirement Benefits. SFAS No.
132 revises employers' disclosures about pension and other postretirement
benefit plans. It does not change the measurement or recognition of those plans.
SFAS No. 132 is applicable for years beginning after December 15, 1997.
Management has not completed an analysis of the impact, if any, the adoption of
this statement will have on the Company's consolidated financial condition or
results of operations.
Impact of Inflation and Changing Prices
The financial statements of the Mid-Tier Holding Company and notes
thereto, presented elsewhere herein, have been prepared in accordance with
generally accepted accounting principles, which require
-31-
<PAGE>
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 and due to inflation. The impact of inflation is
reflected in the increased cost of the Mid-Tier Holding Company's operations.
Unlike most industrial companies, nearly all the assets and liabilities
of the Mid-Tier Holding Company are monetary. As a result, interest rates have a
greater impact on the Mid-Tier Holding Company's performance than do the effects
of general levels of inflation. Interest rates do not necessary move in the same
direction or to the same extent as the price of goods and services.
BUSINESS OF THE BANK
General
Roxborough-Manayunk is a federally-chartered stock savings association,
which was originally chartered as a mutual savings association through the
combination of 11 building and loan associations as Roxborough- Manayunk Federal
Savings and Loan Association (the "Association") on May 3, 1939, at which time
the Association's accounts were insured by the Federal Savings and Loan
Insurance Corporation ("FSLIC") and currently the SAIF. In 1939, the Association
became a member of the FHLB System. On December 31, 1992, the Association
reorganized from a mutual savings association into a mutual holding company
named FJF Financial, M.H.C. and chartered a new stock savings bank named
Roxborough-Manayunk Federal Savings Bank. On October 1, 1997, the Bank formed a
middle-tier stock holding company (Thistle Group) whereby the Bank became a
wholly-owned subsidiary of the Mid-Tier Holding Company, which in turn is over
80% owned by the Mutual Holding Company. The Bank's main office is located at
6060 Ridge Avenue, Philadelphia, Pennsylvania 19128, and the telephone number at
that office is (215) 483-2800. The Bank serves the Pennsylvania counties of
Philadelphia and Delaware through a network of six offices, providing a full
range of retail banking services, with emphasis on one-to-four family
residential mortgages. At December 31, 1997, the Mid-Tier Holding Company had
total assets, deposits, and stockholders' equity of approximately $276.7
million, $230.6 million, and $28.5 million, respectively.
The principal business of the Bank is the acceptance of savings
deposits from the general public and the origination and purchase of mortgage
loans for the purpose of constructing, financing or refinancing one- to
four-family residences and other improved residential and commercial real
estate. The Bank's income is derived largely from interest and fees in
connection with its lending activities. Its principal expenses are interest paid
on savings deposits and borrowings and operating expenses.
Geographic Lending Area
Although authorized to make real estate loans throughout the United
States, the Bank's lending area generally includes Philadelphia, Bucks,
Delaware, Chester, and Montgomery Counties, which comprise the Philadelphia
metropolitan area. The Bank's primary lending area consists of the far northwest
sections of Philadelphia, South Philadelphia, and Montgomery County,
Pennsylvania.
The Pennsylvania real estate market was generally depressed in the
late-1980s. The market has shown improvement in the 1990s, but whether the
recovery will continue is dependent upon general economic conditions, not just
in Pennsylvania, but in the United States as a whole.
-32-
<PAGE>
Lending Activities
General. Historically, the principal lending activity of Roxborough-
Manayunk has been the origination of mortgage loans for the purpose of
constructing, financing or refinancing ^ residential properties.
Loan Portfolio Composition. The Bank's loan portfolio composition
consists primarily of conventional fixed-rate and adjustable- rate first
mortgage loans secured by ^ residential residences and, to a much lesser extent,
multi-family residences and commercial real estate. As of December 31, 1997, the
Bank's total net portfolio of loans, excluding loans classified as held for sale
(the "loan portfolio"), was $98.7 million, of which $71.4 million, or 72.4%, was
secured by one-to-four family residential dwellings. At that same date, $10.3
million or 10.4% of the loan portfolio was secured by commercial real estate and
$6.3 million or 6.4% was secured by multi-family real estate.
Analysis of Loan Portfolio. Set forth below is selected data relating
to the composition of the Bank's loan portfolio by type of loan and type of
security on the dates indicated.
-33-
<PAGE>
<TABLE>
<CAPTION>
At December 31,
------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------------ ------------------- ----------------------- --------------------- ------------------
$ % $ % $ % $ % $ %
--- --- --- --- --- --- --- --- --- --
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate Loans:(1)
Construction..........$ 1,693 1.72% $ 964 .96% $ 495 .48% $ 910 .93% $ 558 .55%
1-4 Family............ 71,397 72.36 73,871 73.30 72,675 71.20 74,124 75.88 80,886 80.09
Multi-family
and commercial...... 16,647 16.87 17,615 17.54 20,200 19.79 14,603 14.95 13,900 13.76
Home equity........... 8,133 8.24 7,011 6.96 5,004 ^4.91 4,300 4.40 2,277 2.25
Home equity line
of credit........... 73 .07 - -
Loans secured by
commercial
equipment leases...... - - - - 3,341 3.27 3,179 3.25 2,829 2.80
Commercial loans........ 329 .33 770 .76 - - - - - -
Consumer loans:
Line of credit........ 96 .10 92 .09 - - - - - -
Secured demand note... 60 .06 - - - - - - - -
Share loans........... 243 .25 384 .38 347 0.34 537 0.55 509 .50
Home improvement...... 4 - 8 .01 15 .01 24 .03 31 .03
------ ----- ------- ------ ------- ------ ------ ------ ------- ------
Total loans.............$98,675 100.00% $100,715 100.00% $102,077 100.00% $97,677 100.00% $100,990 100.00%
====== ====== ======== ====== ======= ====== ======= ====== ======= ======
Less:
Premiums and
(discounts).........$ 54 $ 76 $ 26 $ (61) $ (210)
Deferred fees......... (1,233) (1,299) (1,221) (1,254) $ (1,381)
Loans in process...... (433) (289) (156) (422) (327)
Allowance for
loan losses......... (783) (577) (455) (417) (450)
------ ------- ------- ----- -------
Total loans, net......$96,280 $ 98,626 $100,271 $95,523 $ 98,622
====== ======= ======= ====== =======
</TABLE>
- --------------
(1) Does not include $1,155, $2,147, $1,613, and $1,198 of mortgage loans
classified as held for sale at December 31, 1997, 1996, 1995, and 1994,
respectively. There were no mortgage loans classified as held for sale
at December 31, 1993. See "--Loans Available for Sale".
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<PAGE>
^ Residential Mortgage Loans. The Bank offers first mortgage loans
secured by one- to four-family residences in Roxborough- Manayunk's primary
lending area. Typically, such residences are single- family homes that serve as
the primary residence of the owner. Roxborough- Manayunk offers fixed-rate
mortgage loans with terms of up to 30 years. Interest rates charged on
fixed-rate loans are competitively priced based on the local competitive market.
Loan origination fees on these loans are generally 3% of the loan amount;
however, this amount may vary. As of December 31, 1997, $71.4 million or 72.4%
of the loan portfolio consisted of one- to four-family residential loans, of
which approximately 95.1% were fixed-rate loans. See also "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF RESULTS OF OPERATION -- Interest Rate Risk Management
Activities."
The adjustable-rate mortgage loans originated by the Bank generally
adjust every year based upon selected published indices. The Bank had limited
success in originating adjustable-rate mortgage loans during recent periods of
prevailing low market interest rates. Adjustable- rate mortgage loans generally
have a 2% cap on any change in rate per year, with an overall limit of 6% on any
increase over the life of the loan. Mortgage loans originated and held by
Roxborough- Manayunk in its portfolio generally include due-on sale clauses
which provide the Bank with the contractual right to deem the loan immediately
due and payable in the event that the borrower transfers ownership of the
property without the Bank's consent.
Adjustable-rate mortgage loans buffer the risks associated with changes
in interest rates, but involve other risks because as interest rates increase,
the underlying payments by the borrower increase, thus increasing the potential
for default. At the same time, the marketability of the underlying collateral
may be adversely affected by higher interest rates. The Bank's adjustable-rate
loan underwriting policy recognizes these inherent risks and the Bank reviews a
credit application accordingly. These risks have not had an adverse effect on
the Bank to date.
Home Equity Loans and Home Equity Lines of Credit. The Bank originates
home equity loans secured by single-family residences. At December 31, 1997,
home equity loans totaled $8.2 million or 8.3% of total loans. These loans are
originated as fixed-rate loans with terms from 3 to 10 years. The Bank began
offering home equity loans in early 1992. These loans are made on
owner-occupied, single-family residences or vacation homes. The loans are
generally subject to an 80% combined loan-to-value limitation, including any
other outstanding mortgages or liens. Home equity loans are generally originated
for retention in the Bank's loan portfolio.
Multi-Family and Commercial Real Estate Loans. The Bank originates to a
limited extent multi-family mortgage loans secured primarily by apartment
buildings located in its primary lending area. These loans are generally
fixed-rate loans with maturities up to 15 years, or amortized over 25 years with
a balloon payment after 5 to 7 years. The Bank also originates adjustable-rate
multi-family loans which adjust with The Wall Street Journal prime rate annually
and have maturities of 5 to 10 years. These loans typically amortize over 20 to
25 years. As of December 31, 1997, $6.3 million, or 6.4%, of the Bank's loan
portfolio consisted of multi-family residential loans. These loans are generally
made in amounts up to 75% of the appraised value of the mortgaged property. In
making such loans, the Bank evaluates the mortgage primarily on the net
operating income generated by the real estate to support the debt service. The
Bank also considers the financial resources and income level of the borrower,
the borrower's experience in owning or managing similar property, the
marketability of the property and the Bank's lending experience, if any, with
the borrower. An origination fee of 1 1/2% to 3% is usually charged on such
loans. The typical multi-family property in the Bank's multi-family lending
portfolio has between 5 and 25 dwelling units with an average loan balance of
approximately $500,000. The largest
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<PAGE>
multi-family loan as of December 31, 1997 had an outstanding balance of $1.8
million and was secured by 45 dwelling units.
The Bank also originates commercial real estate loans secured by
property located within its primary market area. The Bank's commercial real
estate loans are permanent loans secured by improved property such as office
buildings, retail stores, industrial facilities and other non-residential
buildings. Essentially all originated commercial real estate loans are within
the Bank's market area. As of December 31, 1997, the Bank had 90 loans secured
by commercial real estate, totalling $10.3 million or 10.4% of the Bank's total
loan portfolio, with an average principal balance of $115,000. None of the 90
loans had principal balances outstanding of over $1.4 million as of December 31,
1997. The largest commercial real estate loan was secured by a shopping center
with an outstanding balance of $1,402,000 on December 31, 1997. This loan
represents approximately 8.42% of the Bank's $16,647,000 multifamily and
commercial real estate loans at December 31, 1997. Commercial real estate loans
are generally originated in amounts ranging from 70% to 75% of the appraised
value of the mortgaged property, although sometimes commercial real estate loans
are made with an 80% loan to value ratio. The Bank makes both adjustable and
fixed-rate commercial real estate loans. The adjustable-rate loans have terms of
up to 15 years, or are amortized over 25 years with a balloon payment after 5
and 7 years, if negotiated by management. The rate of interest on the
adjustable-rate loans is often tied to the Wall Street Journal stated prime
rate.
Construction Loans. At December 31, 1997, construction loans totaled
$1.7 million. The Bank's construction loan portfolio consists of substantially
residential construction loans with initial terms of generally 12 to 18 months.
Land acquisition and development loans are also made on a very limited basis.
The construction loans made by the Bank have adjustable rates tied to the Wall
Street Journal stated prime rate, adjusting monthly. Generally, such loans are
repaid or converted to permanent loans when the property is completed or sold.
The permanent loan can be an adjustable or fixed-rate loan at a rate equal to
the prevailing rates offered by the Bank 30 days prior to the date of closing.
Loans Secured by Commercial Equipment Leases. The ^ Bank previously
invested in loans secured by commercial equipment leases from a single entity.
During 1996, the borrower declared bankruptcy. On December 27, 1996, the Company
entered into an agreement with the trustee for the bankruptcy court whereby the
Bank will receive approximately 65% of the cash receipts from the collateral
principal in exchange for all rights to the collateral. In connection with this
agreement, the Company charged-off $1.2 million of the outstanding balance due
from the trustee at December 31, 1996. The receivable balance of approximately
$361,000 and $1,771,000, resulting from the agreement with the trustees, is a
component of prepaid expenses and other assets in the consolidated statement of
financial condition at December 31, 1997 and 1996, respectively. The receivable
is to be repaid by the trustee from subsequent cash collections. The Bank has
since discontinued such lending and currently has no plans to re-enter such
market.
Consumer Loans. OTS regulations permit the Bank to make secured and
unsecured consumer loans up to 35% of the Bank's assets. Consumer loans
originated by the Bank are loans secured by savings deposits or fully marketable
securities pledged as collateral. Consumer loans, excluding home improvement
loans, amounted to $399,000 or less than 1% of the Bank's loan portfolio as of
December 31, 1997.
Loan Underwriting Risks. While commercial real estate, construction,
commercial business, and consumer loans provide benefits to the Bank's
asset/liability management program and reduce exposure to interest rate changes,
such loans may entail significant additional credit and interest rate risks
-36-
<PAGE>
compared to residential mortgage lending. Commercial real estate and
construction mortgage loans may involve large loan balances to single borrowers
or groups of related borrowers. In addition, the ability to make payments on
loans secured by income producing properties is typically dependent on the
successful operation of the properties and thus may be subject to a greater
extent to adverse conditions in the real estate market or in the general
economy. Construction loans may involve additional risks attributable to the
fact that loan funds are advanced upon the security of the project under
construction. Moreover, because of the uncertainties inherent in estimating
construction costs, delays arising from labor problems, material shortages, and
other unpredictable contingencies, it is relatively difficult to evaluate
accurately the total loan funds required to complete a project, and related
loan-to-value ratios. Because of these factors, the analysis of prospective
construction loan projects requires an expertise that is different in
significant respects from the expertise required for residential mortgage
lending.
Loan Origination and Other Fees. In addition to interest earned on
loans, the Bank recognizes service charges which consist primarily of loan
application fees, processing fees, and late charges. The Bank recognized service
charges of $245,000 for the year ended December 31, 1997.
Loans-to-One Borrower. Loans-to-one borrower, or group of related
borrowers, by the Bank are limited by regulation to an amount equal to 15% of
unimpaired capital and retained earnings on an unsecured basis and an additional
amount equal to 10% of unimpaired capital and retained earnings if the loan is
secured by readily marketable collateral (generally, financial instruments, not
real estate). The Bank's maximum loan-to-one borrower limit was approximately
$4.3 million as of December 31, 1997. The net proceeds of the Offerings to be
contributed to the Bank will raise the lending limit of the Bank so that it may
originate larger loans.
As of December 31, 1997, the Bank's five largest lending relationships
ranged from $1.8 million to $802,000. The largest loan is to a developer of
low-income housing units in West Philadelphia. Funds for this loan were obtained
from the FHLB Pittsburgh's Community Investment Program - See "-- Borrowings."
The remaining four loans are secured by commercial, multi-family and a primary
single family residence are also located in the Bank's primary market area. All
five loans were current at December 31, 1997.
Loan Maturity Schedules. The following table sets forth the maturity of
the Bank's loan portfolio at December 31, 1997. The table does not include
prepayments or scheduled principal repayments. Prepayments and scheduled
principal repayments on loans totalled $22,489,000, $16,320,000 and $13,984,000
for the fiscal years ended December 31, 1997, 1996 and 1995, respectively. All
mortgage loans are shown as maturing based on contractual maturities.
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<PAGE>
<TABLE>
<CAPTION>
Multi-Family
^Residential and
and Commercial
Home Equity Real Estate Construction Consumer Commercial Total
----------- ----------- ------------ -------- ---------- -----
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-performing................ $ 716 $ - $ - $ - $ - $ 716
Amounts Due:
Within 3 months............... $ 52 $ 681 $1,693 351 $ - $ 2,777
3 months to 1 Year............ 44 2 - 48 - 94
After 1 year:
1 to 3 years................ 1,040 517 - 4 - 1,561
3 to 5 years................ 3,371 281 - - 176 3,828
5 to 10 years............... 18,936 4,541 - - 153 23,630
10 to 20 years.............. 32,888 4,576 - - - 37,464
Over 20 years............... 22,556 6,049 - - - 28,605
------ ------ ------ --- ---- ------
Total due after one year...... 78,791 15,964 - 4 329 95,088
------ ------ ------ --- ---- ------
Total amount due.............. $79,603 $16,647 $1,693 $403 $ 329 $98,675
====== ====== ===== === ==== ======
</TABLE>
The following table sets forth the dollar amount of all loans due after
December 31, 1998, which have pre-determined interest rates and which have
floating or adjustable interest rates.
<TABLE>
<CAPTION>
Floating or
Fixed Rates Adjustable Rates Total
----------- ---------------- -----
(In Thousands)
<S>
<C> <C> <C>
^Residential and home equity.............................. $75,018 $3,773 $78,791
Multi-family and commercial real estate................... 13,719 2,245 15,964
Construction.............................................. -- -- --
Consumer.................................................. 4 -- --
Commercial................................................ -- 329 329
-------- ------ ------
Total................................................... $88,741 $6,347 $95,088
====== ===== ======
</TABLE>
Loan Solicitation and Processing. The Bank's primary source of mortgage
loan applications is referrals from existing or past customers. The Bank also
solicits loan applications from real estate brokers, contractors, and call-ins
and walk-ins to its offices. The Bank advertises in local newspapers and
occasionally on cable television for first mortgage and home equity loans.
Upon receipt of any loan application from a prospective borrower, a
credit report and verifications are ordered to confirm specific information
relating to the loan applicant's employment, income and credit standing. An
appraisal of the real estate intended to secure the proposed loan is undertaken
by an independent fee appraiser. In connection with the loan approval process,
the Bank's loan officers analyze the loan applications and the property
involved. All residential, home equity, multi-family, construction and
commercial real estate loans are processed at the Bank's lending office by the
Bank's loan origination department. The executive committee of the Board of
Directors approves all loans, with the exception of home equity and consumer
loans. A committee of three officers, including any of the following: Chairman
of the Board, President, Chief Financial Officer, and Senior Loan ^ Officer,
approve all home equity loans up to $100,000. All loans purchased by the Bank
are reviewed
-38-
<PAGE>
by senior lending officers. Loan applicants are promptly notified of the
decision of Roxborough-Manayunk by a letter setting forth the terms and
conditions of the decision. If approved, these terms and conditions include the
amount of the loan, interest rate basis, amortization term, a brief description
of real estate to be mortgaged to the Bank, and the notice of requirement of
insurance coverage to be maintained to protect Roxborough- Manayunk's interest.
The Bank requires title, fire, and casualty insurance on all properties securing
loans, which insurance must be maintained during the entire term of the loan. In
certain instances where the Bank is making a small second mortgage, and the Bank
holds the performing first mortgage, it may not require a title policy, but only
certain informal assurances that there are no liens superior to the second
mortgage.
Loan Purchases. In the past, the Bank purchased loans from a number of
financial institutions located in Pennsylvania and Delaware. Generally, such
loans were fix-rate loans secured by single family residential loans located in
Central and Eastern Pennsylvania and Delaware. At December 31, 1997, $13.97
million of such loans were outstanding. In each transaction, the seller retained
the loan servicing. The Bank purchased such loans to increase its residential
loan portfolio.
In 1994, the Bank agreed to act as a correspondent with a bank in
Souderton, Pennsylvania. The bank will originate fixed-rate residential loans
based on terms, conditions, fees, and rates posted by the Bank. All underwriting
conforms to the Bank's underwriting guidelines. The Bank receives from the bank
a completed application to underwrite and determine whether to issue a loan
commitment. At December 31, 1997, the Bank had a balance of $2.3 million of such
loans outstanding. The Bank still maintains this relationship but only to a
limited extent.
In loan purchase transactions, the Bank typically receives a due
diligence package that provides loan level detail on a comparative basis against
the FHLMC underwriting guidelines. All loans must be documented, including an
original appraisal that substantiates the value of the subject property at the
time the loan was originated.
The Bank obtains from the seller a duplicate copy of each original loan
file which generally includes an executed loan application, financial
statements, credit report, and original title policy and mortgage note. In the
event that a loan package has substantial seasoning and low original
loan-to-value ratios, or the market is well beyond the Bank's primary lending
area, a fee appraiser may not be employed to underwrite the appraisal reports in
the loan files. The Bank attempts to physically review and document each loan
file in a purchase transaction. Occasionally, it is reasonable to employ a
random sampling of loan files purchased.
The Bank originates residential first mortgage loans that conform to
the FHLMC and FNMA guidelines. It is the Bank's intent to retain servicing for
loans originated for sale or subsequently packaged as participations. Primary
markets for loans sold will be FNMA and other secondary market investors.
Loans Available For Sale. The Bank holds as available for sale certain
one-to four-family residential loans that have an annual yield determined by
Management to be at rates not compatible with its asset management strategy.
These loans conform to FHLMC and FNMA guidelines and are readily salable in the
secondary market.
Origination, Purchase and Sale of Loans. The following table sets forth
total loans originated, purchased and repaid during the periods indicated. No
loans were sold during the periods shown.
-39-
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- --------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Total gross loans receivable at
beginning of period ........ $ 100,775 $ 102,077 $ 97,677 $ 100,990 $ 81,163
========= ========= ========= ========= =========
Loans originated:
Construction loans .......... $ 1,570 $ 1,055 $ 430 $ 660 $ 1,511
^ Residential and home equity 14,795 13,546 7,064 11,378 10,884
Multi-family and commercial
real estate ............... 2,211 810 1,962 2,015 5,473
Consumer .................... 372 368 190 327 387
Commercial .................. 707 770 -- -- --
--------- --------- --------- --------- ---------
Total loans originated ........ $ 19,655 $ 16,549 $ 9,646 $ 14,380 $ 18,255
========= ========= ========= ========= =========
Loans purchased:
^ Residential ............... $ 1,088 $ 2,360 $ 4,363 $ 1,860 $ 23,451
Multi-family and commercial
real estate ............... -- -- 2,897 -- --
Commercial equipment leases . -- -- 1,629 1,600 1,651
--------- --------- --------- --------- ---------
Total loans purchased ......... 1,088 2,360 8,889 3,460 25,102
--------- --------- --------- --------- ---------
Total loans sold .............. 383 -- -- -- --
--------- --------- --------- --------- ---------
Loan principal repayments ..... 22,489 16,320 13,984 20,005 22,742
--------- --------- --------- --------- ---------
Other (debits less credits) ... (29) (3,891) (151) (1,148) (788)
--------- --------- --------- --------- ---------
Net loan activity ............. $ (2,100) $ (1,302) $ 4,400 $ (3,313) $ 19,827
========= ========= ========= ========= =========
Total gross loans receivable at
end of period ............... $ 98,675 $ 100,775 $ 102,077 $ 97,677 $ 100,990
========= ========= ========= ========= =========
</TABLE>
Loan Commitments. The Bank generally grants commitments to fund
fixed-rate single-family mortgage loans for periods of up to 90 days at a
specified term and interest rate. The Bank also makes loan commitments for
non-conforming or commercial real estate loans for up to 90 days, which
generally carry additional requirements for funding. The total amount of the
Bank's commitments to originate loans as of December 31, 1997 was $761,000. See
Note 5 of the Notes to Consolidated Financial Statements of the Bank.
Loan Servicing and Servicing Fees. The Bank has retained servicing on
loans it has sold to FHLMC and FNMA. The Bank also services all of its own
loans. As of December 31, 1997, 1996 and 1995, the Bank serviced loans for
others totalling $3.7 million, $3.5 million and $4.4 million, respectively. Loan
servicing fees have not constituted a material source of income.
Asset Quality
Non-Performing Assets and Asset Classification. The Bank's collection
procedures provide that when a loan is 30 days or more delinquent, the borrower
is contacted by mail and telephone and payment is requested. If the delinquency
continues, subsequent efforts will be made to contact the delinquent borrower.
In certain instances, the Bank may modify the loan or grant a limited moratorium
on loan payments to enable the borrower to reorganize his financial affairs. If
the loan continues in a delinquent status for 60 days, the Bank will initiate
foreclosure proceedings. Any property acquired as the result
-40-
<PAGE>
of foreclosure or by deed in lieu of foreclosure is classified as REO until such
time as it is sold or otherwise disposed of by the Bank. For the year ended
December 31, 1997, the Bank had transferred loans totalling $250,000 to REO.
When REO is acquired, it is recorded at the lower of the unpaid principal
balance of the related loan or its fair market value. Any write-down of the
property is charged to the allowance for losses.
Loans are reviewed on a regular basis and are placed on a non-accrual
status when, in the opinion of management, the collection of additional interest
is doubtful. The Bank continues to accrue for residential mortgage loans 90 days
or more past due, however a reserve is set up for such loans. Consumer loans
generally are charged off when the loan becomes 90 days or more delinquent.
Commercial business and real estate loans are placed on non-accrual status when
the loan is 90 days or more past due. Interest accrued and unpaid at the time a
loan is placed on non-accrual status is charged against interest income.
Subsequent payments are either applied to the outstanding principal balance or
recorded as interest income, depending on the assessment of the ultimate
collectibility of the loan.
At December 31, 1997, the Bank had approximately $718,000 of loans that
were 60-89 days delinquent, all of which were secured by residential properties.
The following table sets forth information with respect to the Bank's
non-performing assets for the periods indicated. At the dates indicated, the
Bank had no accruing loans past due 90 days or more and no restructured loans
within the meaning of SFAS No. 15.
<TABLE>
<CAPTION>
At December 31,
1997 1996 1995 1994 1993
------------ ------------ ------------- -------------- -------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Loans accounted for on a non-accrual basis... $ - $ - $ - $ - $ -
Accruing loans which are contractually past
due 90 days or more:
^ Residential and home equity.............. $716 $1,357 $1,441 $1,244 $1,998
Construction loans......................... - 109 133 - -
Multi-family and commercial real estate.... - 1,533 565 - 234
Consumer................................... - - - 7 22
---- ------ ------ ------ -----
Total........................................ $716 $2,999 $2,139 $1,251 $2,254
=== ===== ===== ===== =====
Real estate owned............................ $116 $ 186 $ 227 $ 88 $ 189
=== ====== ====== ===== =====
Total non-performing assets.................. $832 $3,185 $2,366 $1,339 $2,443
=== ===== ===== ===== =====
Total non-accrual and accrual loans to
net loans.................................. .74% 3.04% 2.35% 1.40% 2.29%
==== ==== ==== ==== ====
Total non-performing assets to total assets.. .30% 1.08% .82% .49% .88%
==== ==== ==== ==== ====
</TABLE>
Non-performing assets decreased $2,353,000 or 73.9% due to foreclosure
and subsequent liquidation of non-performing assets in addition to normal
collections.
Management of the Bank regularly reviews the loan portfolio in order to
identify potential problem loans and classifies any potential problem loan as a
special mention, substandard, doubtful or loss asset according to the OTS
classification of asset regulations.
OTS regulations provide for savings institutions to classify their
loans and other assets as substandard, doubtful, or loss assets. Assets
classified as substandard are those inadequately protected by the current net
worth and paying capacity of the obligor or the pledged collateral. They are
-41-
<PAGE>
characterized by the distinct possibility that the institution will sustain some
loss if the deficiencies are not corrected. Assets classified as doubtful have
all the weaknesses of those classified as substandard with the additional
characteristic that the weaknesses make collection or liquidation in full highly
questionable and improbable. Assets classified as "loss" are considered
uncollectible and of such little value that their continuance as assets without
the establishment of a specific reserve is not warranted. Assets that do not
currently expose a savings institution to a sufficient degree of risk to warrant
classification but do possess credit deficiencies or potential weaknesses
deserving management's close attention are designated "special mention." Special
mention assets have a potential weakness or pose an unwarranted financial risk
that, if not corrected, could weaken the asset and increase risk in the future.
Assets designated as substandard or doubtful are recorded at fair value. At
December 31, 1997, the Bank had $2.6 million of classified assets of which $2.6
million were classified as substandard and $13,000 were classified as loss.
Furthermore, at December 31, 1997 $718,000 of assets were designated special
mention.
Allowance for Losses on Loans and REO. The Bank's management evaluates
the need to establish reserves against losses on loans and other assets each
year based on estimated losses on specific loans and on any real estate held for
sale or investment when a finding is made that a loss is estimable and probable.
Such evaluation includes a review of all loans for which full collectibility may
not be reasonably assured and considers, among other matters, the estimated
market value of the underlying collateral of problem loans, prior loss
experience, economic conditions and overall portfolio quality. These provisions
for losses are charged against earnings in the year they are established. The
Bank's provisions for losses on loans for the years ended December 31, 1997,
1996 and 1995 were $120,000, $139,000 and $135,000, respectively. At December
31, 1997, the Bank had an allowance for loan losses of $783,000, which
represented .85% of total ^ loans. The Bank had $13,000 in allowances for losses
on REO at that date, which represents 11.0% of net real estate owned.
While the Bank believes it has established its existing allowance for
loan losses in accordance with GAAP and the Interagency Policy Statement on the
Allowance for Loan and Lease Losses issued by the OTS, in conjunction with the
OCC, FDIC and FRB (see "Business of the Company - Lending Activities - Asset
Quality - Allowance for Loan Losses"), there can be no assurance that the
applicable regulators, in reviewing the Bank's loan portfolio, will not request
the Bank to significantly increase its allowance for loan losses, or that
changes in the real estate market or local or national economy will not cause
the Bank to significantly increase its allowance for loans losses, thereby
negatively affecting the Bank's financial condition and earnings.
In making loans, the Bank recognizes that credit losses will be
experienced and that the risk of loss will vary with, among other things, the
type of loan being made, the creditworthiness of the borrower over the term of
the loan and, in the case of a secured loan, the quality of the security for the
loan.
During the years ended December 31, 1997, 1996 and 1995, the Bank
(recovered) charged-off ^ $(85,526), $16,895 and $96,629, respectively, of loans
receivable and $33,506, $23,675 and $0, respectively, of REO in connection with
assets classified by the Bank as loss. It is the Bank's policy to review its
loan portfolio, in accordance with regulatory classification procedures, on a
quarterly basis. Additionally, the Bank maintains a program of reviewing loan
applications prior to making the loan and immediately after loans are made in an
effort to maintain loan quality. See Notes 5 and 6 of Notes to Consolidated
Financial Statements of the Bank.
-42-
<PAGE>
The following table sets forth information with respect to the
Company's allowance for loan losses at the dates indicated:
<TABLE>
<CAPTION>
At December 31,
---------------------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- --------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Total loans outstanding, net(1)............. $ 96,280 $ 98,626 $100,271 ^ $95,524 $ 98,622
======= ======= ======= ====== ======
Average loans outstanding, net(1)........... $101,472 $101,726 $ 99,194 $97,302 $ 85,293
======= ======= ======= ====== =======
Allowance balances (at beginning of
period)................................... $577 $455 $417 $450 $385
Provision:
^ Residential............................. 37 - 24 49 76
Multi-family and commercial
real estate............................. 83 139 27 9 14
Consumer.................................. - - 84 2 4
Net Charge-offs (recoveries):
^ Residential............................. (86) 17 97 83 29
Multi-family and commercial
real estate............................. - - - - -
Consumer.................................. - - - 10 -
---- ----- ---- ---- ----
Allowance balance (at end of period)........ $783 $ 577 $455 $417 $450
=== ===== === === ===
Allowance for loan losses as a percent
of total loans outstanding................ .85% .59% .45% .44% .46%
Net loans charged off (recovery) as
a percent of average loans outstanding.... (.08)% .02% .09% .10% .03%
</TABLE>
- -------------------------
(1) Does not include loans available for sale.
-43-
<PAGE>
The following table sets forth certain information regarding
the allocation of the allowance for loan losses by type.
<TABLE>
<CAPTION>
At December 31,
-------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------------- ----------------- ----------------- ------------------- ------------------
Percent of Percent of Percent of Percent of Percent of
Loans to Loans to Loans to Loans to Loans to
Total Total Total Total Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
------ ------- ------ ------- ------ ------- ------ ------- ------ ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
^Residential and home equity(1). $234 82.39% $197 81.22% $275 79.86% $262 84.47% $300 85.71%
Multi-family and commercial
real estate................... 549 16.87 380 17.54 106 19.79 55 14.95 79 13.76
Consumer loans.................. - 0.41 - 0.48 - 0.35 - 0.58 - 0.53
Commercial loans(2)............. - 0.33 - 0.76 74 - 100 - 71 -
--- ------ --- ------ --- ------ --- ------ --- ------
Total allowance............... $783 100.00% $577 100.00% $455 100.00% $417 100.00% $450 100.00%
=== ====== === ====== === ====== === ====== === ======
</TABLE>
- ------------
(1) Includes residential construction loans.
(2) Includes loans secured by commercial equipment leases at December 31, 1995,
1994 and 1993.
-44-
<PAGE>
The following table sets forth certain information regarding the Bank's
allowance for REO losses for the periods indicated.
At December 31,
-------------------------------------
1997 1996 1995
---- ---- ----
(Dollars in Thousands)
Total real estate owned, net......... $116 $186 $227
=== === ===
Allowance balance - beginning........ $ 46 $24 $ 2
=== == ===
Provision............................ 130 132 38
Charge-offs.......................... 163 110 16
--- --- ---
Allowance balance - ending........... $ 13 $ 46 $ 24
=== === ===
Investment Activities
General. The investment policy of the Bank, which is established by
senior management and approved by the Board of Directors, is based upon its
asset and liability management goals and is designed primarily to provide a
portfolio of high quality, diversified investments while seeking to optimize net
interest income within acceptable limits of safety and liquidity. The current
investment goal is to invest available funds in instruments that meet specific
requirements of the Bank's asset and liability management goals. The investment
activities of the Bank consist primarily of investments in fixed and
adjustable-rate mortgage-backed securities and U.S. Government agency bonds. At
December 31, 1997, the Bank had a mortgage-backed securities portfolio with a
market value of $111.5 million, all of which was held for sale. At December 31,
1997, the Bank had an investment securities portfolio of approximately $37.8
million consisting of U.S. Government treasury, agency securities, and municipal
and equity securities. The market value of such securities at December 31, 1997
was $38.9 million. See Notes 3 and 4 to the Notes to the Consolidated Financial
Statements of the Bank.
Mortgage-Backed Securities. The Bank also purchases mortgage-backed
securities guaranteed by GNMA and FNMA and issued by the FHLMC which are secured
by fixed-rate and adjustable-rate mortgages. GNMA mortgage-backed securities are
pass-through certificates issued and backed by the GNMA and are secured by
interests in pools of mortgages which are fully insured by the Federal Housing
Administration ("FHA") or partially guaranteed by the Department of Veterans'
Affairs ("VA"). The FNMA mortgage-backed securities consist of pass-through
certificates and real estate mortgage investment conduits ("REMICs"). FHLMC
mortgage-backed securities consist of both REMICs and pass-through certificates
issued and guaranteed by the FHLMC and secured by interests in pools of
conventional mortgages originated by savings institutions. As of December 31,
1997, the Bank's mortgage-backed securities amounted to $111.5 million, or 40%
of total assets, all of which are currently classified as available for sale.
-45-
<PAGE>
REMICs held by the Bank at December 31, 1997 consisted of floating-rate
tranche, with the exception of one fixed-rate security in the amount of $2.6
million. The interest rate of all of the Bank's floating-rate securities adjusts
monthly and provides the institution with net interest margin protection in an
increasing market interest rate environment. The securities are backed by
mortgages on one- to four-family residential real estate and have contractual
maturities up to 30 years. At December 31, 1997, none of these securities are
deemed to be "High Risk" according to Federal Financial Institutions Examination
Council ("FFIEC") guidelines which have been adopted by the OTS. The securities
are primarily companion tranche to "PACs" and "TACs". PACs and TACs (Planned and
Targeted Amortization Classes) are designed to provide a specific principal and
interest cash-flow. Principal payments that are received in excess of the amount
needed for the PACs and TACs is allocated to the companion tranche. When the
PACs and TACs are repaid in full, all principal is then used to pay the
companion tranche.
Investment Securities. Income from investment securities provides a
significant source of income for the Bank. The Bank maintains a portfolio of
investment securities such as U.S. government and agency securities,
non-governmental securities, including interest-bearing deposits, in addition to
the Bank's mortgage-backed securities portfolio. The Bank is required by federal
regulation to maintain a minimum percentage of its liquidity base in the form of
qualifying long and short-term liquid assets. Currently, the liquidity
requirement is 4%. In addition, longer-term corporate, agency and government
debt securities may be held subject to similar creditworthiness, ratings and
maturity criteria. As of December 31, 1997, the Bank's, liquidity ratio was
18.9%. The balance of short-term security investments in excess of regulatory
requirements reflects management's response to the significantly increasing
percentage of savings deposits with short maturities. It is the intention of
management to maintain shorter maturities in the Bank's investment portfolio in
order to better match the interest rate sensitivities of its assets and
liabilities. However, during periods of rapidly declining interest rates, the
yield on such investments also declines at a faster rate than does the yield on
long-term investments.
Investment decisions are made within policy guidelines established by
the Board of Directors and the Asset/Liability Committee. As of December 31,
1997, the Bank's investment portfolio (including investment securities
classified as available for sale) (the "investment portfolio") totalled $168.7
million.
At December 31, 1997, the Mid-Tier Holding Company had various
investments in capital bank notes and equity securities. Those investments are
held as available for sale and are included in the table.
The following table sets forth the fair value or amortized cost (as
applicable) of the Bank's investment portfolio, short-term investments, and FHLB
stock at the dates indicated. The amounts for securities held to maturity are
listed at amortized cost; amounts for securities available for sale are listed
at approximate market value.
Investment Portfolio. The following table sets forth the carrying value
(market value or amortized cost, as applicable) of the Company's investment
securities portfolio, short-term investments, FHLB stock, and mortgage-backed
securities at the dates indicated. At December 31, 1997, the market value of the
Company's investment securities portfolio and mortgage-backed securities
portfolio were $38,852,000 and $111,486,000, respectively.
-46-
<PAGE>
<TABLE>
<CAPTION>
At December 31,
--------------------------------------
1997 1996 1995
------------------ ------------------ -----------
(In Thousands)
<S> <C> <C> <C>
Investment Securities:
U.S. Treasury Securities................. $ 5,043 $ 5,055 $ 5,066
FHLB bonds............................... 17,284 22,000 20,711
Other agencies(1)........................ 4,168 19,160 17,996
Municipal bonds.......................... 8,034 - -
Mutual funds(2).......................... 1,222 1,147 557
FHLMC preferred stock(2)................. - 985 1,009
Capital trust securities(2)(3)........... 1,060 - -
Subordinated debt(3)..................... 250 250 250
------ ------ ------
Total investment securities............ 37,061 48,597 45,589
------ ------ ------
Interest-bearing deposits................. 15,312 36,067 30,717
Federal funds sold........................ 2,000 2,000 2,000
FHLB of Pittsburgh stock.................. 1,701 1,691 1,686
Mortgage-backed securities(2)............. 111,486 93,410 98,315
Equity investments(2)(3) 1,166 499 -
-------- -------- --------
Total Investments...................... $168,726 $182,264 $178,307
======= ======= =======
</TABLE>
- -------------------------
(1) Consists of FNMA, FHLMC, SLMA debentures and certificates of deposit.
(2) Classified as available for sale and carried at approximate fair value. All
other investment securities are classified as held to maturity.
(3) Investments held by the Mid-Tier Holding Company.
-47-
<PAGE>
Investment Portfolio Maturities. The following table sets forth certain
information regarding the carrying values, weighted average yields and
maturities of the Company's investment securities portfolio at December 31,
1997.
<TABLE>
<CAPTION>
As of December 31, 1997
--------------------------------------------------------------------------------------------------------
One Year or Less One to Five Years Five to Ten Years More than Ten Years Total Investment Securities
------------------- ----------------- ----------------- ------------------- ----------------------------
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average Market
Value Yield Value Yield Value Yield Value Yield Value Yield Value
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury Securities.... $ - -% $ - -% $ 5,043 7.50% $ - -% $ 5,043 7.50% $ 5,419
FHLB bonds and notes........ 3,000 3.17 3,000 6.02 - - 11,284 8.00 17,284 6.82 17,291
Other agencies(1)........... 168 5.50 - - 4,000 8.00 - - 4,168 7.90 4,228
Municipal bonds............. - - - - - - 8,034 5.13 8,034 5.13 8,215
Subordinated debt .......... - - - - 250 8.25 - - 250 8.25 250
Capital securities.......... - - - - - - 1,025 9.70 1,025 9.70 1,060
Mutual funds................ 1,222 5.86 - - - - - - 1,222 5.86 1,222
Mortgage-backed securities:
GNMA pass-through......... - - - - 562 9.51 31,275 7.43 31,837 7.47 32,477
FNMA pass-through......... - - 3,254 6.25 21,219 6.68 - - 24,473 6.62 24,733
FHLMC pass-through........ 298 9.00 6,214 6.99 6,403 8.92 30,841 6.87 43,756 7.20 44,648
FNMA REMICs............... - - - - - - 2,531 5.00 2,531 5.00 2,478
FHLMC REMICs.............. - - 4,257 5.56 - - 2,993 6.23 7,250 5.84 7,150
----- ---- ------ ---- ------- ---- ------ ---- ------- ---- -------
Total..................... $4,688 4.32% $16,725 6.31% $37,477 7.31% $87,983 6.43% $146,873 6.57% $149,171
===== ==== ====== ==== ====== ==== ====== ==== ======= ==== =======
</TABLE>
- ---------------------
(1) Consists of FNMA, FHLMC, and SLMA debentures and certificates of deposit.
-48-
<PAGE>
Unrealized holding gains and losses for trading securities are included
in earnings. Unrealized gains and losses for available-for-sale securities are
excluded from earnings and reported net of income tax effect as a separate
component of stockholders' equity until realized. Investments classified as held
to maturity are accounted for at amortized cost.
Sources of Funds
General. Deposits are the major source of the Bank's funds for lending
and other investment purposes. In addition to deposits, the Bank derives funds
from loan and mortgage-backed securities principal repayments, and proceeds from
the sale of loans, mortgage-backed securities and investment securities. Loan
and mortgage-backed securities principal repayments are a relatively stable
source of funds, while deposit inflows are significantly influenced by general
interest rates and money market conditions. Borrowings may be used on a
short-term basis to compensate for reductions in the availability of funds from
other sources. They also may be used on a longer-term basis for general business
purposes.
Deposits. The Bank offers a wide variety of deposit accounts, although
a majority of such deposits are in fixed-term, market-rate certificate accounts.
Deposit account terms vary, primarily as to the required minimum balance amount,
the amount of time that the funds must remain on deposit and the applicable
interest rate.
Fixed-term certificates have been a major source of new deposits for
the Bank and, as of December 31, 1997, such certificates represented $111.1
million or 48.2% of the Bank's deposit accounts. As of December 31, 1997, $9.1
million or 4.0% of the Bank's deposit portfolio consisted of one- to six-month
fixed-term, market-rate certificates, and $38.7 million or 16.8% consisted of 13
to 60-month fixed-term, market-rate certificates. Savings accounts are a primary
source of deposit funds for the Bank and, as of December 31, 1997, represented
$96.2 million, or 41.7% of the deposit portfolio.
The Bank also offers standardized individual retirement accounts
("IRAs"), as well as qualified defined master plans for self- employed
individuals. IRAs are marketed in the form of all of the available savings
deposits and certificates.
The Bank had no brokered certificates of deposit as of December 31,
1997.
The Bank pays interest rates on its certificate accounts which are
competitive in its market. Interest rates on deposits are reviewed weekly by
management based on a combination of factors, including the need for funds and
local competition.
Deposits in the Bank as of December 31, 1997 were represented by
various types of savings programs described below.
Deposit Portfolio. Deposits in the Bank as of December 31, 1997, were
represented by various types of savings programs described below.
-49-
<PAGE>
<TABLE>
<CAPTION>
Minimum Balance as of Percentage of
Category Term Interest Rate(1) Balance Amount December 31, 1997 Total Deposits
- -------- ---- ---------------- ------------- ----------------- --------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Regular Savings None 3.25% $ 10 $ 32,780 14.2%
Senior Club Savings None 4.00 500 62,950 27.3
Christmas and Vacation
Clubs None 2.00 10 428 .2
NOW Accounts None 1.48 10 14,078 6.1
Super NOW None 1.48 1,000 872 .4
Money Market Accounts None 3.64 1,000 7,687 3.3
Non-interest Deposits None - 300 712 .3
Certificates of Deposit:
Fixed Term, Fixed Rate 1-3 Months 3.64 500 582 .3
Fixed Term, Fixed Rate 4-6 Months 3.88 500 8,519 3.7
Fixed Term, Fixed Rate 7-12 Months 5.55 500 63,269 27.4
Fixed Term, Fixed Rate 13-24 Months 5.08 500 8,027 3.5
Fixed Term, Fixed Rate 25-36 Months 5.32 500 14,290 6.2
Fixed Term, Fixed Rate 60 Months 5.79 1,000 16,364 7.1
------- -----
Total deposits $230,558 100.0%
=====
Accrued interest on deposits 30
-------
Total $230,588
=======
</TABLE>
- -------------------------
(1) Interest rate offerings as of December 31, 1997.
Time Deposits by Rate. The following table sets forth the time deposits
in the Company classified by interest rate as of the dates indicated.
<TABLE>
<CAPTION>
As of December 31,
------------------------------------------------
1997 1996 1995
------------ ------------ -----------
(In Thousands)
Weighted average rate:
<S> <C> <C> <C>
3.00-3.99%................................ $ 9,102 $ 14,497 $ 8,732
4.00-4.99%................................ 4,858 19,199 20,152
5.00-5.99%................................ 91,505 65,362 65,206
6.00-6.99%................................ 5,586 19,440 19,595
Accrued interest on certificate
accounts.................................. 10 16 23
------ ------ -------
Total................................... $111,061 $118,514 $113,708
======= ======= =======
</TABLE>
-50-
<PAGE>
Time Deposits Maturity Schedule. The following table sets forth the
amount and maturities of time deposits at December 31, 1997.
<TABLE>
<CAPTION>
Amount Due
-------------------------------------------------------------------------------------------------------
After
December 31, December 31, December 31, December 31,
Interest Rate 1998 1999 2000 2000 Total
- ------------- ----------------- ------------------- ------------------- -------------------- ----------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
2.99% or less........... $ - $ - $ - $ - $ -
3.00-3.99%.............. 9,092 - - - 9,092
4.00-4.99%.............. 4,754 90 - - 4,844
5.00-5.99%.............. 75,659 8,562 3,876 3,448 91,545
6.00-6.99%.............. 383 4,028 1,159 - 5,570
Accrued Interest on
Certificate Accounts.... 10 - - -- 10
------- ------- ------- ------- -------
Total $89,898 $12,680 $5,035 $3,448 $111,061
====== ====== ===== ===== =======
</TABLE>
Jumbo Certificates of Deposit. The following table indicates the amount
of the Bank's certificates of deposit of $100,000 or more by time remaining
until maturity as of December 31, 1997.
Certificates
Maturity Period of Deposits
- --------------- -----------
(In Thousands)
Within three months......................... $ 3,767
Three through six months.................... 512
Six through twelve months................... 4,811
Over twelve months.......................... 1,597
------
$10,687
=======
-51-
<PAGE>
Savings Deposit Activity. The following table sets forth the savings
activities of the Bank for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------ ------------- ----------- ----------- -----------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Deposits.................................. ^$337,170 $336,937 $305,790 $309,093 $294,955
Withdrawals............................... 335,365 340,105 305,593 318,822 286,765
Net increase (decrease)
before interest credited................ 1,805 (3,168) 197 (9,729) 8,190
Deposits sold............................. (37,238) - - - -
Interest credited......................... 9,449 9,532 8,750 6,654 7,154
------- ------- ------- ------- -------
Net increase (decrease) in
savings deposits........................ ^$(25,984) $ 6,364 $ 8,947 $ (3,075) $ 15,344
======= ======= ======= ======= =======
</TABLE>
Borrowings
Deposits are the primary source of funds of the Bank's lending and
investment activities and for its general business purposes. The Bank may obtain
advances from the FHLB of Pittsburgh to supplement its supply of lendable funds.
Advances from the FHLB of Pittsburgh are typically secured by a pledge of the
Bank's stock in the FHLB of Pittsburgh and a portion of the Bank's first
mortgage loans and certain other assets. The Bank, if the need arises, may also
access the Federal Reserve Bank discount window to supplement its supply of
lendable funds and to meet deposit withdrawal requirements. At December 31,
1997, the Bank had $7.9 million in advances outstanding from the FHLB of
Pittsburgh at fixed rates of interest, all of which were matched to a specific
investment at a positive interest rate spread. Most of these advances provide
for a prepayment penalty. At December 31, 1997, the Bank had no other
borrowings. See Note 9 of the Notes to Consolidated Financial Statements of the
Mid-Tier Holding Company.
The following table sets forth certain information as to FHLB advances
at the dates indicated. Included in the table below is a $1,884,000 Community
Investment Program loan ("CIP") from the FHLB Pittsburgh used to finance the
Bank's low income housing project to a developer/manager of Section 8 housing.
<TABLE>
<CAPTION>
As of and For the
Year Ended December 31,
----------------------------------------------
1997 1996 1995
---- ---- ----
(Dollars In Thousands)
<S> <C> <C> <C>
FHLB advances............................. $7,884 $7,884 $7,884
Weighted average interest rate of
FHLB advances........................... 5.53% 5.53% 5.53%
Maximum amount of advances at
any month end............................ $7,884 $7,884 $7,884
Average amount of advances................ $7,884 $7,884 $7,884
Weighted average interest rate
of average amount of advances........... 5.53% 5.53% 5.53%
</TABLE>
-52-
<PAGE>
Subsidiaries and Joint Venture Activity
The Bank is permitted to invest up to 2% of its assets in the capital
stock of, or secured or unsecured loans to, subsidiary corporations, with an
additional investment of 1% of assets when such additional investment is
utilized primarily for community development purposes. Under such limitations,
as of December 31, 1997, the Bank was authorized to invest up to approximately
$5.5 million in the stock of, or loans to, service corporations (based upon the
2% limitation). As of December 31, 1997, the net book value of the Bank's
investment in stock, unsecured loans, and conforming loans in its service
corporations was $136,000.
The Bank has two wholly owned subsidiary corporations, Montgomery
Service Corporation ("MSC") and Ridge Service Corporation ("RSC"). MSC engages
in the management of real estate. RSC is presently inactive.
Personnel
As of December 31, 1997, the Bank had 61 full-time employees and 17
part-time employees. The employees are not represented by a collective
bargaining unit. The Bank believes its relationship with its employees to be
satisfactory.
Competition
The Bank faces strong competition in its attraction of savings
deposits, which are its primary source of funds for lending, and in the
origination of real estate loans. The Bank's competition for savings deposits
and loans historically has come from other thrift institutions and commercial
banks located in the Bank's market area. The Bank also competes with mortgage
banking companies for real estate loans, and faces competition for investor
funds from short- term money market securities and corporate and government
securities.
The Bank's market area generally includes Philadelphia, Bucks,
Delaware, Chester and Montgomery Counties, which comprise the Philadelphia
metropolitan area. The Bank's primary lending area consists of the Roxborough,
Manayunk, Overbrook and Andorra neighborhoods located in the far northwest
sections of Philadelphia and South Philadelphia. The Bank has no significant
loan concentrations in any one part of its primary lending area.
The Bank competes for loans by charging competitive interest rates and
loan fees, remaining efficient and providing a wide range of services to its
customers. The Bank offers all consumer banking services such as checking
accounts, certificates of deposit, retirement accounts, consumer and mortgage
loans and ancillary services such as safe deposit boxes, convenient offices and
drive-up facilities, automated teller machines and overdraft protection. These
services help the Bank compete for deposits, in addition to offering competitive
rates on deposits.
Recent legislative and regulatory measures have significantly expanded
the range of services which savings institutions can offer the public, such as
demand deposits, trust services,and consumer and commercial lending. These
changes, combined with increasingly sophisticated depositors, have dramatically
increased competition for savings dollars among savings institutions and other
types of investment entities, as well as with commercial banks in regard to
loans, checking accounts and other types of financial services. In addition,
large conglomerates and investment banking firms have entered
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<PAGE>
the market for financial services. The competition between commercial banks and
savings institutions is also increased by allowing banks to acquire healthy
savings institutions, imposing similar capital requirements on banks and savings
institutions and placing certain investment and other regulatory restrictions on
savings institutions which are similar to those imposed on banks. Thus, in the
future, the Bank, like other savings institutions, will face increased
competition to provide savings and lending services and, in order to remain
competitive, will have to be innovative and knowledgeable about its market, as
well as to continue to exert effective controls over its costs.
Properties and Equipment
The Bank's executive offices are located at 6060 Ridge Avenue in
Philadelphia, Pennsylvania. The Bank conducts its business through six offices,
all of which are located in the Philadelphia, Pennsylvania area.
The following table sets forth the location of each of the Bank's
offices, the year the office was first acquired and the net book value of each
office. The Bank owns five of its six office locations.
<TABLE>
<CAPTION>
Year
Owned Facility Net Book
or Opened or Value as of
Office Location Leased Acquired December 31, 1997
- ----------------------------------------- ---------------- ------------------ ----------------------
(In Thousands)
<S> <C> <C> <C>
Main Office Owned 1958 $ 391
6060 Ridge Avenue
Philadelphia, PA 19128
7568 Ridge Avenue Owned 1962 16
Philadelphia, PA 19128
8345 Ridge Avenue Owned 1974 115
Philadelphia, PA 19128
4370 Main Street Leased 1993 63(1)
Philadelphia, PA 19127
Church Lane & Chester Avenue Owned 1982 134
Yeadon, PA 19050
6503-15 Haverford Avenue Owned 1982 277
---
Philadelphia, PA 19151
$996
</TABLE>
- -------------------------
(1) Includes leasehold improvements. The lease expires on December 31,
1999, with an option to renew to 2004.
-54-
<PAGE>
The Bank performs its own data processing through its data processing
department located in its main office and utilizes several hardware platforms
and a combination of internally developed and purchased software systems. The
net book value of this data processing equipment as of December 31, 1997 was
$14,500. As of December 31, 1997, the net book value of land, buildings,
furniture, and equipment owned by the Bank, less accumulated depreciation
totalled $1.5 million. See Note 7 of Notes to Consolidated Financial Statements
of the Mid-Tier Holding Company.
Based on a recognized need to upgrade the date processing system, to be
more competitive in the marketplace and to address the year 2000 problem, the
Bank signed an agreement with Open Solutions Incorporated, Glastonbury,
Connecticut, to purchase ^ its information processing system. This system is a
PC-based client service system which, management believes, will serve the Bank
well into the next century. It is estimated the total cost of this system will
be approximately $1.2 million with an annual cost of approximately $344,000
including depreciation, software cost and maintenance.
Legal Proceedings
The Bank from time to time is a party to legal proceedings in the
ordinary course of business such as enforcing security interests in loans. In
the opinion of management, the Bank is not engaged in any other legal
proceedings of a material nature at the present time.
REGULATION
Set forth below is a brief description of certain laws which relate to
the Bank, the Mid-Tier Holding Company and the Company. The description is not
complete and is qualified in its entirety by references to applicable laws and
regulation.
Holding Company Regulation
General. The Company will be required to register and file reports with
the OTS and will be subject to regulation and examination by the OTS. In
addition, the OTS will have enforcement authority over the Company and any
non-savings institution subsidiaries. This will permit the OTS to restrict or
prohibit activities that it determines to be a serious risk to the Bank. This
regulation is intended primarily for the protection of depositors and not for
the benefit of stockholders.
QTL Test. Since the Company will only own one savings institution, it
will be able to diversify its operations into activities not related to banking,
but only so long as the Bank satisfies the QTL test. If the Company controls
more than one savings institution, it would lose the ability to diversify its
operations into nonbanking related activities, unless such other savings
institutions each also qualify as a QTL or were acquired in a supervised
acquisition. See "-- Savings Institution Regulation -- Qualified Thrift Lender
Test. "
Restrictions on Acquisitions. The Company must obtain approval from the
OTS before acquiring control of any other SAIF-insured savings institution. No
person may acquire control of a federally insured savings institution without
providing at least 60 days written notice to the OTS and giving the OTS an
opportunity to disapprove the proposed acquisition.
-55-
<PAGE>
Savings Institution Regulation
General. As a federally chartered, SAIF-insured savings institution,
the Bank is subject to extensive regulation by the OTS and the FDIC. Its lending
activities and other investments must comply with various federal and state
statutory and regulatory requirements. The Bank is also subject to certain
reserve requirements promulgated by the Board of Governors of the Federal
Reserve System ("Federal Reserve").
The OTS, in conjunction with the FDIC, regularly examines the Bank and
prepares reports for the consideration of the Bank's board of directors on any
deficiencies that the OTS finds in the Bank's operations. The Bank's
relationship with its depositors and borrowers is also regulated to a great
extent by federal and state law, especially in such matters as the ownership of
savings accounts and the form and content of the Bank's mortgage documents.
The Bank must file reports with the OTS and the FDIC concerning its
activities and financial condition, in addition to obtaining regulatory
approvals prior to entering into certain transactions such as mergers with or
acquisitions of other financial institutions. This regulation and supervision
establishes a comprehensive framework of activities in which an institution can
engage and is intended primarily for the protection of the SAIF and depositors.
The regulatory structure also gives the regulatory authorities extensive
discretion in connection with their supervisory and enforcement activities and
examination policies, including policies with respect to the classification of
assets and the establishment of adequate loan loss reserves for regulatory
purposes. Any change in regulations, whether by the OTS, the FDIC or any other
government agency, could have a material adverse impact on the operations of the
Bank, the Mid-Tier Holding Company and/or the Mutual Holding Company.
Insurance of Deposit Accounts. The FDIC is authorized to establish
separate annual assessment rates for deposit insurance for members of the BIF
and the SAIF. The FDIC may increase assessment rates for either fund if
necessary to restore the fund's ratio of reserves to insured deposits to its
target level within a reasonable time and may decrease such assessment rates if
such target level has been met. The FDIC has established a risk-based assessment
system for both SAIF and BIF members. Under this system, assessments are set
within a range, based on the risk the institution poses to its deposit insurance
fund. This risk level is determined based on the institution's capital level and
the FDIC's level of supervisory concern about the institution.
Because a significant portion of the assessments paid into the SAIF by
savings institutions were used to pay the cost of prior savings institution
failures, the reserves of the SAIF were below the level required by law. The BIF
had, however, met its required reserve level during the third calendar quarter
of 1995. As a result, deposit insurance premiums for deposits insured by the BIF
were substantially less than premiums for deposits such as the Bank which are
insured by the SAIF. Legislation to capitalize the SAIF and to eliminate the
significant premium disparity between the BIF and the SAIF became effective
September 30, 1996. The recapitalization plan provided for a special assessment
equal to $.657 per $100 of SAIF deposits held at March 31, 1995, in order to
increase SAIF reserves to the level required by law. Certain BIF institutions
holding SAIF-insured deposits were required to pay a lower special assessment.
Based on the Bank's deposits at March 31, 1995, the Bank paid a pre-tax special
assessment of $1,533,000.
The recapitalization plan also provides that the cost of prior failures
which were funded through the issuance of Fico Bonds (bonds issued to fund the
cost of savings institution failures in prior years)
-56-
<PAGE>
will be shared by members of both the SAIF and the BIF. This increased BIF
assessments for healthy banks to approximately $.013 per $100 of deposits in
1997. SAIF assessments for healthy savings institutions in 1997 were
approximately $.064 per $100 in deposits and may be reduced, but not below the
level set for healthy BIF institutions.
The FDIC has lowered the rates on assessments paid to the SAIF and
widened the spread of those rates. The FDIC's action established a base
assessment schedule for the SAIF with rates ranging from 4 to 31 basis points,
and an adjusted assessment schedule that reduces these rates by 4 basis points.
As a result, the effective SAIF rates range from 0 to 27 to basis points as of
October 1, 1996. In addition, the FDIC's final rule prescribed a special interim
schedule of rates ranging from 18 to 27 basis points for SAIF-member savings
institutions for the last quarter of calendar 1996, to reflect the assessments
paid to the Financing Corp. (Fico Bonds). Finally, the FDIC's action established
a procedure for making limited adjustments to the base assessment rates by
rulemaking without notice and comment, for both the SAIF and the BIF.
The recapitalization plan also provides for the merger of the SAIF and
BIF effective January 1, 1999, assuming there are no savings institutions under
federal law. Under separate proposed legislation, Congress is considering the
elimination of the federal thrift charter and elimination of the separate
federal regulation of thrifts. As a result, the Bank might have to convert to a
different financial institution charter and be regulated under federal law as a
bank, including being subject to the more restrictive activity limitations
imposed on national banks. It is not possible to predict the impact of the
Conversion to, or regulation as, a bank until the legislation requiring such
change is enacted.
Regulatory Capital Requirements. OTS capital regulations require
savings institutions to meet three capital standards: (1) tangible capital equal
to 1.5% of total adjusted assets, (2) core capital equal to at least 3% of total
adjusted assets, and (3) risk-based capital equal to 8% of total risk-weighted
assets. The Bank's capital ratios are set forth under "HISTORICAL AND PRO FORMA
CAPITAL COMPLIANCE."
Tangible capital is defined as core capital less all intangible assets
(including supervisory goodwill), less certain mortgage servicing rights and
less certain investments. Core capital is defined as common stockholders' equity
(including retained earnings), noncumulative perpetual preferred stock and
minority interests in the equity accounts of consolidated subsidiaries, certain
nonwithdrawable accounts and pledged deposits of mutual savings associations and
qualifying supervisory goodwill, less nonqualifying intangible assets, certain
mortgage servicing rights and certain investments.
The risk-based capital standard for savings institutions requires the
maintenance of total risk-based capital (which is defined as core capital plus
supplementary capital) of 8% of risk-weighted assets. The components of
supplementary capital include, among other items, cumulative perpetual preferred
stock, perpetual subordinated debt, mandatory convertible subordinated debt,
intermediate-term preferred stock, and the portion of the allowance for loan
losses not designated for specific loan losses. The portion of the allowance for
loan and lease losses includable in supplementary capital is limited to a
maximum of 1.25% of risk-weighted assets. Overall, supplementary capital is
limited to 100% of core capital. A savings association must calculate its
risk-weighted assets by multiplying each asset and off-balance sheet item by
various risk factors as determined by the OTS, which range from 0% for cash to
100% for delinquent loans, property acquired through foreclosure, commercial
loans, and other assets.
-57-
<PAGE>
The risk-based capital standards of the OTS generally require savings
institutions with more than a "normal" level of interest rate risk to maintain
additional total capital. An institution's interest rate risk will be measured
in terms of the sensitivity of its "net portfolio value" to changes in interest
rates. Net portfolio value is defined, generally, as the present value of
expected cash inflows from existing assets and off-balance sheet contracts less
the present value of expected cash outflows from existing liabilities. A savings
institution will be considered to have a "normal" level of interest rate risk
exposure if the decline in its net portfolio value after an immediate 200 basis
point increase or decrease in market interest rates (whichever results in the
greater decline) is less than two percent of the current estimated economic
value of its assets. An institution with a greater than normal interest rate
risk will be required to deduct from total capital, for purposes of calculating
its risk-based capital requirement, an amount (the "interest rate risk
component") equal to one-half the difference between the institution's measured
interest rate risk and the normal level of interest rate risk, multiplied by the
economic value of its total assets.
The OTS calculates the sensitivity of an institution's net portfolio
value with data submitted by the institution and the interest rate risk
measurement model adopted by the OTS. The amount of the interest rate risk
component, if any, to be deducted from an institution's total capital will be
based on the institution's Thrift Financial Report filed two quarters earlier.
Savings institutions with less than $300 million in assets and a risk-based
capital ratio above 12% are generally exempt from filing the interest rate risk
schedule with their Thrift Financial Reports. However, the OTS may require any
exempt institution that it determines may have a high level of interest rate
risk exposure to file such schedule on a quarterly basis and may be subject to
an additional capital requirement based upon its level of interest rate risk as
compared to its peers. Although the rule is not yet in effect, due to the Bank's
net size and risk-based capital level, we are exempt from the interest rate risk
component.
Dividend and Other Capital Distribution Limitations. OTS regulations
require us to give the OTS 30 days advance notice of any proposed declaration of
dividends to the Bank, and the OTS has the authority under its supervisory
powers to prohibit the payment of dividends by us to the Bank. In addition, we
may not declare or pay a cash dividend on the Bank's capital stock if the effect
would be to reduce the Bank's regulatory capital below the amount required for
the liquidation account to be established at the time of the conversion. See
"THE CONVERSION AND REORGANIZATION --Effects of Conversion and Reorganization --
Effect on Liquidation Account."
OTS regulations impose limitations upon all capital distributions by
savings institutions, such as cash dividends, payments to repurchase or
otherwise acquire its shares, payments to stockholders of another institution in
a cash-out merger, and other distributions charged against capital. The rule
establishes three tiers of institutions based primarily on an institution's
capital level. An institution that exceeds all fully phased-in capital
requirements before and after a proposed capital distribution ("Tier 1
institution") and has not been advised by the OTS that it is in need of more
than the normal supervision can, after prior notice but without the approval of
the OTS, make capital distributions during a calendar year equal to the greater
of (i) 100% of its net income to date during the calendar year plus the amount
that would reduce by one-half its "surplus capital ratio" (the excess capital
over its fully phased-in capital requirements) at the beginning of the calendar
year, or (ii) 75% of its net income over the most recent four quarter period.
Any additional capital distributions require prior regulatory notice. As of
December 31, 1997, the Bank qualified as a Tier 1 institution.
In the event the Bank's capital falls below the Bank's fully phased-in
requirement or the OTS notifies the Bank that it is in need of more than normal
supervision, the Bank would become a Tier 2 or Tier 3 institution and as a
result, the Bank's ability to make capital distributions could be restricted.
Tier
-58-
<PAGE>
2 institutions, which are institutions that before and after the proposed
distribution meet their current minimum capital requirements, may only make
capital distributions of up to 75 % of net income over the most recent four
quarter period. Tier 3 institutions, which are institutions that do not meet
current minimum capital requirements and propose to make any capital
distribution, and Tier 2 institutions that propose to make a capital
distribution in excess of the noted safe harbor level, must obtain OTS approval
prior to making such distribution. In addition, the OTS could prohibit a
proposed capital distribution by any institution, which would otherwise be
permitted by the regulation, if the OTS determines that such distribution would
constitute an unsafe or unsound practice. The OTS has proposed rules relaxing
certain approval and notice requirements for well-capitalized institutions.
A savings institution is prohibited from making a capital distribution
if, after making the distribution, the savings institution would be
undercapitalized (i.e., not meet any one of its minimum regulatory capital
requirements). Further, a savings institution cannot distribute regulatory
capital that is needed for its liquidation account.
Qualified Thrift Lender Test. Savings institutions must meet a
qualified thrift lender ("QTL") test. If the Bank maintains an appropriate level
of qualified thrift investments ("QTIs") (primarily residential mortgages and
related investments, including certain mortgage-related securities) and
otherwise qualify as a QTL, the Bank will continue to enjoy full borrowing
privileges from the FHLB of Pittsburgh. The required percentage of QTIs is 65%
of portfolio assets (defined as all assets minus intangible assets, property
used by the institution in conducting its business and liquid assets equal to
10% of total assets). Certain assets are subject to a percentage limitation of
20% of portfolio assets. In addition, savings institutions may include shares of
stock of the FHLBs, FNMA, and FHLMC as QTIs. Compliance with the QTL test is
determined on a monthly basis in nine out of every 12 months. As of December 31,
1997, the Bank was in compliance with the Bank's QTL requirement with
approximately 83.18% of its assets invested in QTIs.
Transactions With Affiliates. Generally, restrictions on transactions
with affiliates require that transactions between a savings institution or its
subsidiaries and its affiliates be on terms as favorable to the savings
institution as comparable transactions with non-affiliates. In addition, certain
of these transactions are restricted to an aggregate percentage of the savings
institution's capital. Collateral in specified amounts must usually be provided
by affiliates in order to receive loans from the savings institution. Within
certain limits, affiliates are permitted to receive more favorable loan terms
than non-affiliates. The Bank's affiliates include the Mutual Holding Company,
the Mid-Tier Holding Company and the Company and any company which would be
under common control with the Bank. In addition, a savings institution may not
extend credit to any affiliate engaged in activities not permissible for a bank
holding company or acquire the securities of any affiliate that is not a
subsidiary. The OTS has the discretion to treat subsidiaries of savings
institution as affiliates on a case-by-case basis.
Liquidity Requirements. All savings institutions are required to
maintain an average daily balance of liquid assets equal to a certain percentage
of the sum of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. The liquidity requirement may vary from
time to time (between 4% and 10%) depending upon economic conditions and savings
flows of all savings institutions. At December 31, 1997, the Bank's liquidity
ratio was 18.87%. Monetary penalties may be imposed upon institutions for
violations of liquidity requirements.
Federal Home Loan Savings Bank System. The Bank is a member of the FHLB
of Pittsburgh, which is one of 12 regional FHLBs. Each FHLB serves as a reserve
or central bank for its members
-59-
<PAGE>
within its assigned region. It is funded primarily from funds deposited by
savings institutions and proceeds derived from the sale of consolidated
obligations of the FHLB System. It makes loans to members (i.e., advances) in
accordance with policies and procedures established by the board of directors of
the FHLB.
As a member, the Bank is required to purchase and maintain stock in the
FHLB of Pittsburgh in an amount equal to at least 1% of the Bank's aggregate
unpaid residential mortgage loans, home purchase contracts or similar
obligations at the beginning of each year. At December 31, 1997, the Bank had
$1,702,000 in FHLB stock, at cost, which was in compliance with this
requirement. The FHLB imposes various limitations on advances such as limiting
the amount of certain types of real estate related collateral to 30% of a
member's capital and limiting total advances to a member.
The FHLBs are required to provide funds for the resolution of troubled
savings institutions and to contribute to affordable housing programs through
direct loans or interest subsidies on advances targeted for community investment
and low- and moderate-income housing projects. These contributions have
adversely affected the level of FHLB dividends paid and could continue to do so
in the future.
Federal Reserve. The Federal Reserve requires all depository
institutions to maintain noninterest bearing reserves at specified levels
against their transaction accounts (primarily checking, NOW and Super NOW
checking accounts) and non-personal time deposits. The balances maintained to
meet the reserve requirements imposed by the Federal Reserve may be used to
satisfy the liquidity requirements that are imposed by the OTS. At December 31,
1997, the Bank's reserve met the minimum level required by the Federal Reserve.
Savings institutions have authority to borrow from the Federal Reserve
System "discount window," but Federal Reserve System policy generally requires
savings institutions to exhaust all other sources before borrowing from the
Federal Reserve System. The Bank had no borrowings from the Federal Reserve
System at December 31, 1997.
TAXATION
Federal Taxation
The Mid-Tier Holding Company is subject to the provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), in the same general
manner as other corporations. In August 1996, the Code was revised to equalize
the taxation of thrifts and banks. Thrifts, such as ^ the Bank, no longer have a
choice between the percentage of taxable income method and the experience method
in determining additions to bad debt reserves. Thrifts with $500 million of
assets or less may still use the experience method, which is generally available
to small banks. Larger thrifts must use the specific charge off method regarding
bad debts. Any reserve amounts added to the Bank's bad debt reserve after 1987
will be recaptured into the Bank's taxable income over a six year period
beginning in 1996. A thrift may delay recapturing into income its post-1987 bad
debt reserves for an additional two years if it meets a residential lending
test. This recapture will not have a material impact on the Bank.
Under the experience method, the bad debt deduction may be based on (i)
a six-year moving average of actual losses on qualifying and non-qualifying
loans, or (ii) a fill-up to the institution's base year reserve amount, which is
the tax bad debt reserve determined as of December 31, 1987.
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<PAGE>
^ If a savings institution's qualifying assets (generally, loans secured by
residential real estate or deposits, educational loans, cash and certain
government obligations) constitute less than 60% of its total assets, the
institution may not deduct any addition to a bad debt reserve and generally must
include existing reserves in income over a four year period, which is
immediately accruable for financial reporting purposes. As of September 30,
1997, at least 60% of the Bank's assets were qualifying assets as defined in the
Code. No assurance can be given that the Bank will meet the 60% test for
subsequent taxable years.
Earnings appropriated to the Bank's bad debt reserve and claimed as a
tax deduction including the Bank's supplemental reserves for losses will not be
available for the payment of cash dividends or for distribution to stockholders
(including distributions made on dissolution or liquidation), unless the Bank
includes the amount in income. Distributable amounts may be reduced by any
amount deemed necessary to pay the resulting federal income tax. As of December
31, 1997, the Bank had $5.4 million of accumulated earnings, representing the
Bank's base year tax reserve, for which federal income taxes have not been
provided. If such amount is used for any purpose other than bad debt losses,
including a dividend distribution or a distribution in liquidation, it will be
subject to federal income tax at the then current rate.
Generally, for taxable years beginning after 1986, the Code also
requires most corporations, including savings institutions, to utilize the
accrual method of accounting for tax purposes. Further, for taxable years ending
after 1986, the Code disallows 100% of a savings institution's interest expense
deemed allocated to certain tax-exempt obligations acquired after August 7,
1986. Interest expense allocable to (i) tax-exempt obligations acquired after
August 7, 1986 which are not subject to this rule, and (ii) tax-exempt
obligations issued after 1982 but before August 8, 1986, are subject to the rule
which applied prior to the Code disallowing the deductibility of 20% of the
interest expense.
The Code imposes an alternative minimum tax ("AMT") on a corporation's
alternative minimum taxable income ("AMTI") at a rate of 20%. AMTI is increased
by certain preference items, including 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. Only 90% of AMTI can be
offset by net operating loss carryovers of which we currently have none. AMTI is
also adjusted by determining the tax treatment of certain items in a manner that
negates the deferral of income resulting from the regular tax treatment of those
items. Thus, the Mid-Tier Holding Company's AMTI is increased by an amount equal
to 75 % of the amount by which the Mid-Tier Holding Company's adjusted current
earnings exceeds the Bank's AMTI (determined without regard to this adjustment
and prior to reduction for net operating losses). In addition, for taxable years
beginning after December 31, 1986 and before January 1, 1996, an environmental
tax of 0.12% of the excess of AMTI (with certain modifications) over $2 million
is imposed on corporations, including the Mid-Tier Holding Company, whether or
not an AMT is paid.
The Mid-Tier Holding Company (and the Company) may exclude from its
income 100% of dividends received from us as a member of the same affiliated
group of corporations. A 70% dividends received deduction generally applies with
respect to dividends received from corporations that are not members of such
affiliated group, except that an 80% dividends received deduction applies if the
Mid- Tier Holding Company owns more than 20% of the stock of a corporation
paying a dividend. The above exclusion amounts, with the exception of the
affiliated group figure, were reduced in years in which the Mid-Tier Holding
Company availed itself of the percentage of taxable income bad debt deduction
method.
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The federal income tax returns of the Mid-Tier Holding Company have not
been audited by the IRS since its formation in 1997. The Bank's federal income
tax returns have been audited through 1993.
State Taxation
The Company is subject to the Pennsylvania Corporate Net Income Tax and
Capital Stock and Franchise Tax. The Corporate Net Income Tax rate is currently
11.50% and is imposed on the Company's unconsolidated taxable income for federal
purposes with certain adjustments. In general, the Capital Stock Tax is a
property tax imposed at the rate of 1.3% of a corporation's capital stock value,
which is determined in accordance with a fixed formula based upon average net
income and net worth.
The state tax returns of the Bank and the Mid-Tier Holding Company have
not been audited by the Commonwealth of Pennsylvania during the past ten years.
MANAGEMENT OF THE COMPANY AND THE MID-TIER HOLDING COMPANY
The Boards of Directors of the Company and the Mid-Tier Holding Company
are composed of seven members each, divided into three classes and are elected
by the stockholders of the Mid-Tier Holding Company and the Company,
respectively, for staggered three-year terms, or until their successors are
elected and qualified. One class of directors, consisting of directors John F.
McGill, Jr. and ^ Patrick T. Ryan have terms of office expiring in 1999; a
second class, consisting of directors Francis E. McGill, III and Add B.
Anderson, Jr. have terms of office expiring in 2000; and a third class,
consisting of directors John F. McGill, Sr., Jerry Naessens and Michael G.
Crofton have a term of office expiring in 2001. Their names and biographical
information are set forth under "MANAGEMENT OF THE BANK--Directors."
The following individuals hold positions as executive officers of the
Company and the Mid-Tier Holding Company, or its subsidiary, the Bank, as set
forth below their names.
Name Position
- ---- --------
John F. McGill Chairman of the Board
John F. McGill, Jr. Director, President and Chief Executive Officer
Jerry Naessens Director, Secretary and Chief Financial Officer
The executive officers of the Mid-Tier Holding Company and the Company
are elected annually and hold office until their respective successors have been
elected and qualified or until death, resignation or removal by the Board of
Directors.
Since the formation of the Mid-Tier Holding Company and the Company,
none of the executive officers, directors or other personnel has received
remuneration from the Mid-Tier Holding Company or the Company. Information
concerning the principal occupations, employment and compensation of the
directors and officers of the Mid-Tier Holding Company and the Company during
the past five years is set forth under "MANAGEMENT OF THE BANK."
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<PAGE>
MANAGEMENT OF THE BANK
Directors
The Bank's Board of Directors is composed of eight members. Directors
of the Bank are generally elected to serve for a three-year period or until
their respective successors shall have been elected and shall qualify. The
following table sets forth certain information regarding the composition of the
Bank's Board of Directors as of December 31, 1997, including the terms of office
of Board members.
<TABLE>
<CAPTION>
Year First
Elected Term to
Name Age(1) Position Director(2) Expire
- ---- ------ -------- ----------- ------
<S> <C> <C> <C> <C>
John F. McGill(4) 60 Chairman of the Board and Chief 1967 2001
Executive Officer
Robert E. Domanski, M.D. 53 Director 1991 2001
Pietro M. Jacovini, Jr. 82 Director 1982 2001
John F. McGill, Jr.(3)(4) 36 President and Director 1991 1999
^ Patrick T. Ryan(5) 65 Director ^ 1998 1999
William A. Lamb, Sr. 61 Director 1993 1999
Francis E. McGill, III(3) 38 Director 1991 2000
Add B. Anderson, Jr. 71 Director 1973 2000
</TABLE>
- ----------------
(1) At December 31, 1997.
(2) Represents year first elected to either the Board of Directors of the
Company, the Mid-Tier Holding Company or the Bank, or a predecessor savings
institution. The Mid-Tier Holding Company was organized March, 1997. the
Company was organized March, 1998.
(3) John F. McGill, Jr. is the son of John F. McGill and cousin of Francis E.
McGill, III.
(4) Effective November 20, 1997, John F. McGill, Jr. was appointed President
and Chief Executive Officer. Prior to that date, John F. McGill was
Chairman of the Board, President and Chief Executive Officer.
^(5) On April 30, 1998, Mr. Ryan was elected by the boards of directors of the
Bank, the Mid-Tier Holding Company and the Company to fill the unexpired
term of Joseph P. Healy, who passed away on April 18, 1998.
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<PAGE>
Executive Officers Who Are Not Directors
The following tables sets forth information regarding the executive
officers of the Bank who are not also directors.
Name Age Positions Held in the Bank
- ---- --- --------------------------
Jerry Naessens 62 Chief Financial Officer, Treasurer, Secretary
Ronald D. Masciantinio 58 Vice President, Compliance
Christopher P. McGill 29 Vice President, Lending
Elizabeth Milavsky 47 Vice President, Operations
Frank Zangari 45 Vice President, Internal Audit
Dolores M. Lush 56 Vice President, Support Services
The principal occupation during the past five years of each director of
the Bank and Company and each executive officer of the Bank is set forth below.
All directors have held their present positions for five years unless otherwise
stated.
^
Add B. Anderson, Jr. is 100% owner of KeyBis Corporation (formerly
Eastern Continuous Forms, Inc.), a manufacturer of business forms in Blue Bell,
Pennsylvania. He serves as a member of the Board of Trustees of Roxborough
Memorial Hospital and is Chairman of the Roxborough Memorial Health Foundation.
^ Michael G. Crofton is Vice President and Senior Portfolio Manager of
Rittenhouse Financial Services, Inc., an investment advisory firm located in
Radnor, Pennsylvania. Mr. Crofton is not a member of the Board of Directors of
the Bank. He is a member of the Boards of Directors of the Company and the
Mid-Tier Holding Company.
Robert E. Domanski, M.D. has been a partner and Director of Radiology
of Northwest Radiology Associates, Ltd., Philadelphia, Pennsylvania, since 1985.
He is a member of the 21st Ward Medical Society.
Pietro M. Jacovini, Jr. has been a board member of the Bank since 1982.
He serves as a board member of St. Agnes Medical Center and is Vice President
and a board member of the Philadelphia Fire Museum.
William A. Lamb, Sr. was President/CEO of Lamb Brothers Office
Products, Philadelphia, Pennsylvania for 33 years. In 1992, Lamb Brothers became
part of Philadelphia Stationers where Mr. Lamb assumed the title of Executive
Vice President, a title he currently holds with Staples, Inc.
Francis E. McGill, III is the sole proprietor of the law firm of McGill
and McGill, Philadelphia, Pennsylvania, and has practiced with the firm since
1988. McGill and McGill serve as general counsel to the Mid-Tier Holding Company
and the Bank. See "--Certain Related Transactions." He is a member of the Board
of Trustees of Roxborough Memorial Hospital.
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<PAGE>
John F. McGill, Jr. has been President of the Bank since November 20,
1996. Prior to such positions, he was Executive Vice President in charge of
operations, lending and portfolio management of the Bank since March 1991. He
has served the Bank in various officer positions since 1984 and has been a
director since 1991. Mr. McGill serves on the finance committee of the Basilica
of the National Shrine in Washington, D.C.
John F. McGill, Sr. has been Chief Executive Officer of the Bank since
1980. He was President and Chief Executive Officer of the Bank from 1980 to
November 20, 1997, and Chairman of the Board since 1989, and has been a director
of the Bank for over 30 years. He has served in various officer capacities with
the Bank since 1972. Mr. McGill is also a 25% partner in Francis E. McGill,
Realtor, a real estate and insurance firm. He is a member of the Board of
Roxborough Memorial Hospital.
Jerry A Naessens has been employed by Roxborough-Manayunk as Treasurer
and Chief Financial Office since 1991. Mr. Naessens was a partner in Deloitte
and Touche from 1980 to 1991. Mr. Naessens is not a member of the Board of
Directors of the Bank. He is a member of the Boards of Directors of the Company
and the Mid-Tier Holding Company.
^ Patrick T. Ryan is Of Counsel in the Litigation Department of the law
firm Drinker Biddle & Reath LLP, Philadelphia, Pennsylvania. Prior to his
retirement as of February 1, 1998, Mr. Ryan was a partner at the firm since
1962. Mr. Ryan has been active in various bar association committees.
Drinker Biddle & Reath LLP does occasional legal work for the Bank.
Meetings and Committees of the Board of Directors
The business of Boards of Directors of the Bank and the Mid-Tier
Holding Company are conducted through meetings of the Board of Directors and the
committees of the Board of the Bank. During the year ended December 31, 1997,
the Board of Directors of the Mid-Tier Holding Company held three regular
meetings and two special meetings and the Board of Directors of the Bank had 12
regular and one special meeting. During the year ended December 31, 1997, no
director attended fewer than 75% of the total meetings of the Board of Directors
of the Mid-Tier Holding Company and the Bank and committees on which such
director served.
The Executive Committee of the Board of Directors of the Bank consists
of members John F. McGill, John F. McGill, Jr., Joseph P. Healy and Francis E.
McGill, III and four other directors who rotate quarterly. The Committee
meetings as necessary in between meetings of the full Board of directors. All
actions of the Executive Committee must be ratified by the full Board of
Directors. The Executive Committee met 12 times during the year ended December
31, 1997.
The Compensation Committee of the Bank consists of Directors John F.
McGill, Joseph P. Healy and Robert E. Domanski. The committee meets annually to
review the performance of the Bank officers and employees, and to determine
compensation programs and adjustments. The Compensation Committee met one time
during fiscal 1997 to consider compensation. Mr. McGill does not participate in
any committee discussions regarding his salary.
The Audit Committee of the Bank consists of Directors Healy (Chairman),
Jacovini, Domanski, Lamb, F.E. McGill, III, and Anderson. In its capacity as the
Audit Committee, the Board is responsible for developing the Bank audit program
and monitoring it. This committee meets with the Bank outside auditors to
discuss the results of the annual audit and any related matters. The Chairman of
the Audit
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<PAGE>
Committee also receives and reviews all the reports and findings and other
information presented to him by the Bank's internal auditors. The Audit
Committee met one time in 1997.
The Bank's Nominating Committee consists of John F. McGill, Joseph P.
Healy and John F. McGill, Jr. The Nominating Committee met once during 1997.
Executive Compensation
Summary Compensation Table. The following table sets forth for the year
ended December 31, 1997, certain information as to the compensation received by
the Chief Executive Officer and each executive officer of the Mid-Tier Holding
Company listed above who received total cash compensation in excess of $100,000.
All Compensation is paid by the Bank.
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation(3)
--------------------- ----------------------------
Securities
Restricted Underlying All Other
Name and Fiscal Stock Options/ Compensation
Principal Position Year Salary(1) Bonus Awards($) ^SARs(#)(2)(3) ($)(4)
- ------------------ ---- --------- ----- --------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
John F. McGill 1997 270,000 65,000 -- ^-- 168,111
Chairman
John F. McGill, Jr. 1997 200,000 35,000 -- ^-- 26,046
President and Chief
Executive Officer
Jerry A. Naessens 1997 175,000 8,750 -- ^-- 68,481
Treasurer and Chief
Financial Officer
</TABLE>
- --------------
(1) Includes salary and director's fees.
(2) ^ Does not include awards of stock options under the 1992 and 1994 Stock
Option Plans. See "--Stock Option Plans."
(3) Does not include potential stock benefit plans to be adopted after
completion of the Conversion and Reorganization. See "-- Proposed Future
Stock Benefit Plans."
(4) Includes allocations of shares of Mid-Tier Common Stock under the Bank's
ESOP, valued at $2,046 as of December 31, 1996, to each of the three named
executive officers. The amounts shown also include a $24,000 contribution
by the Bank to its profit sharing plan on behalf of each of the three named
executive officers, and accruals of $142,065, $0, and $42,435 under the
Bank's supplemental retirement plans for John F. McGill, John F. McGill,
Jr., and Jerry A. Naessens, respectively.
Board Fees. Non-officer members of Board of Directors of the Bank
received fees of 1,000 per month during the 1997 fiscal year plus $1,200
retainer. Members of the Board's Budget, Audit and Advisory Committees were paid
no fees for each meeting attended during fiscal 1997. The Bank paid a total of
$125,200 in directors' fees for the fiscal year ended December 31, 1997. The
Company does not pay any additional compensation for membership on the Board of
Directors. The Executive Committee was paid $1,000, in the aggregate, per
meeting, and met 12 times during 1997.
Francis E. McGill, III is the sole proprietor of McGill and McGill, a
law firm in Philadelphia, Pennsylvania, which during the year ended December 31,
1997 received approximately $119,000 in fees from the Bank for legal services.
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<PAGE>
The Bank has followed the policy of offering residential mortgage loans
for the financing of personal residences, share loans, and consumer loans to its
officers, directors and employees. The loans are made in the ordinary course of
business and also made on substantially the same terms and conditions, including
interest rate and collateral, as those of comparable transactions prevailing at
the time with other persons, and do not include more than the normal risk of
collectibility or present other unfavorable features.
Benefits Plans
The Mid-Tier Holding Company has no full time employees, relying upon
employees of the Bank for the limited services required by the Mid-Tier Holding
Company. All compensation paid to directors, officers and employees is paid by
the Bank. The Bank currently provides benefits to its officers, directors and
employees, as described below.
Insurance. Full-time employees and part-time employees who work at
least 1,000 hours per year are provided, with no contribution or expense to
them, with group plan insurance that covers hospitalization, major medical,
dental and long term disability, accidental death and life insurance. This
insurance is available generally and on the same basis to all employees. Long
term disability is available after completion of a minimum of one year of
service, while the other benefits are available immediately. Part-time employees
who work less than 1,000 hours per year have no benefits.
Pension Plan. The Bank sponsors a defined benefit pension plan (the
"Pension Plan"). All full-time employees and part-time employees of the Bank who
work 1,000 hours are eligible to participate after one year of service and
attainment of age 21. A qualifying employee becomes fully vested in the Pension
Plan upon completion of five years service or when the normal retirement age
^(the later of age 65 or the 5th anniversary of the first day of the Pension
Plan year in which the participant commenced participation in the Pension Plan)
is attained.
Benefits are payable in the form of various annuity alternatives,
including a joint and survivor option, or in a lump-sum amount. The following
table shows the estimated annual benefits payable under the Pension Plan based
on the respective employee's years of benefit service and applicable average
annual salary, as calculated under the Pension Plan. ^ Benefits under the
Pension Plan ^ take into account permitted disparity allowed under the Code.
Benefits shown below are based on the covered compensation of an employee
retiring at age 65 in 1997.
<TABLE>
<CAPTION>
Years of Benefit Service
-------------------------------------------------------------------------------------
15 20 25 30 35
--------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
$ 60,000........................ $ ^ 7,921 $10,562 $13,203 $15,843 $18,484
80,000........................ ^ 11,221 14,962 18,703 22,443 18,703
100,000........................ ^ 14,521 19,362 24,203 29,043 33,884
125,000........................ ^ 18,646 24,862 31,078 37,293 43,509
150,000........................ 22,771 30,362 37,953 45,543 53,134
160,000........................ 24,552 32,736 40,920 49,104 57,288
</TABLE>
The Pension Plan provides for monthly payments to each participating
employee at normal retirement age. The annual allowance payable under the
Pension Plan is equal to ^ the sum of (A) and (B), where (A) equals the product
of (i) .65% of the participant's average monthly compensation, based on the
highest five (5) consecutive years and excluding compensation in excess of
$150,000, and (ii) the
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<PAGE>
participant's years of participation as of his normal retirement date, and (B)
equals the product of (i) .45% of the participant's average monthly compensation
in excess of covered compensation (as defined in Section 401(1) (5) (E) of the
Code), and (ii) the participant's years of participation as of his normal
retirement date (but not to exceed thirty-five (35) years). A participant who is
vested in the Pension Plan may elect an early retirement (at age 55 with 20
years of service or age 62 with 10 years of service), and may elect to receive a
reduced monthly benefit. The Pension Plan also provides for payments in the
event of disability or death. At December 31, 1997, John McGill, John McGill,
Jr. and Jerry Naessens had 25, 13 and 6 years of credited service under the
Pension Plan. Total Company pension expense for 1995, 1996 and 1997 amounted to
$69,263, $131,360 and $143,394, respectively.
Supplemental Retirement Agreements. In November, 1993, the Bank entered
into non-tax qualified retirement and death benefit agreements with John F.
McGill, then President and Chief Executive Officer and Jerry Naessens,
Treasurer. The agreements were subsequently amended in June 1996. In recognition
of the services provided by these officers to the Bank, the retirement
agreements provide that Messrs. McGill and Naessens (or their spouses) shall
receive at age 67 monthly retirement benefits of $12,500 and $4,167,
respectively. If either officer becomes permanently and totally disabled prior
to age 67, the employee will receive the monthly supplemental retirement
benefits upon reaching age 67. The retirement agreements provide that the
officer's spouse shall receive a pro-rated monthly death benefit if the officer
dies while employed by the Bank prior to age 67, based on the officer's age at
the time of death. This pro-rated benefit for Mr. McGill ranges from $4,166 to
$11,875, for ages 55 to 64, and for Mr. Naessens ranges from $1,375 to $3,625,
for ages 58 to 64. The retirement agreements provide that the Bank may purchase
a policy or policies of life insurance on the life of these officers, for which
the Bank will be the beneficiary. Such policies need not be designated for the
payment of benefits pursuant to the retirement agreements.
Employment Agreements. Effective January 1, 1995, the Bank entered into
separate employment agreements with John F. McGill, Sr., Chairman of the Board,
then President and Chief Executive Officer of the Bank, and Jerry A. Naessens,
Treasurer of the Bank. The Bank and Mid-Tier Holding Company entered into an
employment agreement with John F. McGill, Jr., President and Chief Executive
Officer effective January 1, 1998. The employment agreements are for terms of
three years. The agreements may be terminable by the Bank for "just cause" as
defined in the employment agreements. If the Bank terminates the employees
without just cause, such employee will be entitled to a continuation of his
salary from the date of termination through the remaining term of the employment
agreement. Each employment agreement contains a provision stating that in the
event of the termination of employment in connection with, or within one year
after, any change in control of the Bank, the Mid- Tier Holding Company, or the
Company (upon completion of the Conversion and Reorganization, the employee will
be paid a lump sum amount equal to 2.99 times the employee's most recent base
salary. If such payments were to be made under the employment agreements, as of
January 1, 1998, such payments would equal approximately $750,000, $675,000 and
$600,000, respectively to John F. McGill, John F. McGill, Jr. and Jerry
Naessens. The aggregate payments that would be made pursuant to the employment
agreements would be an expense to the Bank, thereby reducing net income and the
Bank's capital by that amount. The employment agreements may be renewed annually
by the Board of Directors upon a determination of satisfactory performance
within the Board's sole discretion. If any of the employees shall become
disabled during the term of their respective employment agreements, the employee
shall nevertheless continue to receive payment of his base salary for a period
of 12 months but such period shall not exceed the remaining term of the
employment agreement, and 80% of such base salary for the remaining term of the
employee's employment agreement. Disability payments under the employment
agreements shall be reduced by any other benefit payments made under other
disability
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<PAGE>
programs in effect for Bank employees. Implementation of the Conversion and
Reorganization will not constitute a change in control under the employment
agreements.
Profit Sharing Plan. The Bank sponsors a tax-qualified defined
contribution profit sharing plan, ("Profit Sharing Plan"), for the benefit of
its employees. Employees became eligible to participate under the Plan after age
21 and completing six months of service. Benefits under the plan are determined
based upon annual discretionary contributions to the plan. Such benefits are
allocated to participant accounts as a percentage of base compensation of such
participant to the base compensation of all participants. At the end of each
year, the Board of Directors determines whether to make a contribution and the
amount of the contribution to the Plan, based upon a number of factors, such as
the Bank's retained earnings, profits, regulatory capital and employee
performance. Such discretionary contributions shall not exceed 7.5% of the
Bank's Gross Income before taxes, or 15% of employee base pay, whichever is
less. No employee contributions are permitted under the plan. Plan Participants
are not permitted to direct contributions under the Plan.
Benefits are payable upon termination of employment, retirement, death,
disability or Plan termination. Normal retirement age under the Plan is age 65
or, if later, the fifth anniversary of the first day of the Plan year during
which you entered the Plan. It is intended that the Plan operate in compliance
with the provisions of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") and the requirements of Section 401(a) of the Internal Revenue
Code of 1986, as amended (the "Code"). Benefits under the Profit Sharing Plan
become 100% vested and non-forfeitable following five years of service.
The contributions to the Profit Sharing Plan on behalf of John F.
McGill, John F. McGill, Jr., and Jerry Naessens were $24,000 each for the fiscal
year ended December 31, 1997. Total contributions to the Plan for all employees
for the fiscal year ended December 31, 1997 were $315,670.
Employee Stock Ownership Plan. The Bank sponsors an employee stock
ownership plan (the "ESOP") for the exclusive benefit of participating
employees, which was implemented upon the completion of the Reorganization.
Participating employees are employees who have completed one year of service
with the Bank or its subsidiaries.
The ESOP is fully funded. Benefits may be paid either in shares of the
Common Stock or in cash. The ESOP borrowed funds from an unrelated third party
lender, in an amount sufficient to purchase 14,000 shares of the Common Stock.
This loan was secured by the shares purchased and earnings of ESOP assets. This
loan was paid in full at December 31, 1997.
Contributions to the ESOP and shares released from the suspense account
are allocated among participants on the basis of total compensation as reported
on Form W-2, excluding bonuses. All participants must be employed at least 1,000
hours in a plan year and be employed on the last day of the plan year in order
to receive an allocation. Participants who are not actively employed at the last
day of the Plan year due to retirement, total and permanent disability, or death
shall share in the allocation of contributions and forfeitures for that Plan
year only if otherwise eligible. Participant benefits become 20% vested after
three years of service, increasing by 20% annually thereafter until benefits are
100% vested after seven years. Vesting will be accelerated upon retirement,
death, disability or termination of the ESOP. Forfeitures will be reallocated to
participants on the same basis as other contributions in the plan year. Benefits
may be payable in the form of a lump sum upon retirement, death, disability or
separation from service.
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<PAGE>
The Board of Directors has appointed a committee (the "ESOP Committee")
to administer the ESOP and trustees (the "ESOP Trustees"). Directors John
McGill, John McGill, Jr. and Joseph P. Healy serve as the members of the ESOP
Committee and as the initial ESOP Trustees. The Board of Directors or the ESOP
Committee may instruct the ESOP Trustees regarding investments of funds
contributed to the ESOP. The ESOP Trustees must vote all allocated shares held
in the ESOP in accordance with the instructions of the participating employees.
Unallocated shares and allocated shares for which no timely direction is
received will be voted by the ESOP Trustees as directed by the Board of
Directors or the ESOP Committee. As part of the Offering, the ESOP plans to
borrow funds from the Company and use the funds to purchase up to 8% of the
Common Stock to be sold in the Offering. Collateral for the loan will be the
Common Stock purchased by the ESOP. The loan will be repaid principally from the
Bank's contributions to the ESOP over a period of at least fifteen years. The
interest rate for the loan will be the prime rate. Shares purchased by the ESOP
will be held in a suspense account for allocation among participants as the loan
is repaid.
Stock Option Plans. In connection with the Reorganization, the Bank's
Board of Directors adopted the Roxborough-Manayunk Federal Savings Bank 1992
Stock Option Plan (the "1992 Option Plan") on October 28, 1992, subject to
approval by the Bank's stockholders. Pursuant to the 1992 Option Plan, 20,000
shares (a number of shares equal to 10% of the common stock of the Bank issued
in the Bank's stock offering) were reserved for issuance by the Bank upon
exercise of stock options. The purpose of the 1992 Option Plan is to provide
additional incentive to certain officers, directors and key employees by
facilitating their purchase of a stock interest in the Bank. The 1992 Option
Plan provides for a term of ten years, after which no awards may be made, unless
earlier terminated by the Board of Directors pursuant to the 1992 Option Plan.
Options which may be granted under the Plan include Incentive Stock Options
within the meaning of Section 422 of the Internal Revenue Code of 1986 ("Code")
or Non-Incentive Stock Options (collectively referred to as "Stock Options").
The 1992 Option Plan is administered by a committee of at least three
directors designated by the Board of Directors (the "1992 Option Committee").
Such members of the 1992 Option Committee shall be deemed "disinterested" within
the meaning of Rule 16b-3 pursuant to the Securities Exchange Act of 1934 (the
"1934 Act"). Directors J. P. Healy, A. B. Anderson, and F. E. McGill, III, serve
as members of the Option Committee. The Option Committee selects the employees
to whom options are to be granted and the number of shares to be granted, based
upon the employee's position at the Bank, years of service and performance.
An initial grant of options under the Option Plan took place upon
completion of the Reorganization of the Bank to the mutual holding company form
of ownership, and the option exercise price was the purchase price of the common
stock of the Bank in the offering (i.e., $10.00 per share of Common Stock).
Options to purchase approximately 10,000, 6,000 and 20,000 shares of the Bank
Common Stock were granted to John F. McGill, John F. McGill, Jr., and all
officers as a group (3 persons), respectively, as of December 31, 1992. Such
options were incentive stock options and became exercisable at the rate of
one-third annually following one year after grant. The Plan was ratified by the
Bank's stockholders at the first Annual Meeting of Stockholders on April 14,
1993. No options were granted or exercised during the fiscal year ended December
31, 1997 under the 1992 Stock Option Plan.
The Board of Directors of the Bank adopted the 1994 Stock Option Plan,
which was ratified by The Bank's stockholders on April 19, 1995. Pursuant to the
1994 Stock Option Plan, 20,000 shares of the Bank's common stock were reserved
for issuance. As of December 31, 1995, all 20,000 options had been granted.
Option granted under the 1994 Option Plan were 100% exercisable as of the date
of grant
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<PAGE>
at purchase prices equal to the fair market value on the date of grant (i.e.,
$11.50) and remain exercisable for ten years. Options to purchase 5,000, 5,000,
4,000 and 6,000 shares of the Bank's common stock were granted to John F.
McGill, John F. McGill, Jr., Jerry A. Naessens and all non-employee directors as
a group (six persons), respectively.
The 1994 Stock Option Plan, which became effective on the date it was
adopted by the Board of Directors, provides for a term of ten years unless
terminated earlier by the Board of Directors. No awards may be made after such
ten year period. No stock options were granted or exercised during the years
ended December 31, 1996 and 1997.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END
OPTION/SAR VALUES
Number of Securities Value of
Underlying Unexercised in-the-
Unexercised Money
Options/SARs at Options/SARs at
Shares December 31, 1997 December 31,1997
Acquired on Value (#) Exercisable/ ($) Exercisable/
Name Exercise (#) Realized($) Unexercisable Unexercisable (1)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John F. McGill -0- -0- 15,000/0 $270,300/$0
Chairman
John F. McGill, Jr. -0- -0- 11,000/0 196,220/0
President and CEO
Jerry A. Naessens -0- -0- 8,000/0 142,160/0
Treasurer and Chief
Financial Officer,
Secretary
</TABLE>
- -------------------
(1) Based on an appraisal of the Bank's illiquid stock undertaken for purposes
of the Bank's ESOP ($28.52 per share).
Management Stock Bonus Plans. In connection with the Reorganization,
the Bank adopted a Management Stock Bonus Plan and Trust Agreement (the "1992
MSBP"), the objective of which is to enable the Bank to retain personnel of
experience and ability in key positions of responsibility. All employees of the
Bank are eligible to receive benefits under the 1992 MSBP. Benefits may be
granted in the sole discretion of a committee (the "1992 MSBP Committee")
appointed by the Board of Directors of the Bank. The 1992 MSBP is managed by
trustees (the "1992 MSBP Trustees") who are directors of the Bank and who have
the responsibility to invest all funds contributed by the Bank to the trust
created for the 1992 MSBP (the "1992 MSBP Trust"). The 1992 MSBP was ratified by
the Bank's stockholders at the first Annual Meeting of Stockholders on April 14,
1993.
The Bank contributed sufficient funds to the 1992 MSBP Trust so that
the 1992 MSBP Trust could purchase 3% of the Bank's common stock offered in the
stock offering (i.e., 6,000 shares). In recognition of their prior and expected
services to the Bank and for the profitable operation of the Bank,
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Messrs. John F. McGill, John F. McGill, Jr., and all executive officers as a
group (three persons) were awarded 50%, 30%, and 100%, respectively, of the
shares purchased by the 1992 MSBP. The shares granted were in the form of
restricted stock payable over a five-year period at the rate of 20% of such
shares per year following the date of grant of the award. All such restricted
shares are fully vested.
The Bank adopted the 1994 Management Stock Bonus Plan (the "1994 MSBP")
as of November 19, 1994. The Bank contributed sufficient funds to enable the
1994 MSBP to purchase 6,000 shares of the Bank's common stock all of which have
been awarded. The Bank's stockholders ratified the 1994 MSBP on April 19, 1995
at its 1995 annual meeting of stockholders. Awards of 1,500, 1,500, 1,200 and
1,800 shares of Common Stock were granted to John F. McGill, John F. McGill,
Jr., Jerry A. Naessens and all non-employee directors as a group (six persons),
respectively. All awards are fully vested.
Proposed Future Stock Benefit Plans
Stock Option Plan. The boards of directors intend to adopt a stock
option plan (the Option Plan) following the Conversion and Reorganization,
subject to approval by the Company's stockholders, at a stockholders meeting to
be held no sooner than six months after the conversion. The Option Plan would be
in compliance with the OTS regulations in effect. See "-- Restrictions on Stock
Benefit Plans." If the Option Plan is implemented within one year after the
conversion, in accordance with OTS regulations, a number of shares equal to 10%
of the aggregate shares of common stock to be issued in the offering (i.e.,
785,637 shares based upon the sale of 7,856,370 shares at the midpoint) would be
reserved for issuance by the Company upon exercise of stock options to be
granted to our officers, directors and employees from time to time under the
Option Plan. The purpose of the Option Plan would be to provide additional
performance and retention incentives to certain officers, directors and
employees by facilitating their purchase of a stock interest in the Company.
Under the OTS regulations, the Option Plan, would provide for a term of 10
years, after which no awards could be made, unless earlier terminated by the
board of directors pursuant to the Option Plan and the options would vest over a
five year period (i.e., 20% per year), beginning one year after the date of
grant of the option. Options would be granted based upon several factors,
including seniority, job duties and responsibilities, job performance, our
financial performance and a comparison of awards given by other savings
institutions converting from mutual to stock form.
The Company would receive no monetary consideration for the granting of
stock options under the Option Plan. It would receive the option price for each
share issued to optionees upon the exercise of such options. Shares issued as a
result of the exercise of options will be either authorized but unissued shares
or shares purchased in the open market by the Company. However, no purchases in
the open market will be made that would violate applicable regulations
restricting purchases by the Company. The exercise of options and payment for
the shares received would contribute to the equity of the Company.
If the Option Plan is implemented more than one year after the
Conversion, the Option Plan will comply with OTS regulations and policies that
are applicable at such time.
Recognition Plan. The board of directors intends to adopt the
Recognition Plan following the conversion, the objective of which is to enable
us to retain personnel and directors of experience and ability in key positions
of responsibility. The Company expects to hold a stockholders' meeting no sooner
than six months after the conversion in order for stockholders to vote to
approve the Recognition Plan. If the Recognition Plan is implemented within one
year after the conversion, in accordance with
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applicable OTS regulations, the shares granted under the Recognition Plan will
be in the form of restricted stock vesting over a five year period (i.e., 20%
per year) beginning one year after the date of grant of the award. Compensation
expense in the amount of the fair market value of the common stock granted will
be recognized pro rata over the years during which the shares are payable. Until
they have vested, such shares may not be sold, pledged or otherwise disposed of
and are required to be held in escrow. Any shares not so allocated would be
voted by the Recognition Plan Trustees. The Recognition Plan will be implemented
in accordance with applicable OTS regulations. See "-- Restrictions on Stock
Benefit Plans." Awards would be granted based upon a number of factors,
including seniority, job duties and responsibilities, job performance, our
performance and a comparison of awards given by other institutions converting
from mutual to stock form. The Recognition Plan would be managed by a committee
of non-employee directors (the "Recognition Plan Trustees"). The Recognition
Plan Trustees would have the responsibility to invest all funds contributed by
us to the trust created for the Recognition Plan (the "Recognition Plan Trust").
We expect to contribute sufficient funds to the Recognition Plan so
that the Recognition Plan Trust can purchase, in the aggregate, up to 4% of the
amount of common stock that is sold in the conversion. The shares purchased by
the Recognition Plan would be authorized but unissued shares or would be
purchased in the open market. In the event the market price of the common stock
is greater than $10.00 per share, our contribution of funds will be increased.
Likewise, in the event the market price is lower than $10.00 per share, our
contribution will be decreased. In recognition of their prior and expected
services to us and the Company, as the case may be, the officers, other
employees and directors responsible for implementation of the policies adopted
by the board of directors and our profitable operation will, without cost to
them, be awarded stock under the Recognition Plan. Based upon the sale of
7,856,370 shares of common stock in the offering at the midpoint, the
Recognition Plan Trust is expected to purchase up to 314,254 shares of common
stock.
If the Recognition Plan is implemented more than one year after the
Conversion, the Recognition Plan will comply with such OTS regulations and
policies that are applicable at such time.
Restrictions on Stock Benefit Plans. OTS regulations provide that in
the event stock option or management and/or employee stock benefit plans are
implemented within one year from the date of Conversion, such plans must comply
with the following restrictions: (1) the plans must be fully disclosed in the
prospectus, (2) for stock option plans, the total number of shares for which
options may be granted may not exceed 10% of the shares issued in the
Conversion, (3) for restricted stock plans, the shares may not exceed 3% of the
shares issued in the Conversion (4% for institutions with 10% or greater
tangible capital), (4) the aggregate amount of stock purchased by the ESOP in
the Conversion may not exceed 10% (8% for well-capitalized institutions
utilizing a 4% restricted stock plan), (5) no individual employee may receive
more than 25 % of the available awards under the option plan or the restricted
stock plans, (6) directors who are not employees may not receive more than 5 %
individually or 30% in the aggregate of the awards under any plan, (7) all plans
must be approved by a majority of the total votes eligible to be cast at any
duly called meeting of stockholders held no earlier than six months following
the Conversion, (8) for stock option plans, the exercise price must be at least
equal to the market price of the stock at the time of grant, (9) for restricted
stock plans, no stock issued in a Conversion may be used to fund the plan, (10)
neither stock option awards nor restricted stock awards may vest earlier than
20% as of one year after the date of stockholder approval and 20% per year
thereafter, and vesting may be accelerated only in the case of disability or
death (or if not inconsistent with applicable OTS regulations in effect at such
time, in the event of a change in control), (11) the proxy material must clearly
state that the OTS in no way endorses or approves of the plans, and (12) prior
to implementing the plans, all plans
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<PAGE>
must be submitted to the Regional Director of the OTS within five days after
stockholder approval with a certification that the plans approved by the
stockholders are the same plans that were filed with and disclosed in the proxy
materials relating to the meeting at which stockholder approval was received.
Certain Related Transactions
Transactions with the Bank and the Mid-Tier Holding Company. John F.
McGill, Chairman of the Board of the Company is a 25% partner in Francis E.
McGill, Realtor, a real estate and insurance firm in Philadelphia, Pennsylvania.
During the fiscal year ended December 31, 1997, Francis E. McGill, Realtor
received fees totaling approximately $74,000 from buyers or sellers of real
estate where the Company financed the purchase of the real estate. These fees
included insurance commissions, real estate brokerage commissions and
conveyancing fees. The Company pays premiums on insurance policies obtained
through Francis E. McGill, Realtor, for insurance coverage for its own
operations, including coverage for workmen's compensation, errors and omissions,
blanket bond, safe deposit box, automobile liability, fire insurance on Mid-Tier
Holding Company properties. Total premiums for the fiscal year ended December
31, 1997 were approximately $193,000. During the fiscal year ended December 31,
1997, the Mid-Tier Holding Company also paid servicing commissions to the office
of Francis E. McGill, Realtor, for rental collections made through that firm on
properties owned by the Bank. The total servicing commissions paid for the year
were approximately $9,000. Furthermore, the law firm of McGill and McGill serve
as general counsel to the Mid-Tier Holding Company and the Bank. Francis E.
McGill, III is the sole proprietor of McGill and McGill, a law firm in
Philadelphia, Pennsylvania, which during the year ended December 31, 1997
received approximately $119,000 in fees from the Bank for legal services.
Indebtedness of Management. The Bank ^ has followed the policy of
offering residential mortgage loans for the financing of personal residences,
share loans, and consumer loans to its officers, directors and employees. ^ The
loans are made in the ordinary course of business and ^ also made on
substantially the same terms and conditions, including interest rate and
collateral, as those of comparable transactions prevailing at the time ^ with
other persons, and do not ^ include more than the normal risk of collectibility
or present ^ other unfavorable features. Loans to officers and directors of the
Bank and their affiliates amounted to $815,174 or 2.86% of the Bank's total
equity at December 31, 1997. Assuming the Conversion had occurred at December
31, 1997 with the issuance of 7,860,140 shares, these loans would have totalled
approximately ^.85% of pro forma consolidated stockholders' equity.
BENEFICIAL OWNERSHIP OF MID-TIER COMMON STOCK
The following table sets forth information as of December 31, l997,
with respect to ownership of the Mid-Tier Holding Company's Common Stock by: (i)
the Mutual Holding Company; (ii) the Bank's Employee Stock Ownership Plan; (iii)
the executive officers and directors of the Bank; and (iv) all the directors and
executive officers of the Bank as a group. The Boards of Directors of the Mutual
Holding Company, Bancorp and the Mid-Tier Holding Company, as well as both the
companies' executive officers, are identical to those of the Bank. Except as
those listed below, the Bank has no knowledge of any person (including any
"group" as that term is used in Section 13(d)(3) of the Securities Exchange Act
of 1934, as amended) who owns beneficially more than 5% of the Common Stock.
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<PAGE>
<TABLE>
<CAPTION>
Shares of Common Percent of Class Percent of
Stock Beneficially Owned Outstanding to Persons Total Class
Name at December 31, 1997 Other than MHC(1) Outstanding(2)
- ---- ------------------------------ ---------------------------- -----------------
<S> <C> <C> <C>
John F. McGill 38,500(3) 15.65 2.32
Jerry Naessens 21,400(3)(4) 8.70 1.29
Michael G. Crofton 4,000(4) 1.63 .24
John F. McGill, Jr. 25,800(3) 10.49 1.55
^ Patrick T. Ryan, Esq. 5,000 2.03 .31
Francis E. McGill, III 4,800(3) 1.95 .29
Add B. Anderson, Jr. 15,800(3) 6.42 .95
Pietro M. Jacovini, Jr. 11,300(3) 4.59 .68
William A. Lamb, Sr. 6,300(3) 2.56 .38
Robert E. Domanski, M.D. 6,300(3) 2.56 .38
Directors and executive
officers as a group
(10 persons) ^ 139,200 ^ 56.58 ^ 8.59
FJF Financial, M.H.C. 1,415,000 -- 85.19
ESOP 14,000 5.69 .84
</TABLE>
- ----------------
(1) 206,000 shares of Common Stock were held by persons other than the MHC.
(2) The total amount of shares of Common Stock issued by the ^ Mid-Tier Holding
Company is 1,621,000, which includes 1,415,000 issued to the MHC and
246,000 shares held by persons other than the MHC.
(3) Includes stock options awarded under the 1992 and 1994 Stock Option Plans
which are presently exercisable.
(4) Messrs. Naessens and Crofton are not members of the Board of Directors of
the Bank. Such individuals are members of the Boards of Directors of the
Company and the Mid-Tier Holding Company.
PROPOSED SUBSCRIPTIONS BY DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth, for each of the Mid-Tier Holding
Company's and the Bank's directors and executive officers, and for all of the
directors and executive officers as a group, (1) the number of Exchange Shares
to be held upon consummation of the Conversion and Reorganization, based upon
their beneficial ownership of Mid-Tier Common Stock as of February 28, 1998, and
(2) the total amount of Common Stock to be held upon consummation of the
Conversion and Reorganization, in each case assuming that 7,856,370 shares of
Conversion Stock are sold, which is the midpoint of the Offering Price Range.
The purchase limit of $300,000 includes shares received as Exchange Shares.
Accordingly, pursuant to the policies and regulations of the OTS, none of the
Directors or senior management will be permitted to purchase stock in the
Conversion and Reorganization if the maximum number of shares of Conversion
Stock are sold. See "THE CONVERSION AND REORGANIZATION -- Purchase Limitations."
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<PAGE>
<TABLE>
<CAPTION>
Proposed Purchases of Total Common Stock
Conversion Stock(1) To Be Held
------------------- ----------
Number
of Exchange
Shares To Be Dollar Number Number Percentage
Held(2)(3)(4) Amount($) of Shares of Shares of Total
------------- --------- --------- --------- ---------
^
<S> <C> <C> <C> <C> <C>
John F. McGill 213,736 0 0 213,736 2.37
Jerry Naessens 118,804 0 0 118,804 1.32
Michael G. Crofton 22,206 10,000 1,000 23,206 .26
John F. McGill, Jr. 143,231 ^ 0 0 143,231 1.59
Patrick T. Ryan, Esq. 27,757 250,000 25,000 52,757 .59
Francis E. McGill, III 26,647 0 0 26,647 .30
Add B. Anderson, Jr. 87,715 26,850 2,685 90,400 1.00
Pietro M. Jacovini, Jr. 62,733 0 0 62,733 .70
William A. Lamb, Sr. 34,975 0 0 34,975 .39
Robert E. Domanski, M.D. 34,975 160,000 16,000 50,975 .56
</TABLE>
- ----------------------
*Less than 1%
(1) Includes proposed subscriptions, if any, by associates. Does not include
subscriptions by the ESOP. Intended purchases by the ESOP are expected to
be 8% of the shares issued in the Offering.
(2) Includes shares underlying options that may be exercised within 60 days of
the date as of which ownership is being determined, and vested and unvested
shares of restricted stock. See "BENEFICIAL OWNERSHIP OF MID-TIER COMMON
STOCK."
(3) Does not include stock options and awards that may be granted under the
1998 Stock Option Plan and 1998 Recognition Plan if such plans are approved
by stockholders at an annual meeting or special meeting of stockholders at
least six months following the Conversion. See "MANAGEMENT OF THE
BANK--POTENTIAL STOCK BENEFITS PLANS."
(4) Individuals that are to receive in excess of 30,000 Exchange Shares are
precluded from purchasing Common Stock in the Offerings.
THE CONVERSION AND REORGANIZATION
The Boards of Directors of the Primary Parties have approved the Plan
of Conversion and Reorganization, as has the OTS, subject to approval by the
members of the Mutual Holding Company and the stockholders of the Company
entitled to vote on the matter and the satisfaction of certain other conditions.
Such OTS approval, however, does not constitute a recommendation or endorsement
of the Plan by such agency.
General
The Boards of Directors of the Mutual Holding Company, the Mid-Tier
Holding Company and the Bank adopted the Plan as of February 18, 1998. The Plan,
which has been subsequently amended, has been approved by the OTS, subject to,
among other things, approval of the Plan by the Members of the Mutual Holding
Company and the Public Stockholders of the Mid-Tier Holding Company. The
Members' Meeting and the Stockholders' Meeting have been called for this purpose
on _____________, 1998.
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<PAGE>
The following is a brief summary of pertinent aspects of the Plan and
the Conversion and Reorganization. The summary is qualified in its entirety by
reference to the provisions of the Plan, which is available for inspection at
each branch office of the Bank and at certain offices of the OTS. The Plan also
is filed as an exhibit to the Registration Statement of which this Prospectus is
a part, copies of which may be obtained from the SEC. See "ADDITIONAL
INFORMATION."
Purposes of the Conversion and Reorganization
The Mutual Holding Company, as a federally chartered mutual holding
company, does not have stockholders and has no authority to issue capital stock.
As a result of the Conversion and Reorganization, the Company will be structured
in the form used by holding companies of commercial banks, many business
entities and a growing number of savings institutions. An important distinction
between the mutual holding company form of organization and the fully public
form is that, by federal law, a mutual holding company must always own over 50%
of the common stock of its savings institution subsidiary. Only a minority of
the subsidiary's outstanding stock can be sold to investors. If the Bank had
undertaken a full conversion to public ownership in 1992, a much greater amount
of Bank Common Stock would have been offered, resulting in more stock offering
proceeds than management believes could have been effectively deployed at that
time. High levels of capital might, in the opinion of management, have exceeded
the available opportunities in the Bank's market area in 1992. Management
determined therefore that the amount of capital raised in the MHC Reorganization
was consistent with its capabilities and loan demand in its market at that time.
The Mid-Tier Holding Company is a Pennsylvania corporation and is the
current holding company for the Bank owning 100% of the Bank's Common Stock. The
Mid-Tier Holding Company's shares are owned by the Mutual Holding Company
(87.29%) and the Public Stockholders (12.71%). Following the Conversion and
Reorganization, the Mid-Tier Holding Company and the Mutual Holding Company will
cease to exist and the Company will own 100% of the Bank's Common Stock.
Through the Conversion and Reorganization, the Company will become the
stock holding company of the Bank, which will complete the transition to full
public ownership. The stock holding company form of organization will provide
the Company with the ability to diversify the Company's and the Bank's business
activities through acquisition of or mergers with both stock savings
institutions and commercial banks, as well as other companies. There has been
significant consolidation in Pennsylvania where the Bank conducts its
operations, and although there are no current arrangements, understanding or
agreements regarding any such opportunities, the Company will be in a position
(subject to regulatory limitations and the Company's financial position) to take
advantage of any such opportunities that may arise because of the increase in
its capital after the Conversion and Reorganization.
The Conversion and Reorganization will be important to the future
growth and performance of the Company and the Bank by providing a larger capital
base to support the operations of the Bank and the Company and by enhancing
their future access to capital markets, ability to diversify into other
financial services related activities, and ability to provide services to the
public. The Conversion and Reorganization will result in increased funds being
available for lending purposes, greater resources for expansion of services, and
better opportunities for attracting and retaining qualified personnel. Although
the Mid-Tier Holding Company currently has the ability to raise additional
capital through the sale of additional shares of Mid-Tier Common Stock, that
ability is limited by the mutual holding company structure which, among other
things, requires that the Mutual Holding Company always hold a majority of the
outstanding shares of Mid-Tier Common Stock.
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<PAGE>
The Conversion and Reorganization also will result in an increase in
the number of outstanding shares of Common Stock following the Conversion and
Reorganization, as compared to the number of outstanding shares of Public
Mid-Tier Shares prior to the Conversion and Reorganization, 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 light of the foregoing, the Boards of Directors of the Primary
Parties believe that the Conversion and Reorganization is in the best interests
of such companies and their respective stockholders and members.
Description of the Conversion and Reorganization
On February 18, 1998, the Boards of Directors of the Mid-Tier Holding
Company, the Bank and the Mutual Holding Company adopted the Plan. It was
subsequently amended and adopted by the Company. Pursuant to the Plan, the ^
Conversion and Reorganization will be completed as follows: (i) The Mutual
Holding Company will ^ convert into an interim federal stock savings bank ^ to
be known as Interim Bank #1. The Mid-Tier Holding Company will then adopt a
federal charter and immediately thereafter an interim federal stock charter to
be known as Interim Bank #2; (ii) Interim Bank #2 will then merge into the Bank
("Merger #1"), with the Bank as the ^ surviving entity; (iii) immediately
following Merger #1, Interim Bank #1, formerly the Mutual Holding Company ^,
will merge with and into the Bank^ with the Bank as the surviving entity
("Merger #2"). The shares of Mid-Tier Common Stock previously held by the Mutual
Holding Company (now Interim Bank #1) will be canceled. ^ Eligible members of
the Mutual Holding Company as of certain specified dates will be granted
interests in a liquidation account to be established by the Bank. The amount in
the liquidation account is the amount of dividends waived by the Mutual Holding
Company plus 100% of retained earnings as of June 30, 1992, or 87.29% of the
Mid-Tier Holding Company's total stockholders' equity as reflected in its latest
statement of financial condition; (iv) the Company will form an interim
corporation ("Interim FSB"), a new, wholly owned first-tier subsidiary with an
interim federal stock charter; (vi) immediately following Merger #2, Interim FSB
will merge with and into the Bank, ^ with the Bank as the surviving entity
("Merger #3"). As a result of Merger #3, Bank stock deemed held by Public
Stockholders will be converted into the Common Stock based upon the Exchange
Ratio which is designed to ensure that the same Public Stockholders will own,
subject to certain adjustments described in "--The Exchange Ratio,"
approximately the same percentage of the Company stock as the percentage of the
Mid-Tier Holding Company stock owned by them immediately prior to the Conversion
and Reorganization before giving effect to (a) cash paid in lieu of fractional
shares and (b) any shares of the Company stock purchased by Public Stockholders
in the Offering and subject to an adjustment as a result of a change in OTS
policy; (vii) simultaneously with the consummation of Merger #3, the Company
will sell additional shares of Conversion Stock, with priority subscription
rights granted to certain members of the Mutual Holding Company; and to tax
qualified employee benefit plans pursuant to the Plan of Conversion and
Reorganization adopted by the Primary Parties.
Pursuant to OTS regulations, consummation of the Conversion and
Reorganization (including the offering of Conversion Stock in the Offerings, as
described below) is conditioned upon the approval of the Plan by (1) the OTS,
(2) at least a majority of the total number of votes eligible to be cast by
Members of the Mutual Holding Company at the Members' Meeting, and (3) at least
two thirds of the shares of the outstanding Mid-Tier Common Stock at the
Stockholders' Meeting. In addition, the Primary Parties have conditioned the
consummation of the Conversion and Reorganization on the approval of the
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<PAGE>
Plan by at least a majority of the votes cast, in person or by proxy, by the
Public Stockholders at the Stockholders' Meeting.
Effects of the Conversion and Reorganization
General. Prior to the Conversion and Reorganization, each depositor in
the Bank has both a deposit account in the Bank and a pro rata ownership
interest in the net worth of the Mutual Holding Company based upon the balance
in his account, which interest may only be realized in the event of a
liquidation of the Mutual Holding Company. However, this ownership interest is
tied to 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 ownership
interest in the net worth of the Mutual Holding Company, which is lost to the
extent that the balance in the account is reduced.
Consequently, the depositors of the Bank normally have no way to
realize the value of their ownership interest in the Mutual Holding Company,
which has realizable value only in the unlikely event that the Mutual Holding
Company is liquidated. In such event, the depositors of record at that time, as
owners, would share pro rata in any residual surplus and reserves of the Mutual
Holding Company after other claims are paid.
Upon consummation of the Conversion and Reorganization and the
Offerings, additional permanent nonwithdrawable capital stock will be created
which will represent the ownership of the consolidated net worth of the Company.
The Common Stock of the Company 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 stock
certificates are transferable, and therefore, the stock may be sold or traded if
a purchaser is available with no effect on any account the seller may hold in
the Bank.
Continuity. While the Conversion and Reorganization is being
accomplished, the normal business of the Bank of accepting deposits and making
loans will continue without interruption. The Bank will continue to be subject
to regulation by the OTS and the FDIC. After the Conversion and Reorganization,
the 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 Bank at the time of the Conversion
and Reorganization will continue to serve as directors and officers of the Bank
after the Conversion and Reorganization. The directors and executive officers of
the Company consist of individuals currently serving as directors and executive
officers of the Mid-Tier Holding Company, and they generally will retain their
positions in the Company after the Conversion and Reorganization.
Effect on Deposit Accounts. Under the Plan, each depositor in the Bank
at the time of the Conversion and Reorganization will automatically continue as
a depositor after the Conversion and Reorganization, and each such deposit
account will remain the same with respect to deposit balance, interest rate and
other terms, except to the extent that funds in the account are withdrawn to
purchase Conversion Stock to be issued in the Offerings. Each such account will
continue to be insured by the FDIC to the same extent as before the Conversion
and Reorganization. Depositors will continue to hold their existing
certificates, passbooks and other evidences of their accounts.
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Effects on Loans. No loan outstanding from the Bank will be affected by
the Conversion and Reorganization, and the amount, interest rate, maturity and
security for each loan will remain as they were contractually fixed prior to the
Conversion and Reorganization.
Effect on Voting Rights of Members. At present, all depositors and
certain borrowers of the Bank are members of, and have voting rights in, the
Mutual Holding Company as to all matters requiring membership action. Upon
completion of the Conversion and Reorganization and merger of the Mid-Tier
Holding Company and the Mutual Holding Company into the Bank and the acquisition
of the Bank by the Company, depositors will cease to be members and will no
longer be entitled to vote at meetings of the Mutual Holding Company. The
reorganization which created the Mid-Tier Holding Company vested all voting
rights in the Mid-Tier Holding Company as the sole stockholder of the Bank. With
the merger of the Mutual Holding Company and the Mid-Tier Holding Company into
the Bank and the acquisition of the Company of all of the Bank's shares,
exclusive voting rights with respect to the Company will be vested in the
holders of Common Stock.
Tax Effects. Consummation of the Conversion and Reorganization is
conditioned on prior receipt by the Primary Parties of rulings or opinions with
regard to federal and Pennsylvania income taxation which indicate that the
adoption and implementation of the Plan of Conversion and Reorganization set
forth herein will not be taxable for federal or Pennsylvania income tax purposes
to the Primary Parties or the Bank's Eligible Account Holders, Supplemental
Eligible Account Holders or Other Members, except as discussed below. See " --
Tax Aspects" below and "RISK FACTORS."
Effect on Liquidation Rights. If the Mutual Holding Company were to
liquidate, all claims of the Mutual Holding Company's creditors would be paid
first. Thereafter, if there were any assets remaining, members of the Mutual
Holding Company would receive such remaining assets, pro rata, based upon the
deposit balances in their deposit accounts at the Bank immediately prior to
liquidation. In the unlikely event that the Bank were to liquidate after the
Conversion and Reorganization, all claims of creditors (including those of
depositors, to the extent of the deposit balances) also would be paid first,
followed by distribution of the "liquidation account" to certain depositors (see
" -- Liquidation Rights" below), with any assets remaining thereafter
distributed to the Company as the holder of the Bank's capital stock. Pursuant
to the rules and regulations of the OTS, a merger, consolidation, sale of bulk
assets or similar combination or transaction with another insured savings
institution would not be considered a liquidation for this purpose and, in such
a transaction, the liquidation account would be required to be assumed by the
surviving institution.
Effect on Existing Option Plans. Under the Mid-Tier Reorganization, the
Option Plans and the Restricted Stock Plans remained benefit plans of the Bank
with shares of Mid-Tier Common Stock. After the Conversion and Reorganization,
they would become benefit plans of the Company. As of December 31, 1997, 100% of
the options and restricted stock available for grant under these plans had been
granted and were fully vested but options for 40,000 shares had not yet been
exercised.
The Offerings
Subscription Offering. In accordance with the Plan of Conversion and
Reorganization, rights to subscribe for the purchase of Conversion Stock have
been granted under the Plan of Conversion and Reorganization to the following
persons in the following order of descending priority: (i) First Priority, to
depositors of the Bank with account balances of $50.00 or more as of the close
of business on ^
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December 31, 1996, ("Eligible Account Holders"); (ii) Second Priority, to the
ESOP; (iii) Third Priority, to depositors of the Bank with account balances of
$50.00 or more as of the close of business on March 31, 1998 ("Supplemental
Eligible Account Holders"); and (iv) Fourth Priority, Depositors of the Bank as
of the Voting Record Date (other than Eligible Account Holders and Supplemental
Eligible Account Holders) and certain borrowers ("Other Members"). All
subscriptions received will be subject to the availability of Conversion Stock
after satisfaction of all subscriptions of all persons having prior rights in
the Subscription Offering and to the maximum and minimum purchase limitations
set forth in the Plan of Conversion and Reorganization and as described below
under "--Limitations on Conversion Stock Purchases and Ownership." All purchase
amounts described below except Priority 2 are purchase amounts combined with
Exchange Shares received by stockholders.
Priority 1: Eligible Account Holders (First Priority). Each Eligible
Account Holder will receive, without payment therefor, first priority,
nontransferable subscription rights to subscribe for in the Subscription
Offering up to the greater of (i) the maximum purchase limitation established
for the Offerings, (ii) one-tenth of 1% of the total offering of shares of
Conversion Stock in the Subscription Offering, or (iii) 15 times the product
(rounded down to the next whole number) obtained by multiplying the total number
of shares of Conversion Stock offered in the Subscription Offering by a
fraction, of which the numerator is the amount of the Qualifying Deposits of the
Eligible Account Holder and the denominator is the total amount of all
Qualifying Deposits of all Eligible Account Holders, subject to the overall
purchase limitations and the overall ownership limitation. See "-- Limitations
on Conversion Stock Purchases and Ownership."
If there are not sufficient shares available to satisfy all
subscriptions of Eligible Account Holders, shares first may be allocated so as
to permit each subscribing Eligible Account Holder to purchase a number of
shares sufficient to make his total allocation equal to the lesser of the number
of shares subscribed for or 100 shares. Thereafter, unallocated shares may be
allocated to subscribing Eligible Account Holders whose subscriptions remain
unfilled in the proportion that the amounts of their respective eligible
deposits bear to the total amount of eligible deposits of all subscribing
Eligible Account Holders whose subscriptions remain unfilled, provided that no
fractional shares shall be issued. The subscription rights of Eligible Account
Holders who are also directors or officers of the Mutual Holding Company, the
Company or the Bank and their associates will be subordinated to the
subscription rights of other Eligible Account Holders to the extent attributable
to increased deposits in the year preceding __________ ____, 199____.
Priority 2: ESOP (Second Priority). The ESOP will receive, without
payment therefore, second priority, nontransferable subscription rights to
purchase, in the aggregate, up to 10% of the Conversion Stock within the
Offering Price Range, including any increase in the number of shares of
Conversion Stock after the date hereof as a result of an increase of up to 15%
in the maximum of the Offering Price Range. The ESOP currently intends to
purchase 8% of the shares of Conversion Stock, or 723,132 shares based on the
midpoint of the Offering Price Range. Subscriptions by the ESOP will not be
aggregated with shares of Conversion Stock purchased directly by or which are
otherwise attributable to any other participants in the Offerings, including
subscriptions of any of the Bank's directors, officers, employees or associates
thereof. See "MANAGEMENT OF THE BANK -- Employee Stock Ownership Plan."
Priority 3: Supplemental Eligible Account Holders (Third Priority).
Each Supplemental Eligible Account Holder will receive, without payment
therefor, third priority, nontransferable subscription rights to subscribe for
in the Subscription Offering up to the greater of (i) the maximum
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purchase limitation established for the Offerings, (ii) one-tenth of 1% of the
total offering of shares of Conversion Stock in the Subscription Offering, or
(iii) 15 times the product (rounded down to the next whole number) obtained by
multiplying the total number of shares of Conversion Stock offered in the
Subscription Offering by a fraction, of which the numerator is the amount of the
Qualifying Deposits of the Supplemental Eligible Account Holder and the
denominator is the total amount of all Qualifying Deposits of all Supplemental
Eligible Account Holders, subject to the overall purchase limitation, the
overall ownership limitations, and the availability of shares of Conversion
Stock for purchase after taking into account the shares of Conversion Stock
purchased by Eligible Account Holders and the ESOP. See " -- Limitations on
Conversion Stock Purchases and Ownership."
If there are not sufficient shares available to satisfy all
subscriptions of Supplemental Eligible Account Holders, shares first will be
allocated so as to permit each subscribing Supplemental Eligible Account Holder
to purchase a number of shares sufficient to make his total allocation equal to
the lesser of the number of shares subscribed for or 100 shares. Thereafter,
unallocated shares will be allocated to subscribing Supplemental Eligible
Account Holders whose subscriptions remain unfilled in the proportion that the
amounts of their respective eligible deposits bear to the total amount of
eligible deposits of all such subscribing Supplemental Eligible Account Holders
whose subscriptions remain unfilled, provided that no fractional shares shall be
issued.
Priority 4: Other Members (Fourth Priority). To the extent that there
are sufficient shares remaining after satisfaction of subscriptions by Eligible
Account Holders, the ESOP and Supplemental Eligible Account Holders, each Other
Member will receive, without payment therefor, fourth priority, nontransferable
subscription rights to subscribe for Conversion Stock in the Subscription
Offering up to the greater of (i) the maximum purchase limitation established
for the Offerings or (ii) one-tenth of 1% of the total offering of shares of
Conversion Stock in the Subscription Offering, in each case subject to the
overall purchase limitation, the overall ownership limitation, and the
availability of shares of Conversion Stock for purchase after taking into
account the shares of Conversion Stock purchased by Eligible Account Holders,
the ESOP, and Supplemental Eligible Account Holders. See " -- Limitations on
Conversion Stock Purchases and Ownership."
If sufficient shares are not available to satisfy all subscriptions of
Other Members, available shares will first be allocated to the remaining
subscribing Other Members so as to permit each subscribing Other Member to
purchase a number of shares sufficient to make his allocation equal to the
lesser of the number of shares subscribed for or 100 shares. Thereafter, any
remaining shares will be allocated among subscribing Other Members on a pro rata
basis in the proportion that each such Other Member's subscription bears to the
total subscriptions of all subscribing Other Members, provided that no
fractional shares shall be issued.
Expiration Date for the Subscription Offering. The Subscription
Offering will expire at 12:00 Noon, Philadelphia Time, on __________ ____ 1998,
unless extended for up to 45 days or such additional periods by the Primary
Parties with the approval of the OTS. Such extensions may not be extended beyond
__________ ____ 2000. Subscription rights that have not been exercised prior to
the Expiration Date will become void.
The Primary Parties will not execute orders until at least the minimum
number of shares of Conversion Stock (6,677,927 shares) have been subscribed for
or otherwise sold. If all shares have not been subscribed for or sold within 45
days after the Expiration Date, unless such period is extended with the consent
of the OTS, all funds delivered to the Company and the Bank pursuant to the
Subscription
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Offering will be returned promptly to the subscribers with interest and all
withdrawal authorizations will be canceled. If an extension beyond the 45-day
period following the Expiration Date is granted, the Primary Parties will notify
subscribers of the extension of time and of any rights of subscribers to modify
or rescind their subscriptions.
Public Stockholders Offering. To the extent that there are sufficient
shares remaining after satisfaction of subscriptions by Eligible Account
Holders, the ESOP, Supplemental Eligible Account Holders and Other Members, each
Public Stockholder as of the Stockholder Voting Record Date, December 31, 1997
("Public Stockholders"), may submit orders for Conversion Stock in the Offerings
up to the maximum purchase limitation established for the Community Offering,
subject to the overall purchase and ownership limitations and the availability
of shares of Conversion Stock for purchase after taking into account the shares
of Conversion Stock purchased by Eligible Account Holders, the ESOP and
Supplemental Eligible Account Holders. See " -- Limitations on Conversion Stock
Purchases and Ownership."
In the event the Public Stockholders as of the Stockholder Voting
Record Date submit orders for a number of shares which, when added to the shares
subscribed for by Eligible Account Holders, the ESOP, Supplemental Eligible
Account Holders, Other Members and directors, officers and employees of the
Mutual Holding Company and the Bank, is in excess of the total number of shares
of Conversion Stock offered in the Offerings, available shares will be allocated
among Public Stockholders as of the Stockholder Voting Record Date whose orders
are accepted on a pro rata basis in the same proportion as each Eligible Public
Stockholder's order bears to the total orders of all Public Stockholders,
provided that no fractional shares shall be issued.
The opportunity to submit orders for shares of Conversion Stock in the
Public Stockholders Offering category is subject to the right of the Primary
Parties, in their sole discretion, to accept or reject any such orders in whole
or in part for any reason either at the time of receipt of an order or as soon
as practicable following the completion of the Public Stockholders Offering. It
should be noted that Public Stockholders do not have subscription rights with
respect to the Conversion and Reorganization.
Community Offering. To the extent that shares remain available for
purchase after satisfaction of all subscriptions by Eligible Account Holders,
the ESOP, Supplemental Eligible Account Holders, and Other Members and orders of
Public Stockholders, the Primary Parties have determined to offer shares
pursuant to the Plan to certain members of the general public, with preference
given to the natural persons residing in the Local Community. Individually, such
persons may purchase, when combined with Exchange Shares, $300,000 of Conversion
Stock, subject to overall purchase and ownership limitations. See " --
Limitations on Conversion Stock Purchases and Ownership." This amount may be
increased at the sole discretion of the Primary Parties. The opportunity to
submit orders for shares of Conversion Stock in the Community Offering category
is subject to the right of the Primary Parties, in their sole discretion, to
accept or reject any such orders in whole or in part for any reason either at
the time of receipt of an order or as soon as practicable following the
completion of the Community Offering. All purchases in the Community Offering
will be combined with Exchange Shares for purposes of complying with the
purchase limitations in the Plan of Conversion and Reorganization.
If there are not sufficient shares available to fill the orders of the
Subscribers in the Community Offering, available shares of stock will be
allocated first to each such Subscriber whose order is accepted by the Primary
Parties, in an amount equal to the lesser of 100 shares or the number of shares
ordered by each such Subscriber, if possible. Thereafter, unallocated shares
will be allocated among the
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Subscribers whose orders remain unsatisfied in the same proportion that the
unfilled order of each bears to the total unfilled orders of all such
Subscribers whose order remains unsatisfied. If the orders of such Subscribers
are filled, and there are shares remaining, shares will be allocated to other
members of the general public who submit orders in the Community Offering
applying the same allocation described above for such Subscribers.
Limitations on Conversion Stock Purchases and Ownership
The Plan includes the following limitations on the number of shares of
Conversion Stock that may be purchased:
(1) No less than 25 shares of Conversion Stock may be purchased, to
the extent such shares are available;
(2) The number of shares of Conversion Stock which may be purchased by
any person (or persons through a single account) in the Subscription Offering
shall not exceed such number of shares of Conversion Stock that, when combined
with Exchange Shares, shall equal 300,000 (or 30,000 shares), except for the
ESOP, which in the aggregate may subscribe for up to 10% of the Conversion
Stock.
(3) The number of shares of Conversion Stock which may be purchased by
any person, in the Subscription Offering, Public Stockholders Offering or the
Community Offering combined shall not exceed such number of shares of Conversion
Stock that shall, when combined with Exchange Shares, equal $300,000 (or 30,000
shares).
(4) Except for Tax-Qualified Employee Stock Benefit Plans, the maximum
amount of Conversion Stock that may be purchased in all categories in the
Conversion and Reorganization by any person together with any associate or group
of persons acting in concert, shall not exceed such number of shares of
Conversion Stock as shall equal when combined with Exchange Shares, $904,000 (or
90,400 shares).
(5) No more than 29% of the total number of shares sold in the
Offerings, when combined with Exchange Shares, may be purchased by directors and
officers of the Primary Parties and the Bank and their associates in the
aggregate, excluding purchases by the ESOP.
Subject to any required regulatory approval and the requirements of
applicable laws and regulations, but without further approval of the Members of
the Mutual Holding Company or the Stockholders of the Mid-Tier Holding Company
or the Company, the purchase limitations in (2), (3) and (4) above may be
decreased, or increased, up to a maximum of 5% of the total shares of Conversion
Stock to be issued in the Conversion and Reorganization, at the sole discretion
of the Primary Parties. If such amounts are increased, subscribers for the
maximum amount will be, and certain other large subscribers in the sole
discretion of the Primary Parties may be, given the opportunity to increase
their subscriptions up to the then applicable limit.
In the event of an increase in the total number of shares of Conversion
Stock offered in the Conversion and Reorganization due to an increase in the
maximum of the Offering Price Range of up to 15% (the "Adjusted Maximum"), the
new total number of shares will be allocated in the following order of priority
in accordance with the Plan: (i) to fill the ESOP's order of up to a total of
8.0% of the Adjusted Maximum number of shares (the Board of Directors has
determined to purchase 8%); (ii) in the event that there is an oversubscription
by Eligible Account holders to fill their unfulfilled subscriptions;
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(iii) in the event that there is an oversubscription by Supplemental Eligible
Account Holders to fill their unfulfilled subscriptions; (iv) in the event that
there is an oversubscription by Other Members to fill their unfulfilled
subscriptions; (v) in the event that there is an oversubscription by Public
Stockholders, to fill their unfulfilled subscriptions; and (vi) to fill
unfulfilled subscriptions in the Community Offerings.
Notwithstanding anything to the contrary contained in the Plan, except
as may otherwise be required by the OTS, the Public Stockholders will not have
to sell any Mid-Tier Common Stock or be limited in receiving Exchange Shares
even if their ownership of Mid-Tier Common Stock when converted into Exchange
Shares pursuant to the Conversion and Reorganization would exceed an applicable
purchase limitation; however, they might be precluded from purchasing any
Conversion Stock in the Offerings.
The term "associate," when used to indicate a relationship with any
person, is defined to mean (i) a corporation or organization (other than the
Mutual Holding Company, the Mid-Tier Holding Company or the Company, a
majority-owned subsidiary of the Mid-Tier Holding Company or the Company or the
Bank) of which such person is a director, 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, provided, however, that such term shall not
include any tax qualified employee stock benefit plan of the Company or the Bank
in which such person has a substantial beneficial interest or serves as a
trustee or in a similar fiduciary capacity, 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 the Mutual Holding Company, the
Mid-Tier Holding Company, the Company or the Bank or any of the subsidiaries of
the foregoing.
The term "resident" as used herein means any person who, on the date
designated for that category of subscriber in the Plan, maintained a bona fide
residence within the Local Community and has manifested or intent to remain
within the Local Community for a period of time. The designated dates for
Eligible Account Holders, Supplemental Eligible Account Holders and Other
Members are ^ December 31, 1996, March 31, 1998, and __________ ____, 1998,
respectively. To the extent the person is a corporation or other business
entity, the principal place of business or headquarters shall be within the
Local Community. To the extent the person is a personal benefit plan, the
circumstances of the beneficiary shall apply with respect to this definition. In
the case of all other benefit plans, the circumstances of the trustee shall be
examined for purposes of this definition. The Primary Parties may utilize
deposit or loan records of the Bank or such other evidence provided to it to
make a determination as to whether a person is a bona fide resident of the Local
Community. Subscribers in the Community Offering who are natural persons also
will have a purchase preference if they are residents of the Local Community. In
all cases, however, such determination shall be in the sole discretion of the
Bank and shall be determined on a case-by-case basis without regard to prior
determinations.
Stock Pricing and Number of Shares to be Issued
The Plan of Conversion and Reorganization requires that the aggregate
purchase price of the Conversion Stock must be based on the appraised pro forma
market value of the Mutual Holding Company, the Mid-Tier Holding Company, the
Company and the Bank on a consolidated basis, as determined on the basis of an
independent valuation. The Primary Parties have retained FinPro, Inc. to make
such a valuation. For its services in making such an appraisal and any expenses
incurred in connection therewith, FinPro, Inc. will receive a maximum of $30,000
plus out of pocket expenses. The Primary Parties have agreed to indemnify
FinPro, Inc. and its employees and affiliates against certain
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losses (including any losses in connection with claims under the federal
securities laws) arising out of its services as appraiser, except where FinPro,
Inc.'s liability results from its negligence or bad faith.
The Independent Valuation has been prepared by FinPro, Inc. in reliance
upon the information contained in this Prospectus, including the financial
statements. FinPro, Inc. 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 Bank's
existing market area: certain historical, financial and other information
relating to the Mid-Tier Holding Company, the Company and the Bank; a
comparative evaluation of the operating and financial statistics of the Mid-Tier
Holding Company 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 Stock; the impact of the Conversion and
Reorganization on the Bank's net worth and earnings potential; the proposed
dividend policy of the Company and the Bank; and the trading market for the
Mid-Tier Holding Company's Common Stock and securities of comparable companies
and general conditions in the market for such securities.
The Independent Valuation was prepared based on the assumption that the
aggregate amount of Conversion Stock sold in the Offerings would be equal to the
estimated pro forma market value of the Mid-Tier Holding Company and the Bank,
on a consolidated basis, multiplied by the percentage of the outstanding shares
of Mid-Tier Common Stock held by the Mutual Holding Company as of the date of
the appraisal, subject to an adjustment, pursuant to a change in OTS policy,
described below in "-- The Exchange Ratio." The Independent Valuation states
that as of March ^ 25, 1998, the estimated pro forma market value ranged from a
minimum of $76.5 million to a maximum of $10.35 million with a midpoint of $9.0
million. Based on the approximately 87.62% of the outstanding shares of Mid-Tier
Common Stock held by the Mutual Holding Company as of the date of the appraisal
and the adjustment described in "-- The Exchange Ratio," the estimated pro forma
market value of the Company was multiplied by approximately 87.33% to determine
the dollar amount of Conversion Stock to be offered in the Offerings, which
ranges from a minimum of $66,779,270 to a maximum of $90,348,340 with a midpoint
of $78,563,700 (the "Offering Price Range").
The Boards of Directors of the Primary Parties reviewed FinPro, Inc.'s
appraisal report, including the methodology and the assumptions used by FinPro,
Inc., and determined that the Estimated Valuation Range was reasonable and
adequate. However, the Boards of Directors of the Primary Parties are relying
upon the expertise, experience and independence of FinPro, Inc., and are not
qualified to determine the appropriateness of the assumptions or the
methodology.
FinPro, Inc.'s valuation is not intended, and must not be construed, as
a recommendation of any kind as to the advisability of purchasing such shares.
FinPro, Inc. did not independently verify the financial statements and other
information provided by the Primary Parties, nor did FinPro, Inc. value
independently the assets or liabilities of the Mutual Holding Company, the
Mid-Tier Holding Company or the Bank. The valuation considers the Primary
Parties as going concerns and should not be considered as indication of the
liquidation value of the Mid-Tier Holding Company, the Company, the Bank and the
Mutual Holding Company. Moreover, because such valuation is necessarily based
upon the 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 Stock 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 per share in the Offerings.
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No sale of shares of Conversion Stock or issuance of Exchange Shares
may be consummated unless, prior to such consummation, FinPro, Inc. confirms
that nothing of a material nature has occurred which, taking into account all
relevant factors, would cause it to conclude that the aggregate Purchase Price
is materially incompatible with the estimate of the pro forma market value the
Company, and the Bank on a consolidated basis. 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, Public
Stockholders, Community Offerings may be held or such other action may be taken
as the Primary Parties shall determine and the OTS may permit or require.
Depending upon market or financial conditions following the
commencement of the Subscription Offering, the total number of shares of
Conversion Stock to be sold in the Offerings may be increased by up to 15%, to
10,390,048 shares, without a resolicitation of subscribers. 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 Offering Price Range (i.e.
$66,779,270) or more than 15% above the maximum of such range (i.e.
$103,900,480), 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 Bank's
passbook rate of interest, or be permitted to modify or rescind their
subscriptions). Based upon current market and financial conditions and recent
practices and policies of the OTS, in the event the Company receives orders for
Conversion Stock in excess of $90,348,340 (the maximum of the Offering Price
Range) and up to $103,900,480 (the maximum of the Offering Price Range, as
adjusted by 15%) the Company may be required by the OTS to accept all such
orders. No assurances, however, can be made that the Company will receive orders
for Conversion Stock in excess of the maximum of the Offering Price Range or
that, if such orders are received that all such orders will be accepted.
An increase in the number of shares of Conversion Stock, as a result of
an increase in the Independent Valuation, would decrease a subscriber's
ownership interest and the Company's pro forma net income and stockholders'
equity on a per share basis while increasing pro forma net income and
stockholders' equity on an aggregate basis. See "RISK FACTORS -- Possible
Dilutive Effect of Issuance of Additional Shares" and "PRO FORMA DATA."
The Appraisal (including the appraisal report of FinPro, Inc. as of
March ^ 25, 1998) 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."
The Exchange Ratio
OTS regulations and policy provide that in a conversion of a mutual
holding company to stock form, stockholders other than the mutual holding
company will be entitled to exchange their shares of subsidiary savings bank (or
mid-tier holding company) common stock for common stock of the converted holding
company, provided that the bank and the mutual holding company demonstrate to
the satisfaction of the OTS that the basis for the exchange is fair and
reasonable. The Boards of Directors of the Primary Parties have determined that
each Public Mid-Tier Share will on the effective date be automatically converted
into and become the right to receive a number of Exchange Shares determined
pursuant to the Exchange Ratio, which was established in order to ensure that
after the Conversion and Reorganization, The percentage of the to-be outstanding
shares of Common Stock issued to Public Stockholders in exchange for their
Public Mid-Tier Shares will be equal to the percentage of the outstanding shares
of Mid-Tier Common Stock held by Public Stockholders immediately prior to the
Conversion and
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Reorganization. The total number of shares held by Public Stockholders after the
Conversion and Reorganization would also be affected by any purchases by such
persons in the Offering.
The following table sets forth, based upon the minimum, midpoint,
maximum and 15% above the maximum of the Estimated Valuation Range, the
following: (i) the total number of shares of Conversion Stock and Exchange
Shares to be issued in the Conversion and Reorganization, (ii) the percentage of
the total Common Stock represented by the Conversion Stock and the Exchange
Shares, and (iii) the Exchange Ratio. The table assumes that there is no cash
paid in lieu of issuing fractional Exchange Shares.
<TABLE>
<CAPTION>
Subscription Shares Exchange Shares
to be Issued to be Issued Total Shares
------------ ------------ of Common
Stock to be Exchange
Amount Percent Amount Percent Outstanding Ratio
------ ------- ------ ------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Minimum................... 6,677,927 87.29% 972,073 12.71% 7,650,000 4.7188
Midpoint.................. 7,856,370 87.29% 1,143,630 12.71% 9,000,000 5.5516
Maximum................... 9,034,834 87.29% 1,315,166 12.71% 10,350,000 6.3843
Adjusted maximum.......... 10,390,048 87.29% 1,512,452 12.71% 11,902,500 7.3420
</TABLE>
Options to purchase Public Mid-Tier Shares will also be converted into
and become options to purchase Common Stock. As of the date of this Prospectus
there were outstanding options to purchase 40,000 shares of Mid-Tier Common
Stock at an average exercise price of $10.75 per share. The number of shares of
Common Stock to be received upon exercise of such options will be determined
pursuant to the Exchange Ratio. The aggregate exercise price, duration, and
vesting schedule of such options will not be affected. If such options are
exercised prior to the effective date of the Conversion and Reorganization, then
there will be an increase in the number of shares of Common Stock issued to
Public Stockholders in the Share Exchange, and a decrease in the Exchange Ratio.
the Mid-Tier Holding Company has no plans to grant additional stock options
prior to the Effective Date.
Persons in Nonqualified States or Foreign Countries
The Primary 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 the Common Stock pursuant to the Plan reside. However, no person
will be offered or allowed to purchase any Common Stock under the Plan if such
person resides in a foreign country or in a state of the United States with
respect to which any of the following apply: (i) a small number of persons
otherwise eligible to subscribe for shares under the Plan reside in such state
or foreign country; (ii) the granting of subscription rights or offering or
selling shares of Common Stock to such persons would require the Bank, the
Mid-Tier Holding Company, the Company or their employees to register, under the
securities laws of such state or foreign country, as a broker or dealer or to
register or otherwise qualify its securities for sale in such state or foreign
country; or (iii) such registration or qualification would be impracticable for
reasons of cost or otherwise. No payments will be made in lieu of the granting
of subscription rights to any such person.
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Marketing Arrangements
The Bank and the Company have engaged Sandler O'Neill as a consultant
and financial advisor in connection with the Offerings, and Sandler O'Neill and
Partners, L.P. ("Sandler O'Neill") has agreed to use its best efforts to assist
the Bank and the Company in the solicitation of subscriptions for shares of
Common Stock in the Offerings. Sandler O'Neill will receive a fee equal to 1.25%
of the aggregate Purchase Price of all shares sold in the Offerings, excluding
in each case shares purchased by directors, officers and employees of the Bank
or the Company and any immediate family member thereof, and the ESOP for which
Sandler O'Neill will not receive a fee. In the event that a selected dealers'
agreement is entered into in connection with a Syndicated Community Offering,
the Company and Bank will pay a fee (to be negotiated at such time under the
agreement) to such selected dealers, any sponsoring dealers' fees, and a
management fee to Sandler O'Neill of 1.25% for shares sold by a NASD member firm
pursuant to a selected dealers' agreement shall not exceed 1.25% of the
aggregate Purchase Price and provided, further, however, that the aggregate fees
payable to Sandler O'Neill and the selected dealers. Fees to Sandler O'Neill and
to any other broker-dealer may be deemed to be underwriters. Sandler O'Neill
will also be reimbursed for its reasonable out-of-pocket expenses (excluding
legal fees, which are estimated to be $40,000). The Company and the Bank have
agreed to indemnify Sandler O'Neill for reasonable costs and expenses in
connection with certain claims or liabilities, including certain liabilities
under the Securities Act. Sandler O'Neill has received advances towards its
marketing and financial advisory service fees totaling $25,000. Total marketing
fees to Sandler O'Neill are expected to be ^ $768,000 and ^ $1.0 million at the
minimum and the maximum of the Offerings, respectively. See "Pro Forma Data" for
the assumptions used to arrive at these estimates.
Sandler O'Neill will also perform proxy solicitation services,
conversion agent services and records management services for the Bank in the
conversion and will receive a fee for these services $25,000, plus reimbursement
of reasonable out-of-pocket expenses.
Sandler O'Neill has not prepared any report or opinion consisting
recommendations or advice to the Bank or the Company. In addition, Sandler
O'Neill has expressed no opinion as to the prices at which Common Stock to be
issued in the Offerings may trade. Furthermore, Sandler O'Neill has not verified
the accuracy or completeness of the information contained in the Prospectus.
Directors and executive officers of the Primary Parties may participate
in the solicitation of offers to purchase Conversion Stock. Other employees of
the Bank may participate in the Offerings in ministerial capacities or providing
clerical work in effecting a sales transaction. Such other employees have been
instructed not to solicit offers to purchase Conversion Stock or provide advice
regarding the purchase of Conversion Stock. Questions of prospective purchasers
will be directed to executive officers or registered representatives. The
Company will rely on Rule 3a4-1 under the Exchange Act, and sales of Conversion
Stock will be conducted within the requirements of Rule 3a4-1, so as to permit
officers, directors and employees to participate in the sale of Conversion
Stock. No officer, director or employee of the Primary Parties will be
compensated in connection with such person's solicitations or other
participation in the Offerings or the Exchange by the payment of commissions or
other remuneration based either directly or indirectly on transactions in the
Conversion Stock and Exchange Shares, respectively.
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Procedure for Purchasing Shares in the Offerings.
To help ensure that each purchaser receives a Prospectus at least 48
hours before the Expiration Date in accordance with Rule 15c2-8 of 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 of the Prospectus in accordance with
Rule 15c2-8. Order forms will only be distributed with a Prospectus.
To purchase shares in the Offerings, an executed order form with the
required payment for each share subscribed for, or with appropriate
authorization for withdrawal from a deposit account at the Bank (which may be
given by completing the appropriate blanks on the order form), must be received
by the Bank at any of its offices by 12 Noon, Philadelphia Time, on the
Expiration Date. Order forms which are not received by such time or are executed
defectively or are received without full payment (or appropriate withdrawal
instructions) are not required to be accepted. The Bank is not required to
accept orders submitted on facsimilied order forms. The Primary Parties have the
right to waive or permit the correction of incomplete or improperly executed
forms, but do not represent that they will do so. The waiver of an irregularity
on an order form, the allowance by the Primary Parties of a correction of an
incomplete or improperly executed order form, or the acceptance of an order
after 12 Noon on the Expiration date in no way obligates the Primary Parties to
waive an irregularity, allow a correction, or accept an order with respect to
any other order form. The interpretation by the Primary Parties of the
acceptability of an order form will be final. Once received, an executed order
form may not be modified, amended or rescinded without the consent of the
Primary Parties, unless the Offerings have not been completed within 45 days
after the end of the Subscription, Public Stockholders, and Community Offerings,
unless such period has been extended.
In order to ensure that Eligible Account Holders, Supplemental Eligible
Account Holders and Other Members are properly identified as to their stock
purchase priority, depositors as of the close of business on the Eligibility
Record Date (December 12, 1996) or the Supplemental Eligibility Record Date
(March 31, 1998) must list on the order form all accounts in which they have an
ownership interest at the applicable eligibility date, giving all names in each
account and the account numbers.
Payment for subscriptions and orders may be made (i) in cash if
delivered in person at any office of the Bank, (ii) by check or money order, or
(iii) by authorization of withdrawal from certificate of deposit accounts or
IRAs maintained with the Bank. The Primary Parties, in their sole discretion,
may elect not to accept payment for shares of Conversion Stock by wired funds
and there shall be no liability for failure to accept such payment. Funds will
be deposited in a segregated account at the Bank and interest will be paid on
funds made by cash, check or money order at the Bank's passbook rate of interest
from the date payment is received until completion or termination of the
Conversion and Reorganization. If payment is made by authorization of withdrawal
from certificate accounts, the funds authorized to be withdrawn from a Bank
deposit account may continue to accrue interest at the contractual rates until
completion or termination 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.
If a subscriber authorizes the Bank to withdraw the aggregate amount of
the purchase price from a deposit account, the Bank will do so as of the
effective date of the Conversion and Reorganization. The Bank may 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
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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 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 Conversion Stock
subscribed for upon consummation of the Offerings, 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 Company to lend to the ESOP, at such
time, the aggregate purchase price of the shares for which it subscribed.
A depositor interested in using his or her IRA funds to purchase
Conversion Stock must do so through a self-directed IRA. Since the Bank does not
offer such accounts, it will allow 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 Conversion Stock in
the Offerings. There will be no early withdrawal or IRS penalties for such
transfers. The new trustee would hold the Conversion Stock in a self-directed
account in the same manner as the 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 Bank IRA to purchase Conversion Stock should
contact the Stock Information Center as soon as possible so that the necessary
forms may be forwarded for execution prior to the Expiration Date.
Restrictions on Transfer of Subscription Rights and Shares
Pursuant to the rules and regulations of the OTS, no person with
subscription rights may transfer or enter into any agreement or understanding to
transfer the legal or beneficial ownership of the subscription rights issued
under the Plan or the shares of Conversion Stock to be issued upon their
exercise. Such rights may be exercised only by the person to whom they are
granted and only for such person's account. Each person exercising such
subscription rights will be required to certify that such person is purchasing
shares solely for such person's own account and that such person has no
agreement or understanding regarding the sale or transfer of such shares.
Federal regulations also prohibit any person from offering or making an
announcement of an offer or intent to make an offer to purchase such
subscription rights or shares of Conversion Stock prior to the completion of the
Conversion and Reorganization.
The Primary Parties will pursue any and all legal and equitable
remedies in the event they become aware of the transfer of subscription rights
and will not honor orders known by them to involve the transfer of such rights.
Liquidation Rights
In the unlikely event of a complete liquidation of the Mutual Holding
Company in its present mutual form, each depositor of the Bank would receive his
pro rata share of any assets of the Mutual Holding Company 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 deposit
account was to the total value of all deposit accounts in the Bank at the time
of liquidation. After the Conversion and Reorganization, each depositor, in the
event of a complete liquidation of the Bank, would have a claim as a creditor of
the same general priority as the claims of all other general creditors of the
Bank. However, except as described below, this claim would be solely in the
amount of the balance in the deposit account plus accrued interest. A depositor
would not have an interest in the value of assets of the Bank, or the Company,
above that amount.
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The Plan provides for the establishment by the Bank, 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 any dividends waived by
the Mutual Holding Company plus ^ the greater of 100% of the Bank's retained
earnings of ^ $16,431,000 million at September 30, 1992, the date of the latest
balance sheet contained in the final offering circular utilized in the Bank's
initial public offering in the MHC Reorganization, or (2) 87.29% of the Bank's
total stockholders' equity as reflected in its latest balance sheet contained in
the final Prospectus utilized in the Offerings. Upon consummation of the
Conversion and Reorganization, the Bank will amend its Federal stock charter to
provide a special liquidation account. 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 such person
were to continue to maintain such person's deposit account at the Bank, would be
entitled, upon a complete liquidation of the Bank after the Conversion and
Reorganization, to an interest in the liquidation account prior to any payment
to the Company as the sole stockholder of the 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 Bank at the close of business on ^
December 31, 1996 or March 31, 1998, 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 such person's deposit accounts based
on the proportion that the balance of each such deposit account on the
__________ ____, 199____ eligibility record date (or the March 31, 1998
Supplemental Eligibility Record Date, as the case may be) bore to the balance of
all deposit accounts in the Bank on such date.
If, however, on any December 31 annual closing date of the Bank,
commencing December 31, ^ 1998 for Eligible Account Holders and on December 31,
1998 for Supplemental Eligible Account Holders, the amount in any deposit
account is less than the amount in such deposit account on December 31, ^ 1996,
or March 31, 1998, 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 Company as the sole stockholder of the
Bank.
Tax Aspects
Consummation of the Conversion and Reorganization is expressly
conditioned upon prior receipt of either a ruling from the IRS or an opinion of
counsel with respect to federal tax effects of the transaction, and either a
ruling or an opinion with respect to Pennsylvania tax laws, to the effect that c
onsummation of the transactions contemplated hereby will not result in a taxable
reorganization under the provisions of the applicable codes or otherwise result
in any material adverse tax consequences to the Mutual Holding Company, the
Bank, the Company or to account holders receiving subscription rights, except to
the extent, if any, that subscription rights are deemed to have fair market
value on the date such rights are issued. This condition may not be waived by
the Primary Parties.
Malizia, Spidi, Sloane & Fisch, P.C., Washington, D.C. ("Counsel"), has
issued an opinion to the Company and the Bank to the effect outlined below. The
opinions of counsel are subject to certain assumptions stated therein. The
assumptions include: (i) that the Plan of Conversion and Reorganization
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has been duly and validly adopted; (ii) the Primary Parties will comply with the
Plan of Conversion and Reorganization; (iii) various representations and
warranties of management are accurate, complete, true and correct; and (iv) that
there were no adverse facts not present on the face of instruments and documents
examined.
In the opinion of Counsel
1. The transactions qualify as statutory mergers and each merger
required by the Plan qualifies as a reorganization within the meaning of Section
368(a)(1)(A) of the Code. The Mutual Holding Company, the Mid-Tier Holding
Company and the Bank will be a party to a "reorganization" as defined in Section
368(b) of the Code.
2. Interim Bank #1 (the Mutual Holding Company following its conversion
to a federal stock savings bank) and Interim Bank #2 (the Mid-Tier Holding
Company following its conversion to a federal holding company and then to a
federal stock savings bank) will recognize no gain or loss pursuant to the
Conversion and Reorganization.
3. No gain or loss will be recognized by the Bank upon the receipt of
the assets of Interim Bank #1 and Interim Bank #2 pursuant to the Conversion and
Reorganization.
4. The reorganization of the Company as the holding company of the Bank
qualifies as a reorganization within the meaning of Section 368(a)(1)(A) of the
Code by virtue of Section 368(a)(2)(E) of the Code. Therefore, the Bank, the
Company, and Interim will each be a party to a reorganization as defined in
Section 368(b) of the Code.
5. No gain or loss will be recognized by Interim upon the transfer of
its assets to the Bank pursuant to the Conversion and Reorganization.
6. No gain or loss will be recognized by the Bank upon the receipt of
the assets of Interim.
7. No gain or loss will be recognized by the Company upon the receipt
of Bank Common Stock solely in exchange for Common Stock.
8. No gain or loss will be recognized by the Public Stockholders upon
the receipt of Common Stock.
9. The basis of the Common Stock to be received by the Public
Stockholders will be the same as the basis of the Mid-Tier Common Stock
surrendered before giving effect to any payment of cash in lieu of fractional
shares.
10. The holding period of the Common Stock to be received by the Public
Stockholders will include the holding period of the Common Stock, provided that
the Common Stock was held as a capital asset on the date of the exchange.
11. No gain or loss will be recognized by the Company upon the sale of
Common Stock to investors.
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12. The Eligible Account Holders, Supplemental Eligible Account
Holders, and Other Members will recognize gain, if any, upon the issuance to
them of: (i) withdrawable savings accounts in the Bank following the Conversion
and Reorganization, (ii) Bank Liquidation Accounts, and (iii) nontransferable
subscription rights to purchase Conversion Stock, but only to the extent of the
value, if any, of the subscription rights.
13. The tax basis to the holders of Conversion Stock purchased in the
Offerings will be the amount paid therefor, and the holding period for such
shares will begin on the date of consummation of the offerings if purchased
through the exercise of subscription rights. If purchased in the Community
Offering or Public Stockholder Offering (as such terms are defined in the Plan),
the holding period for such stock will begin on the day after the date of
purchase.
Furthermore, Malizia, Spidi, Sloane & Fisch, P.C., has issued an
opinion to the Company and the Bank to the effect that the income tax
consequences of the Conversion and Reorganization are substantially the same
under Pennsylvania law as they are under the Code.
The opinion states that although case law and IRS pronouncements
indicate otherwise, it is possible that the IRS could assert that the overall
plan of the transactions contemplated by the Plan is the maintenance of the
Bank's holding company structure and the merger of the Mutual Holding Company
into the Bank. If so, the IRS could argue that the "step transaction" doctrine
should be applied and the transitory elimination of the holding company
structure in Merger #1 (the merger of Interim Bank #2 with and into the Bank
with the Bank as the surviving entity) and the re-creation of the holding
company structure in Merger #3 (the merger of Interim FSB, a subsidiary of the
Company with and into the Bank with the Bank as the surviving entity) should be
ignored for tax purposes. If the IRS were successful with such an assertion, the
transaction would be treated as a direct merger of the Mutual Holding Company
into the Bank which may not qualify as a tax free reorganization, resulting in
taxable gain to the parties to the transaction.
However, the case law and the IRS's pronouncements indicate that if two
or more transactions carried out pursuant to an overall plan have economic
significance independent of each other, the transactions generally will not be
stepped together. The IRS's most significant pronouncement regarding independent
economic significance is Rev. Rul. 79-250. In that ruling, the IRS will respect
the transaction if each step demonstrates independent economic significance, is
not subject to attack as a sham, and was undertaken for valid business purposes
and not mere avoidance of taxes.
Counsel notes that the parties to Merger #2 (the merger of Interim Bank
#1 (formerly the Mutual Holding Company) with and into the Bank with the Bank as
the surviving entity) maintain a separate and distinct business purpose for
consummating Merger #2 (e.g., allowing for the conversion of the Mutual Holding
Company from mutual to stock form). Immediately after the consummation of Merger
#2, the Bank will no longer be controlled by the Mutual Holding Company but will
instead be controlled by its public stockholders and that the Bank's capital
will be substantially increased. The facts indicate that the merger of the
Mutual Holding Company with and into the Bank will result in a real and
substantial change in the form of ownership of the Bank that is sufficient to
conclude that Merger #2 comports with the underlying purposes and assumptions of
a reorganization under Section 368(a)(1)(A) of the Code.
In addition, Counsel believes that, because the various steps
contemplated by the Plan were necessitated by the requirements of the Office of
Thrift Supervision, each of Merger #1, Merger #2 and
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Merger #3 has a business purpose and independent significance and, as a result,
the step transaction should not be applied to this transaction.
The IRS is currently also reviewing the question of whether certain
downstream mergers of a parent corporation into its subsidiary, known as
inversion transactions, where a parent and its subsidiary reverse positions,
which otherwise qualify for tax-free treatment nevertheless should be treated as
taxable transactions. Counsel does not believe that the transactions undertaken
pursuant to the Plan should be so treated. Counsel's opinions, however, are not
binding upon the IRS, and there can be no assurance that the IRS will not assert
a contradictory position.
The Bank and the Company have also received a letter from FinPro, Inc.
which addresses certain issues surrounding the value of the subscription rights.
The letters states that it is FinPro's belief, which is not binding on the IRS,
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 the
Conversion Stock at a price equal to its estimated fair market value, which will
be the same price as the Purchase Price for the unsubscribed shares of
Conversion Stock. If the subscription rights granted to eligible subscribers are
deemed to have an ascertainable value, receipt of such rights likely would be
taxable only to those eligible subscribers who exercise the subscription rights
(either as a capital gain or ordinary income) in an amount equal to such value,
and the Primary Parties could recognize gain on such distribution. Eligible
subscribers are encouraged to consult with their own tax advisor as to the tax
consequences in the event that such subscription rights are deemed to have an
ascertainable value.
Unlike private rulings, an opinion of Counsel or letter from FinPro,
Inc. is not binding on the IRS and the IRS could disagree with the conclusions
reached therein. In the event of such disagreement, there can be no assurance
that the IRS would not prevail in a judicial or administrative proceeding.
Management does not believe the fact that the IRS has placed this transaction
into a "no rule" area will result in the IRS treating the Conversion and the
Reorganization any differently from similar transactions already completed for
which the IRS has issued private letter rulings. If the IRS determines that the
tax effects of the transaction are to be treated differently from that presented
in the tax opinion, the Primary Parties may be subject to adverse tax
consequences as a result of the Conversion and Reorganization.
Delivery and Exchange of Certificates
Conversion Stock. Certificates representing Conversion Stock issued in
connection with the Offerings will be mailed by the Company's transfer agent for
the Common Stock to the persons entitled thereto at the addresses of such
persons appearing on the stock order form for Conversion Stock as soon as
practicable following consummation of the Conversion and Reorganization. Any
certificates returned as undeliverable will be held by the Company until claimed
by persons legally entitled thereto or otherwise disposed of in accordance with
applicable law. Until certificates for Conversion Stock are available and
delivered to subscribers, subscribers may not be able to sell such shares.
Exchange Shares. After consummation of the Conversion and
Reorganization, each holder of a certificate or certificates evidencing issued
and outstanding shares of Mid-Tier Common Stock, or Bank Common Stock, which was
held prior to the Mid-Tier Reorganization and currently represents an equivalent
number of shares of Public Mid-Tier Shares on the transfer book of the Mid-Tier
Holding Company (other than the Mutual Holding Company), shall be entitled to
receive a certificate or certificates representing the number of full shares of
Common Stock which when multiplied by the
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Exchange Ratio, will represent the same percentage ownership of Public Mid-Tier
Shares as held prior to the Conversion and Reorganization. The Transfer or
Exchange Agent shall promptly mail to each such holder of record of Public
Mid-Tier Shares immediately after the consummation of the Conversion and
Reorganization, a letter of transmittal advising the holder of the procedures by
which Exchange Shares, pursuant to the Exchange Ratio, will be delivered. The
Company's stockholders need not forward any Mid-Tier Common Stock certificates
to the Bank or the Transfer Agent until they receive a transmittal letter.
Required Approvals
Various approvals of the OTS are required in order to consummate the
Conversion and Reorganization. The OTS has approved the Plan of Conversion and
Reorganization, subject to approval by the Mutual Holding Company's Members and
the Mid-Tier Holding Company's Stockholders. In addition, consummation of the
Conversion and Reorganization is subject to OTS approval of the applications
with respect to the merger of the Mutual Holding Company (following its
conversion to an interim Federal stock savings bank) and the Mid-Tier Holding
Company (following its adoption of a Federal stock charter) into the Bank, with
the Bank being the surviving entity. Applications for these approvals, including
an application to form the Company as a holding company for the Bank, have been
filed and are currently pending. There can be no assurances that the requisite
OTS approvals will be received in a timely manner, in which event the
consummation of the Conversion and Reorganization may be delayed beyond the
expiration of the Offerings.
Pursuant to OTS regulations, the Plan of Conversion and Reorganization
also must be approved by (1) at least a majority of the total number of votes
eligible to be cast by Members of the Mutual Holding Company at the Members'
Meeting, and (2) holders of at least two-thirds of the outstanding Mid-Tier
Common Stock at the Stockholders' Meeting. In addition, the Primary Parties have
conditioned the consummation of the Conversion and Reorganization on the
approval of the Plan by at least a majority of the votes cast, in person or by
proxy, by the Public Stockholders at the Stockholders' Meeting.
Dissenters' Rights
Under Pennsylvania Law, Mid-Tier Holding Company shareholders have a
right to dissent and obtain the fair value of their shares by complying with the
terms of Subchapter D of the PBCL. The PBCL generally provides that a
shareholder of a Pennsylvania corporation that engages in a merger transaction
shall have the right to demand from the corporation the payment of the fair or
appraised value of his stock in the corporation, subject to the satisfaction of
specified procedural requirements. In connection with the Conversion and
Reorganization, the Mid-Tier Holding Company will merge with and into the Bank,
therefore Subchapter D of the PBCL is triggered. There are certain exceptions to
dissenter's rights under the PBCL, however, none are applicable in the
Conversion and Reorganization, therefore PSFC shareholders have dissenters'
rights of appraisal in connection with the Conversion and Reorganization.
Interpretation and Amendment of the Plan
To the extent permitted by law, all interpretations of the Plan by the
Primary Parties will be final; however, such interpretations shall have no
binding effect on the OTS. The Plan provides that, if deemed necessary or
desirable by the Board of Directors, the Plan may be substantively amended by
the Board of Directors as a result of comments from the OTS or otherwise, prior
to the solicitation of proxies from
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the members of the Mutual Holding Company and at any time thereafter with the
concurrence of the OTS, except that in the event that the regulations under
which the Plan was adopted are liberalized subsequent to the approval of the
Plan by the OTS and the members of the Mutual Holding Company at the special
meeting of members, the Board of Directors may amend the Plan to conform to the
regulations without further approval of the OTS or the members, to the extent
permitted by law. An amendment to the Plan that would result in a material
adverse change in the terms of the Conversion and Reorganization would require a
resolicitation. In the event of a resolicitation, subscriptions for which a
confirmation or modification was not received would be rescinded. Any amendment
to the Plan regarding preferences to the Local Community will not be deemed to
be a material change.
Certain Restrictions on Purchase or Transfer of Shares After the Conversion and
Reorganization
All shares of Conversion Stock purchased in connection with the
Conversion and Reorganization by a director or an executive officer of the
Primary Parties will be subject to a restriction that the shares may not be sold
for a period of one year following the Conversion and Reorganization, except in
the event of the death of such director or executive officer or pursuant to a
merger or similar transaction approved by the OTS. Each certificate for
restricted shares will bear a legend giving notice of this restriction on
transfer, and appropriate stop-transfer instructions will be issued to the
Company's transfer agent. Any shares of Conversion Stock issued within this
one-year period as a stock dividend, stock split or otherwise with respect to
such restricted stock will be subject to the same restrictions. The directors
and executive officers of the Company will also be subject to the insider
trading rules promulgated pursuant to the Exchange Act.
Purchases of Conversion Stock of the Company by directors, executive
officers and their associates during the three-year period following completion
of the Conversion and Reorganization may be made only through a broker or dealer
registered with the SEC, except with the prior written approval of the OTS. This
restriction does not apply, however, to negotiated transactions involving more
than 10% of the Company's outstanding Common Stock or to the purchase of Common
Stock pursuant to any tax-qualified employee stock benefit plan, such as the
ESOP, or by any non-tax-qualified employee stock benefit plan.
Pursuant to OTS regulations, the Company will generally be prohibited
from repurchasing any shares of Common Stock within one year following
consummation of the Conversion and Reorganization. During the second and third
years following consummation of the Conversion and Reorganization, the Company
may not repurchase any shares of its Common Stock other than pursuant to (i) an
offer to all stockholders on a pro rata basis that is approved by the OTS; (ii)
the repurchase of qualifying shares of a director, if any; (iii) purchases 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; or (iv) purchases
that are part of an open-market program not involving more than 5% of its
outstanding capital stock during a 12 month period, if the repurchases do not
cause the Bank to become undercapitalized and the Bank provides to the Regional
Director of the OTS no later than 10 days prior to the commencement of a
repurchase program written notice containing a full description of the program
to be undertaken and such program is not disapproved by the Regional Director.
However, the Regional Director has authority to permit repurchases during the
first year following consummation of the Conversion and Reorganization and to
permit repurchases in excess of 5% during the second and third years upon the
establishment of exceptional circumstances.
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COMPARISON OF STOCKHOLDERS' RIGHTS
General. The Conversion and Reorganization involve the elimination of
the Mutual Holding Company and the Mid-Tier Holding Company, and the
substitution of another newly organized company also chartered in Pennsylvania.
The resulting structure will be more conventional in nature in that the Company
will be the only entity with a direct ownership interest in the Bank. Further,
no mutual holding company will be present. The Primary Parties were unable to
maintain the Mid-Tier Holding Company as the owner of the Bank because of
certain regulations and policies of the OTS which prohibited the merger of the
Mutual Holding Company into the Mid-Tier Holding Company in a conversion and
reorganization. The Company, a Pennsylvania corporation and holding company for
the Bank, will operate under a charter similar ^ to that of the Mid-Tier Holding
Company. The material differences are described below.
Authorized Capital Stock and Par Value. The Mid-Tier Holding Company's
authorized capital stock currently consists of 8,000,000 shares of common stock,
par value $.10 per share and 2,000,000 shares of preferred stock, no par value
per share. The Company's Articles of Incorporation authorizes 40,000,000 shares
of Common Stock, par value $.10 per share and 20,000,000 shares of Preferred
Stock, no par value per share.
Addition of Indemnification and Elimination of Liability Sections. OTS
regulations require the Bank to indemnify its directors, officers and employees
against legal and other expenses incurred in defending lawsuits brought or
threatened against them by reason of the performance as a director, officer, or
employee. Indemnification may be made to such person only if final judgement on
the merits is in his favor, or in case of (i) settlement, (ii) final judgment
against him, or (iii) final judgment in his favor other than on the merits, if a
majority of the disinterested directors of the determines that he was acting in
good faith within the scope of his employment or authority as he could
reasonably have perceived it under the circumstances and for a purpose he could
have reasonably believed under the circumstances was in the best interests of
the Bank or its stockholders. If a majority of the disinterested directors of
the Bank concludes that in connection with an action any person ultimately may
become entitled to indemnification, the directors may authorize payment of
reasonable costs and expenses arising from defense or settlement of such action.
The Bank is required to give the OTS at least 60 days notice of its intention to
make indemnification and no indemnification shall be made if the OTS objects to
the Bank in writing.
In approving the Mid-Tier Reorganization, the OTS required that the
Mid-Tier Holding Company be subject to the same regulatory requirements
regarding indemnification described above, to which the Bank is subject.
The Articles of Incorporation of the Company provides that any
individual who is or was a director, officer, employee or agent of the Company
in any proceeding in which the person has been made a party or is otherwise
involved as a result of his service in such capacity shall be indemnified and
held harmless to the fullest extent authorized under the Pennsylvania Business
Corporation Law.
Pennsylvania law requires mandatory indemnification for expenses
(including attorney's fees) if a representative of a company is successful on
the merits or otherwise, in either a third party or derivative action. Pursuant
to Pennsylvania, the Articles of Incorporation provides that the Company will
indemnify its directors, officers, employees, and agents against expenses
(including attorneys' fees), judgments, fines, and amounts paid in settlement
actually and reasonably incurred in connection with an action or proceeding
(other than an action by or in the right of the company) if that person to be
indemnified acted in good faith and in a manner he reasonably believed to be in,
or not opposed to, the best interests of the
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company, and with respect to any criminal action or proceeding, that such person
did not have reasonable cause to believe that his conduct was unlawful. The
Articles of the Company also provides for indemnification in actions or
proceedings by or in the name of the company if the person to be indemnified was
not adjudged to be liable, or despite an adjudication of liability, such person
is fairly and reasonably entitled to indemnity of certain expenses, as
determined by the same court that adjudged such person liable.
Pennsylvania law requires that indemnification payments (other than
mandatory payments) may be made only on a case-by-case basis. In addition,
payments may be advanced by a company to cover expenses upon the receipt by the
company of an undertaking by the individual to be indemnified to repay such
payments if indemnification is later determined to not be available to that
individual. A Pennsylvania company may grant additional indemnification rights
through its bylaws, or through an agreement, a vote of stockholders, or
disinterested directors and may create a fund of any nature to secure its
indemnification obligations. Pennsylvania law permits a company to obtain
insurance to pay for indemnification expenses.
The Articles of Incorporation of the Company also provides that a
director will not be personally liable to the Company for monetary damages for
any actions taken unless the director has breached or failed to perform his
fiduciary duty and the breach or failure consists of self-dealing, willful
misconduct, or recklessness. Under Pennsylvania law, the fiduciary duties of
directors are owed to the Company not to the stockholders, and a stockholder
does not have standing to sue directly for a breach of a fiduciary duty. Federal
regulations contain no provisions for the limitation of director liability.
These provisions may eliminate the potential liability of the Company's
directors for failure, through negligence or gross negligence, to satisfy their
duty of care, which requires directors to exercise informed business judgment in
discharging their duties. It may thus reduce the likelihood of derivative
litigation against directors and discourage or deter stockholders or management
from bringing a lawsuit against directors for breach of their duty of care,
event though such an action, if successful, might otherwise have been beneficial
to the Company and its stockholders. Stockholders will thus be surrendering a
cause of action based upon negligent business decisions, including those
relating to attempts to change control of the Company. The provision will not,
however, affect the right to pursue equitable remedies for breach of the duty of
care, although such remedies might not be available as a practical matter.
To the best of management's knowledge, there is currently no pending or
threatened litigation for which indemnification may be sought or any recent
litigation involving directors of the Bank that might have been affected by the
limited liability provision in the Company's Articles of Incorporation had it
been in effect at the time of the litigation.
The above-described provisions seek to ensure that the ability of the
Company's director to exercise their best business judgment in managing the
Company's affairs, subject to their continuing fiduciary duties of loyalty to
the Company and its stockholders, it not unreasonably impeded by exposure to the
potentially high personal costs or other uncertainties of litigation. The nature
of the tasks and responsibilities undertaken by directors and officers often
requires such persons to make difficult judgements of significant importance
which can expose such persons to personal liability, but from which they will
acquire no personal benefit (other than as stockholders). In recent years,
litigation against corporations and their directors and officers, often
amounting to mere "second guessing" of good-faith judgments and involving
allegations of personal wrongdoing, has become common. Such litigation often
claims damages in large amounts which bear no relationship to the amount of
compensation received by the directors or officers, particularly in the case of
directors who are not officers of the corporation, and
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the expense of defending such litigation, regardless of whether it is well
founded, can be enormous. Individual directors and officers can seldom bear
either the legal defense costs involved or the risk of a large judgement.
In order to attract and retain competent and conscientious directors
and officers in the face of these potentially serious risks, corporations have
historically provided for corporate indemnification in their bylaws and have
obtained liability insurance protecting the company and its directors and
officers against the cost of litigation and related expenses. The Bank and the
Mid-Tier Holding Company currently have insurance coverage of its directors and
officers, and management anticipates that the Company will be able to obtain
such coverage for its directors and officers. The Company's Board of Directors,
the individual members of which will benefit from the inclusion of the
indemnification and limitation of liability provisions, has a personal interest
in including these provisions in the Company's Articles of Incorporation at the
potential expense of stockholders.
Certain Anti Takeover Provisions. Certain sections of the Company's
Articles of Incorporation provide for limitations concerning voting rights and
approval of business combinations. See "RESTRICTIONS ON ACQUISITION OF THE
COMPANY -- Provisions in the Company's Articles and Bylaws -- Limitation of
Voting Rights" and "-- Procedures for Certain Business Combinations."
RESTRICTIONS ON ACQUISITIONS OF THE COMPANY
While the board of directors is not aware of any effort that might be
made to obtain control of the Company after conversion, the board of directors
believes that it is appropriate to include certain provisions as part of the
Company's articles of incorporation to protect the interests of the Company and
its stockholders from hostile takeovers ("anti-takeover"provisions) which the
board of directors might conclude are not in the best interests of us or our
stockholders. These provisions may have the effect of discouraging a future
takeover attempt which is not approved by the board of directors but which
individual stockholders may deem to be in their best interests or in which
stockholders may receive a substantial premium for their shares over the current
market prices. As a result, stockholders 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 current board of directors or management of the
Company more difficult.
The following discussion is a general summary of the material
provisions of the articles of incorporation, bylaws, and certain other
regulatory provisions of the Company, which 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 Company which are filed as exhibits to the registration statement
of which this prospectus is a part. See "ADDITIONAL" as to how to obtain a copy
of these documents.
Provisions of the Company Articles of Incorporation and Bylaws
Limitations on Voting Rights. The articles of incorporation of the
Company provide that for a period of five years from completion of the
conversion, in no event shall any record owner of any outstanding equity
security which is beneficially owned, directly or indirectly, by a person who
beneficially owns in excess of 10% of any class of equity security outstanding
(the "Limit") be entitled or permitted to any vote in respect of the shares held
in excess of the Limit. The number of votes which may be cast by any record
owner who beneficially owned shares in excess of the Limit shall be a number
equal to the total number of votes which a single record owner of all common
stock owned by such person would be entitled to cast, multiplied by a fraction,
the numerator of which is the number of shares
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of such class or series which are both beneficially owned by such person and
owned of record by such record owner and the denominator of which is the total
number of shares of common stock beneficially owned by such person owning shares
in excess of the Limit. In addition, for a period of five years from the
completion of the Conversion and Reorganization, no person may directly or
indirectly offer to acquire or acquire the beneficial ownership of more than 10%
of any class of an equity security of the Company, unless such acquisition is
approved by two-thirds of the entire Board of Directors of the Company.
The impact of these provisions on the submission of a proxy on behalf
of a beneficial holder of more than 10% of the common stock is (1) to disregard
for voting purposes and require divestiture of the amount of stock held in
excess of 10% (if within five years of the conversion more than 10% of the
common stock is beneficially owned by a person) and (2) limit the vote on common
stock held by the beneficial owner to 10% or possibly reduce the amount that may
be voted below the 10% level (if more than 10% of the common stock is
beneficially owned by a person more than five years after the conversion).
Unless the grantor of a revocable proxy is an affiliate or an associate of such
a 10% holder or there is an arrangement, agreement or understanding with such a
10% holder, these provisions would not restrict the ability of such a 10% holder
of revocable proxies to exercise revocable proxies for which the 10% holder is
neither a beneficial nor record owner. A person is a beneficial owner of a
security if he has the power to vote or direct the voting of all or part of the
voting rights of the security, or has the power to dispose of or direct the
disposition of the security. The articles of incorporation of the Company
further provide that this provision limiting voting rights may only be amended
upon the vote of a majority of the outstanding shares of voting stock.
Election of Directors. Certain provisions of the Company's articles of
incorporation and bylaws will impede changes in majority control of the board of
directors. The Company's articles of incorporation provide that the board of
directors of the Company will be divided into three staggered classes, with
directors in each class elected for four-year terms. Thus, it would take three
annual elections to replace a majority of the Company's board. the Company's
articles of incorporation provide that the size of the board of directors may be
increased or decreased only if two-thirds of the directors then in office concur
in such action. The articles of incorporation also provide that any vacancy
occurring in the 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. Finally, the articles
of incorporation and the bylaws impose certain notice and information
requirements in connection with the nomination by stockholders of candidates for
election to the board of directors or the proposal by stockholders of business
to be acted upon at an annual meeting of stockholders.
The articles of incorporation provide that a director may only be
removed for cause by the affirmative vote of at least a majority of the shares
of the Company entitled to vote generally in an election of directors cast at a
meeting of stockholders called for that purpose.
Restrictions on Call of Special Meetings. The articles of incorporation
of the Company provide that a special meeting of stockholders may be called only
pursuant to a resolution adopted by a majority of the board of directors.
Absence of Cumulative Voting. The Company's articles of incorporation
provide that stockholders may not cumulate their votes in the election of
directors.
Authorized Shares. The articles of incorporation authorizes the
issuance of 40,000,000 shares of common stock and 20,000,000 shares of preferred
stock. The shares of common stock and preferred stock were authorized in an
amount greater than that to be issued in the conversion to provide the
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Company's board of directors with as much flexibility as possible to effect,
among other transactions, financings, acquisitions, stock dividends, stock
splits and the exercise of stock options. However, these additional authorized
shares may also be used by the board of directors consistent with its fiduciary
duty to deter future attempts to gain control of the Company. The board of
directors also has sole authority to determine the terms of any one or more
series of Preferred Stock, including voting rights, conversion rates, and
liquidation preferences. As a result of the ability to fix voting rights for a
series of Preferred Stock, the board has the power, to the extent consistent
with its fiduciary duty, to issue a series of Preferred Stock to persons
friendly to management in order to attempt to block a post-tender offer merger
or other transaction by which a third party seeks control, and thereby assist
management to retain its position.
Procedures for Certain Business Combinations. The articles of
incorporation require the affirmative vote of at least 80% of the outstanding
shares of the Company entitled to vote in the election of directors in order for
the Company to engage in or enter into certain "Business Combinations," as
defined therein, with any Principal Stockholder (as defined below) or any
affiliates of the Principal Stockholder, unless the proposed transaction has
been approved in advance by the Company's board of directors, excluding those
who were not directors prior to the time the Principal Stockholder became the
Principal Stockholder. The term "Principal Stockholder" is defined to include
any person and the affiliates and associates of the person (other than the
Company or its subsidiary) who beneficially owns, directly or indirectly, 20% or
more of the outstanding shares of voting stock of the Company. Any amendment to
this provision requires the affirmative vote of at least 80% of the shares of
the Company entitled to vote generally in an election of directors.
Stockholder Approval of Certain Transactions. Any merger,
consolidation, liquidation, or dissolution of the Company or any action that
would result in the sale or other disposition of all or substantially all of the
assets of the Company ("Transaction") shall require the affirmative vote of the
holders of at least eighty percent (80%) of the outstanding shares of capital
stock of the Company eligible to vote at a legal meeting. This supermajority
vote provision shall not apply to a particular Transaction, and such Transaction
shall require only such stockholder vote, if any, as would be required by
Pennsylvania law, if such Transaction is approved by two-thirds of the entire
Board of Directors of the Company.
Amendment to Articles of Incorporation and Bylaws. Amendments to the
Company's articles of incorporation must be approved by the Company's board of
directors and also by a majority of the outstanding shares of the Company's
voting stock, provided, however, that approval by at least 80% of the
outstanding voting stock is generally required for certain provisions (i.e.,
provisions relating to restrictions on the acquisition and voting of greater
than 10% of the common stock; number, classification, election and removal of
directors; amendment of bylaws; call of special stockholder meetings; director
liability; certain business combinations; power of indemnification; certain
merger/acquisition transactions; and amendments to provisions relating to the
foregoing in the articles of incorporation).
The bylaws may be amended by a majority vote of the board of directors
or the affirmative vote of the holders of at least 80% of the outstanding shares
of the Company entitled to vote in the election of directors cast at a meeting
called for that purpose.
Benefit Plans. In addition to the provisions of the Company's articles
of incorporation and bylaws described above, certain benefit plans of ours
adopted in connection with the conversion contain provisions which also may
discourage hostile takeover attempts which the boards of directors might
conclude are not in the best interests for us or our stockholders. For a
description of the benefit plans
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and the provisions of such plans relating to changes in control, see "MANAGEMENT
- -- Proposed Future Stock Benefit Plans."
Regulatory Restrictions. A federal regulation prohibits any person
prior to the completion of a conversion from transferring, or entering into any
agreement or understanding to transfer, the legal or beneficial ownership of the
subscription rights issued under a plan of conversion or the stock to be issued
upon their exercise. This regulation also prohibits any person prior to the
completion of a conversion from offering, or making an announcement of an offer
or intent to make an offer, to purchase such subscription rights or stock. For
three years following conversion, OTS regulations prohibit any person, without
the prior approval of the OTS, from acquiring or making an offer to acquire more
than 10% of the stock of any converted savings institution if such person is, or
after consummation of such acquisition would be, the beneficial owner of more
than 10% of such stock. In the event that any person, directly or indirectly,
violates this regulation, the securities beneficially owned by such person in
excess of 10% shall not be counted as shares entitled to vote and shall not be
voted by any person or counted as voting shares in connection with any matter
submitted to a vote of stockholders.
Federal regulations require that, prior to obtaining control of an
insured institution, a person, other than a company, must give 60 days notice to
the OTS and have received no OTS objection to such acquisition of control, and a
company must apply for and receive OTS approval of the acquisition. Control,
involves a 25% voting stock test, control in any manner of the election of a
majority of the institution's directors, or a determination by the OTS that the
acquiror has the power to direct, or directly or indirectly to exercise a
controlling influence over, the management or policies of the institution.
Acquisition of more than 10% of an institution's voting stock, if the acquiror
also is subject to any one of either "control factors," constitutes a rebuttable
determination of control under the regulations. The determination of control may
be rebutted by submission to the OTS, prior to the acquisition of stock or the
occurrence of any other circumstances giving rise to such determination, of a
statement setting forth facts and circumstances which would support a finding
that no control relationship will exist and containing certain undertakings. The
regulations provide that persons or companies which acquire beneficial ownership
exceeding 10% or more of any class of a savings association's stock after the
effective date of the regulations must file with the OTS a certification that
the holder is not in control of such institution, is not subject to a rebuttable
determination of control and will take no action which would result in a
determination or rebuttable determination of control without prior notice to or
approval of the OTS, as applicable.
DESCRIPTION OF CAPITAL STOCK OF THE COMPANY
The Company is authorized to issue 40,000,000 shares of the Common
Stock, $.10 par value per share, and 20,000,000 shares of serial preferred
stock, no par value per share. The Company currently expects to issue up to
10,350,000 shares of Common Stock in the Conversion and Reorganization (based
upon the maximum of the appraisal) including shares to be provided to
stockholders in the Exchange. Therefore, after the Conversion and
Reorganization, the Company expects to have 10,350,000 shares outstanding.
Dividends. The Company can pay dividends if and when declared by its
Board of Directors. See "DIVIDEND POLICY" and "REGULATION." The holders of
Common Stock of the Company will be entitled to receive and share equally in
such dividends as may be declared by the Board of Directors of the Company out
of funds legally available therefor. If the Company issues preferred stock, the
holders thereof may have a priority over the holders of the Common Stock with
respect to dividends.
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The Company does not intend to issue any shares of serial preferred
stock in the Conversion and Reorganization, nor are there any present plans to
issue such preferred stock following the Conversion and Reorganization. The
aggregate par value of the issued shares will constitute the capital account of
the Company. The balance of the purchase price will be recorded for accounting
purposes as additional paid-in capital. See "CAPITALIZATION." The capital stock
of the Company will represent nonwithdrawable capital and will not be insured by
the Company, the FDIC, or any other government agency.
Common Stock
Voting Rights. Each share of the Company 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 the Common Stock will possess
exclusive voting rights in the Company, except to the extent that shares of
serial preferred stock issued in the future may have voting rights, if any. Each
holder of the Common Stock will be entitled to only one vote for each share held
of record on all matters submitted to a vote of holders of the Common Stock and
will not be permitted to cumulate their votes in the election of the Company's
directors.
Upon payment of the purchase price for the Common Stock all such stock
will be duly authorized, fully paid and nonassessable.
Liquidation. In the unlikely event of the complete liquidation or
dissolution of the Company, the holders of the Common Stock will be entitled to
receive all assets of the Company available for distribution in cash or in kind,
after payment or provision for payment of (i) all debts and liabilities of the
Company (including all deposits with us and accrued interest thereon); (ii) any
accrued dividend claims; (iii) liquidation preferences of any serial preferred
stock which may be issued in the future; and (iv) any interests in the
liquidation account established upon the Conversion and Reorganization for the
benefit of Eligible Account Holders and Supplemental Eligible Account Holders
who continue to have their deposits with the Bank
Restrictions on Acquisition of the Common Stock. See "RESTRICTIONS ON
ACQUISITION OF THE COMPANY" for a discussion of the limitations on acquisition
of shares of the Common Stock.
Other Characteristics. Holders of the Common Stock will not have
preemptive rights with respect to any additional shares of the Common Stock
which may be issued. Therefore, the Board of Directors may sell shares of
capital stock of the Company without first offering such shares to existing
stockholders of the Company. The Common Stock is not subject to call for
redemption.
Issuance of Additional Shares. Except as disclosed herein, the Company
has no present plans, proposals, arrangements or understandings to issue
additional authorized shares of the Common Stock. In the future, the authorized
but unissued and unreserved shares of the Common Stock will be available for
general corporate purposes, including, but not limited to, possible issuance:
(i) as stock dividends; (ii) in connection with mergers or acquisitions; (iii)
under a cash dividend reinvestment or stock purchase plan; (iv) in a public or
private offering; or (v) under employee benefit plans. See "RISK FACTORS --
Possible Dilutive Effect of 1998 Stock Options and Effect of Purchases by the
Recognition Plan and ESOP" and "PRO FORMA DATA." Normally no stockholder
approval would be required for the issuance of these shares, except as described
herein or as otherwise required to approve a transaction in which additional
authorized shares of the Common Stock are to be issued.
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For additional information, see "REGULATION -- Limitations on Dividends
and Other Capital Distributions" with respect to restrictions on the payment of
cash dividends; and "RESTRICTIONS ON ACQUISITION OF THE COMPANY" for information
regarding restrictions on acquiring Common Stock of the Company.
Serial Preferred Stock
None of the 2,000,000 authorized shares of serial preferred stock of
the Company will be issued in the Conversion and Reorganization. After the
Conversion and Reorganization is completed, the Board of Directors of the
Company will be authorized to issue serial 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, subject to
regulatory approval but without stockholder approval. If and when issued, the
serial preferred stock is likely to rank prior to the Common Stock as to
dividend rights, liquidation preferences, or both, and may have full or limited
voting rights. The Board of Directors, without stockholder approval, can issue
serial preferred stock with voting and conversion rights which could adversely
affect the voting power of the holders of the Common Stock. The Board of
Directors has no present intention to issue any of the serial preferred stock.
LEGAL AND TAX MATTERS
The legality of the Common Stock will be passed upon for the Company by
Malizia, Spidi, Sloane & Fisch, P.C., Washington, D.C. Certain legal matters for
Sandler will be passed upon by Elias, Matz, Tiernan & Herrick, L.L.P.
Washington, D.C. The federal income tax consequences of the Conversion and
Reorganization have been passed upon by Malizia, Spidi, Sloane & Fisch, P.C.,
Washington, D.C. The Pennsylvania income tax consequences of the Conversion and
Reorganization have been passed upon by Malizia, Spidi, Sloane & Fisch, P.C.
EXPERTS
The consolidated financial statements of Thistle Group Holdings, Inc.
and subsidiary as of December 31, 1997 and 1996 and for each of the three years
in the period ended December 31, 1997 included in this Prospectus have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report appearing herein, and are included in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
FinPro, Inc. has consented to the publication herein of a summary of
its letters to the Mid-Tier Holding Company setting forth its opinion as to the
estimated pro forma market value of the Mutual Holding Company in the converted
form and its belief concerning the value of subscription rights and to the use
of its name and statements with respect to it appearing in this Prospectus.
REGISTRATION REQUIREMENTS
Mid-Tier Common Stock of the Mid-Tier Holding Company is not currently
registered pursuant to Section 12(g) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). The Mid- Tier Holding Company is not subject to
the information, proxy solicitation, insider trading restrictions, tender offer
rules, periodic reporting and other requirements of the SEC under the Exchange
Act. After the Conversion and Reorganization the Common Stock will be so
registered and the Company will be subject to the above requirements. The
Company may not deregister the Common Stock under the Exchange Act for a period
of at least three years following the Conversion and Reorganization. The Common
Stock of the Company will be registered pursuant to Section 12(g) of the
Exchange Act and will
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be subject to the same information, proxy solicitation, insider trading
restrictions, tender offer rules, and period reporting requirements of the SEC
under the Exchange Act as the Company.
ADDITIONAL INFORMATION
The Company has filed with the SEC a Registration Statement under the
Securities Act of 1933, as amended, with respect to the Conversion Stock and
Exchange Shares offered hereby. As permitted by the rules and regulations of the
SEC, this Prospectus does not contain all the information set forth in the
Registration Statement. Such information can be examined without charge at the
public reference facilities of the SEC located at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and copies of such material can be obtained from the SEC
at prescribed rates. The SEC maintains a World Wide Web site on the Internet
that contains reports, proxy and information statements and other information
regarding registrants such as the Company that file electronically with the SEC.
The address of such site is: http://www.sec.gov. The statements contained in
this Prospectus as to the contents of any contract or other document filed as an
exhibit to the Registration Statement describe all material provisions of such
contracts or other documents. Nevertheless, such statements are, of necessity,
brief descriptions thereof and are not necessarily complete; each such statement
is qualified by reference to such contract or document.
The Mutual Holding Company has filed an Application for Conversion with
the OTS with respect to the Conversion and Reorganization. The Company has filed
an application with OTS to become a savings and loan holding company. This
Prospectus omits certain information contained in these applications. These
applications may be examined at the principal office of the OTS, 1700 G Street,
N.W., Washington, D.C. 20552, and OTS Northeast Regional Office, 10 Exchange
Place Centre, 18th Floor, Jersey City, New York 07302.
-106-
<PAGE>
THISTLE GROUP HOLDINGS, INC. AND SUBSIDIARY
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
Page
----
INDEPENDENT AUDITORS' REPORT F-1
CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1997 AND
1996 AND FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED
DECEMBER 31, 1997:
Consolidated Statements of Financial Condition F-2
Consolidated Statements of Operations 20
Consolidated Statements of Changes in Stockholders' Equity F-3
Consolidated Statements of Cash Flows F-4
Notes to Consolidated Financial Statements F-5-20
All schedules are omitted because they are not required or applicable
or the required information is shown in the financial statements or the notes
thereto.
Financial statements of the Company have not been provided because the
Company has not conducted any operations to date.
-107-
<PAGE>
Deloitte & Twenty-Fourth Floor Telephone: (215) 246-2300
Touche LLP 1700 Market Street Facsimile: (215) 569-2441
[LOGO] Philadelphia, Pennsylvania 19103-3984
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Thistle Group Holdings, Inc. and Subsidiary:
We have audited the accompanying consolidated statements of financial condition
of Thistle Group Holdings, Inc. and subsidiary (the "Company") as of December
31, 1997 and 1996, and the related consolidated statements of operations,
changes in stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1997. These consolidated financial statements are
the responsibility of the Company'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 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, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of Thistle Group
Holdings, Inc. and subsidiary at December 31, 1997 and 1996, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1997 in conformity with generally accepted accounting
principles.
/s/Deloitte & Touche LLP
Philadelphia, Pennsylvania
February 5, 1998
- -----------------------
Deloitte Touche
Tohmatsu
International
F-1
<PAGE>
<TABLE>
<CAPTION>
THISTLE GROUP HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
- -----------------------------------------------------------------------------------------
December 31,
------------------------------
ASSETS 1997 1996
<S> <C> <C>
Cash on hand and in banks $ 2,838,744 $ 2,861,515
Interest-bearing deposits 17,311,852 38,067,662
----------- -----------
Total cash and cash equivalents 20,150,596 40,929,177
Investments held to maturity (approximate fair value -
1997, $35,153,660; 1996, $46,898,138) 34,529,423 46,464,421
Investments available for sale at fair value
(amortized cost - 1997, $3,231,068; 1996, $2,631,218 3,698,205 2,631,218
Mortgage-backed securities available for sale
at fair value (amortized cost - 1997, $109,847,299;
1996, $92,296,514) 111,486,136 93,409,578
Loans receivable (net of allowance for loan losses -
1997, $782,825; 1996, $577,299) 96,280,105 98,626,173
Loans available for sale (amortized cost - 1997,
$1,154,761; 1996, $2,147,223) 1,154,761 2,147,223
Accrued interest receivable:
Loans 675,530 769,399
Mortgage-backed securities 684,637 578,785
Investments 435,053 870,292
Federal Home Loan Bank stock - at cost 1,701,700 1,691,200
Real estate acquired through foreclosure - net 116,262 186,209
Office properties and equipment - net 1,504,014 1,829,021
Excess of cost over fair value of net assets acquired
(goodwill) 32,544
Prepaid expenses and other assets 4,233,765 4,166,283
------------- -------------
TOTAL ASSETS $ 276,650,187 $ 294,331,522
============= =============
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
<S> <C> <C>
Liabilities:
Deposits $ 230,558,288 $ 256,546,566
Accrued interest payable 67,200 78,276
Advances from borrowers for taxes and insurance 2,186,283 2,200,402
FHLB advances 7,884,000 7,884,000
Accounts payable and accrued expenses 4,206,179 2,394,915
Employee Stock Ownership Plan debt 32,735
Dividends payable 365,400 41,200
Accrued income taxes 2,096,000 86,914
Deferred income taxes 816,521 485,450
------------- -------------
Total liabilities 248,179,871 269,750,458
------------- -------------
Commitments and Contingencies
Stockholders' Equity:
Preferred stock, no par value - 2,500,000 shares
authorized, none issued
Common stock, 1997, $.10 par; $1.00 par 1996;
8,000,000 shares authorized; 1,621,000 shares
issued and outstanding 162,100 1,621,000
Additional paid-in capital 18,455,330 16,997,430
Employee Stock Ownership Plan - (32,735)
Contribution for shares acquired by Management
Recognition Plan - (12,000)
Unrealized gain on securities available for
sale, net of tax 1,389,963 734,640
Retained earnings - partially restricted 8,462,923 5,272,729
------------- -------------
Total stockholders' equity 28,470,316 24,581,064
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 276,650,187 $ 294,331,522
============= =============
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
THISTLE GROUP HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
Unrealized
Employee Gain (Loss) on
Additional Stock Management Securities Total
Common Paid-in Ownership Recognition Available Retained Stockholders'
Stock Capital Plan Plan for Sale Earnings Equity
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995 $ 1,615,000 $ 16,934,430 $(90,610) $(36,000) $ (2,478,994) $ 4,533,277 $ 20,477,103
Net income 1,432,294 1,432,294
Cash dividends declared (164,800) (164,800)
Recovery of unrealized loss on
investment and mortgage-
backed securities available
for sale, net of tax 3,294,522 3,294,522
Issuance of shares in connection
with Management Recognition Plan 6,000 63,000 69,000
Principal payments made by
Employee Stock Ownership Plan 27,784 27,784
Release of Management Recognition
Plan shares 12,000 12,000
--------- ------------ -------- ------- ----------- ----------- ------------
BALANCE, DECEMBER 31, 1995 1,621,000 16,997,430 (62,826) (24,000) 815,528 5,800,771 25,147,903
Net loss (363,242) (363,242)
Cash dividends declared (164,800) (164,800)
Unrealized loss on investment
and mortgage-backed securities
available for sale, net of tax (80,888) (80,888)
Principal payments made by
Employee Stock Ownership Plan 30,091 30,091
Release of Management
Recognition Plan shares 12,000 12,000
--------- ------------ -------- ------- ----------- ----------- ------------
BALANCE, DECEMBER 31, 1996 1,621,000 16,997,430 (32,735) (12,000) 734,640 5,272,729 24,581,064
--------- ------------ -------- ------- ----------- ----------- ------------
Net income 3,353,993 3,353,993
Cash dividends declared (164,799) (164,799)
Unrealized gain on investment
and mortgage-backed securities
available for sale, net of tax 655,323 655,323
Principal payments made by
Employee Stock Ownership Plan 32,735 32,735
Release of Management
Recognition Plan shares 12,000 12,000
Thistle Group Holdings, Inc.
formation (Note 1) (1,458,900) 1,457,900 1,000
--------- ------------ -------- -------- ----------- ----------- ------------
BALANCE, DECEMBER 31, 1997 $ 162,100 $ 18,455,330 $ - $ - $ 1,389,963 $ 8,462,923 $ 28,470,316
========= ============ ======== ======== =========== =========== ============
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
THISTLE GROUP HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ----------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
-------------------------------------------
1997 1996 1995
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 3,353,993 $ (363,242) $ 1,432,294
Adjustments to reconcile net (loss) income
to net cash provided by operating activities:
Provision for loan losses 120,000 139,194 135,000
Depreciation 240,037 265,582 332,957
Management Recognition Plan expense 12,000 12,000 12,000
Loans available for sale originated (76,500) (1,888,175) (2,666,675)
Amortization of:
Goodwill 32,544 114,547 200,461
Net premiums (discounts) on:
Loans purchased 22,371 (36,337) (123,654)
Investments (290,012) 38,137 64,699
Mortgage-backed securities (505,943) (656,038) (522,517)
Loss on sale of mortgage-backed securities 30,994
Gain on sale of investments (4,088)
Gain on sale of loans (8,992) (61,922)
Gain on sale of deposit liabilities (2,234,268)
Loss on real estate owned 50,246 121,374 68,958
^ Proceeds from sale of loans 1,054,638 687,873 1,527,832
Changes in assets and liabilities which provided (used) cash:
Deferred income taxes 6,518 75,766 149,993
Deferred loan fees 66,518 79,514 (33,213)
Accrued interest receivable 423,256 (10,869) (158,394)
Prepaid expenses and other assets (67,483) 48,974 (934,297)
Accrued interest payable (11,076) (15,705) 2,417
Accounts payable and accrued expenses 1,811,264 (146,887) 1,376,159
Accrued income taxes 2,009,086 (807,436) 719,968
Dividends payable 324,200 41,200
------------ ------------ ------------
Net cash (used in) provided by operating activities ^ 6,328,309 ^ (2,300,528) ^ 1,553,060
------------ ------------ ------------
INVESTING ACTIVITIES:
Principal collected on:
Mortgage-backed securities 15,171,472 20,235,177 12,796,015
Long-term loans 22,408,973 18,252,461 8,054,172
Loans available for sale 87,318 394,590 79,095
Long-term loans originated (19,777,772) (15,910,800) (8,845,482)
Long-term loans acquired (820,605) (2,910,303) (3,459,670)
Purchases of:
Investments held to maturity (42,094,690) (37,498,648) (32,758,275)
Investments available for sale (1,260,000) (1,820,552) (810,666)
Mortgage-backed securities (32,216,314) (15,440,811) (27,833,884)
Property and equipment (119,038) (126,989) (117,055)
FHLB stock (10,500) (5,500) (71,200)
Proceeds from:
Sale of real estate owned 269,248 319,516 34,684
^ Maturities of investments 54,000,000 36,594,104 38,000,000
Sale of mortgage-backed securities 20,676,552
Sale of investments 983,938
Sale of property and equipment 204,008
------------ ------------ ------------
Net cash provided by (used in) investing activities ^ (3,173,962) ^ 2,082,245 ^ 5,744,286
------------ ------------ ------------
FINANCING ACTIVITIES:
Net (decrease) increase in deposits (23,754,010) 6,367,851 8,948,181
Net decrease in advances from borrowers for taxes and insurance (14,119) (130,915) (126,162)
Proceeds from sale of stock through Management Recognition Plan 69,000
Cash dividends declared (164,799) (164,800) (164,800)
------------ ------------ ------------
Net cash (used in) provided by financing activities (23,932,928) 6,072,136 8,726,219
------------ ------------ ------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (20,778,581) 5,853,853 16,023,565
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 40,929,177 35,075,324 19,051,759
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, ENDING OF YEAR $ 20,150,596 $ 40,929,177 $ 35,075,324
============ ============ ============
SUPPLEMENTAL DISCLOSURES:
Interest paid on deposits and funds borrowed $ 11,071,000 $ 11,085,000 $ 10,600,000
Income taxes paid 80,914 919,000 954,000
Noncash transfers from loans to real estate owned 249,547 446,721 233,496
Noncash transfer from loans to other assets 1,770,942
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
THISTLE GROUP HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
- --------------------------------------------------------------------------------
1. NATURE OF OPERATIONS
During 1997, the stockholders of Roxborough-Manayunk Federal Savings Bank
(the "Bank") approved the Agreement and Plan of Reorganization (the
"Plan"), whereby the corporate structure of the Bank was reorganized into
a holding company form of ownership. Accordingly, the Bank became a
wholly-owned subsidiary of the newly formed holding company, Thistle Group
Holdings, Inc. (the "Company"). Prior to its reorganization, the Bank was
principally owned by FJF Financial, M.H.C. ("FJF"). As a result of the
reorganization, all of the issued and outstanding shares of common stock
of the Bank are now held by the Company, and holders of the issued and
outstanding shares of common stock of the Bank became holders of the
issued and outstanding shares of common stock of the Company. Each
outstanding share of common stock of the Bank was converted to one share
of common stock of the Company. No additional shares of common stock were
issued as a result of the reorganization. Consequently, the operations of
the Company, for all periods presented, represent the operations of its
subsidiary, the Bank, and the Bank's wholly owned subsidiaries.
The primary business of the Company is to act as a holding company for the
Bank and to invest in various marketable equity and other securities.
Roxborough-Manayunk Federal Savings Bank is a federally chartered capital
stock savings bank. The Bank has two subsidiaries, Ridge Service
Corporation, which is inactive, and Montgomery Service Corporation, which
manages a small commercial real estate property. The primary business of
the Bank is attracting customer deposits from the general public through
its six branches and investing these deposits, together with funds from
borrowings and operations, primarily in single-family residential loans
and mortgage-backed securities and to a lesser extent in secured consumer,
home improvement and commercial loans and investment securities. The
Bank's primary regulator is the Office of Thrift Supervision ("OTS").
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The accompanying consolidated financial
statements include the accounts of the Company, the Bank and the Bank's
wholly owned subsidiaries. Intercompany accounts and transactions have
been eliminated in consolidation.
Use of Estimates in the Preparation of Financial Statements - The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of income and expenses
during the reporting period. Actual results could differ from those
estimates.
Cash and Cash Equivalents - The Company considers all highly liquid
investments with an original maturity of three months or less to be
cash equivalents.
F-5
<PAGE>
Investment and Mortgage-Backed Securities - Debt and equity securities are
classified and accounted for as follows:
Held to Maturity - Debt securities that management has the positive
intent and ability to hold until maturity are classified as held to
maturity and are carried at their remaining unpaid principal
balance, net of unamortized premiums or unaccreted discounts.
Premiums are amortized and discounts are accreted using the interest
method over the estimated remaining term of the underlying security.
Available for Sale - Debt and equity securities that will be held
for indefinite periods of time, including securities that may be
sold in response to changes to market interest or prepayment rates,
needs for liquidity and changes in the availability of and the yield
of alternative investments are classified as available for sale.
These assets are carried at fair value. Fair value is determined
using published quotes as of the close of business. Unrealized gains
and losses are excluded from earnings and are reported net of tax as
a separate component of stockholders' equity until realized.
Realized gains and losses on the sale of investment or
mortgage-backed securities are reported in the consolidated
statement of operations and are determined using the adjusted cost
of the specific security sold.
Interest Income - Interest income on loans and investment and
mortgage-backed securities is recognized as earned. Income recognition is
generally discontinued when loans become 90 days contractually past due.
An allowance for any uncollected interest is established at that time.
Loans Available for Sale - The Company originates loans for portfolio
investment or for sale in the secondary market. During the period of
origination, loans are designated as available for sale or held for
investment. Loans available for sale are carried at the lower of cost or
fair value, determined on an aggregate basis.
Provisions for Losses - Provisions for losses include charges to reduce
the recorded balances of mortgage loans receivable to their estimated net
realizable value or fair value, as applicable. Such provisions are based
on management's estimate of net realizable value or fair value of the
collateral, as applicable, considering the current and currently
anticipated future operating or sales conditions, thereby causing these
estimates to be particularly susceptible to changes that could result in a
material adjustment to results of operations in the near term. Recovery of
the carrying value of such loans and real estate is dependent to a great
extent on economic, operating and other conditions that may be beyond the
Company's control.
The Company accounts for impaired loans in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 114, Accounting by Creditors
for Impairment of a Loan and SFAS No. 118, Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosure. The Company
values impaired loans using the fair value of the collateral. Any reserves
determined under SFAS No. 114 would be included in the allowance for loan
losses.
Real Estate Acquired Through Foreclosure - Real estate acquired through
foreclosure is carried at the lower of fair value or balance of the loan
on the property at date of acquisition less estimated selling costs. Costs
relating to the development and improvement of property are capitalized,
and those relating to holding the property are charged to expense.
Office Properties and Equipment - Office properties and equipment are
recorded at cost. Depreciation is computed using the straight-line method
over the expected useful lives of the related assets. The costs of
maintenance and repairs are expensed as incurred, and renewals and
betterments are capitalized.
F-6
<PAGE>
Excess Cost Over Fair Value of Net Assets Acquired - Goodwill was being
amortized over the remaining average life of the assets acquired
(originally fifteen years) using the interest method.
Interest Rate Risk - At December 31, 1997, the Company's assets consist
primarily of assets that earned interest at fixed interest rates. Those
assets were funded primarily with short-term liabilities that have
interest rates that vary with market rates over time.
The shorter duration of the interest-sensitive liabilities indicates that
the Company is exposed to interest rate risk because, in a rising rate
environment, liabilities will be repricing faster at higher interest
rates, thereby reducing the market value of long-term assets and net
interest income.
Loan Fees - The Company defers all loan fees, net of certain direct loan
origination costs, and recognizes income as a yield adjustment over the
life of the loan considering prepayments using the interest method.
Unearned Discounts and Premiums - Unearned discounts and premiums are
accreted over the expected average lives of the loans purchased using the
interest method.
Income Taxes - Deferred income taxes are recognized for the tax
consequences of "temporary differences" by applying enacted statutory tax
rates applicable to future years to differences between the financial
statement carrying amounts and the tax bases of existing assets and
liabilities. The effect on deferred taxes of a change in tax rates is
recognized in income in the period that includes the enactment date.
Accounting for Stock-Based Compensation - The Company accounts for
stock-based compensation in accordance with SFAS No. 123, Accounting for
Stock-Based Compensation which permits the use of the intrinsic value
method for determining compensation expense associated with grants of
stock options. The Company has not recognized any compensation expense
under this method.
Earnings Per Share - In February 1997, the Financial Accounting Standards
Board ("FASB") issued SFAS No. 128, Earnings Per Share, which is effective
for periods ending after December 15, 1997. The Company adopted this
statement which requires retroactive restatement of earnings per share for
all periods presented, effective December 31, 1997. Basic earnings per
share is computed by dividing income available to common stockholders (net
income) by the weighted-average number of common shares outstanding for
the period. Diluted earnings per share is computed using the weighted
average number of common shares outstanding and common share equivalents
that would arise from the exercise of stock options. The weighted average
shares used in the basic and diluted earnings per share computations are
as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Average common shares outstanding - basic 1,621,000 1,621,000 1,621,000
Increase in shares due to dilutive options 24,923 - -
--------- --------- ---------
Adjusted shares outstanding - diluted 1,645,923 1,621,000 1,621,000
========= ========= =========
</TABLE>
Dividends - Prior to the reorganization discussed in Note 1, during 1997,
the Bank had declared a dividend of $.60 per share. No dividends were paid
to FJF as a result of a waiver received from the Office of Thrift
Supervision (OTS). The total waived dividends are $849,000 for the year
ending December 31, 1997 and $1,132,000 for each of the years ending
December 31, 1996 and 1995. The Bank is subject to certain restrictions on
the amount of dividends that it may declare without prior regulatory
approval. Subsequent to the reorganization, a $.20 per share dividend was
paid to its
F-7
<PAGE>
shareholders, including $283,000 paid to the Company. The Company declared
a dividend of $.20 per share payable January 15, 1998 to shareholders of
record on December 31, 1997. Accounting Principles Issued and Not Adopted -
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income,
which requires an entity to present, as a component of comprehensive
income, the amounts from transactions and other events which currently are
excluded from the statement of income and are recorded directly to
stockholders' equity. Also in June 1997, the FASB issued SFAS No. 131,
Disclosures About Segments of an Enterprise and Related Information. This
statement requires an entity to disclose financial information in a manner
consistent to internally used information and requires more detailed
disclosures of operating and reporting segments that are currently in
practice. In February 1998, the FASB issued SFAS No. 132, Employers'
Disclosure About Pensions and Other Postretirement Benefits. This statement
revises employers' disclosures about pension and other postretirement
benefit plans. It does not change the measurement or recognition of those
plans. The statements are applicable for years beginning after December 15,
1997. Management has not completed an analysis of the impact, if any, the
adoption of these statements will have on the Company's consolidated
financial condition or results of operations.
Reclassifications - Certain items in the 1995 and 1996 consolidated
financial statements have been reclassified to conform with the
presentation in the 1997 consolidated financial statements.
3. INVESTMENTS
A comparison of cost and approximate fair value of investments, by
maturity, is as follows:
<TABLE>
<CAPTION>
Held to Maturity
December 31, 1997
-----------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Approximate
Cost Gains Losses Fair Value
<S> <C> <C> <C> <C>
U.S. Treasury securities -
3 to 5 years $ 5,043,487 $ 375,763 $ 5,419,250
FHLB Bonds:
1 year 6,000,000 $ 66,570 5,933,430
More than 10 years 15,283,545 136,753 2,936 15,417,362
Municipal bonds -
more than 10 years 8,033,969 181,227 8,215,196
Other 168,422 168,422
------------ --------- -------- ------------
Total $ 34,529,423 $ 693,743 $ 69,506 $ 35,153,660
============ ========= ======== ============
</TABLE>
<TABLE>
<CAPTION>
Available for Sale
December 31, 1997
------------------------------------
Amortized Approximate
Cost Fair Value
<S> <C> <C>
Mutual Funds $ 1,222,005 $ 1,222,005
Capital Trust securities 1,025,000 1,060,000
Equity investments 734,063 1,166,200
Other 250,000 250,000
----------- -----------
Total $ 3,231,068 $ 3,698,205
=========== ===========
</TABLE>
F-8
<PAGE>
<TABLE>
<CAPTION>
Held to Maturity
December 31, 1996
------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Approximate
Cost Gains Losses Fair Value
<S> <C> <C> <C> <C>
U.S. Treasury securities -
5 to 10 years $ 5,054,831 $ 347,445 $ 5,402,276
FHLB Bonds:
1 to 3 years 3,000,000 $ 12,384 2,987,616
5 to 10 years 3,000,000 127,500 2,872,500
More than 10 years 16,000,000 16,061,715
61,715
Other agencies (FNMA, FHLMC
and SLMA debentures):
3 to 5 years 2,000,000 2,312 2,002,312
More than 10 years 17,000,000 168,479 6,350 17,162,129
Other 409,590 409,590
-------------- ---------- ---------- --------------
Total $ 46,464,421 $ 579,951 $ 146,234 $ 46,898,138
============== ========== ========== ==============
</TABLE>
<TABLE>
<CAPTION>
Available for Sale
December 31, 1996
------------------------------------
Amortized Approximate
Cost Fair Value
<S> <C> <C>
Federal Home Loan Mortgage Corporation $ 984,750 $ 984,750
7.9% noncumulative preferred stock
Mutual Funds 1,147,268 1,147,268
Other 499,200 499,200
------------- ------------
Total $ 2,631,218 $ 2,631,218
============= ============
</TABLE>
There were no sales of debt securities during the years ended December 31,
1997, 1996 and 1995.
4. MORTGAGE-BACKED SECURITIES AVAILABLE FOR SALE
Mortgage-backed securities available for sale are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1997
-----------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Approximate
Cost Gains Losses Fair Value
<S> <C> <C> <C> <C>
GNMA pass-through certificates $ 31,836,876 $ 658,548 $ 18,625 $ 32,476,799
FNMA pass-through certificates 24,473,771 351,223 91,948 24,733,046
FNMA real estate mortgage
investment conduits 2,530,993 52,721 2,478,272
FHLMC pass-through certificates 43,756,293 915,621 23,738 44,648,176
FHLMC real estate mortgage
investment conduits 7,249,366 99,523 7,149,843
------------ ---------- ---------- ------------
Total $109,847,299 $1,925,392 $ 286,555 $111,486,136
============ ========== ========== ============
</TABLE>
F-9
<PAGE>
<TABLE>
December 31, 1996
-------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Approximate
Cost Gains Losses Fair Value
<S> <C> <C> <C>
GNMA pass-through certificates $20,684,109 $ 448,357 $21,132,466
FNMA pass-through certificates 19,045,788 262,515 $ 80,810 19,227,493
FNMA real estate mortgage
investment conduits 3,490,887 76,905 3,413,982
FHLMC pass-through certificates 41,829,546 801,029 48,177 42,582,398
FHLMC real estate mortgage
investment conduits 7,246,184 192,945 7,053,239
----------- ---------- -------- -----------
Total $92,296,514 $1,511,901 $398,837 $93,409,578
=========== ========== ======== ===========
</TABLE>
Proceeds from the sale of mortgage-backed securities during the year ended
December 31, 1995 were $20,676,552 resulting in a loss of $30,994. There
were no sales of mortgage-backed securities during the years ended
December 31, 1997 and 1996.
5. LOANS RECEIVABLE
Loans receivable consist of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------------
1997 1996
Mortgage loans:
<S> <C> <C>
1-4 Family residential $ 71,397,094 $ 73,870,894
Other dwelling units 16,646,987 17,615,571
Home equity lines of credit and improvement loans 8,209,914 7,018,517
Commercial nonmortgage loans 329,100 770,000
Construction loans 1,692,846 964,128
Loans on savings accounts 242,585 384,025
Consumer loans 156,185 92,212
------------- -------------
Total loans 98,674,711 100,715,347
Plus unamortized premiums 100,660 194,391
Less:
Net discounts on loans purchased and
loans acquired through merger (47,003) (118,363)
Loans in process (432,623) (288,570)
Deferred loan fees (1,232,815) (1,299,333)
Allowance for loan losses (782,825) (577,299)
------------- -------------
Total $ 96,280,105 $ 98,626,173
============= =============
</TABLE>
The Company originates loans to customers in its local market area,
principally Philadelphia, Pennsylvania and the four adjoining counties.
The ultimate repayment of these loans is dependent to a certain degree on
the local economy and real estate market.
F-10
<PAGE>
Originated or purchased commercial real estate loans totaled $16,646,987
and $17,675,024 at December 31, 1997 and 1996, respectively. Of the
commercial real estate loans, as of December 31, 1997 and 1996, $6,337,866
and $4,755,660 are collateralized by multi-family residential property;
$10,309,121 and $12,919,364 by business property, respectively.
At December 31, 1997, 1996 and 1995, the Company was servicing loans for
others amounting to $3,695,280, $3,522,363 and $4,433,526, respectively.
Servicing loans for others generally consists of collecting mortgage
payments, maintaining escrow accounts, disbursing payments to investors
and foreclosure processing. Loan servicing income is recorded on the
accrual basis and includes servicing fees from investors and certain
charges collected from borrowers, such as late payment fees. In connection
with these loans serviced for others, the Company held borrower's escrow
balances of approximately $234,153, $275,863 and $326,485 at December 31,
1997, 1996 and 1995, respectively.
The Company previously invested in loans secured by commercial equipment
leases. During 1996, the borrower declared bankruptcy. At December 27,
1996, the Company entered into an agreement with the trustee for the
bankruptcy court whereby the Bank will receive approximately 65% of the
cash receipts from the collateral principal in exchange for all rights to
the collateral. In connection with this agreement, the Company charged-off
$1,180,628 of the outstanding balance due from the trustee at December 31,
1996. The receivable balance of approximately $361,000 and $1,771,000,
resulting from the agreement with the trustees, is a component of prepaid
expenses and other assets in the consolidated statement of financial
condition at December 31, 1997 and 1996, respectively. The receivable is
to be repaid by the trustee from subsequent cash collections.
Following is a summary of changes in the allowance for loan losses:
Year Ended December 31,
--------------------------------------
1997 1996 1995
-------- -------- --------
Balance, beginning $577,299 $455,000 $416,629
Provision 120,000 139,194 135,000
Net recovery (charge-off) 85,526 (16,895) (96,629)
-------- -------- --------
Balance, ending $782,825 $577,299 $455,000
======== ======== ========
The provision for loan losses charged to expense is based upon past loan
and loss experience and an evaluation of probable losses in the current
loan and lease portfolio, including the evaluation of impaired loans under
SFAS Nos. 114 and 118. A loan is considered to be impaired when, based
upon current information and events, it is probable that the Company will
be unable to collect all amounts due according to the contractual terms of
the loan. An insignificant delay or shortfall in amount of payments does
not necessarily result in the loan being identified as impaired. For this
purpose, delays less than 90 days are considered to be insignificant. As
of December 31, 1997, 100% of the impaired loan balance was measured for
impairment based on the fair value of the loans' collateral. Impairment
losses are included in the provision for loan losses. SFAS Nos. 114 and
118 do not apply to large groups of smaller balance homogeneous loans that
are collectively evaluated for impairment, except for those loans
restructured
F-11
<PAGE>
under a troubled debt restructuring. Loans collectively evaluated for
impairment include consumer loans and residential real estate loans and
are not included in the data that follows:
<TABLE>
<CAPTION>
December 31,
-------------------------
1997 1996
<S> <C> <C>
Impaired loans with no related reserve
for loans losses calculated under SFAS No. 114 $1,274,436 $1,292,178
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1997 1996
<S> <C> <C>
Average impaired loans $1,283,307 $1,298,291
Interest income recognized on impaired loans 109,092 97,485
</TABLE>
No cash basis interest income was recognized in 1997 or 1996 for the
impaired loans included above. Nonaccrual loans for which interest has
been fully reserved totaled approximately $716,000 and $2,999,000 at
December 31, 1997 and 1996, respectively.
The Company originates and purchases fixed and adjustable interest rate
loans and mortgage-backed securities. At December 31, 1997 fixed rate
loans and mortgage-backed securities were approximately $160,000,000, and
adjustable interest rate loans and mortgage-backed securities were
approximately $48,000,000.
As of December 31, 1997, the Company had approximately $761,000, in
outstanding loan commitments. These commitments are subject to normal
credit risk and have commitment terms of ninety days or less.
Certain directors and officers of the Company have loans with the Company.
Such loans were made in the ordinary course of business and do not
represent more than a normal risk of collection. Total loans to these
persons amounted to $1,225,906, $1,164,350 and $1,011,544, at December 31,
1997, 1996 and 1995, respectively. Current year originations to these
persons were $159,500, $335,000 and $319,950 for the years ended December
31, 1997, 1996 and 1995, respectively. Loan repayments for the years ended
December 31, 1997, 1996 and 1995 were $97,944, $182,194 and $61,381,
respectively.
6. ALLOWANCE FOR REAL ESTATE ACQUIRED THROUGH FORECLOSURE
The following summarizes the changes in the allowance for real estate
acquired through foreclosure losses:
December 31,
---------------------------
1997 1996 1995
Balance, beginning $46,265 $23,675 $ 1,847
Provision 46,265 21,828
Write-offs (33,506) (23,675)
------- ------- ------
Balance, ending $12,759 $46,265 $23,675
======= ======= =======
F-12
<PAGE>
7. OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment are summarized by major classification as
follows:
December 31,
--------------------------
1997 1996
Land $ 528,052 $ 613,159
Buildings 2,735,719 3,360,845
Furniture and equipment 2,324,748 2,406,972
Leasehold improvements 87,623 87,623
----------- -----------
Total 5,676,142 6,468,599
Accumulated depreciation and amortization (4,172,128) (4,639,578)
----------- -----------
Net $ 1,504,014 $ 1,829,021
=========== ===========
8. DEPOSITS
Deposits consist of the following major classifications:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------
1997 1996
--------------------------- --------------------------
Weighted Weighted
Interest Interest
Amount Rate Amount Rate
<S> <C> <C> <C> <C>
NOW accounts $ 15,622,578 1.48 % $ 16,895,047 1.38%
Money Market Demand accounts 7,686,946 3.16 10,005,404 3.37
Passbook accounts 96,158,033 3.78 111,147,395 3.78
Certificate accounts 111,050,731 5.39 118,498,720 5.28
------------ ---- ------------ ----
Total $230,558,288 4.39% $256,546,566 4.30%
=========== ==== =========== ====
</TABLE>
At December 31, 1997 and 1996, the Company had deposits of $100,000 or
greater totaling approximately $23,621,000 and $19,800,000, respectively.
Deposits in excess of $100,000 are not federally insured.
In May 1997, the Bank sold approximately $37.5 million in deposits and two
branch buildings to a local financial institution. A gain of approximately
$2.2 million was realized on the sale.
While frequently renewed at maturity rather than paid out, certificate
accounts were scheduled to mature contractually within the following
periods:
December 31,
---------------------------
1997 1996
1 year or less $ 89,887,477 $ 54,251,167
1 year - 3 years 17,715,478 40,683,493
3 years - 5 years 3,447,776 23,564,060
------------ ------------
Total $111,050,731 $118,498,720
============ ============
F-13
<PAGE>
Interest expense on deposits is as follows:
Year Ended December 31,
---------------------------------------------
1997 1996 1995
NOW $ 508,567 $ 595,012 $ 787,473
Passbook 3,806,974 4,119,189 4,058,030
Certificates and MMDA 6,235,089 5,906,063 5,352,195
Early withdrawal penalties (12,472) (20,309) (25,067)
----------- ----------- -----------
Total $10,538,158 $10,599,955 $10,172,631
=========== =========== ===========
9. FHLB ADVANCES
Federal Home Loan Bank advances at December 31, 1997 and 1996 were
$7,884,000. Advances are collateralized under a blanket collateral lien
agreement. Advances at December 31, 1997 have maturity dates as follows:
1998, $6,000,000 and 2008, $1,884,000.
10. INCOME TAXES
In August 1996, the Small Business Job Protection Act (the "Act") was
signed into law. The Act repealed the percentage of taxable income method
of accounting for bad debts for thrift institutions effective for years
beginning after December 31, 1995. The Act required the Company, as of
January 1, 1996 to change its method of computing reserves for bad debts
to the experience method. The bad debt deduction allowable under this
method is available to small banks with assets less than $500 million.
Generally, this method allows the Company to deduct an annual addition to
the reserve for bad debts equal to the increase in the balance of the
Company's reserve for bad debts at the end of the year to an amount equal
to the percentage of total loans at the end of the year, computed using
the ratio of the previous six years' net charge-offs divided by the sum of
the previous six years' total outstanding loans at year end.
A thrift institution required to change its method of computing reserves
for bad debts treats such change as a change in a method of accounting
determined solely with respect to the "applicable excess reserves" of the
institution. The amount of the applicable excess reserves is taken into
account ratably over a six-taxable year period, beginning with the first
taxable year beginning after December 31, 1995. For financial reporting
purposes, the Company has not incurred any additional tax expense. At
December 31, 1997, under SFAS No. 109, deferred taxes were provided on the
difference between the book reserve at December 31, 1997 and the
applicable excess reserve in the amount equal to the Company's increase in
the tax reserve from December 31, 1987 to December 31, 1997. Retained
earnings at December 31, 1997 and 1996 includes approximately $5.4 million
of income for which no deferred income taxes will need to be provided.
Income tax expense consists of the following components:
Year Ended December 31: Federal State Total
1997 $ 1,870,200 $ 219,800 $ 2,090,000
1996 112,000 112,000
1995 741,500 145,400 886,900
The Company's provision for income taxes (benefit) differs from the
amounts determined by applying the statutory federal income tax rate to
income before income taxes for the following reasons:
F-14
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------
1997 1996 1995
----------------------- ---------------------- --------------------
Amount Percent Amount Percent Amount Percent
<S> <C> <C> <C> <C> <C> <C>
Tax at federal tax rate ................. $ 1,776,226 34.0 % $ (85,422) (34.0)% $788,526 34.0 %
Tax-exempt income (45,337) (0.9)
Decrease resulting from amortization
of goodwill premiums and discounts
related to an acquisition - net ....... (3,956) (0.1) (9,597) (3.8) (13,405) (0.6)
State income tax expense,
net of federal income tax ............ 145,068 2.8 95,832 4.1
Other ................................... 217,999 4.2 207,019 82.4 15,947 0.7
----------- ---- --------- ----- -------- ----
Total ................................... $ 2,090,000 40.0 % $ 112,000 44.6 % $886,900 38.2 %
=========== ==== ========= ==== ======== ====
</TABLE>
Items that give rise to significant portions of the deferred tax accounts
are as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------
1997 1996
<S> <C> <C>
Deferred tax assets:
Deferred loan fees $ 419,157 $ 441,773
Allowance for loan losses 1,817
Reserve for uncollected interest 29,597 67,070
Supplemental pension 194,515 131,781
Property 13,643 1,002
----------- -----------
658,729 641,626
----------- -----------
Deferred tax liabilities:
State taxes (568,412) (457,086)
Unrealized gain on investments and mortgage-backed securities (716,032) (378,442)
Other (190,807) (187,921)
Allowance for loan losses (103,627)
----------- -----------
(1,475,251) (1,127,076)
----------- -----------
Total $ (816,522) $ (485,450)
=========== ===========
</TABLE>
11. REGULATORY CAPITAL REQUIREMENTS
The Bank is subject to various regulatory capital requirements
administered by the federal and state banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory--and possibly
additional discretionary--actions by regulators that, if undertaken, could
have a direct material effect on the Bank's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Bank must meet specific capital guidelines that
involve quantitative measures of the Bank's assets, liabilities and
certain off-balance sheet items as calculated under regulatory accounting
practices. The Bank's capital amounts and classification are also subject
to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
table below) of tangible and core capital (as defined in the regulations)
to total adjusted assets (as defined), and of risk-based capital (as
defined) to risk-weighted
F-15
<PAGE>
assets (as defined). Management believes, as of December 31, 1997, that
the Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 1997, the most recent notification from the Office of
Thrift Supervision categorized the Bank as well-capitalized under the
regulatory framework for prompt corrective action. To be categorized as
well-capitalized, the Bank must maintain minimum tangible, core and
risk-based ratios as set forth in the table. There are no conditions or
events since that notification that management believes have changed the
Bank's category. The Bank's actual capital amounts and ratios are
presented in the table, in thousands.
<TABLE>
<CAPTION>
Well Capitalized
Required for Under Prompt
Capital Adequacy Corrective Action
Actual Purposes Provisions
------------------ ---------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
At December 31, 1997:
<S> <C> <C> <C> <C> <C> <C>
Tangible $25,828 9.5 % $ 4,074 1.5 % N/A N/A
Core (Leverage) 25,828 9.5 8,148 3.0 $13,580 5.0 %
Tier 1 risk-based 25,828 27.7 N/A N/A 16,296 6.0
Total risk-based 26,611 28.6 7,438 8.0 9,298 10.0
</TABLE>
<TABLE>
<CAPTION>
Well Capitalized
Required for Under Prompt
Capital Adequacy Corrective Action
Actual Purposes Provisions
----------------- ------------------- --------------------
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
At December 31, 1996:
Tangible $23,314 7.9 % $ 4,383 1.5 % N/A N/A
Core (Leverage) 23,314 7.9 8,766 3.0 14,603 5.0%
Tier 1 risk-based 23,314 22.6 N/A N/A 6,170 6.0
Total risk-based 23,392 22.8 5,141 8.0 10,283 10.0
</TABLE>
Retained earnings for financial statement purposes differs from total
risk-based capital amounts by the exclusion of the allowance for loan
losses from the risk-based capital calculation.
12. PENSION AND PROFIT-SHARING PLANS
The Company has a defined benefit pension plan which covers all eligible
employees. The plan may be terminated at any time at the discretion of the
Board of Directors. Benefits under the above are based upon years of
service and the employees' average compensation during the term of
employment. The Company's policy is to fund amounts as are necessary to at
least meet the minimum funding standards of ERISA.
The following table sets forth the plan's net periodic pension cost at
December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 95,583 $ 88,388 $ 75,184
Interest cost on projected benefit obligation 102,712 89,080 79,938
Actual return on plan assets (81,150) (67,427) (55,841)
Net amortization and deferral (18,781) (23,430) (22,956)
---------- ---------- ----------
Net periodic pension cost $ 98,364 $ 86,611 $ 76,325
========== ========== ==========
</TABLE>
F-16
<PAGE>
The following table sets forth the plan's prepaid pension asset at
December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
Actuarial present value of benefit obligations:
<S> <C> <C>
Vested benefits $ 1,271,669 $ 1,059,426
Nonvested benefits 6,598 17,353
----------- -----------
Accumulated benefit obligation 1,278,267 1,076,779
Effect of future salary increases 573,908 511,728
----------- -----------
Projected benefit obligation 1,852,175 1,588,507
Plan assets at fair value 1,630,786 1,422,891
----------- -----------
Plan assets less than projected benefit obligation (221,389) (165,616)
Unrecognized:
Prior service cost 186,611 (181,500)
Net loss from past experience 185,908 460,682
Net asset at date of transition (66,679) (74,145)
----------- -----------
Prepaid pension asset $ 84,451 $ 39,421
=========== ===========
</TABLE>
The weighted-average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligation was 6.5% for the years ended December 31,
1997 and 1996. The expected long-term rate of return on assets was 6.5%
for 1997 and 1996. Plan assets consist primarily of certificates of
deposit at the Bank.
The Company also maintains a profit-sharing plan for eligible employees.
Profit-sharing contributions are at the discretion of the Board of
Directors. The contribution was $463,131 in 1997, $124,466 in 1996 and
$199,199 in 1995. Plan assets consist primarily of a diversified stock
portfolio.
13. EMPLOYEE STOCK OWNERSHIP PLAN
The Company has established an employee stock ownership plan (the "ESOP")
for the exclusive benefit of participating employees which purchased
14,000 shares of common stock of the Bank on December 31, 1992. In order
to make the purchase, the ESOP borrowed $140,000 on December 31, 1992 from
a financial institution. The debt was repaid in 1997.
14. OTHER EMPLOYEE BENEFITS
Stock Option Plan - In 1992, the Board of Directors adopted the 1992 Stock
Option Plan (the "1992 Plan") to provide additional incentive to retain
officers, directors and key employees. Options granted under the 1992 Plan
were at the estimated fair value at the date of grant and vested over a
five year period. At December 31, 1997, 20,000 options are outstanding and
all are exercisable.
In 1994, the Board of Directors adopted the 1994 Stock Option Plan (the
"1994 Plan"). Options granted under the 1994 plan were at the estimated
fair value at the date of grant and vested immediately. At December 31,
1997, 20,000 options are outstanding and all are exercisable.
F-17
<PAGE>
There have been no exercises, forfeitures, cancellations or additional
grants of options under either plan for each of the three years in the
period ended December 31, 1997. As the Company accounts for stock-based
compensation under the intrinsic value method, no compensation expense has
been recognized.
Management Recognition Plan - The Company's Board of Directors has also
adopted a Management Recognition Plan (the "MRP") effective December 31,
1992, the objective of which is to enable the Company to retain personnel
of experience and ability in key positions of responsibility. All
employees are eligible to receive benefits under the MRP. Benefits may be
granted at the sole discretion of a committee appointed by the Board of
Directors of the Company. The MRP is managed by trustees who are directors
of the Company and who have responsibility to invest all funds contributed
by the Company to the trust created for the MRP. The Company has
contributed 6,000 shares to the MRP Trust. Unless the MRP committee
specifies otherwise, the shares granted will be in the form of restricted
stock payable over a five-year period at the rate of 20% of such shares
per year following the date of grant of the award. 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. In December 1994, the Board approved
the contribution of an additional 6,000 shares to the MRP Trust. The
shares were contributed in January 1995. As of December 31, 1997, 6,000
shares have been allocated to individual employees.
Supplemental Retirement Benefits - In November 1995, the Company entered
into a Nonqualified Retirement and Death Benefit Agreement (the
"Agreement") with certain officers of the Company. The purpose of the
Agreement is to provide the officers with supplemental retirement benefits
equal to a specified percentage of final compensation and a preretirement
death benefit if the officer does not attain age 65. Total expense
relating to this benefit was approximately $184,512 and $91,800 for the
years ended December 31, 1997 and 1996, respectively.
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the carrying amounts and the estimated fair
value of financial instruments is made in accordance with the requirements
of SFAS No. 107, Disclosures about Fair Value of Financial Instruments.
The estimated fair value amounts have been determined by the Company using
available market information and appropriate valuation methodologies.
However, considerable judgment is necessarily required to interpret market
data to develop the estimates of fair value. Accordingly, the estimates
F-18
<PAGE>
presented herein are not necessarily indicative of amounts the Bank could
realize in a current market exchange. The use of different market
assumptions and/or estimation methodologies may have a material effect on
the estimated fair value amounts.
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
------------------------------- -------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
Assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 20,150,596 $ 20,150,596 $ 40,929,177 $ 40,929,177
Investments held to maturity 34,529,423 35,153,660 46,464,421 46,898,138
Investments available for sale 3,698,205 3,698,205 2,631,218 2,631,218
Mortgage-backed securities available for
sale 111,486,136 111,486,136 93,409,578 93,409,578
Loans receivable 96,280,105 98,205,707 98,626,173 99,612,435
Loans receivable available for sale 1,154,761 1,154,761 2,147,223 2,147,223
Federal Home Loan Bank stock 1,701,700 1,701,700 1,691,200 1,691,200
Liabilities:
NOW, MMDA and Passbook accounts 119,507,557 119,507,557 138,047,846 138,047,846
Certificate accounts 111,050,731 119,064,812 118,498,720 128,520,215
FHLB Advances 7,884,000 6,429,941 7,884,000 6,406,842
</TABLE>
Cash and Cash Equivalents - For cash and cash equivalents, the carrying
amount is a reasonable estimate of fair value.
Investment and Mortgage-backed Securities - Fair values are based on
quoted market prices or dealer quotes.
Loans Receivable - Fair values are based on broker quotes.
Federal Home Loan Bank Stock - Although FHLB Stock is an equity interest
in an FHLB, it is carried at cost because it does not have a readily
determinable fair value.
NOW, MMDA, Passbook, Certificate Accounts and FHLB Advances - The fair
value of NOW, MMDA and Passbook accounts is the amount payable on demand
at the reporting date. The fair value of certificate accounts and FHLB
Advances is estimated using rates currently offered for deposits and
advances of similar remaining maturities.
Commitments to Extend Credit and Letters of Credit - Fair values for
off-balance sheet commitments are based on fees currently charged to enter
into similar agreements, taking into account the remaining terms of the
agreements and the counterparties' credit standings. The fair value of
commitments is deemed immaterial for disclosures in the table above.
The fair value estimates presented herein are based on pertinent
information available to management as of December 31, 1997 and 1996.
Although management is not aware of any factors that would significantly
affect the fair value amounts, such amounts have not been comprehensively
revalued for purposes of these consolidated financial statements since
that date and, therefore, current estimates of fair value may differ
significantly from the amounts presented herein.
F-19
<PAGE>
16. SAVINGS ASSOCIATION INSURANCE FUND
On September 30, 1996, an omnibus appropriations bill was enacted, which
included the recapitalization of the Savings Association Insurance Fund
(SAIF). Accordingly, all SAIF insured depository institutions were charged
a one-time special assessment on their SAIF-assessable deposits as of
March 31, 1995 at the rate of 65.7 basis points. Accordingly, the Bank
incurred a pre-tax expense of $1,533,127 in 1996.
17. CONVERSION AND REORGANIZATION OF THE COMPANY (UNAUDITED)
On February 18, 1998, the Board of Directors of the Company, the Bank and
FJF adopted a Plan of Conversion and Reorganization and Plan of Merger
(the "Plan"). Pursuant to the Plan, (i) the Company will convert first
into a federal stock holding company and then into an interim federal
stock savings bank. Following its conversion into an interim federal stock
savings bank, it will merge into the Bank with the Bank as the survivor;
(ii) FJF will convert to an interim federal stock savings institution and
merge with and into the Bank, pursuant to which FJF will cease to exist
and the 1,415,000 shares of the outstanding Company stock held by FJF will
be canceled. The Bank will then be acquired by Thistle Group Holdings,
Co., a newly created Pennsylvania chartered holding company, and become a
wholly owned subsidiary of Thistle Group Holdings, Co. The outstanding
public shares of the Company, which amount to $206,000 shares, will be
converted into Exchange Shares pursuant to the exchange ratio upon
completion of the Plan.
Pursuant to the Plan and in connection with the Conversion and
Reorganization, Thistle Group Holdings, Co. is offering shares of common
stock. A subscription offering of the shares of common stock will be
offered initially to eligible account holders, employee benefit plans of
the Company, their members, directors, officers and employees of the
Company. Any shares of common stock not sold in the subscription offering
are expected to be sold by the underwriter to eligible public stockholders
and then to certain members of the general public.
Upon completion of the conversion, the Bank will establish a liquidation
account in an amount equal to the greater of 100% of the Bank's retained
earnings at June 30, 1992, the date of the latest balance sheet contained
in the final offering circular utilized in the Bank's initial public
offering the FJF reorganization, 100% of the Bank's total stockholders'
equity as reflected in its latest balance sheet contained in the final
Prospectus utilized in the offering. The liquidation account will be
maintained for the benefit of eligible account holders who continue to
maintain their accounts at the Bank after the conversion. The liquidation
account will be reduced annually to the extent that eligible account
holders have reduced their qualifying deposits as of each anniversary
date. Subsequent increases will not restore the eligible account holder's
interest in the liquidation account. In the event of a complete
liquidation of the Bank, each eligible account holder will be entitled to
receive a distribution from the liquidation account in an amount
proportionate to the current adjusted qualifying balances for accounts
then held.
Conversion costs will be deferred and reduce the proceeds from the shares
sold in the conversion. If the conversion is not completed, all costs will
be charged as an expense. As of December 31, 1997, no conversion costs
have been incurred.
******
F-20
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
================================================================================ =================================================
No dealer, salesman or other person has been authorized to give any information
or to make any representations not contained in this Prospectus in connection
with the offering made hereby, and, if given or made, such information or
representations must not be relied upon as having been authorized by the Bank,
the Company or the Selling Agent. This Prospectus does not constitute an offer Up to 11,902,500 Shares
to sell, or the solicitation of an offer to buy, any of the securities offered (Anticipated Maximum)
hereby to any person in any jurisdiction in which such offer or solicitation Common Stock
would be unlawful. Neither the delivery of this Prospectus by the Bank, the
Mutual Holding Company, the Mid-Tier Holding Company the Company or the Agent
nor any sale made hereunder shall in any circumstances create an implication
that there has been no change in the affairs of the Bank, the Mid-Tier Holding [Logo]
Company or the Company since any of the dates as of which information is
furnished herein or since the date hereof.
------------
TABLE OF CONTENTS
Page Thistle Group Holdings, Co.
---- ---------------------------
Summary..................................................................
Selected Consolidated Financial and Other Data
Recent Developments...................................................... (Proposed Holding Company for
Management's Discussion and Analysis of Roxborough-Manayunk Federal Savings Bank)
Recent Developments....................................................
Risk Factors............................................................. Common Stock
Thistle Group Holdings, Co............................................... par value $0.10 per share
Thistle Group Holdings, Inc..............................................
The Bank ................................................................
FJF Financial, M.H.C..................................................... ------------
Use of Proceeds..........................................................
Dividend Policy.......................................................... PROSPECTUS
Market for Common Stock..................................................
Capitalization........................................................... ------------
Historical and Pro Forma Capital Compliance..............................
Pro Forma Data...........................................................
Management's Discussion and Analysis of Financial
Condition and Results of Operations....................................
Business of the Bank.....................................................
Regulation............................................................... SANDLER O'NEILL & PARTNERS, L.P.
Federal and State Taxation...............................................
Management of the Company................................................
Management of the Bank...................................................
Beneficial Ownership of Bank Common Stock................................ Dated ____________, 1998
The Conversion and Reorganization........................................
Comparison of Stockholders' Rights.......................................
Certain Restrictions on Acquisition of
the Company............................................................
Description of Capital Stock of the Company..............................
Legal Opinions...........................................................
Tax Opinions.............................................................
Experts..................................................................
Registration Requirements................................................
Additional Information...................................................
Index to Consolidated Financial Statements............................... F-1
Until the later of ___________, 1998, or 25 days after commencement of the
offering of Common Stock, all dealers effecting transactions in the registered
securities, whether or not participating in this distribution, may be required
to deliver a Prospectus. This is in addition to the obligation of dealers to
deliver a Prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
================================================================================ =================================================
</TABLE>
<PAGE>
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
* Special Counsel Fees and Expenses.......................... $150,000
* Accounting Fees and Expenses............................... 60,000
* Appraisal/Business Plan Fees and Expenses.................. 30,000
* Blue Sky Legal and Filing Fees............................. 10,000
* Conversion Agent........................................... 25,000
* Printing Fees and Expenses................................. 45,000
* Postage and Mailing Expenses............................... 15,000
* Stock Certificate Expenses................................. 1,000
* Transfer Agent Fees........................................ 2,000
* Underwriting Fees.......................................... 1,000,000
* Underwriting Expenses...................................... 40,000
Filing Fees:
OTS.................................................. 8,400
Nasdaq (including entry and listing fees)............ 84,000
SEC.................................................. 35,112
NASD................................................. 12,400
* EDGAR Fees and Expenses.................................... 15,000
* Other...................................................... 67,088
---------
Total.......................................... $1,600,000
=========
- -----------------
* Estimated, at supermax.
Item 14. Indemnification of Directors and Officers
Sections 1741 through 1747 of the Pennsylvania Business Corporation Act
sets forth circumstances under which directors, officers, employees and agents
may be insured or indemnified against liability which they may incur in their
capacities as such.
The Articles of Incorporation of Thistle Group Holdings, Co. (the
"Articles") attached as Exhibit 3(i) hereto, requires indemnification of
directors, officers and employees to the fullest extent permitted by
Pennsylvania law.
Thistle Group Holdings, Co. ("Thistle Group") may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee,
or agent of Thistle Group or is or was serving at the request of Thistle Group
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him and incurred by him in any such capacity or arising out of his status as
such, whether or not Thistle Group would have the power to indemnify him against
such liability under the provisions of the Articles.
<PAGE>
Item 15. Recent Sales of Unregistered Securities.
Not Applicable
Item 16. Exhibits and Financial Statement Schedules:
The financial statements and exhibits filed as part of this
Registration Statement are as follows:
(a) List of Exhibits:
1 Agency Agreement with Sandler O'Neill & Partners, L.P.^
2 Plan of Conversion and Reorganization of FJF Financial, M.H.C.
and Plans of Merger between FJF Financial, M.H.C., Thistle
Group Holdings, Inc. and Roxborough-Manayunk Federal Savings
Bank
3(i) Articles of Incorporation of Thistle Group Holdings, Co.^*
3(ii)Bylaws of Thistle Group Holdings, Co.^*
4 Specimen Stock Certificate of Thistle Group Holdings, Co.^*
5 Opinion of Malizia, Spidi, Sloane & Fisch, P.C. regarding
legality of securities registered^*
8.1 Federal Tax Opinion of Malizia, Spidi, Sloane & Fisch, P.C.
8.2 Pennsylvania Tax Opinion of Malizia, Spidi, Sloane & Fisch,
P.C.
8.3 Statement of FinPro Financial, Inc. as to the value of
subscription rights^*
10.1 1992 Stock Option Plan of Roxborough-Manayunk Federal Savings
Bank^*
10.2 1992 Management Stock Bonus Plan of Roxborough-Manayunk
Federal Savings Bank^*
10.3 1994 Stock Option Plan of Roxborough-Manayunk Federal Savings
Bank^*
10.4 1994 Management Stock Bonus Plan of Roxborough-Manayunk
Federal Savings Bank^*
10.5 Employment Agreement with John F. McGill^*
10.6 Employment Agreement with Jerry Naessens^*
^10.7 Employment Agreement with John F. McGill, Jr.
23.1 Consent of Malizia, Spidi, Sloane & Fisch, P.C. (included with
Exhibits 5, 8.1 and 8.2)
<PAGE>
23.2 Consent of Deloitte & Touche LLP
23.3 Consent of FinPro Financial, Inc.
24 Power of Attorney (included with signature page)^*
^ 27 Financial Data Schedule (in electronic filing only)
99.1 Marketing Materials
^99.2 Proxy Material for Thistle Group Holdings, Inc.
- -------------------
* ^ Previously filed.^
(b) Financial Statements and Schedules:
Except for schedules required for electronic filers, financial statement
schedules are omitted because they are not required or are not applicable or the
required information is shown in the financial statements or the notes thereto.
Item 17. Undertakings
I. The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933 ("Securities Act");
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high and of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
<PAGE>
(4) To provide to the underwriter at the closing specified in the
underwriting agreements, certificates in such denominations and registered in
such names as required by the underwriter to permit prompt delivery to each
purchaser.
II. Insofar as indemnification for liabilities arising under the Securities
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 Securities
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 Securities
Act and will be governed by the final adjudication of such issue.
<PAGE>
^ SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Philadelphia,
Pennsylvania, as of ^May 8, 1998.
THISTLE GROUP HOLDINGS, CO.
/s/John F. McGill, Jr.
--------------------------------
John F. McGill, Jr.
President and Chief Executive
Officer
(Duly Authorized Representative)
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following persons in
the capacities indicated as of ^May 8, 1998.
/s/John F. McGill, Jr. /s/Francis E. McGill, III*
- ------------------------------------- --------------------------------
John F. McGill, Jr. Francis E. McGill, III
President and Chief Executive Officer Director
(Principal Executive Officer)
/s/Jerry A. Naessens /s/Add B. Anderson, Jr.^*
- ------------------------------------- --------------------------------
Jerry A. Naessens Add B. Anderson, Jr.
Chief Financial Officer and Secretary Director
(Principal Financial and Accounting
Officer)
/s/John F. McGill^*
- ------------------------------------- --------------------------------
John F. McGill ^Patrick T. Ryan
Chairman of the Board and Director Director
^/s/Michal Crofton*
- -------------------------------------
^Michael Crofton
^Director
^
- -----------------------
* Signed pursuant to a power of attorney.
<PAGE>
As filed with the Securities and Exchange Commission on ^May 8, 1998
Registration No. 333-48749
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
EXHIBITS TO
^ AMENDMENT NO. 1
^ TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------
THISTLE GROUP HOLDINGS, CO.
---------------------------
(Exact name of registrant as specified in charter)
Pennsylvania 6035 ^23-2960768
- ----------------------------- ----------------- -------------------
(State or other jurisdiction (Primary SIC No.) (I.R.S.Employer
of incorporation or Identification No.)
organization)
6060 Ridge Avenue
Philadelphia, Pennsylvania 19128
(215) 483-2800
-----------------------
(Address, including zip code, and telephone number, including area code, of
principal executive offices)
Mr. John F. McGill, Jr.
President and Chief Executive Officer
Thistle Group Holdings, Co.
6060 Ridge Avenue
Philadelphia, Pennsylvania 19128
(215) 483-2800
-----------------------
(Name, address and telephone number of agent for service)
Please send copies of all communications to:
Samuel J. Malizia, Esq.
Gregory A. Gehlmann, Esq.
Ruel Pile, Esq.
Malizia, Spidi, Sloane & Fisch, P.C.
1301 K Street, N.W., Suite 700 East
Washington, D.C. 20005
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this registration statement becomes effective.
<PAGE>
INDEX TO EXHIBITS TO FORM S-1
Exhibit
1 Agency Agreement with Sandler O'Neill & Partners, L.P.^
2 Plan of Conversion and Reorganization of FJF Financial, M.H.C. and Plans
of Merger between FJF Financial, M.H.C., Thistle Group Holdings, Inc. and
Roxborough-Manayunk Federal Savings Bank
3(i) Articles of Incorporation of Thistle Group Holdings, Co.^*
3(ii)Bylaws of Thistle Group Holdings, Co.^*
4 Specimen Stock Certificate of Thistle Group Holdings, Co.^*
5 Opinion of Malizia, Spidi, Sloane & Fisch, P.C. regarding legality of
securities registered^*
8.1 Federal Tax Opinion of Malizia, Spidi, Sloane & Fisch, P.C.
8.2 Pennsylvania Tax Opinion of Malizia, Spidi, Sloane & Fisch, P.C.
8.3 Statement of FinPro Financial, Inc. as to the value of subscription
rights^*
10.1 1992 Stock Option Plan of Roxborough-Manayunk Federal Savings Bank^*
10.2 1992 Management Stock Bonus Plan of Roxborough-Manayunk Federal Savings
Bank^*
10.3 1994 Stock Option Plan of Roxborough-Manayunk Federal Savings Bank^*
10.4 1994 Management Stock Bonus Plan of Roxborough-Manayunk Federal Savings
Bank**
10.5 Employment Agreement with John F. McGill^*
10.6 Employment Agreement with Jerry Naessens^*
^10.7 Employment Agreement with John F. McGill, Jr.
23.1 Consent of Malizia, Spidi, Sloane & Fisch, P.C. (included with Exhibits 5,
8.1 and 8.2)
23.2 Consent of Deloitte & ^Touche LLP
23.3 Consent of FinPro Financial, Inc.
24 Power of Attorney (included with signature page)^*
99.1 Marketing Materials
^99.2 Proxy Material for Thistle Group Holdings, Inc.
- -------------------
* ^ Previously filed.
Exhibit 1
<PAGE>
10,350,000 Shares
(subject to increase up to 11,902,500 shares
in the event of an oversubscription)
THISTLE GROUP HOLDINGS, CO.
(a Pennsylvania corporation)
Common Stock
(par value $.10 per share)
AGENCY AGREEMENT
April __, 1998
Sandler O'Neill & Partners, L.P.
Two World Trade Center, 104th Floor
New York, New York 10048
Ladies and Gentlemen:
Thistle Group Holdings Co., a Pennsylvania corporation (the
"Company"), FJF Financial, M.H.C., a federally chartered mutual holding company
(the "Mutual Holding Company"), Thistle Group Holdings, Inc., a Pennsylvania
corporation (the "Mid-Tier Holding Company"), and Roxborough-Manayunk Federal
Savings Bank, a federally chartered stock savings bank (the "Bank"), hereby
confirm their agreement ("Agreement") with Sandler O'Neill & Partners, L.P.
("Sandler O'Neill" or the "Agent") with respect to the offer and sale by the
Company of 10,350,000 shares (subject to increase up to 11,902,500 shares in the
event of an oversubscription) of the Company's Common Stock, par value $.10 per
share (the "Common Stock"). The shares of Common Stock to be sold by the Company
are hereinafter called the "Securities."
The Bank organized the Company and, upon consummation of the following
transactions pursuant to a Plan of Conversion and Reorganization (the "Plan" or
"Plan of Conversion and Reorganization"), intends to become a wholly owned
subsidiary of the Company: (1) the Mid-Tier Holding Company will convert first
into a federal stock holding company and then into an interim federal stock
savings bank. Following the Mid-Tier Holding Company's conversion into an
interim federal stock savings bank, it will merge with
1
<PAGE>
and into the Bank, with the Bank as the survivor; (2) the Mutual Holding Company
will convert into an interim federal stock savings institution and merge with
and into the Bank, pursuant to which the Mutual Holding Company will cease to
exist and the 1,415,000 shares (or 87.29%) of the outstanding common stock of
the Mid-Tier Holding Company (the "Mid-tier Common Stock") currently held by the
Mutual Holding Company will be cancelled; (3) the Company then will acquire the
Bank and the Bank will become a wholly owned subsidiary of the Company, changing
its name upon completion of the Conversion and Reorganization to
Roxborough-Manayunk Bank; (4) the holders of the 206,000 shares (or 12.71%) of
the outstanding Mid-Tier Common Stock (other than the Mutual Stock Company in
its capacity as stockholder, the "Public Stockholders"), will, subject to any
dissenters' rights, receive Common Stock in an exchange (the "Exchange Shares")
pursuant to a ratio (the "Exchange Ratio") that will result in the Public
Stockholders owning in the aggregate approximately the same percentage of the
outstanding Common Stock immediately following the Conversion and Reorganization
as they held prior to the Conversion and Reorganization.
Non-transferable rights to subscribe for Common Stock ("Conversion
Stock") in a subscription offering (the "Subscription Offering") will be
granted, in order of priority, to the following: (1) depositors of the Bank who
had account balances of $50.00 or more as of the close of business on December
31, 1996 ("Eligible Account Holders"); (2) the Bank's employee stock ownership
plan (the "ESOP") in an amount up to 8% of the Shares; (3) depositors of the
Bank who had account balances of $50.00 or more as of the close of business on
March 31, 1998 ("Supplemental Eligible Account Holders"); and (4) depositors of
the Bank as of _________ __, 1998 (the "Voting Record Date") (other than
Eligible Account Holders and Supplemental Eligible Account Holders) and certain
borrowers as of December 31, 1992 ("Members").
Subject to the prior rights of holders of subscription rights,
Conversion Stock not subscribed for in the Subscription Offering is being
offered first to Public Stockholders and then in a Community Offering (the
"Community Offering") to certain members of the general public to whom a copy of
the Prospectus (as defined herein) is delivered by or on behalf of the Company,
with preference given to natural persons residing in the Pennsylvania counties
of Philadelphia and Delaware (the "Local Community"). It is acknowledged that
the purchase of Common Stock in the Subscription or Community Offerings is
subject to the minimum and maximum purchase limitations as described in the Plan
and the Prospectus and the Company may reject, in whole or in part, any orders
received in the Community Offering. The closing of all shares sold in the
Subscription and Community Offerings will occur simultaneously and all shares of
Conversion Stock will be sold at a uniform price of $10.00 per share.
The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-1 (No.
333-48749), including a related prospectus, for the registration of the
Securities under the Securities Act of 1933, as amended (the "Securities Act"),
has filed such amendments thereto, if any, and such
2
<PAGE>
amended prospectuses as may have been required to the date hereof by the
Commission in order to declare such registration statement effective, and will
file such additional amendments thereto and such amended prospectuses and
prospectus supplements as may hereafter be required. Such registration statement
(as amended to date, if applicable, and as from time to time amended or
supplemented hereafter) and the prospectuses constituting a part thereof
(including in each case all documents incorporated or deemed to be incorporated
by reference therein and the information, if any, deemed to be a part thereof
pursuant to the rules and regulations of the Commission under the Securities
Act, as from time to time amended or supplemented pursuant to the Securities Act
or otherwise (the "Securities Act Regulations")), are hereinafter referred to as
the "Registration Statement" and the "Prospectus," respectively, except that if
any revised prospectus shall be used by the Company in connection with the
Subscription and/or Community Offering which differs from the Prospectus on file
at the Commission at the time the Registration Statement becomes effective
(whether or not such revised prospectus is required to be filed by the Company
pursuant to Rule 424(b) of the Securities Act Regulations), then the term
"Prospectus" shall refer to such revised prospectus from and after the time it
is first provided to the Agent for such use.
Concurrently with the execution of this Agreement, the Company
is delivering to the Agent copies of the Prospectus of the Company to be used in
the Subscription and Community Offerings. Such prospectus contains information
with respect to the Bank, the Company, the Mutual Holding Company, the Mid-Tier
Holding Company and the Common Stock.
SECTION 1. REPRESENTATIONS AND WARRANTIES.
(a) The Company, the Mutual Holding Company, the Mid-Tier
Holding Company and the Bank jointly and severally represent and warrant to the
Agent as of the date hereof as follows:
(i) The Registration Statement has been declared
effective by the Commission, no stop order has been issued with respect
thereto and no proceedings therefor have been initiated or, to the
knowledge of the Company, the Mutual Holding Company, the Mid-Tier
Holding Company and/or the Bank, threatened by the Commission. At the
time the Registration Statement became effective and at the Closing
Time referred to in Section 2 hereof, the Registration Statement
complied and will comply in all material respects with the requirements
of the Securities Act and the Securities Act Regulations and did not
and will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to
make the statements therein not misleading. The Prospectus, at the date
hereof does not, and at the Closing Time referred to in Section 2
hereof will not, include an untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading; provided, however, that
3
<PAGE>
the representations and warranties in this subsection shall not apply
to statements in or omissions from the Registration Statement or
Prospectus made in reliance upon and in conformity with information
with respect to the Agent furnished to the Company in writing by the
Agent expressly for use in the Registration Statement or Prospectus
(the "Agent Information," which the Company and the Bank acknowledge
appears only in the sections captioned "Market for Common Stock" and
the first two paragraphs of the section "The Conversion and
Reorganization - Marketing Arrangements" of the Prospectus).
(ii) The Company has filed with the Department of the
Treasury, Office of Thrift Supervision (the "OTS") the Company's
application for approval of its acquisition of the Bank (the "Holding
Company Application") on Form H-(e)1-S promulgated under the savings
and loan holding company provisions of the Home Owners' Loan Act, as
amended ("HOLA") and the regulations promulgated thereunder. The
Company has received written notice from the OTS of its approval of the
acquisition of the Bank, such approval remains in full force and effect
and no order has been issued by the OTS suspending or revoking such
approval and no proceedings therefor have been initiated or, to the
knowledge of the Company or the Bank, threatened by the OTS. At the
date of such approval and at the Closing Time referred to in Section 2,
the Holding Company Application complied and will comply in all
material respects with the applicable provisions of HOLA and the
regulations promulgated thereunder.
(iii) Pursuant to the rules and regulations of the
OTS governing the conversion of federally chartered mutual savings
banks to stock form (the "Conversion Regulations"), the Mutual Holding
Company has filed with the OTS an Application for Approval of
Conversion on Form AC ("Conversion Application"), including the
Prospectus, the Conversion Valuation Appraisal Report by FinPro
Financial, Inc. (the "Appraisal") and has filed such amendments thereto
as may have been required by the OTS. The Mutual Holding Company's
Conversion Application has been approved by the OTS by letter dated
_________ __, 1998. Such approval remains in full force and effect and
no order has been issued by the OTS suspending or revoking such
approval and no proceedings therefor have been initiated or, to the
knowledge of the Company or the Bank, threatened by the OTS. At the
date of such approval and at the Closing Time referred to in Section 2,
the Conversion Application complied and will comply in all material
respects with the applicable provisions of the Conversion Regulations
and the related Prospectus has been authorized for use by the OTS.
(iv) The Bank has filed with the OTS a Conversion
Application, and has filed such amendments thereto and supplementary
materials as may have been required to the date hereof including copies
of the Bank's Proxy Statement, dated ______________, 1998, relating to
the Conversion (the "Proxy Statement"), and the Prospectus. The OTS
has, by letter dated __________, 1998, approved the Bank's
4
<PAGE>
Conversion Application. Such approval remains in full force and effect
and no order has been issued by the OTS suspending or revoking such
approval and no proceedings therefor have been initiated or, to the
knowledge of the Company or the Bank, threatened by the OTS. At the
date of such approval and at the Closing Time referred to in Section 2,
the Conversion Application complied and will comply in all material
respects with the applicable provisions of the Conversion Regulations
and the related Prospectus has been authorized for use by the OTS.
(v) At the time of their use, the Proxy Statement and
any other proxy solicitation materials will comply in all material
respects with the applicable provisions of the Conversion Regulations
and will not contain an untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading. The Company and the Bank will promptly file the
Prospectus and any supplemental sales literature with the Commission
and the OTS. The Prospectus and all supplemental sales literature, as
of the date the Registration Statement became effective and at the
Closing Time referred to in Section 2, complied and will comply in all
material respects with the applicable requirements of the Conversion
Regulations and, at or prior to the time of their first use, will have
received all required authorizations of the OTS for use in final form.
(vi) No order has been issued by the Commission, OTS,
or the Federal Deposit Insurance Corporation ("FDIC") (hereinafter any
reference to the FDIC shall include the SAIF) preventing or suspending
the use of the Prospectus and no action by or before any such entity to
revoke any approval, authorization or order of effectiveness related to
the Conversion is, to the best knowledge of the Company, the Mutual
Holding Company, the Mid-Tier Holding Company or the Bank, pending or
threatened.
(vii) At the Closing Time referred to in Section 2,
the Company, the Mutual Holding Company, the Mid-Tier Holding Company
and the Bank will have completed the conditions precedent to the
Conversion, including obtaining the approval of the members of the
Mutual Holding Company and the stockholders of the Bank, in accordance
with the Plan, the applicable Conversion Regulations and all other
applicable laws, regulations, decisions and orders, including all
material terms, conditions, requirements and provisions precedent to
the Conversion imposed upon the Company or the Bank by the OTS, the
FDIC, or any other regulatory authority, other than those which the
regulatory authority permits to be completed after the Conversion. To
the best knowledge of the Company, the Mutual Holding Company, the
Mid-Tier Holding Company and the Bank, no person has sought to obtain
review of the final decision of the OTS in approving the Conversion or
the Holding Company Application, or any other statue or regulation.
5
<PAGE>
(viii) FinPro Financial, Inc. ("FinPro"), which
prepared the valuation of the Bank as part of the Conversion, has
advised the Company, the Mutual Holding Company, the Mid-Tier Holding
Company and the Bank in writing that it satisfies all requirements for
an appraiser set forth in the Conversion Regulations and any
interpretations or guidelines issued by the Superintendent and the FDIC
with respect thereto.
(ix) Deloitte & Touche LLP ("Deloitte & Touche), the
accountants who certified the consolidated audited financial statements
and supporting schedules of the Bank included in the Registration
Statement have advised the Company, the Mutual Holding Company, the
Mid-Tier Holding Company and the Bank in writing that they are
independent public accountants within the meaning of the Code of Ethics
of the American Institute of Certified Public Accountants and Title 12
of the Code of Federal Regulations and Section 571.2(c)(3), and such
accountants are, with respect to the Company, the Mutual Holding
Company, the Mid-Tier Holding Company and the Bank and each subsidiary
of the Bank, independent certified public accountants as required by
the Securities Act and the Securities Act Regulations.
(x) The only subsidiaries of the Bank are __________
and _________.
(xi) The consolidated financial statements and the
related notes thereto included in the Registration Statement and the
Prospectus present fairly the financial position of the Company, the
Mutual Holding Company, the Mid-Tier Holding Company, the Bank and the
Bank's consolidated subsidiaries at the dates indicated and the results
of operations, retained earnings and cash flows for the periods
specified, and comply as to form in all material respects with the
applicable accounting requirements of the Securities Act Regulations
and the Conversion Regulations; except as otherwise stated in the
Registration Statement, said financial statements have been prepared in
conformity with generally accepted accounting principles applied on a
consistent basis; and the supporting schedules and tables included in
the Registration Statement present fairly the information required to
be stated therein. The other financial, statistical and pro forma
information required to be stated therein are consistent with the
audited and unaudited financial statements of the Bank included in the
Prospectus, and as to the pro forma adjustments, the adjustments made
therein have been properly applied on the basis described therein.
(xii) Since the respective dates as of which
information is given in the Registration Statement and the Prospectus,
except as otherwise stated therein (A) there has been no material
adverse change in the financial condition, results of operations or
business affairs of the Company, the Mutual Holding Company, the
Mid-Tier Holding Company, the Bank and the Bank's subsidiaries
considered as one enterprise, whether or not arising in the ordinary
course of business, and (B) except
6
<PAGE>
for transactions specifically referred to or contemplated in the
Prospectus, there have been no transactions entered into by the
Company, the Mutual Holding Company, the Mid-Tier Holding Company or
the Bank or any of the Bank's subsidiaries, other than those in the
ordinary course of business, which are material with respect to the
Company, the Mutual Holding Company, the Mid-Tier Holding Company, the
Bank and the Bank's subsidiaries, considered as one enterprise. There
has been no material increase in the long-term debt of the Mutual
Holding Company, the Mid-Tier Holding Company or the Bank or in the
principal amount of the Bank's assets which are classified by the Bank
as substandard, doubtful or loss or in loans past due 90 days or more
or real estate acquired by foreclosure, by deed-in-lieu of foreclosure
or deemed in-substance foreclosure or any material decrease in retained
earnings or total assets of the Bank. There has not been any material
adverse change in the aggregate dollar amount of the Bank's deposits or
its consolidated net worth or spread. There has been no material
adverse change in the Company's, the Mutual Holding Company's, the
Mid-Tier Holding Company's or the Bank's fidelity bond or any other
type of insurance coverage. None of the Company, the Mutual Holding
Company, the Mid-Tier Holding Company or the Bank has sustained any
material loss or interference with its respective business or
properties from fire, flood, windstorm, earthquake, accident or other
calamity whether or not covered by insurance.
(xiii) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
Commonwealth of Pennsylvania with corporate power and authority to own,
lease and operate its properties and to conduct its business as
described in the Registration Statement and Prospectus and to enter
into and perform its obligations under this Agreement; and the Company
is duly qualified as a foreign corporation to transact business and is
in good standing in each jurisdiction in which such qualification is
required, whether by reason of the ownership or leasing of property or
the conduct of business, except where the failure to so qualify would
not have a material adverse effect on the financial condition, results
of operations or business affairs of the Company, the Mutual Holding
Company, the Mid-Tier Holding Company, the Bank and the Bank's
subsidiaries, considered as one enterprise. The Company has obtained
all material licenses, permits, and other governmental authorizations
currently required for the conduct of its business; all such licenses,
permits and governmental authorizations are in full force and effect,
and the Company is in all material respects complying with all laws,
rules regulations and orders applicable to the operation of its
business.
(xiv) Upon consummation of the Conversion, the
authorized, issued and outstanding capital stock of the Company will be
as set forth in the Prospectus under "Capitalization" (except for
subsequent issuances, if any, pursuant to reservations, agreements or
employee benefit plans referred to in the Prospectus); no shares of
Common Stock have been or will be issued and outstanding prior to the
Closing Time referred to in Section 2; at the time of Conversion, the
Securities will
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have been duly authorized for issuance and, when issued and delivered
by the Company pursuant to the Plan against payment of the
consideration calculated as set forth in the Plan and stated on the
cover page of the Prospectus, will be duly and validly issued and fully
paid and non-assessable; the terms and provisions of the Common Stock
and the capital stock of the Company conform to all statements relating
thereto contained in the Prospectus; the certificates representing the
shares of Common Stock conform to the requirements of applicable law
and regulations; and the issuance of the Securities is not subject to
preemptive or other similar rights.
(xv) The Bank, as of the date hereof, is a federally
chartered stock savings bank with full corporate power and authority to
own, lease and operate its properties and to conduct its business as
described in the Prospectus; the Bank and the Bank's subsidiaries have
obtained all licenses, permits and other governmental authorizations
currently required for the conduct of their respective businesses or
required for the conduct of their respective businesses as contemplated
by the Holding Company Application and the Conversion Application,
except where the failure to obtain such licenses, permits or other
governmental authorizations would not have a material adverse effect on
the financial condition, results of operations or business affairs of
the Bank and the Bank's subsidiaries considered as one enterprise; all
such licenses, permits and other governmental authorizations are in
full force and effect and the Bank and its subsidiaries are in all
material respects in compliance therewith; neither the Bank nor any of
the Bank's subsidiaries has received notice of any proceeding or action
relating to the revocation or modification of any such license, permit
or other governmental authorization which, singly or in the aggregate,
if the subject of an unfavorable decision, ruling or finding, might
have a material adverse effect on the financial condition, results of
operations or business affairs of the Bank and its subsidiaries,
considered as one enterprise; and the Bank is in good standing under
the laws of the United States and is qualified as a foreign corporation
in any jurisdiction in which the failure to so qualify would have a
material adverse effect on the financial condition, results of
operations or business affairs of the Company, the Mutual Holding
Company, the Mid-Tier Holding Company, the Bank and the Bank's
subsidiaries considered as one enterprise. The Bank does not own equity
securities or any equity interest in any other business enterprise
except as described in the Prospectus or as would not be material to
the operations of the Bank, the Company, the Mutual Holding Company and
the Mid-Tier Holding Company taken as a whole. Upon completion of the
sale by the Company of the Securities contemplated by the Prospectus,
(i) the Bank will continue to be a federally chartered stock savings
bank, (ii) all of the authorized and outstanding capital stock of the
Bank will be owned by the Company, and (iii) the Company will have no
direct subsidiaries other than the Bank. the Conversion will have been
effected in all material respects in accordance with all applicable
statutes, regulations, decisions and orders; and, except with respect
to the filing of certain post-sale, post-Conversion reports, and
documents in compliance with the Securities Act Regulations, the OTS's
resolutions or letters of approval, all terms, conditions,
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<PAGE>
requirement and provisions with respect to the Conversion imposed by
the Commission, the OTS, and the FDIC, if any, will have been complied
with by the Company, the Mutual Holding Company, the Mid-Tier Holding
Company and the Bank in all material respects or appropriate waivers
will have been obtained and all material notice and waiting periods
will have been satisfied, waived or elapsed.
(xvi) The Bank is a member of the Federal Home Loan
Bank of Pittsburgh ("FHLB-Pittsburgh"). The deposit accounts of the
Bank are insured by the FDIC up to the applicable limits and upon
consummation of the Conversion, the liquidation account for the benefit
of eligible account holders and supplemental eligible account holders
will be duly established in accordance with the requirements of the
Conversion Regulations. The Bank is a "qualified thrift lender" within
the meaning of 12 U.S.C. Section 1467a(m).
(xvii) Upon consummation of the Conversion, the
authorized capital stock of the Bank will be within the range set forth
in the Prospectus under the caption "Capitalization" and no shares of
Bank Common Stock have been or will be issued prior to the Closing Time
referred to in Section 2; and as of the Closing Time referred to in
Section 2, all of the issued and outstanding capital stock of the Bank
will be duly authorized, validly issued and fully paid and
nonassessable. The shares of Bank Common Stock to be issued to the
Company will have been duly authorized for issuance and, when issued
and delivered by the Bank pursuant to the Plan against payment of the
consideration calculated as set forth in the Plan and as described in
the Prospectus, (including Common Stock exchanged for shares of
outstanding Bank Common Stock held by the Public Stockholders) will be
duly and validly issued and fully paid and nonassessable, and all such
Bank Common Stock will be owned beneficially and of record by the
Company free and clear of any security interest, mortgage, pledge,
lien, encumbrance or legal or equitable claim; the terms and provisions
of the Bank Common Stock and the Bank Preferred Stock conform to all
statements relating thereto contained in the Prospectus, and the
certificates representing the shares of the Bank Common Stock will
conform with the requirements of applicable laws and regulations; and
the issuance of the Bank Common Stock is not subject to preemptive or
similar rights.
(xviii) The Mutual Holding Company has been duly organized
and is a validly existing federally chartered mutual holding company in
good standing and with corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Registration Statement and the Prospectus, and the Mutual Holding
Company is qualified to do business as a foreign corporation in each
jurisdiction in which the conduct of its business requires such
qualification, except where the failure to so qualify would not have a
material adverse effect on the condition, financial or otherwise, or
the business, operations or income of the Company, the Bank, The
Mid-Tier Holding Company and the Mutual Holding Company taken as a
whole. The Mutual Holding Company has obtained all material
9
<PAGE>
licenses, permits and other governmental authorizations currently
required for the conduct of its business; all such licenses, permits
and governmental authorizations are in full force and effect, and the
Mutual Holding Company is in all material respects complying with all
laws, rules, regulations and orders applicable to the operation of its
business.
(xix) The Mid-Tier Holding Company has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the Commonwealth of Pennsylvania with corporate power
to own, lease and operate its properties and to conduct its business as
described in the Registration Statement and Prospectus and is qualified
to do business in each jurisdiction in which the conduct of its
business requires such qualification, except where the failure to so
qualify would not have a material adverse effect on the condition,
financial or otherwise, or the business, operations or income to the
Mid-Tier Holding Company, the Company, the Mutual Holding Company and
the Bank taken as a whole. The Mid-Tier Holding Company has obtained
all material licenses, permits and other governmental authorizations
currently required for the conduct of its business; all such licenses,
permits and governmental authorizations are in full force and effect,
and the Mid-Tier Holding Company, in all material respects, is
complying with all laws, rules, regulations and orders applicable to
the operation of its business.
(xx) The Company, the Mutual Holding Company, the
Mid-Tier Holding Company and the Bank have taken all corporate action
necessary for them to execute, deliver and perform this Agreement, and
this Agreement has been duly executed and delivered by, and is the
valid and binding agreement of, the Company, the Mutual Holding
Company, the Mid-Tier Holding Company and the Bank, enforceable in
accordance with its terms, except as may be limited by bankruptcy,
insolvency or other laws affecting the enforceability of the rights of
creditors generally and judicial limitations on the right of specific
performance and except as the enforceability of indemnification and
contribution provisions may be limited by applicable securities laws.
The Company, the Mutual Holding Company, the Mid-Tier Holding Company
and the Bank have all such power, authority, authorizations, approvals
and orders as may be required to enter into this Agreement and to issue
and sell the Securities to be sold by the Company as provided herein
and described in the Prospectus.
(xxi) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus
and prior to the Closing Time, except as otherwise may be indicated or
contemplated therein, none of the Company, the Mutual Holding Company,
the Mid-Tier Holding Company, the Bank or any subsidiary of the Bank
will have (A) issued any securities or incurred any liability or
obligation, direct or contingent, or borrowed money, except borrowings
in the ordinary course of business from the same or similar sources and
in similar amounts as indicated in the Prospectus, or (B) entered into
any transaction or series
10
<PAGE>
of transactions which is material in light of the business of the
Company, the Mutual Holding Company, the Mid-Tier Holding Company, the
Bank and the Bank's subsidiaries, taken as a whole, excluding the
origination, purchase and sale of loans or the purchase or sale of
investment securities or mortgaged-backed securities in the ordinary
course of business.
(xxii) No approval of any regulatory or supervisory
or other public authority is required in connection with the execution
and delivery of this Agreement or the issuance of the Securities that
has not been obtained and a copy of which has been delivered to the
Agent, except as may be required under the securities laws of various
jurisdictions.
(xxiii) None of the Company, the Mutual Holding
Company, the Mid-Tier Holding Company, the Bank nor any of the Bank's
subsidiaries is in violation of its certificate of incorporation,
organization certificate, articles of incorporation or charter, as the
case may be, or bylaws; and none of the Company, the Mutual Holding
Company, the Mid-Tier Holding Company, the Bank nor any of the Bank's
subsidiaries is in default (nor has any event occurred which, with
notice or lapse of time or both, would constitute a default) in the
performance or observance of any obligation, agreement, covenant or
condition contained in any contract, indenture, mortgage, loan
agreement, note, lease or other instrument to which the Company, the
Mutual Holding Company, the Mid-Tier Holding Company, the Bank or any
of the Bank's subsidiaries is a party or by which it or any of them may
be bound, or to which any of the property or assets of the Company, the
Mutual Holding Company, the Mid-Tier Holding Company, the Bank or any
of the Bank's subsidiaries is subject, except for such defaults that
would not, individually or in the aggregate, have a material adverse
effect on the financial condition, results of operations or business of
the Company, the Mutual Holding Company, the Mid-Tier Holding Company,
the Bank and the Bank's subsidiaries considered as one enterprise; and
there are no contracts or documents of the Company, the Mutual Holding
Company, the Mid-Tier Holding Company, the Bank or any of the Bank's
subsidiaries that are required to be filed as exhibits to the
Registration Statement or the Conversion Application which have not
been so filed.
(xxiv) The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated
herein have been duly authorized by all necessary corporate action and
do not and will not conflict with or constitute a breach of, or default
under, or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company, the Mutual
Holding Company, the Mid-Tier Holding Company, the Bank or any of the
Bank's subsidiaries pursuant to any contract, indenture, mortgage, loan
agreement, note, lease or other instrument to which the Company, the
Mutual Holding Company, the Mid-Tier Holding Company, the Bank or any
of the Bank's subsidiaries is a party or by which it or any of them may
be bound, or to which any of the property or assets
11
<PAGE>
of the Company, the Mutual Holding Company, the Mid-Tier Holding
Company or the Bank or any of the Bank's subsidiaries is subject,
except for such defaults that would not, individually or in the
aggregate, have a material adverse effect on the financial condition,
results of operations or business affairs of the Company, the Mutual
Holding Company, the Mid-Tier Holding Company, the Bank and the Bank's
subsidiaries considered as one enterprise; nor will such action result
in any violation of the provisions of certificate of incorporation,
organization certificate, articles of incorporation or charter or
by-laws of the Company, the Mutual Holding Company, the Mid-Tier
Holding Company, the Bank or any of the Bank's subsidiaries, or any
applicable law, administrative regulation or administrative or court
decree.
(xxv) No labor dispute with the employees of the
Company, the Mutual Holding Company, the Mid-Tier Holding Company or
the Bank or any of the Bank's subsidiaries exists or, to the knowledge
of the Company the Mutual Holding Company, the Mid-Tier Holding
Company, or the Bank, is imminent or threatened; and the Company, the
Mutual Holding Company, the Mid-Tier Holding Company and the Bank are
not aware of any existing or threatened labor disturbance by the
employees of any of their principal suppliers or contractors which
might be expected to result in any material adverse change in the
financial condition, results of operations or business affairs of the
Company, the Mutual Holding Company, the Mid-Tier Holding Company, the
Bank and the Bank's subsidiaries considered as one enterprise.
(xxvi) Each of the Company, the Mutual Holding
Company, the Mid-Tier Holding Company, the Bank and the Bank's
subsidiaries have good and marketable title to all properties and
assets for which ownership is material to the business of the Company,
the Mutual Holding Company, the Mid-Tier Holding Company, the Bank or
the Bank's subsidiaries and to those properties and assets described in
the Prospectus as owned by them, free and clear of all liens, charges,
encumbrances or restrictions, except such as are described in the
Prospectus or are not material in relation to the business of the
Company, the Mutual Holding Company, the Mid-Tier Holding Company, the
Bank or the Bank's subsidiaries considered as one enterprise; and all
of the leases and subleases material to the business of the Company,
the Bank or the Bank's subsidiaries under which the Company, the Bank
or the Bank's subsidiaries hold properties, including those described
in the Prospectus, are valid and binding agreements of the Company, the
Bank and the Bank's subsidiaries, enforceable in accordance with their
terms.
(xxvii) None of the Company, the Mutual Holding
Company, the Mid-Tier Holding Company, the Bank nor the Bank's
subsidiaries are in violation of any directive from the OTS or the FDIC
to make any material change in the method of conducting their
respective businesses; the Bank and its subsidiaries have conducted and
are conducting their business so as to comply in all material respects
with all applicable statutes, regulations and administrative and court
decrees
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<PAGE>
(including, without limitation, all regulations, decisions, directives
and orders of the OTS or the FDIC).
(xxviii) There is no action, suit or proceeding
before or by any court or governmental agency or body, domestic or
foreign, now pending, or, to the knowledge of the Company or the Bank,
threatened, against or affecting the Company, the Mutual Holding
Company, the Mid-Tier Holding Company, the Bank or any of the Bank's
subsidiaries is required to be disclosed in the Registration Statement
(other than as disclosed therein), or that might result in any material
adverse change in the financial condition, results of operations or
business affairs of the Company, the Mutual Holding Company, the
Mid-Tier Holding Company, the Bank and the Bank's subsidiaries
considered as one enterprise, or that might materially and adversely
affect the properties or assets thereof or that might materially and
adversely affect the consummation of the Conversion; all pending legal
or governmental proceedings to which the Company, the Mutual Holding
Company, the Mid-Tier Holding Company, the Bank or any of the Bank's
subsidiaries is a party or of which any of their respective property or
assets is the subject which are not described in the Registration
Statement, including ordinary routine litigation incidental to the
business, are considered in the aggregate not material; and there are
no contracts or documents of the Company, the Mutual Holding Company,
the Mid-Tier Holding Company, the Bank or any of the Bank's
subsidiaries which are required to be filed as exhibits to the
Registration Statement or the Conversion Application which have not
been so filed.
(xxix) The Company, the Mutual Company, the Mid-Tier
Holding Company, the Bank have obtained an opinion of their special
counsel, Malizia, Spidi, Sloan & Fisch, P.C. ("Malizia, Spidi"), with
respect to the federal and Pennsylvania income tax consequences of the
Conversion, the acquisition of the Bank's capital stock by the Company
and their legality of the Securities to be issued as described in the
Registration Statement and the Prospectus; all material aspects of the
opinions of Malizia, Spidi are summarized accurately in the Prospectus
and the facts and representations upon which such opinions are based
are truthful, accurate and complete.
(xxx) The Company is not required to be registered
under the Investment Company Act of 1940, as amended.
(xxxi) All of the loans represented as assets on the
most recent consolidated financial statements or consolidated selected
financial information of the Bank included in the Prospectus meet or
are exempt from all requirements of federal, state or local law
pertaining to lending, including without limitation truth in lending
(including the requirements of Regulations Z and 12 C.F.R. Part 226 and
Section 563.99), real estate settlement procedures, consumer credit
protection, equal credit opportunity and all disclosure laws applicable
to such loans, except for
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<PAGE>
violations which, if asserted, would not result in a material adverse
effect on the financial condition, results of operations or business of
the Company, the Bank and the Bank's subsidiaries considered as one
enterprise.
(xxxii) To the knowledge of the Company, the Mutual
Holding Company, the Mid-Tier Holding Company and the Bank, with the
exception of the intended loan to the Bank's ESOP by the Company to
enable the ESOP to purchase shares of Common Stock in an amount of up
to 8.0% of the Common Stock issued in the Conversion, none of the
Company, the Mutual Holding Company, the Mid-Tier Holding Company, the
Bank or employees of the Company, the Mutual Holding Company, the
Mid-Tier Holding Company, and/or the Bank has made any payment of funds
of the Company, the Mutual Holding Company, the Mid-Tier Holding
Company or the Bank as a loan for the purchase of the Common Stock or
made any other payment of funds prohibited by law, and no funds have
been set aside to be used for any payment prohibited by law.
(xxxiii) The Company, the Mutual Holding Company, the
Mid-Tier Holding Company, the Bank and its subsidiaries are in
compliance in all material respects with the applicable financial
recordkeeping and reporting requirements of the Currency and Foreign
Transaction Reporting Act of 1970, as amended, and the rules and
regulations thereunder.
(xxxiv) None of the Company, the Mutual Holding
Company, the Mid-Tier Holding Company, the Bank nor the Bank's
subsidiaries nor any properties owned or operated by the Company, the
Mutual Holding Company, the Mid-Tier Holding Company, the Bank or the
Bank's subsidiaries is in violation of or liable under any
Environmental Law (as defined below), except for such violations or
liabilities that, individually or in the aggregate, would not have a
material adverse effect on the financial condition, results of
operations or business affairs of the Company, the Mutual Holding
Company, the Mid-Tier Holding Company, the Bank and the Bank's
subsidiaries considered as one enterprise. There are no actions, suits
or proceedings, or demands, claims, notices or investigations
(including, without limitation, notices, demand letters or requests for
information from any environmental agency) instituted or pending, or to
the knowledge of the Company, the Mutual Holding Company, the Mid-Tier
Holding Company, or the Bank or the Bank's subsidiaries threatened,
relating to the liability of any property owned or operated by the
Company, the Mutual Holding Company, the Mid-Tier Holding Company, the
Bank or the Bank's subsidiaries, under any Environmental Law. For
purposes of this subsection, the term "Environmental Law" means any
federal, state, local or foreign law, statute, ordinance, rule,
regulation, code, license, permit, authorization, approval, consent,
order, judgment, decree, injunction or agreement with any regulatory
authority relating to (i) the protection, preservation or restoration
of the environment (including, without limitation, air, water, vapor,
surface water, groundwater, drinking water supply, surface soil,
subsurface soil, plant and animal life
14
<PAGE>
or any other natural resource), and/or (ii) the use, storage,
recycling, treatment, generation, transportation, processing, handling,
labeling, production, release or disposal of any substance presently
listed, defined, designated or classified as hazardous, toxic,
radioactive or dangerous, or otherwise regulated, whether by type or by
quantity, including any material containing any such substance as a
component.
(xxxv) The Company, the Mutual Holding Company, the
Mid-Tier Holding Company, the Bank and the Bank's subsidiaries have
timely filed all required federal, state and local tax returns and have
made timely payments of all taxes shown as due and payable in respect
of such returns, except where permitted to be extended, have made
adequate reserves for similar future tax liabilities and no deficiency
has been asserted with respect thereto by any taxing authority.
(xxxvi) The Company has received approval, subject to
regulatory approval to consummate the Offerings and issuance, to have
the Securities quoted on the National Market System of the National
Association of Securities Dealers' Automated Quotation System ("Nasdaq
National Market") under the symbol "_____", effective as of the Closing
Time referred to in Section 2 hereof.
(xxxvii) No approval of any regulatory or supervisory
or other public authority is required in connection with the execution
and delivery of this Agreement or the issuance of the Securities,
except for the approval of the Commission, the OTS, and any necessary
qualification, notification, registration or exemption under the
securities or blue sky laws of the various states in which the
Securities are to be offered, and except as may be required under the
rules and regulations of the Nasdaq National Market.
(xxxvii) The Company has filed a registration
statement for the Common Stock under Section 12(g) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and has requested
that such registration statement be effective concurrent with the
effectiveness of the Registration Statement.
(xxxvix) The Company, the Mutual Holding Company, the
Mid-Tier Holding Company and the Bank have not relied upon the Agent or
its legal counsel or other advisors for any legal, tax or accounting
advice in connection with the Conversion.
(b) Any certificate signed by any officer of the Company, the
Mutual Holding Company, the Mid-Tier Holding Company or the Bank pursuant to the
conditions of this Agreement and delivered to the Agent or the counsel for the
Agent that refers to this Agreement shall be deemed a representation and
warranty by the Company, the Mutual Holding Company, the Mid-Tier Holding
Company or the Bank to the Agent as to the matters covered thereby with the same
effect as if such representation and warranty were set forth therein.
15
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SECTION 2. APPOINTMENT OF SANDLER O'NEILL; SALE AND DELIVERY OF
THE SECURITIES; CLOSING.
On the basis of the representations and warranties herein
contained and subject to the terms and conditions herein set forth, the Company
hereby appoints Sandler O'Neill as its Agent to consult with and advise the
Company, and to assist the Company with the solicitation of subscriptions and
purchase orders for Securities, in connection with the Company's sale of Common
Stock in the Subscription and Community Offering and the Syndicated Community
Offering. On the basis of the representations and warranties herein contained,
and subject to the terms and conditions herein set forth, Sandler O'Neill
accepts such appointment and agrees to use its best efforts to assist the
Company with the solicitation of subscriptions and purchase orders for
Securities in accordance with this Agreement; provided, however, that the Agent
shall not be obligated to take any action which is inconsistent with any
applicable laws, regulations, decisions or orders. The services to be rendered
by Sandler O'Neill pursuant to this appointment include the following: (i)
consulting as to the securities marketing implications of any aspect of the Plan
of Conversion or related corporate documents; (ii) reviewing with the Board of
Directors the independent appraiser's appraisal of the common stock,
particularly with regard to aspects of the appraisal involving the methodology
employed; (iii) reviewing all offering documents, including the Prospectus,
stock order forms and related offering materials (it being understood that
preparation and filing of such documents is the sole responsibility of the
Company and the Bank and their counsel); (iv) assisting in the design and
implementation of a marketing strategy for the Offerings; (v) assisting in
obtaining all requisite regulatory approvals; (vi) assisting Bank management in
preparing for meetings with potential investors and broker-dealers; and (vii)
providing such other general advice and assistance as may be requested to
promote the successful completion of the Conversion.
If the Conversion is consummated, the appointment of the Agent
hereunder shall terminate one (1) year after the last day of the Subscription
and Community Offering, unless the Company requests earlier termination.
Thereafter, if the Agent and the Company both wish to continue the relationship,
the parties will enter into a separate advisory services agreement on terms and
conditions to be negotiated at such time. Notwithstanding the above, the Bank
and the Company are under no obligation to receive or request such services.
If any of the Securities remain available after the expiration
of the Subscription Offering and the Community Offering, at the request of the
Bank, Sandler O'Neill will seek to form a syndicate of registered broker or
dealers ("Selected Dealers") to assist in the solicitation of purchase orders of
such Securities on a best-efforts basis, subject to the terms and conditions set
forth in a selected dealers' agreement (the "Selected Dealers' Agreement"),
substantially in the form set forth in Exhibit A to this Agreement. Sandler
O'Neill will endeavor to limit the aggregate fees to be paid by the Bank under
any such Selected Dealers' Agreement to an amount competitive with gross
underwriting discounts charged at such time for underwritings of comparable
amounts of stock sold at a comparable
16
<PAGE>
price per share in a similar market environment; provided, however, that the
aggregate fees payable to Sander O'Neill and Selected Dealers shall not exceed
6.5% of the aggregate Actual Purchase Price (as defined in the Prospectus) of
the Securities sold by such Selected Dealers. Sander O'Neill will endeavor to
distribute the Securities among the Selected Dealers in a fashion which best
meets the distribution objective of the Bank and the requirements of the Plan,
which may result in limiting the allocation of stock to certain Selected
Dealers. It is understood that in no event shall Sandler O'Neill be obligated to
act as a Selected Dealer or to take or purchase any Securities.
In the event the Company is unable to sell at least the total
minimum of the Securities, as set forth on the cover page of the Prospectus,
within the period herein provided, this Agreement shall terminate and the
Company shall refund to any persons who have subscribed for any of the
Securities the full amount which it may have received from them, together with
interest as provided in the Prospectus, and no party to this Agreement shall
have any obligation to the others hereunder, except for the obligations of the
Company and the Bank as set forth in Sections 4, 6(a) and 7 hereof and the
obligations of the Agent as provided in Sections 6(b) and 7 hereof. Appropriate
arrangements for placing the funds received from subscriptions for Securities or
other offers to purchase Securities in special interest-bearing accounts with
the Bank until all Securities are sold and paid for were made prior to the
commencement of the Subscription Offering, with provision for refund to the
purchasers as set forth above, or for delivery to the Company if all Securities
are sold.
If at least the total minimum of Securities, as set forth on
the cover page of the Prospectus, are sold, the Company agrees to issue or have
issued the Securities sold and to release for delivery certificates for such
Securities at the Closing Time against payment therefor by release of funds from
the special interest-bearing accounts referred to above. The closing shall be
held at the __________ offices of _________________________, at 10:00 a.m.,
local time, or at such other place and time as shall be agreed upon by the
parties hereto, on a business day to be agreed upon by the parties hereto. The
Company shall notify the Agent by telephone, confirmed in writing, when funds
shall have been received for all the Securities. Certificates for Securities
shall be delivered directly to the purchasers thereof in accordance with their
directions. Notwithstanding the foregoing, certificates for Securities purchased
through Selected Dealers shall be made available to the Agent for inspection at
least 48 hours prior to the Closing Time at such office as the Agent shall
designate. The hour and date upon which the Company shall release for delivery
all of the Securities, in accordance with the terms hereof, is herein called the
"Closing Time."
The Company will pay any stock issue and transfer taxes which
may be payable with respect to the sale of the Securities.
In addition to reimbursement of the expenses specified in
Section 4 hereof, the Agent will receive the following compensation for its
services hereunder:
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(a) A fee of one and one-quarter percent (1.25%) of the
aggregate Actual Purchase Price of the Securities sold in the
Subscription Offering and the Community Offering, excluding in each
case shares purchased by (i) any employee benefit plan of the Company
or the Bank established for the benefit of their respective directors,
officers and employees, and (ii) any director, officer or employee of
the Company or the Bank or members of their immediate families (which
term shall mean parents, grandparents, spouse, siblings, children and
grandchildren); and
(b) with respect to any Securities sold by an NASD member firm
(other than Sandler O'Neill) under the Selected Dealers' Agreement in
the Syndicated Community Offering, (i) the sales commission payable to
Selected Dealers under any such Selected Dealers' Agreement, (ii) any
sponsoring dealer's fees; and (iii) a management fee to Sandler O'Neill
of one and one-quarter percent (1.25%) of the Actual Purchase Price.
Any fees payable to Sandler O'Neill for Securities sold by Sandler
O'Neill under any such agreement shall be limited to an aggregate of
one and one-quarter percent (1.25%) of the Actual Purchase Price of
such Securities.
If this Agreement is terminated by the Agent in accordance
with the provisions of Section 9(a) hereof or the Conversion is terminated by
the Company, no fee shall be payable by the Company to Sandler O'Neill; however,
the Company shall reimburse the Agent for all of its reasonable out-of-pocket
expenses incurred prior to termination, including the reasonable fees and
disbursements of counsel for the Agent in accordance with the provisions of
Section 4 hereof.
All fees payable to the Agent hereunder shall be payable in
immediately available funds at Closing Time, or upon the termination of this
Agreement, as the case may be. In recognition of the long lead times involved in
the conversion process, the Bank agrees to make advance payments to the Agent in
the aggregate amount of $50,000, $25,000 of which has been previously paid and
the remaining $25,000 of which shall be payable upon commencement of the
Subscription Offering, which shall be credited against any fees or reimbursement
of expenses payable hereunder.
SECTION 3. COVENANTS OF THE COMPANY, THE MUTUAL HOLDING
COMPANY, THE MID-TIER HOLDING COMPANY AND THE BANK. The Company, the Mutual
Holding Company, the Mid-Tier Holding Company and the Bank covenant with the
Agent as follows:
(a) The Company, the Mutual Holding Company, the Mid-Tier
Holding Company and the Bank will prepare and file such amendments or
supplements to the Registration Statement, the Prospectus, the
Conversion Application and the Proxy Statement as may hereafter be
required by the Securities Act Regulations or the Conversion
Regulations or as may hereafter be requested by the Agent. Following
completion of the Subscription and Community Offering, in the event of
a Syndicated Community Offering, the Company, the Mutual Holding
Company, the Mid-Tier
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Holding Company and the Bank will (i) promptly prepare and file with
the Commission a post-effective amendment to the Registration Statement
relating to the results of the Subscription and Community Offerings,
any additional information with respect to the proposed plan of
distribution, and any revised pricing information or (ii) if no such
post-effective amendment is required, will file with, or mail for
filing to, the Commission a prospectus or prospectus supplement
containing information relating to the results of the Subscription and
Community Offering and pricing information pursuant to Rule 424 of the
Securities Act Regulations, in either case in a form acceptable to the
Agent and the Agent's counsel. The Company, the Mutual Holding Company,
the Mid-Tier Holding Company and the Bank will notify the Agent
immediately, and confirm the notice in writing, (i) of the
effectiveness of any post-effective amendment of the Registration
Statement, the filing of any supplement to the Prospectus and the
filing of any amendment to the Conversion Application, (ii) of the
receipt of any comments from the OTS or the Commission with respect to
the transactions contemplated by this Agreement or the Plan, (iii) of
any request by the Commission, the OTS, the FDIC or any other
governmental entity for any amendment to the Registration Statement or
the Conversion Application or any amendment or supplement to the
Prospectus or for additional information, (iv) of the issuance by the
Commission, the OTS, the FDIC or any other governmental entity of any
order suspending the Offerings or the use of the Prospectus or the
initiation of any proceedings for that purpose, (v) of the issuance by
the Commission, the OTS, the FDIC or any other governmental entity of
any stop-order suspending the effectiveness of the Registration
Statement or the initiation of any proceedings for that purpose, and
(vi) of the receipt of any notice with respect to the suspension of any
qualification of the Securities for offering or sale in any
jurisdiction. The Company, the Mutual Holding Company, the Mid-Tier
Holding Company and the Bank will make every reasonable effort to
prevent the issuance of any stop-order and, if any stop-order is
issued, to obtain the lifting thereof at the earliest possible moment.
(b) The Company, the Mutual Holding Company, the Mid-Tier
Holding Company and the Bank will give the Agent notice of its
intention to file or prepare any amendment to the Conversion
Application or Registration Statement (including any post-effective
amendment) or any amendment or supplement to the Prospectus (including
any revised prospectus which the Company proposes for use in connection
with the Syndicated Community Offering of the Securities which differs
from the prospectus on file at the Commission at the time the
Registration Statement becomes effective, whether or not such revised
prospectus is required to be filed pursuant to Rule 424(b) of the
Securities Act Regulations), will furnish the Agent with copies of any
such amendment or supplement a reasonable amount of time prior to such
proposed filing or use, as the case may be, and will not file any such
amendment or supplement or use any such prospectus to which the Agent
or counsel for the Agent may object.
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<PAGE>
(c) The Company, the Mutual Holding Company, the Mid-Tier
Holding Company and the Bank will deliver to the Agent as many signed
copies and as many conformed copies of the Conversion Application and
the Registration Statement as originally filed and of each amendment
thereto (including exhibits filed therewith or incorporated by
reference therein) as the Agent may reasonably request for the purposes
contemplated by the Securities Act Regulations, the 1934 Securities and
Exchange Act, as amended (the "Exchange Act") or the rules and
regulations promulgated under the Exchange Act, and from time to time
such number of copies of the Prospectus as the Agent may reasonably
request for use in any lawful manner contemplated by the Plan.
(d) During the period when the Prospectus is required to be
delivered, the Company the Mutual Holding Company, the Mid-Tier Holding
Company and the Bank will comply, at their own expense, with any and
all requirements, material terms, conditions and provisions imposed
upon them by the Commission, the FDIC, the OTS, or by the applicable
Conversion Regulations, as from time to time in force, and by the
Securities Act, the Securities Act Regulations, Exchange Act, and the
rules and regulations of the Commission promulgated thereunder,
including, without limitation, Regulation M under the Exchange Act, in
each case as from time to time enforced, so far as necessary to permit
the continuance of sales or dealing in shares of Common Stock during
such period in accordance with the provisions hereof and the
Prospectus.
(e) If any event or circumstance shall occur as a result of
which it is necessary, in the opinion of counsel for the Company, the
Mutual Holding Company, the Mid-Tier Holding Company or the Bank or in
the reasonable opinion of counsel for the Agent, to amend or supplement
the Prospectus or Registration Statement in order to make the
Prospectus or Registration Statement not misleading in the light of the
circumstances existing at the time such document is delivered to a
purchaser, the Company, the Mutual Holding Company, the Mid-Tier
Holding Company and the Bank will, at their expense, forthwith amend or
supplement the Prospectus or Registration Statement (in form and
substance satisfactory to counsel for the Agent after a reasonable time
for review) so that, as so amended or supplemented, the Prospectus will
not include an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the
light of the circumstances existing at the time it is delivered to a
purchaser, not misleading, and the Company, the Mutual Holding Company,
the Mid-Tier Holding Company and the Bank will furnish to the Agent a
reasonable number of copies of such amendment or supplement. For the
purpose of this Agreement, the Company, the Mutual Holding Company, the
Mid-Tier Holding Company and the Bank each will timely furnish such
information with respect to itself to the Agent as the Agent may from
time to time reasonably request.
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<PAGE>
(f) The Company, the Mutual Holding Company, the Mid-Tier
Holding Company and the Bank will take all necessary actions, in
cooperation with the Agent, and will furnish to whomever the Agent may
direct, such information as may be required to qualify or register the
Securities for offering and sale or to exempt such Securities from
registration, or to exempt the Company as a broker-dealer and its
officers, directors and employees as broker-dealers or agents under the
applicable securities laws of such states of the United States and
other jurisdictions as the Conversion Regulations may require and as
the Agent and the Company have agreed; provided, however, that the
Company and the Bank shall not be obligated to file any general consent
to service of process or to qualify as a foreign corporation in any
jurisdiction in which it is not so qualified. In each jurisdiction in
which the Securities have been so qualified, the Company and the Bank
will file such statements and reports as may be required by the laws of
such jurisdiction to continue such qualification in effect for a period
of not less than one year from the effective date of the Registration
Statement.
(g) The Company, the Mutual Holding Company, the Mid-Tier
Holding Company and the Bank will not sell or issue, contract to sell
or otherwise dispose of, for a period of 90 days after Closing Time,
without the Agent's prior written consent, any shares of Common Stock
other than the Securities or other than in connection with any plan or
arrangement described in the Prospectus, including existing stock
benefit plans.
(h) The Company shall register its Common Stock under Section
12(g) of the Exchange Act concurrent with the Offerings pursuant to the
Plan and shall request that such registration be effective upon
completion of the Conversion.
(i) The Company authorizes Sandler O'Neill and any Selected
Dealers to act as agent of the Company in distributing the Prospectus
to persons entitled to receive subscription rights and other persons to
be offered Securities having record addresses in the states or
jurisdictions set forth in a survey of the securities or "blue sky"
laws of the various jurisdictions in which the Offerings will be made
(the "Blue Sky Survey").
(j) The Company will make generally available to its security
holders as soon as practicable, but not later than 60 days after the
close of the period covered thereby, an earnings statement (in form
complying with the provisions of Rule 158 of the Securities Act
Regulations) covering a twelve-month period beginning not later than
the first day of the Company's fiscal quarter next following the
"effective date" (as defined in said Rule 158) of the Registration
Statement.
(k) During the period ending on the third anniversary of the
expiration of the fiscal year during which the closing of the
transactions contemplated hereby occurs, the Company will furnish to
its stockholders as soon as practicable after the
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end of each such fiscal year an annual report of the Company (including
consolidated statements of financial condition and consolidated
statements of income, stockholders' equity and cash flows, certified by
independent public accountants in accordance with Regulation S-X under
the Securities Act) and, as soon as practicable after the end of each
of the first three quarters of each fiscal year (beginning with the
fiscal quarter ending after the effective date of the Registration
Statement), consolidated summary financial information of the Company,
the Mutual Holding Company, the Mid-Tier Holding Company, the Bank and
the Bank's subsidiaries for such quarter in reasonable detail. In
addition, such annual report and quarterly consolidated summary
financial information shall be made public through the issuance of
appropriate press releases at the same time or prior to the time of the
furnishing thereof to stockholders of the Company.
(l) During the period ending on the third anniversary of the
expiration of the fiscal year during which the closing of the
transactions contemplated hereby occurs, the Company will furnish to
the Agent (i) as soon as publicly available, a copy of each report or
other document of the Company furnished generally to stockholders of
the Company or furnished to or filed with the Commission under the
Exchange Act or any national securities exchange or system on which any
class of securities of the Company is listed (including, but not
limited to, reports on Form 10-K, 10-Q and 8-K and all proxy statements
and annual reports to stockholders), (ii) a copy of each other
nonconfidential report of the Company mailed to its stockholders or
filed with the Commission, the OTS or any other supervisory or
regulatory authority or any national securities exchange or system on
which any class of Securities of the Company is listed or quoted, each
press release and material news items and additional documents and
information with respect to the Company, the Mutual Holding Company,
the Mid-Tier Holding Company or the Bank as the Agent may reasonably
request; and (iii) from time to time, such other information concerning
the Company as the Agent may reasonably request.
(m) The Company, the Mutual Holding Company, the Mid-Tier
Holding Company and the Bank will conduct the Conversion in all
material respects in accordance with the Plan, the Conversion
Regulations and all other applicable regulations, decisions and orders,
including all applicable terms, requirements and conditions precedent
to the Conversion imposed upon the Company or the Bank by the OTS.
(n) The Company and the Bank will use the net proceeds from
the sale of the Securities in the manner specified in the Prospectus
under the caption "Use of Proceeds."
(o) The Company will file with the Commission such reports on
Form SR as may be required pursuant to Rule 463 of the Securities Act
Regulations, if such report or substantially similar report is required
by the Commission.
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<PAGE>
(p) The Company will maintain the effectiveness of the
Exchange Act Registration Statement for not less than three years. The
Company will file with the Nasdaq Stock Market all documents and
notices required by the Nasdaq Stock Market of companies that have
issued securities that are traded in the over-the-counter market and
quotations for which are reported by the Nasdaq National Market.
(q) The Company, the Mutual Holding Company, the Mid-Tier
Holding Company or the Bank will take such actions and furnish such
information as are reasonably requested by the Agent in order for the
Agent to ensure compliance with the National Association of Securities
Dealers, Inc.'s "Interpretation Relating to Free- Riding and
Withholding."
(r) Other than in connection with any employee benefit plan or
arrangement described in the Prospectus, the Company will not, without
the prior written consent of the Agent, sell or issue, contract to sell
or otherwise dispose of, any shares of Common Stock other than the
Securities for a period of 180 days following the Closing Time.
(s) During the period beginning on the date hereof and ending
on the later of the third anniversary of the Closing Time or the date
on which the Agent receives full payment in satisfaction of any claim
for indemnification or contribution to which it may be entitled
pursuant to Sections 6 or 7, respectively, neither the Company nor the
Bank shall, without the prior written consent of the Agent, which
consent shall not be unreasonably withheld, take or permit to be taken
any action that could result in the Bank Common Stock becoming subject
to any security interest, mortgage, pledge, lien or encumbrance;
provided, however, that this covenant shall be null and void if the
Board of Governors of the Federal Reserve System, by regulation, policy
statement or interpretive release, or by written order or written
advice addressed to the Bank or the Agent specifically addressing the
provisions of Section 6(a) hereof, permits indemnification of the Agent
by the Bank as contemplated by such provisions.
(t) The Company and the Bank will comply with the conditions
imposed by or agreed to with the OTS in connection with its approval of
the Holding Company Application and with the FDIC in connection with
their approval or non- objection of, or non-objection to, the
Conversion Application.
(u) During the period ending on the first anniversary of the
Closing Time, the Bank will comply with all applicable law and
regulation necessary for the Bank to continue to be a "qualified thrift
lender" within the meaning of 12 U.S.C. Section 1467a(m).
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<PAGE>
(v) The Company shall not deliver the Securities until the
Company and the Bank have satisfied each condition set forth in Section
5 hereof, unless such condition is waived by the Agent.
(w) The Company or the Bank will furnish to Sandler O'Neill as
early as practicable prior to the Closing Time, but no later than two
(2) full business days prior thereto, a copy of the latest available
unaudited interim consolidated financial statements of the Bank and the
Subsidiaries which have been read by FinPro, as stated in their letters
to be furnished pursuant to subsections (e) and (f) of Section 5
hereof.
(x) Other than as permitted by the Conversion Regulations, the
HOLA, the Securities Act, the Securities Act Regulations, and the laws
of any state in which the Securities are registered or qualified for
sale or exempt from registration, none of the Company, the Mutual
Holding Company, the Mid-Tier Holding Company or the Bank will
distribute any prospectus, offering circular or other offering material
in connection with the offer and sale of the Securities.
(y) The Company will use its best efforts to (i) encourage and
assist a market maker to establish and maintain a market for the
Securities and (ii) list and maintain quotation of the Securities on a
national or regional securities exchange or on the Nasdaq National
Market effective on or prior to Closing Time.
(z) The Bank will maintain appropriate arrangements for
depositing all funds received from persons mailing subscriptions for or
orders to purchase Securities in the Offering on an interest-bearing
basis at the rate described in the Prospectus until Closing Time and
satisfaction of all conditions precedent to the release of the Bank's
obligation to refund payments received from persons subscribing for or
ordering Securities in the Offering in accordance with the Plan and as
described in the Prospectus or until refunds of such funds have been
made to the persons entitled thereto or withdrawal authorizations
canceled in accordance with the Plan and as described in the
Prospectus. The Bank will maintain such records of all funds received
to permit the funds of each subscriber to be separately insured by the
FDIC (to the maximum extent allowable) and to enable the Bank to make
the appropriate refunds of such funds in the event that such refunds
are required to be made in accordance with the Plan and as described in
the Prospectus.
(aa) The Company will promptly take all necessary action to
register as a savings and loan holding company under the HOLA.
(bb) None of the Company, Mutual Holding Company, Mid-Tier
Holding Company or Bank will amend the Plan of Conversion without
notifying the Agent prior thereto.
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<PAGE>
(cc) The Company shall assist the Agent, if necessary, in
connection with the allocation of the Securities in the event of an
oversubscription and shall provide the Agent with any information
necessary to assist the Company in allocating the Securities in such
event and such information shall be accurate and reliable.
(dd) Prior to Closing Time, the Company, the Mutual Holding
Company, the Mid-Tier Holding Company and the Bank will inform the
Agent of any event or circumstances of which it is aware as a result of
which the Registration Statement and/or Prospectus, as then amended or
supplemented, would contain an untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements
therein not misleading.
SECTION 4. PAYMENT OF EXPENSES. The Company, the Mutual
Holding Company, the Mid-Tier Holding Company and the Bank jointly and severally
agree to pay all expenses incident to the performance of their obligations under
this Agreement, including but not limited to (i) the cost of obtaining all
securities and bank regulatory approvals, (ii) the printing and filing of the
Registration Statement as originally filed and of each amendment thereto, (iii)
the preparation, issuance and delivery of the certificates for the Securities to
the purchasers in the Offerings, (iv) the fees and disbursements of the
Company's, the Mutual Holding Company's, the Mid-Tier Holding Company's and the
Bank's counsel, accountants, appraiser and other advisors, (v) the qualification
of the Securities under securities laws in accordance with the provisions of
Section 3(f) hereof, including filing fees and the fees and disbursements of
counsel in connection therewith and in connection with the preparation of the
Blue Sky Survey, (vi) the printing and delivery to the Agent of copies of the
Registration Statement as originally filed and of each amendment thereto and the
printing and delivery of the Prospectus and any amendments or supplements
thereto to the purchasers in the Offerings and the Agent, (vii) the printing and
delivery to the Agent of copies of a Blue Sky Survey, and (viii) the fees and
expenses incurred in connection with the listing of the Securities on the Nasdaq
National Market. In the event the Agent incurs any such fees and expenses on
behalf of the Bank or the Company, the Bank will reimburse the Agent for such
fees and expenses whether or not the Conversion is consummated; provided,
however, that the Agent shall not incur any substantial expenses on behalf of
the Bank or the Company pursuant to this Section without the prior approval of
the Bank.
The Company, the Mutual Holding Company, the Mid-Tier Holding Company
and the Bank jointly and severally agree to pay certain expenses incident to the
performance of the Agent's obligations under this Agreement, regardless of
whether the Conversion is consummated up to a maximum of $40,000, including (i)
the filing fees paid or incurred by the Agent in connection with all filings
with the National Association of Securities Dealers, Inc., and (ii) all
reasonable out-of-pocket expenses incurred by the Agent relating to the
Offerings, including, without limitation, advertising, promotional, syndication
and travel expenses and fees and expenses of the Agent's counsel. All fees and
expenses to which the Agent is entitled to reimbursement under this paragraph of
this Section 4 shall be due and
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payable upon receipt by the Company or the Bank of a written accounting therefor
setting forth in reasonable detail the expenses incurred by the Agent.
SECTION 5. CONDITIONS OF AGENT'S OBLIGATIONS. The Company, the
Mutual Holding Company, the Mid-Tier Holding Company, the Bank and the Agent
agree that the issuance and the sale of Securities and all obligations of the
Agent hereunder are subject to the accuracy of the representations and
warranties of the Company, the Mutual Holding Company, the Mid-Tier Holding
Company and the Bank herein contained as of the date hereof and the Closing
Time, to the accuracy of the statements of officers and directors of the
Company, the Mutual Holding Company, the Mid-Tier Holding Company and the Bank
made pursuant to the provisions hereof, to the performance by the Company, the
Mutual Holding Company, the Mid-Tier Holding Company and the Bank of their
obligations hereunder, and to the following further conditions:
(a) At Closing Time, the Company, the Mutual Holding Company,
the Mid-Tier Holding Company and the Bank shall have conducted
the Conversion in all material respects in accordance with the
Plan, the Conversion Regulations, and all other applicable
laws, regulations, decisions and orders, including all terms,
conditions, requirements and provisions precedent to the
Conversion imposed upon them by the OTS.
(b) The Registration Statement shall have been declared
effective by the Commission and the Conversion Application
approved by the OTS not later than 5:30 p.m. on the date of
this Agreement, or with the Agent's consent at a later time
and date; and at Closing Time, no stop order suspending the
effectiveness of the Registration Statement shall have been
issued under the 1933 Act or proceedings therefore initiated
or threatened by the Commission or any state authority, and no
order or other action suspending the authorization of the
Prospectus or the consummation of the Conversion shall have
been issued or proceedings therefore initiated or, to the
Company's, the Mutual Holding Company's, the Mid-Tier Holding
Company's or the Bank's knowledge, threatened by the
Commission, the OTS, the FDIC, or any state authority.
(c) At Closing Time, the Agent shall have received:
(1) The favorable opinion, dated as of Closing Time
and addressed to the Agent for its benefit, of Malizia, Spidi,
counsel for the Company and the Bank, in form and substance
satisfactory to counsel for the Agent, to the effect that:
(i) The Company has been duly incorporated
and is validly existing as a corporation in good
standing under the laws of the Commonwealth of
Pennsylvania.
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(ii) The Company has full corporate power
and authority to own, lease and operate its
properties and to conduct its business as described
in the Registration Statement and Prospectus and to
enter into and perform its obligations under this
Agreement.
(iii) The Company is duly qualified as a
foreign corporation to transact business and is in
good standing in each other jurisdiction in which
such qualification is required whether by reason of
the ownership or leasing of property or the conduct
of business, except where the failure to so qualify
would not have a material adverse effect upon the
financial condition, results of operations or
business affairs of the Company, the Mutual Holding
Company, the Mid-Tier Holding Company, the Bank and
the Bank's subsidiaries, considered as one
enterprise.
(iv) Upon consummation of the Conversion,
the authorized, issued and outstanding capital stock
of the Company will be within the range set forth in
the Prospectus under the caption "Capitalization" and
no shares of Common Stock have been or will be issued
and outstanding prior to the Closing Time.
(v) The Securities have been duly and
validly authorized for issuance and sale and, when
issued and delivered by the Company pursuant to the
Plan against payment of the consideration calculated
as set forth in the Plan, will be duly and validly
issued and fully paid and non-assessable.
(vi) The issuance of the Securities is not
subject to preemptive or other similar rights arising
by operation of law or, to the best of their
knowledge and information, otherwise. To such
counsel's knowledge, upon the issuance of the
Securities, good title to the Securities (including
the Exchange Securities) will be transferred by the
Company to the purchasers thereof against payment
therefor, subject to such claims as may be asserted
against purchasers thereof by third-party claimants.
(vii) The Bank at all times since December
31, 1992 and prior to the Closing Time has been duly
organized, and is validly existing and in good
standing under the laws of the United States of
America as a federally chartered stock savings bank
with full corporate power and authority to own, lease
and operate its properties and to conduct its
business as described in the Registration Statement
and the Prospectus; and the Bank is duly qualified as
a foreign corporation in each jurisdiction in which
the failure to so qualify would have a
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material adverse effect upon the financial condition,
results of operations or business affairs of the
Bank.
(viii) The Bank is a member in good standing
of the FHLB- Pittsburgh and the deposit accounts of
the Bank are insured by the FDIC up to the applicable
limits.
(ix) Each direct and indirect subsidiary of
the Bank has been duly incorporated and is validly
existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation, has
full corporate power and authority to own, lease and
operate its properties and to conduct its business as
described in the Registration Statement and
Prospectus and is duly qualified as a foreign
corporation to transact business and is in good
standing in each jurisdiction in which the failure to
so qualify would have a material adverse effect upon
the financial condition, results of operations or
business of the Company, the Mutual Holding Company,
the Mid-Tier Holding Company, the Bank and the Bank's
subsidiaries, taken as a whole; the activities of
each such subsidiary are permitted to subsidiaries of
a savings association holding company and of a
federally chartered savings bank by the rules,
regulations, resolutions and practices of the OTS;
all of the issued and outstanding capital stock of
each such subsidiary has been duly authorized and
validly issued, is fully paid and non-assessable and
is owned by the Bank, directly or through
subsidiaries, free and clear of any security
interest, mortgage, pledge, lien, encumbrance, claim
or equity. To the best of such counsel's knowledge,
each subsidiary holds all licenses, certificates and
permits from governmental authorities currently
required under the laws of its respective
jurisdiction of incorporation for the conduct of its
business as described in the Prospectus except where
the failure to hold such licenses, certificates or
permits would not have a material adverse effect on
the business, assets or financial condition of the
Bank on a consolidated basis; and such subsidiaries
are not in material violation of their certificates
of incorporation or bylaws. All of the outstanding
stock of the subsidiaries has been duly authorized
and is validly issued, fully paid and nonassessable,
and all such stock is owned directly by the Bank,
free and clear of any liens, encumbrances, claims or
other restrictions.
(x) The Mutual Holding Company is a validly
existing federally chartered mutual holding company
with corporate power and authority to own, lease and
operate its properties and to conduct its business as
described in the Registration Statement and
Prospectus.
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(xi) The Mid-Tier Holding Company is a duly
incorporated and validly existing Pennsylvania
corporation with corporate power and authority to
own, lease and operate its properties and to conduct
its business as described in the Registration
Statement and Prospectus.
(xii) Upon consummation of the Conversion,
all of the issued and outstanding capital stock of
the Bank when issued and delivered pursuant to the
Plan against payment of consideration calculated as
set forth in the Plan and set forth in the
Prospectus, will be duly authorized and validly
issued and fully paid and nonassessable, and all such
capital stock will be owned beneficially and of
record by the Company free and clear of any security
interest, mortgage, pledge, lien, encumbrance, claim
or equity.
(xiii) The OTS has duly approved the Holding
Company Application and the Conversion Applications
and no action is pending, or to the best of such
counsel's knowledge, threatened respecting the
Holding Company Application or the Conversion
Applications or the acquisition by the Company of all
of the Bank's issued and outstanding capital stock;
the Holding Company Application and the Conversion
Applications comply with the applicable requirements
of the OTS, include all documents required to be
filed as exhibits thereto, and are, to the best of
such counsel's knowledge and information, truthful,
accurate and complete; and the Company is duly
authorized to become a savings association holding
company and is duly authorized to own all of the
issued and outstanding capital stock of the Bank to
be issued pursuant to the Plan.
(xiv) The execution and delivery of this
Agreement and the consummation of the transactions
contemplated hereby have been duly and validly
authorized by all necessary action on the part of
each of the Company, the Mutual Holding Company, the
Mid-Tier Holding Company and the Bank, and this
Agreement constitutes a legal, valid and binding
agreement of each of the Company, the Mutual Holding
Company, the Mid-Tier Holding Company and the Bank,
enforceable in accordance with its terms, except as
rights to indemnity and contribution hereunder may be
limited under applicable law (it being understood
that such counsel may avail itself of customary
exceptions concerning the effect of bankruptcy,
insolvency or similar laws and the availability of
equitable remedies); the execution and delivery of
this Agreement, the incurrence of the obligations
herein set forth and the consummation of the
transactions contemplated herein will not result in
any violation of the provisions of the charter or
by-laws of the Company, the Mutual Holding Company,
the Mid-Tier Holding
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Company, the Bank or any of the Bank's subsidiaries;
and, to the best of such counsel's knowledge, the
execution and delivery of this Agreement, the
incurrence of the obligations herein set forth and
the consummation of the transactions contemplated
herein will not conflict with or constitute a breach
of, or default under, and no event has occurred
which, with notice or lapse of time or both, would
constitute a default under, or result in the creation
or imposition of any lien, charge or encumbrance,
that, individually or in the aggregate, would have a
material adverse effect on the financial condition,
results of operations or business affairs of the
Company, the Mutual Holding Company, the Mid-Tier
Holding Company, the Bank and the Bank's subsidiaries
considered as one enterprise, upon any property or
assets of the Company, the Mutual Holding Company,
the Mid-Tier Holding Company, the Bank or the Bank's
subsidiaries pursuant to any contract, indenture,
mortgage, loan agreement, note, lease or other
instrument to which the Company, the Mutual Holding
Company, the Mid-Tier Holding Company, the Bank or
the Bank's subsidiaries is a party or by which any of
them may be bound, or to which any of the property or
assets of the Company, the Mutual Holding Company,
the Mid-Tier Holding Company, the Bank or the Bank's
subsidiaries is subject.
(xv) The Prospectus has been duly authorized
by the OTS for final use pursuant to the Conversion
Regulations and no action is pending, or to the best
of such counsel's knowledge, is threatened, by the
OTS to revoke such authorization.
(xvi) The Plan has been duly adopted by the
required vote of the directors of the Company, the
Mutual Holding Company, the Mid-Tier Holding Company
and the Bank and based upon the certificate of the
inspector of election, by the stockholders of the
Bank and the members of the Mutual Holding Company.
(xvii) The Registration Statement is
effective under the Securities Act and no stop order
suspending the effectiveness of the Registration
Statement has been issued under the Securities Act
or, to the best of such counsel's knowledge,
proceedings therefor initiated or threatened by the
Commission.
(xviii) No further approval, authorization,
consent or other order of any public board or body is
required in connection with the execution and
delivery of this Agreement, the issuance of the
Securities and the consummation of the Conversion,
except as may be required under the securities or
Blue Sky laws of various jurisdictions as to
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which no opinion need be rendered. To the best of
such counsel's knowledge, the Conversion has been
consummated in all material respects in accordance
with all applicable provisions of the HOLA and the
Conversion Regulations.
(xix) At the time the Registration Statement
became effective, the Registration Statement (other
than the financial statements and statistical data
included therein, as to which no opinion need be
rendered) complied as to form in all material
respects with the requirements of the Securities Act
and the Securities Act Regulations and the Conversion
Regulations and federal law.
(xx) At the time the Conversion
Applications, including the Prospectus contained
therein, were approved by the OTS, the Conversion
Applications, including the Prospectus contained
therein, complied as to form in all material respects
with the requirements of the Conversion Regulations,
federal law and all applicable rules and regulations
promulgated thereunder (other than the financial
statements, the notes thereto, and other tabular,
financial, statistical and appraisal data included
therein, as to which no opinion need be rendered).
(xxi) The Common Stock conforms, in all
material respects, to the description thereof
contained in the Prospectus, and the form of
certificate used to evidence the Common Stock is in
due and proper form and complies with all applicable
statutory requirements.
(xxii) To the best of such counsel's
knowledge, there are no legal or governmental
proceedings pending or threatened against or
affecting the Company, the Mutual Holding Company,
the Mid-Tier Holding Company, the Bank or the Bank's
subsidiaries which are required, individually or in
the aggregate, to be disclosed in the Registration
Statement and Prospectus, other than those disclosed
therein, and all pending legal or governmental
proceedings to which the Company, the Mutual Holding
Company, the Mid-Tier Holding Company, the Bank or
any of the Bank's subsidiaries is a party or to which
any of their property is subject which are not
described in the Registration Statement, including
ordinary routine litigation incidental to the
business, are, considered in the aggregate, not
material.
(xxiii) The information in the Prospectus
under "Dividend Policy," "Regulation," "Taxation,"
"The Conversion and Reorganization Tax Aspects,"
"Restrictions on Acquisitions of the Company and the
Bank" and "Description of Capital Stock," to the
extent that it
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constitutes matters of law, summaries of legal
matters, documents or proceedings, or legal
conclusions, has been reviewed by them and is
complete and accurate in all material respects.
(xxiv) To the best of such counsel's
knowledge, there are no material contracts,
indentures, mortgages, loan agreements, notes, leases
or other instruments required to be described or
referred to in the Registration Statement or to be
filed as exhibits thereto other than those described
or referred to therein or filed as exhibits thereto,
the descriptions thereof or references thereto are
correct, and no default exists, and no event has
occurred which, with notice or lapse of time or both,
would constitute a default, in the due performance or
observance of any material obligation, agreement,
covenant or condition contained in any contract,
indenture, mortgage, loan agreement, note, lease or
other instrument so described, referred to or filed.
(xxv) To the best of such counsel's
knowledge, the Company, the Mutual Holding Company,
the Mid-Tier Holding Company, the Bank and the Bank's
subsidiaries have obtained all licenses, permits and
other governmental authorizations currently required
for the conduct of their respective businesses as
described in the Registration Statement and
Prospectus, and all such licenses, permits and other
governmental authorizations are in full force and
effect, and the Company, the Mutual Holding Company,
the Mid-Tier Holding Company, the Bank and the Bank's
subsidiaries are in all material respects complying
therewith.
(xxvi) The Company is not required to be
registered as an investment company under the
Investment Company Act of 1940.
(xxvii) The Company's and the Mid-Tier
Holding Company's Certificates of Incorporation and
Bylaws comply in all material respects with the
Pennsylvania Business Corporation Law. The Bank's and
the Mutual Holding Company's Charters and Bylaws
comply in all material respects with the Rules and
Regulations of the OTS.
(2) The favorable opinion, dated as of Closing Time,
of Elias, Matz, Tiernan & Herrick L.L.P. ("Elias, Matz"),
counsel for the Agent, with respect to the matters set forth
in Section 5(b)(1)(i), (iv), (v), (vi) (solely as to
preemptive rights arising by operation of law), (xiii), (xvii)
and (xviii) and such other matters as the Agent may reasonably
require.
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(3) In giving their opinions required by subsections
(b)(l) and (b)(2), respectively, of this Section, Malizia,
Spidi, and Elias, Matz each shall additionally state that
nothing has come to their attention that would lead them to
believe that the Registration Statement (except for financial
statements and schedules and other financial or statistical
data included therein, as to which counsel need make no
statement), at the time it became effective, contained an
untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to
make the statements therein not misleading or that the
Prospectus (except for financial statements and schedules and
other financial or statistical data included therein, as to
which counsel need make no statement), at the time the
Registration Statement became effective or at Closing Time,
included an untrue statement of a material fact or omitted to
state a material fact necessary in order to make the
statements therein, in the light of the circumstances under
which they were made, not misleading. In giving their
opinions, Malizia, Spidi and Elias, Matz may rely as to
matters of fact on certificates of officers and directors of
the Company, the Mutual Holding Company, the Mid-Tier Holding
Company and the Bank and certificates of public officials, and
as to certain matters of Pennsylvania law upon the opinion of
local counsel, which opinions shall be in form and substance
satisfactory to counsel for the Agent, and Elias, Matz may
also rely on the opinion of Malizia, Spidi.
(c) At Closing Time referred to in Section 2, the Company, the
Mutual Holding Company, the Mid-Tier Holding Company and the Bank shall
have completed in all material respects the conditions precedent to the
Conversion in accordance with the Plan, the applicable Conversion
Regulations and all other applicable laws, regulations, decisions and
orders, including all terms, conditions, requirements and provisions
precedent to the Conversion imposed upon the Company or the Bank by the
OTS, or any other regulatory authority other than those which the OTS
permits to be competed after the Conversion.
(d) At Closing Time, there shall not have been, since the date
hereof or since the respective dates as of which information is given
in the Registration Statement and the Prospectus, any material adverse
change in the financial condition, results of operations or business
affairs of the Company, the Mutual Holding Company, the Mid-Tier
Holding Company, the Bank and the Bank' subsidiaries considered as one
enterprise, whether or not arising in the ordinary course of business,
and the Agent shall have received a certificate of the Chief Executive
Officer of the Company, the Mutual Holding Company, the Mid-Tier
Holding Company and the Bank, the President of the Company, the Mutual
Holding Company, the Mid-Tier Holding Company and the Bank and the
chief financial or chief accounting officer of the Company, the Mutual
Holding Company, the Mid-Tier Holding Company and the Bank, dated as of
Closing Time, to the effect that (i)
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there has been no such material adverse change, (ii) there shall have
been no material transaction entered into by the Company, the Mutual
Holding Company, the Mid-Tier Holding Company or the Bank from the
latest date as of which the financial condition of the Company, the
Mutual Holding Company, the Mid-Tier Holding Company or the Bank as set
for the in the Registration Statement and the Prospectus other than
transactions referred to or contemplated therein and transactions in
the ordinary cause of business, (iii) none of the Company, the Mutual
Holding Company, the Mid-Tier Holding Company or the Bank shall have
received from the OTS any direction (oral or written) to make any
material change in the method of conducting its business with which it
has not complied (which direction, if any, shall have been disclosed to
the Agent) or which materially and adversely would affect the business,
financial condition or results of operations of the Company, the Mutual
Holding Company, the Mid-Tier Holding Company or the Bank, (iv) the
representations and warranties in Section 1 hereof are true and correct
with the same force and effect as though expressly made at and as of
Closing Time, (v) the Company, the Mutual Holding Company, the Mid-Tier
Holding Company and the Bank have complied with all agreements and
satisfied all conditions on their part to be performed or satisfied at
or prior to Closing Time, (vi) no stop order suspending the
effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been initiated or threatened by the
Commission and (vii) no order suspending the Syndicated Community
Offering or the authorization for final use of the Prospectus has been
issued and no proceedings for that purpose have been initiated or
threatened by the OTS or the FDIC and no person has sought to obtain
regulatory or judicial review of the action of the OTS in approving the
Plan in accordance with the Conversion Regulations nor has any person
sought to obtain regulatory or judicial review of the action of the OTS
in approving the Holding Company Application.
(e) At the time of the execution of this Agreement, the Agent
shall have received from Deloitte & Touche a letter dated such date, in
form and substance satisfactory to the Agent, to the effect that (i)
they are independent public accountants with respect to the Company,
the Bank and its subsidiaries within the meaning of the Code of Ethics
of the American Institute of Certified Public Accountants, the
Securities Act and the Securities Act Regulations and the Conversion
Regulations; (ii) it is their opinion that the consolidated financial
statements and supporting schedules included in the Registration
Statement and covered by their opinions therein comply as to form in
all material respects with the applicable accounting requirements of
the Securities Act and the Securities Act Regulations; (iii) based upon
limited procedures as agreed upon by the Agent and Deloitte & Touche
set forth in detail in such letter, nothing has come to their attention
which causes them to believe that (A) the unaudited financial
statements and supporting schedules of the Bank and its subsidiaries
included in the Registration Statement do not comply as to form in all
material respects with the applicable accounting requirements of the
Securities Act, the Securities Act Regulations and the
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Conversion Regulations or are not presented in conformity with
generally accepted accounting principles applied on a basis
substantially consistent with that of the audited financial statements
included in the Registration Statement and the Prospectus, (B) the
unaudited amounts of net interest income and net income set forth under
"Selected Financial Information" in the Registration Statement and
Prospectus do not agree with the amounts set forth in unaudited
consolidated financial statements as of and for the dates and periods
presented under such captions or such amounts were not determined on a
basis substantially consistent with that used in determining the
corresponding amounts in the audited financial statements included in
the Registration Statement, (C) at a specified date not more than five
days prior to the date of this Agreement, there has been any increase
in the consolidated long term or short term debt of the Bank and its
subsidiaries or any decrease in consolidated total assets, the
allowance for loan losses, total deposits or net worth of the Bank and
its subsidiaries, in each case as compared with the amounts shown in
the _____________, 199__ balance sheet included in the Registration
Statement or, (D) during the period from ______________, 199__ to a
specified date not more than five days prior to the date of this
Agreement, there were any decreases, as compared with the corresponding
period in the preceding year, in total interest income, net interest
income, net interest income after provision for loan losses, income
before income tax expense or net income of the Bank and its
subsidiaries, except in all instances for increases or decreases which
the Registration Statement and the Prospectus disclose have occurred or
may occur; and (iv) in addition to the examination referred to in their
opinions and the limited procedures referred to in clause (iii) above,
they have carried out certain specified procedures, not constituting an
audit, with respect to certain amounts, percentages and financial
information which are included in the Registration Statement and
Prospectus and which are specified by the Agent, and have found such
amounts, percentages and financial information to be in agreement with
the relevant accounting, financial and other records of the Company,
the Bank and its subsidiaries identified in such letter.
(e) At Closing Time, the Agent shall have received from
Deloitte & Touche a letter, dated as of Closing Time, to the effect
that they reaffirm the statements made in the letter furnished pursuant
to subsection (d) of this Section, except that the specified date
referred to shall be a date not more than five days prior to Closing
Time.
(f) At Closing Time, the Securities shall have been approved
for listing on the Nasdaq National Market upon notice of issuance.
(g) At Closing Time, the Agent shall have received a letter
from FinPro, dated as of the Closing Time, confirming its appraisal.
(h) At Closing Time, counsel for the Agent shall have been
furnished with such documents and opinions as they may require for the
purpose of enabling them
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<PAGE>
to pass upon the issuance and sale of the Securities as herein
contemplated and related proceedings, or in order to evidence the
accuracy of any of the representations or warranties, or the
fulfillment of any of the conditions, herein contained; and all
proceedings taken by the Company, the Mutual Holding Company, the
Mid-Tier Holding Company and the Bank in connection with the issuance
and sale of the Securities as herein contemplated shall be satisfactory
in form and substance to the Agent and counsel for the Agent.
(i) At any time prior to Closing Time, (i) there shall not
have occurred any material adverse change in the financial markets in
the United States or elsewhere or any outbreak of hostilities or
escalation thereof or other calamity or crisis the effect of which it,
in the judgment of the Agent, are so material and adverse as to make it
impracticable to market the Securities or to enforce contracts,
including subscriptions or orders, for the sale of the Securities, and
(ii) trading generally on either the American Stock Exchange or the New
York Stock Exchange shall not have been suspended, and minimum or
maximum prices for trading shall not have been fixed, or maximum ranges
for prices for securities have been required, by either of said
Exchanges or by order of the Commission or any other governmental
authority, and a banking moratorium shall not have been declared by
either Federal or New York authorities.
SECTION 6. INDEMNIFICATION.
(a) The Company, the Mutual Holding Company, the Mid-Tier
Holding Company and the Bank, jointly and severally, agree to indemnify and hold
harmless the Agent, its officers, directors are employees and each person, if
any, who controls the Agent, within the meaning of Section 15 of the Securities
Act or Section 20(a) of the Exchange Act, and its respective partners,
directors, officers, employees and agents as follows:
(i) from and against any and all loss, liability,
claim, damage and expense whatsoever, (including, but not limited to,
settlement expenses) as incurred, related to or arising out of the
Conversion or any action taken by the Agent where acting as agent of
the Company or the Bank or otherwise as described in Section 2 hereof;
provided, however, that this indemnity agreement shall not apply to any
loss, liability, claim, damage or expense found in a final judgment by
a court of competent jurisdiction to have resulted primarily from the
bad faith, willful misconduct or gross negligence of the Agent seeking
indemnification hereunder.
(ii) from and against any and all loss, liability,
claim, damage and expense whatsoever, as incurred, based upon or
arising out of any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement (or any amendment
thereto), or the omission or alleged omission therefrom of a material
fact required to be stated therein or necessary to make the statements
therein not misleading or arising out of any untrue statement or
alleged
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<PAGE>
untrue statement of a material fact contained in the Prospectus (or any
amendment or supplement thereto) or the omission or alleged omission
therefrom of a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading;
(iii) from and against any and all loss, liability,
claim, damage and expense whatsoever, as incurred, to the extent of the
aggregate amount paid in settlement of any litigation, or any
investigation or proceeding by any governmental agency or body,
commenced or threatened, or of any claim whatsoever described in
clauses (i) or (ii) above, if such settlement is effected with the
written consent of the Company or the Bank, which consent shall not be
unreasonably withheld; and
(iv) from and against any and all expense whatsoever,
as incurred (including, subject to Section 6(c) hereof, the fees and
disbursements of counsel chosen by the Agent), reasonably incurred in
investigating, preparing for or defending against any litigation, or
any investigation, proceeding or inquiry by any governmental agency or
body, commenced or threatened, or any claim whatsoever described in
clauses (i) or (ii) above, to the extent that any such expense is not
paid under (i), (ii) or (iii) above; provided, however, that this
indemnity agreement shall not apply to any loss, liability, claim,
damage or expense to the extent arising out of any untrue statement or
alleged untrue statement of a material fact contained in the Prospectus
(or any amendment or supplement thereto) or the omission or alleged
omission therefrom of a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading which was made in reliance upon and in
conformity with written information relating to the Agent furnished to
the Company, the Mutual Holding Company, the Mid-Tier Holding Company
or the Bank by the Agent expressly for use in the Prospectus (or any
amendment or supplement thereto). Notwithstanding the foregoing, the
indemnification provided for in this paragraph (a) shall not apply to
the Bank to the extent that such indemnification by the Bank would
constitute a covered transaction under Section 23A of the Federal
Reserve Act.
(b) The Agent agrees to indemnify and hold harmless the
Company, the Mutual Holding Company, the Mid-Tier Holding Company and/or the
Bank, their directors and trustees, each of their officers who signed the
Registration Statement, and each person, if any, who controls the Company, the
Mutual Holding Company, the Mid-Tier Holding Company and/or the Bank within the
meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange Act
against any and all loss, liability, claim, damage and expense described in the
indemnity contained in subsection (a) of this Section, as incurred, but only
with respect to untrue statements or omissions, or alleged untrue statements or
omissions, of a material fact made in the Prospectus (or any amendment or
supplement thereto).
(c) Each indemnified party shall give notice as promptly as
reasonably practicable to each indemnifying party of any action commenced
against it in respect of
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which indemnity may be sought hereunder, but failure to so notify an
indemnifying party shall not relieve such indemnifying party from any liability
that it otherwise may have than on account of this indemnity agreement. An
indemnifying party may participate at its own expense in the defense of any such
action. In no event shall the indemnifying parties be liable for fees and
expenses of more than one counsel (in addition to no more than one local counsel
in each separate jurisdiction in which any action or proceeding is commenced)
separate from their own counsel for all indemnified parties in connection with
any one action or separate but similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances.
(d) The Company, the Mutual Holding Company, the Mid-Tier
Holding Company and the Bank also agree that the Agent shall not have any
liability (whether direct or indirect, in contract or tort or otherwise) to the
Bank, the Mutual Holding Company, the Mid-Tier Holding Company, the Company, the
Company's security holders or the Bank's the Mutual Holding Company's, the
Mid-Tier Holding Company's or the Company's creditors relating to or arising out
of the engagement of the Agent pursuant to, or the performance by the Agent of
the services contemplated by, this Agreement, except to the extent that any
loss, claim, damage or liability is found in a final judgment by a court of
competent jurisdiction to have resulted primarily from the Agent's bad faith,
willful misconduct or gross negligence.
(e) In addition to, and without limiting, the provisions of
Section (6)(a)(iv) hereof, in the event that any Agent, any person, if any, who
controls the Agent within the meaning of Section 15 of the Securities Act or
Section 20(a) of the Exchange Act or any of its partners, directors, officers,
employees or agents is requested or required to appear as a witness or otherwise
gives testimony in any action, proceeding, investigation or inquiry brought by
or on behalf of or against the Company, the Mutual Holding Company, the Mid-Tier
Holding Company, the Bank, the Agent or any of its respective affiliates or any
participant in the transactions contemplated hereby in which the Agent or such
person or agent is not named as a defendant, the Company, the Mutual Holding
Company, the Mid-Tier Holding Company and the Bank jointly and severally agree
to reimburse the Agent for all reasonable and necessary out-of-pocket expenses
incurred by it in connection with preparing or appearing as a witness or
otherwise giving testimony and to compensate the Agent in an amount to be
mutually agreed upon.
(f) The agreements contained in this Section 6 and in Section
7 hereof and the representations and warranties of the Company, the Mutual
Holding Company, the Mid- Tier Holding Company and the Bank set forth in this
Agreement shall remain operative and in full force and effect regardless of: (i)
any investigation made by or on behalf of agents or their officers, directors or
controlling persons, agents or employees or by or on behalf of the Company, the
Mutual Holding Company, the Mid-Tier Holding Company or the Bank or any
officers, directors or controlling persons, agents or employees of the Company
the Mutual Holding Company, the Mid-Tier Holding Company or the Bank; (ii)
delivery of and payment hereunder for the Securities; or (iii) any termination
of this Agreement.
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SECTION 7. CONTRIBUTION. In order to provide for just and
equitable contribution in circumstances in which the indemnity agreement
provided for in Section 6 hereof is for any reason held by a court to be
unenforceable by the indemnified parties although applicable in accordance with
its terms, the Company, the Mutual Holding Company, the Mid-Tier Holding
Company, the Bank and the Agent shall contribute to the aggregate losses,
liabilities, claims, damages and expenses of the nature contemplated by said
indemnity agreement incurred by the Company, the Mutual Holding Company, the
Mid-Tier Holding Company or the Bank and the Agent, as incurred, in such
proportions (i) that the Agent is responsible for that portion represented by
the percentage that the maximum aggregate marketing fees appearing on the cover
page of the Prospectus bears to the maximum aggregate gross proceeds appearing
thereon and the Company, the Mutual Holding Company, the Mid-Tier Holding
Company and the Bank are jointly and severally responsible for the balance or
(ii) if, but only if, the allocation provided for in clause (i) is for any
reason held unenforceable, in such proportion as is appropriate to reflect not
only the relative benefits to the Company, the Mutual Holding Company, the
Mid-Tier Holding Company and the Bank on the one hand and the Agent on the
other, as reflected in clause (i), but also the relative fault of the Company,
the Mutual Holding Company, the Mid-Tier Holding Company and the Bank on the one
hand and the Agent on the other, as well as any other relevant equitable
considerations; provided, however, that no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section, each person, if any,
who controls the Agent within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act shall have the same rights to contribution as the
Agent, and each director of the Company, and the Mid-Tier Holding Company, each
trustee of the Bank and the Mutual Holding Company, each officer of the Company
who signed the Registration Statement, and each person, if any, who controls the
Company, the Mutual Holding Company, the Mid-Tier Holding Company or the Bank
within the meaning of Section 15 of the Securities Act or Section 20(a) of the
Exchange Act shall have the same rights to contribution as the Company, the
Mutual Holding Company, the Mid-Tier Holding Company and the Bank.
Notwithstanding anything to the contrary set forth herein, to the extent
permitted by applicable law, in no event shall the Agent be required to
contribute an aggregate amount in excess of the aggregate marketing fees to
which the Agent is entitled and actually paid pursuant to this Agreement.
SECTION 8. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO
SURVIVE DELIVERY. All representations, warranties and agreements contained in
this Agreement, or contained in certificates of officers of the Company, the
Mutual Holding Company, the Mid-Tier Holding Company or the Bank submitted
pursuant hereto, shall remain operative and in full force and effect, regardless
of any investigation made by or on behalf of any Agent or controlling person, or
by or on behalf of the Company, the Mutual Holding Company, the Mid-Tier Holding
Company or the Bank and shall survive the issuance of the Securities, and any
successor or assign of the Agent, the Company, the Mutual Holding Company, the
Mid-Tier Holding Company or the Bank, and any such controlling person
39
<PAGE>
shall be entitled to the benefit of the respective agreements, indemnities,
warranties and representations.
SECTION 9. TERMINATION OF AGREEMENT.
(a) The Agent may terminate this Agreement, by notice to the
Company, at any time at or prior to Closing Time (i) if there has been, since
the date of this Agreement or since the respective dates as of which information
is given in the Registration Statement, any material adverse change in the
financial condition, results of operations or business affairs of the Company,
the Mutual Holding Company, the Mid-Tier Holding Company or the Bank, or the
Company, the Bank and its subsidiaries considered as one enterprise, whether or
not arising in the ordinary course of business, or (ii) if there has occurred
any material adverse change in the financial markets in the United States or
elsewhere or any outbreak of hostilities or escalation thereof or other calamity
or crisis the effect of which it, in the judgment of the Agent, are so material
and adverse as to make it impracticable to market the Securities or to enforce
contracts, including subscriptions or orders, for the sale of the Securities,
(iii) or if trading generally on either the American Stock Exchange or the New
York Stock Exchange has been suspended, or minimum or maximum prices for trading
have been fixed, or maximum ranges for prices for securities have been required,
by either of said Exchanges or by order of the Commission or any other
governmental authority, or if a banking moratorium has been declared by either
Federal or New York authorities, (iv) if any condition specified in Section 5
shall not have been fulfilled when and as required to be fulfilled; (v) if there
shall have been such material adverse change in the condition or prospects of
the Company, the Mutual Holding Company, the Mid-Tier Holding Company or the
Bank or the prospective market for the Company's securities as in the Agent's
good faith opinion would make it inadvisable to proceed with the offering, sale
or delivery of the Securities; (vi) if in the Agent's good faith opinion, the
price for the Securities established by FinPro is not reasonable or equitable
under then prevailing market conditions, or (vii) if the Conversion is not
consummated on or prior to March 31, 1999.
(b) If this Agreement is terminated pursuant to this Section,
such termination shall be without liability of any party to any other party
except as provided in Section 4 hereof relating to the reimbursement of expenses
and except that the provisions of Sections 6 and 7 hereof shall survive any
termination of this Agreement.
SECTION 10. NOTICES. All notices and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
mailed or transmitted by any standard form of telecommunication. Notices to the
Agent shall be directed to the Agent at Two World Trade Center, 104th Floor, New
York, New York 10048, attention of Catherine A. Lawton, Vice President; notices
to the Company and the Bank shall be directed to either of them at 6060 Ridge
Avenue, Philadelphia, Pennsylvania 19128, attention of John F. McGill, Jr.,
President.
40
<PAGE>
SECTION 11. PARTIES. This Agreement shall inure to the benefit
of and be binding upon the Agent, the Company, the Mutual Holding Company, the
Mid-Tier Holding Company and the Bank and their respective successors. Nothing
expressed or mentioned in this Agreement is intended or shall be construed to
give any person, firm or corporation, other than the Agent, the Company, the
Mutual Holding Company, the Mid-Tier Holding Company and the Bank and their
respective successors and the controlling persons and officers and directors
referred to in Sections 6 and 7 and their heirs and legal representatives, any
legal or equitable right, remedy or claim under or in respect of this Agreement
or any provision herein or therein contained. This Agreement and all conditions
and provisions hereof and thereof are intended to be for the sole and exclusive
benefit of the Agent, the Company, the Mutual Holding Company, the Mid-Tier
Holding Company and the Bank and their respective successors, and said
controlling persons and officers and directors and their heirs and legal
representatives, and for the benefit of no other person, firm or corporation.
SECTION 12. ENTIRE AGREEMENT; AMENDMENT. This Agreement
represents the entire understanding of the parties hereto with reference to the
transactions contemplated hereby and supersedes any and all other oral or
written agreements heretofore made, except for the engagement letter dated
February 24, 1998, by and among the Agent and the Company and the Bank, relating
to the Agent's providing conversion agent services to the Company and the Bank
in connection with the Conversion. No waiver, amendment or other modification of
this Agreement shall be effective unless in writing and signed by the parties
hereto.
SECTION 13. GOVERNING LAW AND TIME. This Agreement shall be
governed by and construed in accordance with the laws of the Commonwealth of
Pennsylvania applicable to agreements made and to be performed in said
Commonwealth without regard to the conflicts of laws provisions thereof. Unless
otherwise noted, specified times of day refer to Eastern time.
SECTION 14. SEVERABILITY. Any term or provision of this
Agreement which is invalid or unenforceable in any jurisdiction shall, as to
that jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement or affecting the validity or enforceability of
any of the terms or provisions of this Agreement in any other jurisdiction. If
any provision of this Agreement is so broad as to be unenforceable, the
provision shall be interpreted to be only so broad as is enforceable.
SECTION 15. HEADINGS. Sections headings are not to be
considered part of this Agreement, are for convenience and reference only, and
are not to be deemed to be full or accurate descriptions of the contents of any
paragraph or subparagraph.
41
<PAGE>
SECTION 16. COUNTERPARTS. This Agreement may be executed in
separate counterparts, each of which so executed and delivered shall be an
original, but all of which together shall constitute but one and the same
instrument.
If the foregoing is in accordance with your understanding of
our agreement, please sign and return to the Company a counterpart hereof,
whereupon this instrument, along with all counterparts, will become a binding
agreement between the Agent, the Company, the Mutual Holding Company, the
Mid-Tier Holding Company and the Bank in accordance with its terms.
<TABLE>
<CAPTION>
<S> <C>
THISTLE GROUP HOLDINGS, CO. ROXBOROUGH-MANAYUNK FEDERAL
SAVINGS BANK
By: By:
-------------------------------------------- -------------------------------------
John F. McGill, Jr. John F. McGill, Jr.
President and Chief Executive Officer President and Chief Executive Officer
FJF FINANCIAL, M.H.C. THISTLE GROUP HOLDINGS, INC.
By: By:
-------------------------------------------- -------------------------------------
John F. McGill, Jr. John F. McGill, Jr.
President and Chief Executive Officer President and Chief Executive Officer
CONFIRMED AND ACCEPTED, as of the date first above written:
SANDLER O'NEILL & PARTNERS, L.P.
By: Sandler O'Neill & Partners Corp.,
the sole general partner
By:
--------------------------------------------
Catherine A. Lawton
Vice President
</TABLE>
Exhibit 2
<PAGE>
PLAN OF CONVERSION AND REORGANIZATION
of
FJF FINANCIAL, M.H.C.
and
PLANS OF MERGER
between
FJF FINANCIAL, M.H.C., THISTLE GROUP HOLDINGS, INC.
and
ROXBOROUGH-MANAYUNK FEDERAL SAVINGS BANK
as amended
ADOPTED ON FEBRUARY 18, 1998
and subsequently amended
<PAGE>
TABLE OF CONTENTS
Section
Number Page
- ------ ----
1. Introduction................................................ 1
2. Definitions................................................. 3
3. General Procedure for Conversion and Reorganization......... 9
4. Total Number of Shares and Purchase Price of
Conversion Stock.......................................... 12
5. Subscription Rights of Eligible Account Holders (First
Priority)................................................. 13
6. Subscription Rights of the Tax-Qualified Employee Stock
Benefit Plans (Second Priority)........................... 14
7. Subscription Rights of Supplemental Eligible Account Holders
(Third Priority).......................................... 14
8. Subscription Rights of Other Members (Fourth Priority)...... 15
9. Community Offering, Syndicated Community Offering
and Other Offerings....................................... 15
10.Limitations on Subscriptions and Purchases of Conversion
Stock..................................................... 17
11.Timing of Subscription Offering; Manner of Exercising
Subscription Rights and Order Forms....................... 19
12. Payment for Conversion Stock............................... 20
13. Account Holders in Nonqualified States or Foreign Countries 21
14. Dissenters' Rights......................................... 22
15. Voting Rights of Stockholders.............................. 22
16. Liquidation Account........................................ 22
17. Transfer of Deposit Accounts............................... 24
18. Requirements Following Conversion and Reorganization for
Registration, Market Making and Stock Exchange Listing.... 24
19. Directors and Officers of the Bank and Holding Company..... 24
20. Requirements for Stock Purchases by Directors and Officers
Following the Conversion and Merger........................ 24
21. Restrictions on Transfer of Stock.......................... 25
22. Restrictions on Acquisition of Stock of the Holding Company 25
23. Tax Rulings or Opinions.................................... 26
24. Stock Compensation Plans................................... 26
25. Dividend and Repurchase Restrictions on Stock.............. 27
26. Payment of Fees to Brokers................................. 27
27. Effective Date............................................. 27
28. Amendment or Termination of the Plan....................... 27
29. Interpretation of the Plan................................. 28
Appendix A - Plan of Merger between Interim Federal Stock Savings Bank No. 1
(formerly the Mutual Holding Company) and the Bank
Appendix B - Plan of Merger between Interim Federal Stock Savings Bank No. 2
(formerly Middle Tier Holding Company) and the Bank
Appendix C - Plan of Merger between Interim Federal Stock Savings Bank No. 3
(subsidiary of Holding Company) and the Bank
i
<PAGE>
1. INTRODUCTION
------------
For purposes of this section, all capitalized terms have the meaning ascribed
to them in Section 2.
On December 31, 1992, Roxborough-Manayunk Federal Savings and Loan
Association (the "Association"), a federally chartered mutual savings
institution reorganized into the mutual holding company form of organization and
consummated a sale of stock to certain members. To accomplish this transaction,
the Association organized a federally chartered, stock savings bank as a wholly
owned subsidiary. The Association then transferred substantially all of its
assets and liabilities to the Bank in exchange for shares of Bank Common Stock,
and reorganized itself into a federally chartered mutual holding company known
as FJF Financial, M.H.C. and sold some of the shares of Bank Common Stock to
certain parties other than the MHC. Upon completion of the MHC Reorganization,
the Mutual Holding Company owned a majority of the outstanding Bank Common
Stock. On September 30, 1997, the Bank completed a reorganization in which the
Bank became a wholly owned subsidiary of a stock middle tier holding company
known as Thistle Group Holdings, Inc. ("Middle Tier Holding Company")
Shareholders of the Bank became shareholders of the Middle Tier Holding Company.
As of December 31, 1997, the MHC and the Public Stockholders own an aggregate of
1,415,000 (87.29%) and 206,000 (12.71%) of the outstanding Middle Tier Holding
Company Common Stock, respectively. Pursuant to this Plan, the Bank will form a
new state stock holding company, Thistle Group Holdings, Co. ("Holding Company")
and the existing shares of Middle Tier Holding Company owned by public
shareholders will be converted pursuant to an Exchange Ratio into shares of
Holding Company.
The Boards of Directors of the Mutual Holding Company, the Middle Tier
Holding Company, the Holding Company and the Bank believe that a conversion of
the Mutual Holding Company to stock form pursuant to this Plan of Conversion is
in the best interests of the Mutual Holding Company and the Bank, as well as the
best interests of their respective Members and Stockholders. The Boards of
Directors have determined that this Plan of Conversion equitably provides for
the interests of Members through the granting of subscription rights and the
establishment of a liquidation account. The Conversion and Merger will result in
the Bank being wholly owned by a stock holding company which is owned by public
stockholders, which is a more common structure and form of ownership than a
mutual holding company. In addition, the Conversion and Merger will result in
the raising of additional capital for the Bank and the Holding Company and
should result in a more active and liquid market for the Holding Company Common
Stock than currently exists for Middle Tier Holding Company Common Stock.
Finally, the Conversion and Merger will provide the Holding Company with
additional investment authority and is designed to enable the Bank and Holding
Company to compete more effectively in a market which is consolidating.
1
<PAGE>
If the Association had undertaken a standard conversion involving the
formation of a stock holding company in 1992, applicable OTS regulations would
have required a greater amount of Common Stock to be sold than was sold in the
Bank's initial public offering undertaken with the mutual holding company
reorganization. In addition, if a standard conversion had been conducted in
1992, management of the Bank believed that it would have been difficult to
profitably and prudently invest the larger amount of capital that would have
been raised, when compared to the amount of net proceeds raised in the Bank's
initial public offering. A standard conversion in 1992 also would have
immediately eliminated all aspects of the mutual form of organization and
possibly could have subjected the Bank to interference from stockholders and to
an unwanted acquisition or other change in control of the Bank.
Subsequent to the formation of the Mutual Holding Company, there have been
changes in the policies of the OTS relating to mutual holding companies. In
addition, market conditions for the stocks of savings institutions and their
holding companies have improved. The Bank and Holding Company have also gained
experience in conducting stockholder meetings and other stockholder matters,
such as communications, press releases, and dividend payments. In light of the
foregoing, the Boards of Directors of the Mutual Holding Company, the Middle
Tier Holding Company and the Bank believe (i) that it is in the best interests
of such companies and their respective Members and Stockholders to reorganize
into the stock form of organization at this time, and (ii) that the most
feasible way to do so is through the Conversion and the Mergers.
The Bank formed the Middle Tier Holding Company which became the holding
company for the Bank pursuant to a reorganization completed in September of
1997. In the current transaction, (i) the Middle Tier Holding Company will
convert first into a federal stock holding company and then into an interim
federal stock savings bank, which will merge with and into the Bank, and (ii)
the Mutual Holding Company will convert into an interim federal stock savings
bank and merge with and into the Bank, pursuant to which Mutual Holding Company
will cease to exist and the shares of Middle Tier Holding Company Stock held by
the Mutual Holding Company will be canceled. The Mutual Holding Company will
cease to exist and a liquidation account will be established for the benefit of
depositor Members as of specified dates. Stock of the Middle Tier Holding
Company held by Public Shareholders shall be automatically converted into the
right to receive shares of Holding Company Common Stock based on an Exchange
Ratio plus cash in lieu of any fractional share interest.
In connection with the Conversion and Mergers, the Holding Company will offer
shares of Conversion Stock in the Offerings as provided herein. Shares of
Conversion Stock will be offered in a Subscription Offering in descending order
of priority to Eligible Account Holders, Tax-Qualified Employee Stock Benefit
Plans, Supplemental Eligible Account Holders and Other Members. Remaining shares
may be subscribed for by Public Stockholders in the Public Stockholders'
Offering. Any shares of Conversion Stock remaining unsold after the Subscription
Offering and the Public Stockholders' Offering will be offered for sale to the
public through a Community Offering and/or Syndicated Community Offering, as
determined by the Boards of Directors of the Holding Company and the Bank in
their sole discretion.
2
<PAGE>
In connection with the Conversion and Reorganization, the Bank will change
its name from "Roxborough-Manayunk Federal Savings Bank" to "Roxborough-Manayunk
Bank."
The Conversion is intended to provide support to the Bank's lending and
investment activities and thereby enhance the Bank's capabilities to serve the
borrowing and other financial needs of the communities it serves. The use of the
Holding Company will provide greater organizational flexibility and facilitate
possible acquisitions and diversification.
This Plan is subject to the approval of the OTS and also must be approved by
(1) at least a majority of the total number of votes eligible to be cast by
Voting Members of the Mutual Holding Company at the Special Meeting and (2)
holders of at least two-thirds of the shares of outstanding Middle Tier Holding
Company Common Stock at the Stockholders' Meeting. In addition, the Primary
Parties have conditioned the consummation of the Conversion and Reorganization
on the approval of the Plan by at least a majority of the votes cast, in person
or by proxy, by the Public Stockholders at the Stockholders' Meeting.
After the Conversion, the Bank will continue to be regulated by the OTS, as
its chartering authority, and by the FDIC, which insures the Bank's deposits. In
addition, the Bank will continue to be a member of the Federal Home Loan Bank
System, and all insured savings deposits will continue to be insured by the FDIC
up to the maximum amount provided by law.
2. DEFINITIONS
-----------
As used in this Plan, the terms set forth below have the following meanings:
Actual Purchase Price means the price per share at which the Conversion Stock
is ultimately sold by the Holding Company in the Offerings in accordance with
the terms hereof.
Affiliate means a Person who, directly or indirectly, through one or more
intermediaries, controls or is controlled by or is under common control with the
Person specified.
Associate, when used to indicate a relationship with any Person, means (i) a
corporation or organization (other than the Mutual Holding Company, the Middle
Tier Holding Company, the Bank, a majority-owned subsidiary of the Bank or the
Middle Tier Holding Company) of which such Person is a director, 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, provided, however, that such term
shall not include any Tax-Qualified Employee Stock Benefit Plan of the Holding
Company or the Bank in which such Person has a substantial beneficial interest
or serves as a trustee or in a similar fiduciary capacity, 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 the Holding Company
or the Bank or any of the subsidiaries of the foregoing.
3
<PAGE>
Bank means Roxborough-Manayunk Federal Savings Bank in its current stock form
as a subsidiary of the Middle Tier Holding Company or Roxborough-Manayunk Bank
as a subsidiary of the Holding Company following consummation of the Conversion
and Reorganization, as the context of the reference indicates.
Bank Common Stock means the common stock of the Bank, par value $1.00 per
share, which stock is not and will not be insured by the FDIC or any other
governmental authority.
Code means the Internal Revenue Code of 1986, as amended.
Community Offering means the offering for sale by the Holding Company of any
shares of Conversion Stock not subscribed for in the Subscription Offering to
(i) Public Stockholders, (ii) natural persons residing in the Local Community,
and (iii) such other Persons within or without the Commonwealth of Pennsylvania
as may be selected by the Holding Company and the Bank within their sole
discretion.
Control (including the terms "controlling," "controlled by," and "under
common control with") means the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise.
Conversion and Reorganization means (i) the conversion of the Mutual Holding
Company to an interim federal stock savings bank and the subsequent merger,
pursuant to which the Mutual Holding Company will cease to exist, (ii) the
conversion of Middle Tier Holding Company to an interim federal stock savings
bank and merger into Bank, and (iii) the issuance of Conversion Stock by the
Holding Company in the Offerings as provided herein.
Conversion Stock means the Holding Company Common Stock to be issued and sold
in the Offerings pursuant to the Plan of Conversion.
Deposit Account means savings and demand accounts, including passbook
accounts, money market deposit accounts and negotiable order of withdrawal
accounts, and certificates of deposit and other authorized accounts of the Bank
held by a Member.
Director, Officer and Employee means the terms as applied respectively to any
person who is a director, officer or employee of the Mutual Holding Company, the
Bank, the Middle Tier Holding Company, the Holding Company or any subsidiary
thereof.
Eligible Account Holder means any Person holding a Qualifying Deposit on the
Eligibility Record Date for purposes of determining subscription rights and
establishing subaccount balances in the liquidation account to be established
pursuant to the provision herein.
Eligibility Record Date means the date for determining Qualifying Deposits of
Eligible Account Holders and is the close of business on December 31, 1996.
4
<PAGE>
Estimated Price Range means the range of the estimated aggregate pro forma
market value of the Conversion Stock to be issued in the Offerings, as
determined by the Independent Appraiser in accordance with Section 4 hereof.
Exchange Ratio means the rate at which shares of Holding Company Common Stock
will be received by the Public Stockholders in exchange for their Middle Tier
Holding Company Common Stock. The exact rate shall be determined by the Mutual
Holding Company and the Holding Company in order to ensure that upon
consummation of the Conversion and Reorganization, the Public Stockholders will
own in the aggregate approximately the same percentage of the Holding Company
Common Stock to be outstanding upon completion of the Conversion and
Reorganization as the percentage of Middle Tier Holding Company Common Stock
owned by them in the aggregate on the Effective Date, as adjusted in accordance
with OTS policy to reflect any special or excess dividends declared by the Bank
and Middle Tier Holding Company and waived by the Mutual Holding Company, but
before giving effect to (a) cash paid in lieu of any fractional interests of
Middle Tier Holding Company Common Stock and (b) any shares of Conversion Stock
purchased by the Public Stockholders in the Offerings or tax-qualified employee
stock benefit plans thereafter.
Exchange Shares means the shares of Holding Company Common Stock to be issued
to the Public Stockholders in connection with the Middle Tier Holding Company
Merger ("Merger No.
2") with and into the Bank.
FDIC means the Federal Deposit Insurance Corporation or any successor
thereto.
Holding Company means Thistle Group Holding Co., a corporation newly organized
under the laws of the Commonwealth of Pennsylvania. At the completion of the
Reorganization, the Bank will become a wholly owned subsidiary of the Holding
Company.
Holding Company Common Stock means the Common Stock of the Holding Company,
par value $.10 per share, which stock cannot and will not be insured by the FDIC
or any other governmental authority.
Middle Tier Holding Company means Thistle Group Holding, Inc., a corporation
organized under the laws of the Commonwealth of Pennsylvania. Since the
completion of the September 1997 reorganization, the Middle Tier Holding Company
has held all of the outstanding capital stock of the Bank.
Middle Tier Holding Company Common Stock means the Common Stock of the Middle
Tier Holding Company, par value $.10 per share, which stock cannot and will not
be insured by the FDIC or any other governmental authority.
Independent Appraiser means the independent investment banking or financial
consulting firm retained by the Holding Company and the Bank to prepare an
appraisal of the estimated pro forma market value of the Conversion Stock.
5
<PAGE>
Initial Purchase Price means the price per share to be paid initially by
Participants for shares of Conversion Stock subscribed for in the Subscription
Offering, Public Stockholders for shares of Conversion Stock ordered in the
Public Stockholders' Offering and by Persons for shares of Conversion Stock
ordered in the Community Offering and/or Syndicated Community Offering.
Interim Bank No. 1 means an interim federal stock savings bank, which will be
formed as a result of the conversion of FJF Financial, M.H.C. into the stock
form of organization.
Interim Bank No. 2 means an interim federal stock savings bank, which will be
formed as a result of the conversion of Middle Tier Holding Company first into a
federal stock holding company and then into an interim federal stock savings
bank.
Interim Bank No. 3 mean an interim Federal stock savings bank wholly owned by
Holding Company, which will be merged with and into the Bank.
Local Community means all counties in which the Bank has its home office or a
branch office.
Member means any Person qualifying as a member of the Mutual Holding Company
in accordance with its mutual charter and bylaws and the laws of the United
States.
Merger No. 1 means the merger of Interim No. 2 (formerly Middle Tier Holding
Company) with and into the Bank.
Merger No. 2 means the merger of Interim No. 1 (formerly Mutual Holding
Company) with and into the Bank.
Merger No. 3 means the merger of Interim No. 3, a subsidiary of Holding
Company, with and into the Bank.
Mergers means the completion of Merger No. 1, Merger No. 2, and Merger No. 3.
Middle Tier Holding Company means Thistle Group Holdings, Inc., a
Pennsylvania Chartered corporation which currently owns 100% of the Bank.
Mutual Holding Company means FJF Financial, M.H.C. prior to its conversion
into an interim federal stock savings bank.
Offerings means the Subscription Offering, the Public Stockholders Offering,
the Community Offering and the Syndicated Community Offering, if applicable.
Officer means the president, vice-president, secretary, treasurer or
principal financial officer, comptroller or principal accounting officer and any
other person performing similar functions with respect to any organization
whether incorporated or unincorporated.
6
<PAGE>
Order Form means the form or forms provided by the Holding Company,
containing all such terms and provisions as set forth herein, to a Participant
or other Person by which Conversion Stock may be ordered in the Offerings.
Other Member means a Voting Member who is not an Eligible Account Holder or a
Supplemental Eligible Account Holder.
OTS means the Office of Thrift Supervision or any successor thereto.
Participant means any Eligible Account Holder, Tax-Qualified Employee Stock
Benefit Plan, Supplemental Eligible Account Holder and Other Member.
Person means an individual, a corporation, a partnership, an association, a
joint stock company, a trust, an unincorporated organization or a government or
any political subdivision thereof.
Plan and Plan of Conversion means this Plan of Conversion and Reorganization
and Plan of Merger as adopted by the Boards of Directors of the Mutual Holding
Company, the Middle Tier Holding Company and the Bank and any amendments hereto
approved as provided herein. The Board of Directors of Interim No. 1, Interim
No. 2 and Interim No. 3 shall adopt the Plans of Merger included as Appendices
hereto as soon as practicable following their organization.
Primary Parties means the Middle Tier Holding Company, Mutual Holding
Company, the Bank and the Holding Company.
Prospectus means the one or more documents to be used in offering the
Conversion Stock in the Offerings.
Public Stockholders means those Persons who own shares of Middle Tier Holding
Company Common Stock, excluding the Mutual Holding Company, as of the
Stockholder Voting Record Date.
Qualifying Deposit means the aggregate balance of all Deposit Accounts in the
Bank of (i) an Eligible Account Holder at the close of business on the
Eligibility Record Date, provided such aggregate balance is not less than $50,
and (ii) a Supplemental Eligible Account Holder at the close of business on the
Supplemental Eligibility Record Date, provided such aggregate balance is not
less than $50.
Resident means any person who, on the date designated for that category of
subscriber in the Plan, maintained a bona fide residence within the Local
Community and has manifested an intent to remain within the Local Community for
a period of time. The designated dates for Eligible Account Holders,
Supplemental Eligible Account Holders and Other Members are the Eligibility
Record Date, the Supplemental Eligibility Record Date and the Voting Record
Date, respectively. To the extent the person is a corporation or other business
entity, the principal
7
<PAGE>
place of business or headquarters must be within the Local Community in order to
qualify as a Resident. To the extent the person is a personal benefit plan, the
circumstances of the beneficiary shall apply with respect to this definition. In
the case of all other benefit plans, circumstances of the trustee shall be
examined for purposes of this definition. The Bank may utilize deposit or loan
records or such other evidence provided to it to make a determination as to
whether a person is a bona fide resident of the Local Community. Subscribers in
the Community Offering who are natural persons also will have a purchase
preference if they were residents of the Local Community on the date of the
Prospectus. In all cases, however, such determination shall be in the sole
discretion of the Bank and Holding Company.
SEC means the Securities and Exchange Commission.
Special Meeting means the Special Meeting of Members of the Mutual Holding
Company called for the purpose of submitting this Plan to the Members for their
approval, including any adjournments of such meeting.
Stockholders means those Persons who own shares of Holding Company Common
Stock.
Stockholders' Meeting means the annual or special meeting of Stockholders of
Middle Tier Holding Company called for the purpose of submitting this Plan to
the Stockholders for their approval, including any adjournments of such meeting.
Stockholder Voting Record Date means the date for determining the Public
Stockholders of the Middle Tier Holding Company eligible to vote at the
Stockholders' Meeting.
Subscription Offering means the offering of the Conversion Stock to
Participants.
Subscription Rights means nontransferable rights to subscribe for Conversion
Stock granted to Participants pursuant to the terms of this Plan.
Supplemental Eligible Account Holder means any Person holding a Qualifying
Deposit at the close of business on the Supplemental Eligibility Record Date.
Supplemental Eligibility Record Date, if applicable, means the date for
determining Qualifying Deposits of Supplemental Eligible Account Holders and
shall be required if the Eligibility Record Date is more than 15 months prior to
the date of the latest amendment to the Application for Conversion filed by the
Mutual Holding Company prior to approval of such application by the OTS. If
applicable, the Supplemental Eligibility Record Date shall be the last day of
the calendar quarter preceding OTS approval of the Application for Conversion
submitted by the Mutual Holding Company pursuant to this Plan of Conversion.
Syndicated Community Offering means 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 Community Offering.
8
<PAGE>
Tax-Qualified Employee Stock Benefit Plan means any defined benefit plan or
defined contribution plan, such as an employee stock ownership plan, stock bonus
plan, profit-sharing plan or other plan, which is established for the benefit of
the employees of the Holding Company and the Bank and which, with its related
trust, meets the requirements to be "qualified" under Section 401 of the Code as
from time to time in effect. A "Non-Tax-Qualified Employee Stock Benefit Plan"
is any defined benefit plan or defined contribution stock benefit plan which is
not so qualified.
Voting Member means a Person who at the close of business on the Voting
Record Date is entitled to vote as a Member of the Mutual Holding Company in
accordance with its mutual charter and bylaws.
Voting Record Date means the date or dates for determining the eligibility of
Members to vote at the Special Meeting.
3. GENERAL PROCEDURE FOR CONVERSION AND REORGANIZATION
---------------------------------------------------
A. An application for the Conversion and Reorganization, including the Plan
and all other requisite material (the "Application for Conversion"), shall be
submitted to the OTS for approval. The Mutual Holding Company, the Holding
Company, the Middle Tier Holding Company and the Bank also will cause notice of
the adoption of the Plan by the Boards of Directors of the Mutual Holding
Company, the Middle Tier Holding Company and the Bank to be given by publication
in a newspaper having general circulation in each community in which an office
of the Bank is located; and will cause copies of the Plan to be made available
at each office of the Mutual Holding Company, the Middle Tier Holding Company,
and the Bank for inspection by Members and Stockholders. The Mutual Holding
Company, the Middle Tier Holding Company, and the Bank will cause to be
published, in accordance with the requirements of applicable regulations of the
OTS, a notice of the filing with the OTS of an application to convert the Mutual
Holding Company from mutual to stock form.
B. Promptly following receipt of requisite approval of the OTS, this Plan
will be submitted to the Members for their consideration and approval at the
Special Meeting. The Mutual Holding Company may, at its option, mail to all
Members as of the Voting Record Date, at their last known address appearing on
the records of the Mutual Holding Company and the Bank, a proxy statement in
either long or summary form describing the Plan which will be submitted to a
vote of the Members at the Special Meeting. The Holding Company also shall mail
to all such Members (as well as other Participants) either a Prospectus and
Order Form for the purchase of Conversion Stock or a letter informing them of
their right to receive a Prospectus and Order Form and a postage prepaid card to
request such materials, subject to the provisions herein. The Plan must be
approved by the affirmative vote of at least a majority of the total number of
votes eligible to be cast by Voting Members at the Special Meeting.
9
<PAGE>
C. Subscription Rights to purchase shares of Conversion Stock will be issued
without payment therefor to Eligible Account Holders, Tax-Qualified Employee
Plans, Supplemental Eligible Account Holders and Other Members.
D. The Middle Tier Holding Company shall file preliminary proxy materials
with the OTS in order to seek the approval of the Plan by its Stockholders,
subject to dissenters' rights as set forth in Section 15. Promptly following
clearance of such proxy materials and the receipt of any other requisite
approval of the OTS, the Middle Tier Holding Company will mail definitive proxy
materials to all Stockholders as of the Stockholder Voting Record Date, at their
last known address appearing on the records of the Middle Tier Holding Company,
for their consideration and approval of this Plan at the Stockholders' Meeting.
The Plan must be approved by the holders of at least two-thirds of the
outstanding shares of Middle Tier Holding Company Common Stock as of the
Stockholder Voting Record Date. In addition, the Primary Parties have
conditioned the consummation of the Conversion and Reorganization on the
approval of the Plan by at least a majority of the votes cast, in person or by
proxy, by the Public Stockholders as of the Stockholder Voting Record Date at
the Stockholders' Meeting.
E. The Mutual Holding Company shall apply to convert to a federal interim
stock savings bank.
F. The Middle Tier Holding Company shall apply to convert first into a
federal stock holding company and then to a federal interim stock savings bank.
G. The Holding Company shall file a Registration Statement with the SEC to
register the Holding Company Common Stock to be issued in the Conversion and
Merger under the Securities Act of 1933, as amended, and shall register such
Holding Company Common Stock under any applicable state securities laws. Upon
registration and after the receipt of all required regulatory approvals, the
Conversion Stock shall be first offered for sale in a Subscription Offering to
Eligible Account Holders, Tax-Qualified Employee Stock Benefit Plans,
Supplemental Eligible Account Holders and Other Members. It is anticipated that
any shares of Conversion Stock remaining unsold after the Subscription Offering
will be sold first through the Public Stockholders' Offering and then through a
Community Offering and/or a Syndicated Community Offering. The purchase price
per share for the Conversion Stock shall be a uniform price determined in
accordance with the provisions herein. The Holding Company shall contribute to
the Bank an amount of the net proceeds received by the Holding Company from the
sale of Conversion Stock as shall be determined by the Boards of Directors of
the Holding Company and the Bank and as shall be approved by the OTS.
H. The Effective Date of the Conversion and Reorganization shall be the date
set forth in Section 27 hereof. Upon the effective date, the following
transactions shall occur:
(i) The Mutual Holding Company will convert into an interim federal stock
savings bank to be known as Interim Bank No. 1.
10
<PAGE>
(ii) Middle Tier Holding Company will adopt a federal stock holding
company charter and immediately thereafter an interim federal stock savings
bank charter to be known as Interim Bank No. 2; Interim Bank No. 2 will then
merge with and into the Bank ("Merger No. 1"), with the Bank as the
surviving entity.
(iii) Immediately following Merger No. 1, Interim Bank No. 1, formerly
the Mutual Holding Company, will merge with and into the Bank with the Bank
as the surviving entity ("Merger No. 2"). The shares of Middle Tier Holding
Company Common Stock previously held by the Mutual Holding Company (now
Interim Bank No. 1) will be canceled. Eligible members of the Mutual Holding
Company as of certain specified dates will be granted interests in a
liquidation account to be established by the Bank. The amount in the
liquidation account is the amount of dividends waived by the Mutual Holding
Company plus the greater or (a) 100% of retained earnings as of June 30,
1992 (the date of the latest statement of financial condition contained in
the final offering circular utilized in the Bank's initial stock offering),
or (b) 87.63% of Middle Tier Holding Company's total shareholders' equity as
reflected in its latest statement of financial condition.
(iv) Holding Company will form an interim corporation ("Interim Bank No.
3"), a new, wholly owned first-tier subsidiary with an interim federal stock
savings bank charter.
(v) Immediately following Merger No. 2, Interim Bank No. 3 will merge
with an into the Bank, with the Bank as the surviving entity ("Merger No.
3"). As a result of Merger No. 3, Bank stock deemed held by Public
Stockholders will be converted into Holding Company Common Stock based upon
the Exchange Ratio which is designed to ensure that the same Public
Stockholders will own, subject to certain adjustments, approximately the
same percentage of Holding Company Common Stock as the percentage of Middle
Tier Holding Company Common Stock owned by them immediately prior to the
Conversion and Reorganization before giving effect to (a) cash paid in lieu
of fractional shares and (b) any shares of Holding Company stock purchased
by Public Stockholders in the Offering and subject to any adjustment as a
result in a change in OTS policy.
(vi) The Holding Company shall sell the Conversion Stock in the
Offerings, as provided herein.
I. The Primary parties may retain and pay for the services of financial and
other advisors and investment bankers to assist in connection with any or all
aspects of the Conversion and Reorganization, including in connection with the
Offerings, the payment of fees to brokers and investment bankers for assisting
Persons in completing and/or submitting Order Forms. All fees, expenses,
retainers and similar items shall be reasonable.
11
<PAGE>
4. TOTAL NUMBER OF SHARES AND PURCHASE PRICE OF CONVERSION STOCK
-------------------------------------------------------------
A. The aggregate price at which shares of Conversion Stock shall be sold in
the Offerings shall be based on a pro forma valuation of the aggregate market
value of the Conversion Stock prepared by the Independent Appraiser. The
valuation shall be based on financial information relating to the Primary
Parties, market, financial and economic conditions, a comparison of the Primary
Parties with selected publicly held financial institutions and holding companies
such other factors as the Independent Appraiser may deem to be important. The
valuation shall be stated in terms of an Estimated Price Range, the maximum of
which shall generally be no more than 15% above the average of the minimum and
maximum of such price range and the minimum of which shall generally be no more
than 15% below such average. The valuation shall be updated during the
Conversion as market and financial conditions warrant and as may be required by
the OTS.
B. Based upon the independent valuation, the Boards of Directors of the
Primary Parties shall fix the Initial Purchase Price and the number (or range)
of shares of Conversion Stock ("Offering Range") to be offered in the Offerings.
The Actual Purchase Price and the total number of shares of Conversion Stock to
be issued in the Offerings shall be determined by the Boards of Directors of the
Primary Parties upon conclusion of the Offerings in consultation with the
Independent Appraiser and any financial advisor or investment banker retained by
the Primary Parties in connection therewith.
C. Subject to the approval of the OTS, the Estimated Price Range may be
increased or decreased prior to completion of the Conversion to reflect changes
in market, financial and economic conditions since the commencement of the
Offerings, and under such circumstances the Primary Parties may correspondingly
increase or decrease the total number of shares of Conversion Stock to be issued
in the Conversion to reflect any such change. Notwithstanding anything to the
contrary contained in this Plan, no resolicitation of subscribers shall be
required and subscribers shall not be permitted to modify or cancel their
subscriptions unless the aggregate funds received from the offer of the
Conversion Stock in the Conversion are less than the minimum or (excluding
purchases, if any, by the Holding Company's and the Bank's Tax- Qualified
Employee Stock Benefit Plans) more than 15% above the maximum of the Estimated
Price Range set forth in the Prospectus. In the event of an increase in the
total number of shares offered in the Conversion due to an increase in the
Estimated Price Range, the priority of share allocation shall be as set forth in
this Plan, provided, however, that such priority will have no effect whatsoever
on the ability of the Tax-Qualified Employee Stock Benefit Plans to purchase
additional shares pursuant to Section 4.D.
D. (i) In the event that Tax-Qualified Employee Stock Benefit Plans are
unable to purchase the number of shares subscribed for by such Tax-Qualified
Employee Stock Benefit Plans due to an oversubscription for shares of Conversion
Stock pursuant to Section 5 hereof, Tax- Qualified Employee Stock Benefit Plans
may purchase from the Holding Company, and the Holding Company may sell to the
Tax-Qualified Employee Stock Benefit Plans, such additional
12
<PAGE>
shares ("Additional Shares") of Holding Company Common Stock necessary to fill
the subscriptions of the Tax-Qualified Employee Stock Benefit Plans, provided
that such Additional Shares may not exceed 8% of the total number of shares of
Conversion Stock sold in the Conversion. The sale of Additional Shares, if
necessary, will occur contemporaneously with the sale of the Conversion Stock.
The sale of Additional Shares to Tax-Qualified Employee Stock Benefit Plans by
the Holding Company is conditioned upon receipt by the Holding Company of a
letter from the Independent Appraiser to the effect that such sale would not
have a material effect on the Conversion and Reorganization or the Actual
Purchase Price and the approval of the OTS. The ability of the Tax-Qualified
Employee Stock Benefit Plans to purchase up to an additional 8% of the total
number of shares of Conversion Stock sold in the Conversion shall not be
affected or limited in any manner by the priorities or purchase limitations
otherwise set forth in this Plan of Conversion.
(ii) Notwithstanding anything to the contrary contained in this Plan, if the
final valuation of the Conversion Stock exceeds the maximum of the Estimated
Price Range, up to 8% of the total number of shares of Conversion Stock sold in
the Conversion may be sold to Tax-Qualified Stock Benefit Plans prior to filling
any other orders for Conversion Stock from such shares in excess of the maximum
of the Estimated Price Range.
5. SUBSCRIPTION RIGHTS OF ELIGIBLE ACCOUNT HOLDERS
-----------------------------------------------
(FIRST PRIORITY)
----------------
A. Each Eligible Account Holder shall receive, without payment,
nontransferable Subscription Rights to purchase, subject to the further
limitations of Section 11 hereof, up to the greater of (i) the maximum purchase
limitation set forth in Section 11 hereof, (ii) one-tenth of 1% of the total
offering of shares of Conversion Stock in the Subscription Offering, and (iii)
15 times the product (rounded down to the next whole number) obtained by
multiplying the total number of shares of Conversion Stock offered in the
Subscription Offering 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 all Qualifying Deposits of all Eligible Account Holders, subject
to Section 14 hereof.
B. In the event of an oversubscription for shares of Conversion Stock
pursuant to the provisions herein, available shares shall be allocated among
subscribing Eligible Account Holders so as to permit each such Eligible Account
Holder, to the extent possible, to purchase a number of shares which will make
his or her total allocation equal to the lesser of the number of shares
subscribed for or 100 shares. Any available shares remaining after each such
subscribing Eligible Account Holder has been allocated the lesser of the number
of shares subscribed for or 100 shares shall be allocated among the subscribing
Eligible Account Holders in the proportion which the Qualifying Deposit of each
such subscribing Eligible Account Holder bears to the total Qualifying Deposits
of all such subscribing Eligible Account Holders whose orders are unfilled,
provided that no fractional shares shall be issued. Subscription Rights of
Eligible Account Holders who are also Directors or Officers and their Associates
shall be
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<PAGE>
subordinated to those of other Eligible Account Holders to the extent that they
are attributable to increased deposits during the one-year period preceding the
Eligibility Record Date.
6. SUBSCRIPTION RIGHTS OF THE TAX-QUALIFIED EMPLOYEE STOCK BENEFIT PLANS
-------------------------------------------------------------------------
(SECOND PRIORITY)
-----------------
Notwithstanding the purchase limitations discussed below, Tax-Qualified
Employee Stock Benefit Plans of the Holding Company and the Bank shall receive,
without payment, Subscription Rights to purchase in the aggregate up to 10% of
the Conversion Stock, including first priority to purchase any shares of
Conversion Stock to be issued in the Conversion and Reorganization as a result
of an increase in the Estimated Price Range after commencement of the
Subscription Offering and prior to completion of the Conversion and
Reorganization. Consistent with applicable laws, regulations, policies and
practices of the OTS, Tax-Qualified Employee Stock Benefit Plans may use funds
contributed by the Holding Company or the Bank and/or borrowed from an
independent third party to exercise such Subscription Rights, and the Holding
Company and the Bank may make scheduled discretionary contributions thereto,
provided that such contributions do not cause the Holding Company or the Bank to
fail to meet any applicable regulatory capital requirement.
7. SUBSCRIPTION RIGHTS OF SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS (THIRD
-------------------------------------------------------------------------
PRIORITY)
---------
A. In the event that the Eligibility Record Date is more than 15 months
prior to the date of the latest amendment to the Application for Conversion
filed prior to OTS approval, then, and only in that event, a Supplemental
Eligibility Record Date shall be set and each Supplemental Eligible Account
Holder shall, subject to the further limitations of Section 11 hereof, receive,
without payment, Subscription Rights to purchase up to the greater of (i) the
maximum purchase limitation set forth in Section 11 hereof, (ii) one-tenth of 1%
of the total offering of shares of Conversion Stock in the Subscription
Offering, and (iii) 15 times the product (rounded down to the next whole number)
obtained by multiplying the total number of shares of Conversion Stock offered
in the Subscription Offering by a fraction, of which the numerator is the amount
of the Qualifying Deposits of the Supplemental Eligible Account Holder and the
denominator is the total amount of all Qualifying Deposits of all Supplemental
Eligible Account Holders, subject to Section 14 hereof and the availability of
shares of Conversion Stock for purchase after taking into account the shares of
Conversion Stock purchased by Eligible Account Holders and Tax- Qualified
Employee Stock Benefit Plans though the exercise of Subscription Rights under
Sections 5 and 6 hereof.
B. In the event of an oversubscription for shares of Conversion Stock,
available shares shall be allocated among 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 sufficient to make his
total allocation (including the number of shares, if any, allocated in
accordance with Section 5.A) equal to the lesser of the number of shares
subscribed for or 100 shares. Any remaining available shares shall be allocated
among subscribing Supplemental
14
<PAGE>
Eligible Account Holders in the proportion that the Qualifying Deposits of each
bears to the total amount of the Qualifying Deposits of all such subscribing
Supplemental Eligible Account Holders whose orders are unfilled, provided that
no fractional shares shall be issued.
8. SUBSCRIPTION RIGHTS OF OTHER MEMBERS (FOURTH PRIORITY)
------------------------------------------------------
A. Each Other Member shall, subject to the further limitations of Section 11
hereof, receive, without payment, Subscription Rights to purchase up to the
greater of (i) the maximum purchase limitation set forth in Section 11 hereof
and (ii) one-tenth of 1% of the total offering of shares of Conversion Stock in
the Subscription Offering, in each case subject to Section 14 hereof and the
availability of shares of Conversion Stock for purchase after taking into
account the shares of Conversion Stock purchased by Eligible Account Holders,
Tax-Qualified Employee Stock Benefit Plans, and Supplemental Eligible Account
Holders, if any, through the exercise of Subscription Rights under Sections 5, 6
and 7 hereof.
B. If, pursuant to this Section, Other Members subscribe for a number of
shares of Conversion Stock in excess of the total number of shares of Conversion
Stock remaining, available shares shall be allocated among subscribing Other
Members so as to permit each such Other Members, to the extent possible, to
purchase a number of shares sufficient to make his total allocation equal to the
lesser of the number of shares subscribed or 100 shares. Any remaining available
shares shall be allocated among subscribing Other Members on a pro rata basis in
the same proportion as each such Other Member's subscription bears to the total
subscriptions of all such subscribing Other Members whose orders are unfilled,
provided that no fractional shares shall be issued.
9. COMMUNITY OFFERING, SYNDICATED COMMUNITY OFFERING AND OTHER OFFERINGS
---------------------------------------------------------------------
A. If less than the total number of shares of Conversion Stock are sold in
the Subscription Offering, it is anticipated that all remaining shares of
Conversion Stock shall, if practicable, be sold in a Community Offering and/or a
Syndicated Community Offering. Subject to the requirements set forth herein, the
manner in which the Conversion Stock is sold in the Community Offering and/or
the Syndicated Community Offering shall have as the objective the achievement of
a wide distribution of such stock, subject to the right of the Primary Parties,
in their absolute discretion, to accept or reject in whole or in part all orders
in the Community Offering and/or Syndicated Community Offering.
B. In the event of a Community Offering, all shares of Conversion Stock
which are not subscribed for in the Subscription Offering shall be offered for
sale by means of a direct community marketing program, which may provide for the
use of brokers, dealers or investment banking firms experienced in the sale of
financial institution securities. Any available shares in excess of those not
subscribed for in the Subscription Offering will be available for purchase by
members of the general public to whom a Prospectus is delivered by the Holding
Company or on its behalf, with preference first given to Public Stockholders as
of the Stockholder Voting
15
<PAGE>
Record Date and then to natural persons who are Residents of the Local Community
("Preferred Subscribers").
C. A Prospectus and Order Form shall be furnished to such Persons as the
Primary Parties may select in connection with the Community Offering, and each
order for Conversion Stock in the Community Offering shall be subject to the
absolute right of the Primary Parties 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 following completion of the Community Offering. Available shares
will be allocated first to each Preferred Subscriber whose order is accepted in
an amount equal to the lesser of 100 shares or the number of shares subscribed
for by each such Preferred Subscriber, if possible. Thereafter, unallocated
shares shall be allocated among the Preferred Subscribers whose accepted orders
remain unsatisfied in an equitable manner as determined by the Board of
Directors. If there are any shares remaining after all accepted orders by
Preferred Subscribers have been satisfied, any remaining shares shall be
allocated to other members of the general public who place orders in the
Community Offering, applying the same allocation described above for Preferred
Subscribers.
D. The maximum amount of Conversion Stock that any Person may purchase in
the Community Offering shall, subject to the further limitations of Section 11
hereof, not exceed $300,000 provided, however, that this amount may be decreased
or increased to up to 5% of the total offering of shares in the Conversion and
Reorganization, subject to any required regulatory approval but without the
further approval of Members of the Mutual Holding Company or the Stockholders of
the Bank, subject to the preferences set forth in Section 10.B and 10.C of this
Plan. The Primary Parties may commence the Community Offering concurrently with,
at any time during, or as soon as practicable after the end of, the Subscription
Offering and Public Stockholders' Offering, and the Community Offering must be
completed within 45 days after the completion of the Subscription Offering and
Public Stockholders' Offering, unless extended by the Primary Parties with any
required regulatory approval.
E. Subject to such terms, conditions and procedures as may be determined by
the Primary Parties, all shares of Conversion Stock not subscribed for in the
Subscription Offering and Public Stockholders Offering or ordered in the
Community Offering may be sold by a syndicate of broker-dealers to the general
pubic in a Syndicated Community Offering. Each order for Conversion Stock in the
Syndicated Community Offering shall be subject to the absolute right of the
Primary Parties 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 amount of Conversion Stock that any
Person may purchase in the Syndicated Community Offering shall, subject to the
further limitations of Section 11 hereof, not exceed $300,000 provided, however,
that this amount may be decreased or increased to up to 5% of the total offering
of shares in the Conversion and Reorganization, subject to any required
regulatory approval but without the further approval of Members of the Mutual
Holding Company or the Stockholders of the Bank. The Primary Parties may
commence the Syndicated Community Offering concurrently with, at any time
during, or as soon as practicable after the end of, the Subscription Offering,
the Public Stockholders' Offering and/or Community
16
<PAGE>
Offering. The Syndicated Community Offering must be completed within 45 days
after the completion of the Subscription Offering, unless extended by the
Primary Parties with any required regulatory approval.
F. If for any reason a Syndicated Community Offering of shares of Conversion
Stock not sold in the Subscription Offering and the 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, Public Stockholders' Offering,
Community Offering or Syndicated Community Offering, the Primary Parties 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 OTS.
10. LIMITATIONS ON SUBSCRIPTIONS AND PURCHASES OF CONVERSION STOCK
--------------------------------------------------------------
The following limitations shall apply to all purchases of Conversion
Stock:
A. The number of shares of Conversion Stock which may be purchased by any
Person (or persons through a single account), in the First Priority, Third
Priority and Fourth Priority in the Subscription Offering shall not exceed such
number of shares of Conversion Stock that when combined with Exchange Shares
received shall equal $300,000 of Holding Company Common Stock, except for
Tax-Qualified Employee Stock Benefit Plans, which in the aggregate may subscribe
for up to 8% of the Conversion Stock.
B. The number of shares of Conversion Stock which may be purchased by any
Person in the Public Stockholders, the Community and/or the Syndicated Community
Offerings shall not exceed such number of shares of Conversion Stock that when
combined with Exchange Shares received shall equal $300,000 of Holding Company
Common Stock.
C. Except for the Tax-Qualified Employee Stock Benefit Plans, the maximum
number of shares of Conversion Stock which may be purchased in all of the
combined categories of the Conversion and Reorganization by any Person (or
persons through a single account) together with any Associate or group of
persons Acting in Concert shall not exceed such number of shares of Conversion
Stock that when combined with Exchange Shares shall equal $904,000 of Holding
Company Common Stock.
D. The number of shares of Conversion Stock which Directors and Officers and
their Associates may purchase in the aggregate in the Offering shall not exceed
29% of the total number of shares of Conversion Stock sold in the Offerings,
including any shares which may be issued in the event of an increase in the
maximum of the Estimated Price Range to reflect changes in market, financial and
economic conditions after commencement of the Subscription Offering and prior to
completion of the Offerings.
E. No Person may purchase fewer than 25 shares of Conversion Stock in the
Offerings, to the extent such shares are available; provided, however, that if
the Actual Purchase Price is greater than $20.00 per share, such minimum number
of shares shall be adjusted so that the aggregate Actual Purchase Price for such
minimum shares will not exceed $500.00.
17
<PAGE>
F. For purposes of the foregoing limitations and the determination of
Subscription Rights, (i) Directors, Officers and Employees shall not be deemed
to be Associates or a group acting in concert solely as a result of their
capacities as such, (ii) shares purchased by Tax-Qualified Employee Stock
Benefit Plans shall not be attributable to the individual trustees or
beneficiaries of any such plan for purposes of determining compliance with the
limitations set forth in this Section, (iii) shares purchased by Tax-Qualified
Employee Stock Benefit Plans shall not be attributable to the individual
trustees or beneficiaries of any such plan for purposes of determining
compliance with the limitation set forth in this Section, and (iv) Exchange
Shares shall be valued at the Actual Purchase Price.
G. Subject to any required regulatory approval and the requirements of
applicable laws and regulations, but without further approval of the Members of
the Mutual Holding Company or the Stockholders of the Bank, the Primary Parties
may increase or decrease the individual or overall purchase limitations set
forth herein to a percentage which does not exceed 5% of the total shares of
Holding Company Common Stock issued in the Conversion and Reorganization whether
prior to, during or after the Subscription Offering, Community Offering and/or
Syndicated Community Offering. Notwithstanding the foregoing, the maximum
purchase limitation may be increased up to 9.99% provided that orders for
exceeding 5% of the shares being offered shall not exceed, in the aggregate, 10%
of the total offering. In the event that the individual or overall purchase
limitations are increased after commencement of the Subscription Offering or any
other offering, the Primary Parties shall permit any Person who subscribed for
the maximum number of shares of Conversion Stock (plus certain large subscribers
as determined in the sole discretion of the Primary Parties) to purchase an
additional number of shares, so that such Person shall be permitted to subscribe
for the then maximum number of shares permitted to be subscribed for by such
Person, subject to the rights and preferences of any Person who has priority
Subscription Rights. In the event that the individual or overall purchase
limitations are decreased after commencement of the Subscription Offering or any
other offering, the orders of any Person who subscribed for more than the new
purchase limitation 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.
H. The Primary Parties shall have the right to take all such action as they
may, in their sole discretion, deem necessary, appropriate or advisable in order
to monitor and enforce the terms, conditions, limitations and restrictions
contained in this Section and elsewhere in this Plan and the terms, conditions
and representations contained in the Order Form, including, but not limited to,
the absolute right (subject only to any necessary regulatory approvals or
concurrences) to reject, limit or revoke acceptance of any subscription or order
and to delay, terminate or refuse to consummate any sale of Conversion Stock
which they believe might violate, or is designed to, or is any part of a plan
to, evade or circumvent such terms, conditions, limitations, restrictions and
representations. Any such action shall be final, conclusive and binding on all
persons, and the Primary Parties and their respective Boards shall be free from
any liability to any Person on account of any such action.
I. Notwithstanding anything to the contrary contained in this Plan, except
as may otherwise be required by the OTS, the Public Stockholders will not have
to sell any Mid-Tier Common Stock or be limited in receiving Exchange Shares
even if their ownership of Mid-Tier Common Stock when converted into Exchange
Shares pursuant to the MHC Merger would exceed an
18
<PAGE>
applicable purchase limitation; however, they might be precluded from purchasing
any Conversion Stock in the Offerings.
11. TIMING OF SUBSCRIPTION OFFERING; MANNER OF EXERCISING SUBSCRIPTION RIGHTS
-------------------------------------------------------------------------
AND ORDER FORMS
---------------
A. The Subscription Offering may be commenced concurrently with or at any
time after the mailing to Voting Members of the Mutual Holding Company and
Stockholders of the Bank of the proxy statement(s) to be used in connection with
the Special Meeting and the Stockholders' Meeting. The Subscription Offering may
be closed before the Special Meeting and the Stockholders' Meeting, provided
that the offer and sale of the Conversion Stock shall be conditioned upon the
approval of the Plan by the Voting Members of the Mutual Holding Company and the
Stockholders of the Bank at the Special Meeting and the Stockholders' Meeting,
respectively.
B. The exact timing of the commencement of the Subscription Offering shall
be determined by the Primary Parties in consultation with the Independent
Appraiser and any financial or advisory or investment banking firm retained by
them in connection with the Conversion. The Primary Parties may consider a
number of factors, including, but not limited to, their current and projected
future earnings, local and national economic conditions, and the prevailing
market for stocks in general and stocks of financial institutions in particular.
The Primary Parties shall have the right to withdraw, terminate, suspend, delay,
revoke or modify any such Subscription Offering, at any time and from time to
time, as they in their sole discretion may determine, without liability to any
Person, subject to compliance with applicable securities laws and any necessary
regulatory approval or concurrence.
C. The Primary Parties shall, promptly after the SEC has declared the
Registration Statement, which includes the Prospectus, effective and all
required regulatory approvals have been obtained, distribute or make available
the Prospectus, together with Order Forms for the purchase of Conversion Stock,
to all Participants for the purpose of enabling them to exercise their
respective Subscription Rights, subject to Section 14 hereof. The Primary
Parties may elect to mail a Prospectus and Order Form only to those Participants
who request such materials by returning a postage-paid card to the Primary
Parties by a date specified in the letter informing them of their Subscription
Rights. Under such circumstances, the Subscription Offering shall not be closed
until the expiration of 30 days after the mailing by the Primary Parties of the
postage-paid card to Participants.
D. A single Order Form for all Deposit Accounts maintained with the Bank by
an Eligible Account Holder, Supplemental Eligible Account Holder and any Other
Member may be furnished, irrespective of the number of Deposit Accounts
maintained with the Bank on the Eligibility Record Date and Supplemental
Eligibility Record Date and the Voting Record Date, respectively.
19
<PAGE>
E. The recipient of an Order Form shall have no less than 20 days and no
more than 45 days from the date of mailing of the Order Form (with the exact
termination date to be set forth on the Order Form) to properly complete and
execute the Order Form and deliver it to the Primary Parties. The Primary
Parties may extend such period by such amount of time as they determine is
appropriate. Failure of any Participant to deliver a properly executed Order
Form to the Primary Parties, along with payment (or authorization for payment by
withdrawal) for the shares of Conversion Stock subscribed for, within time
limits prescribed, shall be deemed a waiver and release by such person of any
rights to subscribe for shares of Conversion Stock. Each Participant shall be
required to confirm to the Primary Parties by executing an Order Form that such
Person has fully complied with all of the terms, conditions, limitations and
restrictions in the Plan.
F. The Primary Parties shall have the absolute right, in their sole
discretion and without liability to any Participant or other Person, to reject
any Order Form, including, but not limited to, any Order Form that is (i)
improperly completed or executed; (ii) not timely received; (iii) not
accompanied by the proper payment (or authorization of withdrawal for payment)
or, in the case of institutional investors in the Community Offering, not
accompanied by an irrevocable order together with a legally binding commitment
to pay the full amount of the purchase price prior to 48 hours before the
completion of the Offerings; or (iv) submitted by a Person whose representations
the Primary Parties believe to be false or who they otherwise believe, either
alone, or acting in concert with others, is violating, evading or circumventing,
or intends to violate, evade or circumvent, the terms and conditions of the
Plan. The Primary Parties may, but will not be required to, waive any
irregularity on any Order Form or may require the submission of corrected Order
Forms or the remittance of full payment for shares of Conversion Stock by such
date as they may specify. The interpretation of the Primary Parties of the terms
and conditions of the Order Forms shall be final and conclusive.
12. PAYMENT FOR CONVERSION STOCK
----------------------------
A. Payment for shares of Conversion Stock subscribed for by Participants in
the Subscription Offering and payment for shares of Conversion Stock ordered by
Persons in the Stockholders' Offering, Community Offering and Syndicated
Community Offering (if applicable) shall be equal to the Initial Purchase Price
multiplied by the number of shares which are being subscribed for or ordered,
respectively. Such payment may be made in cash, if delivered in person, or by
check or money order at the time the Order Form is delivered to the Primary
Parties. In addition, the Primary Parties may elect to provide Participants
and/or other Persons who have a Deposit Account with the Bank the opportunity to
pay for shares of Conversion Stock by authorizing the Bank to withdraw from such
Deposit Account an amount equal to the aggregate Purchase Price of such shares.
If the Actual Purchase Price is less than the Initial Purchase Price, the
Primary Parties shall refund the difference to all Participants and other
Persons, unless the Primary Parties choose to provide Participants and other
Persons the opportunity on the Order Form to elect to have such difference
applied to the purchase of additional whole shares of Conversion Stock. If the
Actual Purchase Price is more than the Initial Purchase Price, the Primary
Parties shall reduce the number of shares of Conversion Stock ordered by
Participants and other Persons and refund any remaining amount which is
attributable to a fractional share interest, unless the Primary Parties choose
to provide
20
<PAGE>
Participants and other Persons the opportunity to increase the amount of funds
submitted to pay for their shares of Conversion Stock.
B. Consistent with applicable laws and regulations and policies and
practices of the OTS, payment for shares of Conversion Stock subscribed for by
Tax-Qualified Employee Stock Benefit Plans may be made with funds contributed by
the Holding Company and/or funds obtained pursuant to a loan from an independent
third party pursuant to a loan commitment which is in force from the time that
any such plan submits an Order Form until the closing of the transactions
contemplated hereby.
C. If a Participant or other Person authorizes the Bank to withdraw the
amount of the Initial Purchase Price from his or her Deposit Account, the Bank
shall have the right to make such withdrawal or to freeze funds equal to the
aggregate Initial Purchase Price upon receipt of the Order Form. Notwithstanding
any regulatory provisions regarding penalties for early withdrawals from
certificate accounts, the Bank may allow payment by means of withdrawal from
certificate accounts without the assessment of such penalties. In the case of an
early withdrawal of only a portion of such account, the certificate evidencing
such account shall be canceled if any applicable minimum balance requirement
ceases to be met. In such case, the remaining balance will be returned to the
depositor. However, where any applicable minimum balance is maintained in such
certificate account, the rate of return on the balance of the certificate
account shall remain the same as prior to such early withdrawal. This waiver of
the early withdrawal penalty applies only to withdrawals made in connection with
the purchase of Conversion Stock and is entirely within the discretion of the
Primary Parties.
D. The Bank shall pay interest, at not less than the passbook rate, for all
amounts paid in cash, by check or money order to purchase shares of Conversion
Stock in the Subscription Offering, Public Stockholders' Offering and the
Community Offering from the date payment is received until the date the
Conversion and Reorganization is completed or terminated.
E. The Bank shall not knowingly loan funds or otherwise extend credit to any
Participant or other Person to purchase Conversion Stock.
F. Each share of Conversion Stock shall be non-assessable upon payment in
full of the Actual Purchase Price.
13. ACCOUNTHOLDERS IN NONQUALIFIED STATES OR FOREIGN COUNTRIES
----------------------------------------------------------
The Primary Parties shall make reasonable efforts to comply with the
securities laws of all jurisdictions in the United States in which Participants
reside. However, no Participant will be offered or receive any Conversion Stock
under the Plan if such Participant resides in a foreign country or resides in a
jurisdiction of the United States with respect to which any of the following
apply; (a) there are few Participants otherwise eligible to subscribe for shares
under this Plan who reside in such jurisdiction; (b) the granting of
Subscription Rights or the offer or sale of shares of Conversion Stock to such
Participants would require any of the Primary Parties
21
<PAGE>
or their respective Directors and Officers, under the laws of such jurisdiction,
to register as a broker-dealer, salesman or selling agent or to register or
otherwise qualify the Conversion Stock for sale in such jurisdiction, or any of
the Primary Parties would be required to qualify as a foreign corporation or
file a consent to service of process in such jurisdiction; or (c) such
registration, qualification or filing in the judgment of the Primary Parties
would be impracticable or unduly burdensome for reasons of cost or otherwise.
14. DISSENTERS' RIGHTS
------------------
Under the Pennsylvania Business Corporation Law, stockholders of the Middle
Tier Holding Company shall have dissenters' rights of appraisal in connection
with their vote on the Conversion and Reorganization.
15. VOTING RIGHTS OF STOCKHOLDERS
-----------------------------
Following consummation of the Conversion and Reorganization, voting rights
with respect to the Bank shall be held and exercised exclusively by the Holding
Company as holder of all of the Bank's outstanding voting capital stock, and
voting rights with respect to the Holding Company shall be held and exercised
exclusively by the holders of the Holding Company's voting capital stock.
16. LIQUIDATION ACCOUNT
-------------------
A. At the time of the Merger No. 2, the Bank shall establish a liquidation
account in an amount equal to the amount of the dividends from Bank Common Stock
and Middle Tier Holding Company Common Stock waived by the Mutual Holding
Company plus the greater of (i) the retained earnings of the Bank as of the date
of the latest statement of financial condition contained in the final offering
circular utilized in the Bank's initial public offering, or (ii) 87.62% of the
Middle Tier Holding Company's total stockholders' equity as reflected in its
latest statement of financial condition contained in the final Prospectus
utilized in the Conversion and Reorganization. The function of the liquidation
account will be to preserve the rights of certain holders of Deposit Accounts in
the Bank who maintain such accounts in the Bank following the Conversion and
Reorganization to priority to distributions in the unlikely event of a
liquidation of the Bank subsequent to the Conversion and Reorganization.
B. The liquidation account shall be maintained for the benefit of Eligible
Account Holders and Supplemental Eligible Account Holders, if any, who maintain
their Deposit Accounts in the Bank after the Conversion and Reorganization. Each
such account holder will, with respect to each Deposit Account held, have a
related inchoate interest in a portion of the liquidation account balance, which
interest will be referred to in this Section 16 as the "subaccount balance." All
Deposit Accounts having the same social security number will be aggregated for
purposes of determining the initial subaccount balance with respect to such
Deposit Accounts, except as provided in this Section.
22
<PAGE>
C. In the event of a complete liquidation of the Bank subsequent to the
Conversion and Reorganization (and only in such event), each Eligible Account
Holder and Supplemental Eligible Account Holder, if any, shall be entitled to
receive a liquidation distribution from the liquidation account in the amount of
the then current subaccount balances for Deposit Accounts then held (adjusted as
described below) before any liquidation distribution may be made with respect to
the capital stock of the Bank. No merger, consolidation, sale of bulk assets or
similar combination transaction with another FDIC-insured institution in which
the Bank is not the surviving entity shall be considered a complete liquidation
for this purpose. In any merger or consolidation transaction, the liquidation
account shall be assumed by the surviving entity.
D. The initial subaccount balance for a Deposit Account held by an Eligible
Account Holder and Supplemental Eligible Account Holder, if any, shall be
determined by multiplying the opening balance in the liquidation account by a
fraction, of which the numerator is the amount of the Qualifying Deposits of
such account holder and the denominator is the total amount of Qualifying
Deposits of all Eligible Account Holders and Supplemental Eligible Account
Holders, if any. For Deposit Accounts in existence at both the Eligibility
Record Date and the Supplemental Eligibility Record Date, if any, separate
initial subaccount balances shall be determined on the basis of the Qualifying
Deposits in such Deposit Accounts on each such record date. Initial subaccount
balances shall not be increased, and shall be subject to downward adjustment as
provided below.
E. If the aggregate deposit balance in the Deposit Account(s) of any
Eligible Account Holder or Supplemental Eligible Account Holder, if any, at the
close of business on any June 30 annual closing date is less than the lesser of
(a) the aggregate deposit balance in such Deposit Account(s) at the close of
business on any other annual closing date subsequent to such record dates or (b)
the aggregate deposit balance in such Deposit Account(s) as of the Eligibility
Record Date or the Supplemental Eligibility Record Date, the subaccount balance
for such Deposit Accounts(s) shall be adjusted by reducing such subaccount
balance in an amount proportionate to the reduction in such deposit balance. In
the event of such a downward adjustment, the subaccount balance shall not be
subsequently increased, notwithstanding any subsequent increase in the deposit
balance of the related Deposit Account(s). The subaccount balance of an Eligible
Account Holder or Supplemental Eligible Account Holder, if any, will be reduced
to zero if the Account Holder ceases to maintain a Deposit Account at the Bank
that has the same social security number as appeared on his Deposit Account(s)
at the Eligibility Record Date or, if applicable, the Supplemental Eligibility
Record Date.
F. Subsequent to the Conversion and Reorganization, the Bank may not pay
cash dividends generally on deposit accounts and/or capital stock of the Bank,
if such dividend or repurchase would reduce the Bank's regulatory capital below
the aggregate amount of the then current subaccount balances for Deposit
Accounts then held; otherwise, the existence of the liquidation account shall
not operate to restrict the use or application of any of the net worth accounts
of the Bank.
23
<PAGE>
G. For purposes of this Section, a Deposit Account includes a predecessor or
successor account which is held by an Account Holder with the same social
security number.
17. TRANSFER OF DEPOSIT ACCOUNTS
----------------------------
Each Deposit Account in the Bank at the time of the consummation of the
Conversion and Reorganization shall become, without further action by the
holder, a Deposit Account in the Bank equivalent in withdrawable amount to the
withdrawal value (as adjusted to give effect to any withdrawal made for the
purchase of Conversion Stock), and subject to the same terms and conditions
(except as to voting and liquidation rights) as such Deposit Account in the Bank
immediately preceding consummation of the Conversion and Reorganization. Holders
of Deposit Accounts in the Bank shall not, as such holders, have any voting
rights.
18. REQUIREMENTS FOLLOWING CONVERSION AND REORGANIZATION FOR REGISTRATION,
-------------------------------------------------------------------------
MARKET MAKING AND STOCK EXCHANGE LISTING
----------------------------------------
In connection with the Conversion and Reorganization, the Holding Company
shall register the Holding Company Common Stock pursuant to Section 12(g) of the
Securities Exchange Act of 1934, as amended, and shall undertake not to
deregister such stock for a period of three years thereafter. The Holding
Company also shall use its best efforts to (i) encourage and assist a market
maker to establish and maintain a market for the Holding Company Common Stock
and (ii) list the Holding Company Common Stock on a national or regional
securities exchange or to have quotations for such stock disseminated on the
National Association of Securities Dealers Automated Quotation System.
19. DIRECTORS AND OFFICERS OF THE BANK AND HOLDING COMPANY
------------------------------------------------------
Each person serving as a Director or Officer of the Bank or the Holding
Company at the time of the Conversion and Reorganization shall continue to serve
as a Director or Officer of the Bank or the Holding Company for the balance of
the term for which the person was elected prior to the Conversion and
Reorganization, and until a successor is elected and qualified.
20. REQUIREMENTS FOR STOCK PURCHASES BY DIRECTORS AND OFFICERS FOLLOWING THE
-------------------------------------------------------------------------
CONVERSION AND REORGANIZATION
-----------------------------
For a period of three years following the Conversion and Reorganization, the
Directors and Officers of the Holding Company and the Bank and their Associates
may not purchase, without the prior written approval of the OTS, Holding Company
Common Stock except from a broker-dealer registered with the SEC. This
prohibition shall not apply, however, to (i) a negotiated transaction arrived at
by direct negotiation between buyer and seller and involving more than 1% of the
outstanding Holding Company Common Stock and (ii) purchases of stock made by and
held by any Tax-Qualified Employee Stock Benefit Plan (and purchases of stock
made by and held by any Non-Tax-Qualified Employee Stock Benefit Plan following
the receipt of stockholder approval of such plan) which may be attributable to
individual officers or directors.
24
<PAGE>
The foregoing restriction on purchases of Holding Company Common Stock shall
be in addition to any restrictions that may be imposed by federal and state
securities laws.
21. RESTRICTIONS ON TRANSFER OF STOCK
---------------------------------
All shares of the Conversion Stock which are purchased by Persons other than
Directors and Officers shall be transferable without restriction, except in
connection with a transaction proscribed by Section 22 of this Plan. Shares of
Conversion Stock purchased by Directors and Officers of the Holding Company and
the Bank on original issue from the Holding Company (by subscription or
otherwise) shall be subject to the restriction that such shares shall not be
sold or otherwise disposed of for value for a period of one year following the
date of purchase, except for any disposition of such shares following the death
of the original purchaser or pursuant to any merger or similar transaction
approved by the OTS. The shares of Conversion Stock issued by the Holding
Company to Directors and Officers shall bear the following legend giving
appropriate notice of such one-year restriction.
The shares of stock evidenced by this Certificate are
restricted as to transfer for a period of one year from
the date of this Certificate pursuant to Part 563b of
the Rules and Regulations of the Office of Thrift
Supervision. These shares may not be transferred during
such one-year period without a legal opinion of counsel
for the Company that said transfer is permissible under
the provisions of applicable law and regulation. This
restrictive legend shall be deemed null and void after
one year from the date of this Certificate.
In addition, the Holding Company shall give appropriate instructions to the
transfer agent for the Holding Company Common Stock with respect to the
applicable restrictions relating to the transfer of restricted stock. Any shares
issued at a later date as a stock dividend, stock split or otherwise with
respect to any such restricted stock shall be subject to the same holding period
restrictions as may then be applicable to such restricted stock.
The foregoing restriction on transfer shall be in addition to any
restrictions on transfer that may be imposed by federal and state securities
laws.
22. RESTRICTIONS ON ACQUISITION OF STOCK OF THE HOLDING COMPANY
-----------------------------------------------------------
The articles of incorporation of the Holding Company shall prohibit any
Person together with Associates or groups of Persons acting in concert from
offering to acquire or acquiring, directly or indirectly, beneficial ownership
of more than 10% of any class of equity securities of the Holding Company, or of
securities convertible into more than 10% of any such class, for five years
following completion of the Conversion and Reorganization. The articles of
incorporation of the Holding Company also shall provide that all equity
securities beneficially owned by any Person in excess of 10% of any class of
equity securities during such five-year period shall be considered "excess
shares," and that excess shares shall not be counted as shares entitled to vote
and shall not be voted by any Person or counted as voting shares in connection
with any matters
25
<PAGE>
submitted to the stockholders for a vote. The foregoing restrictions shall not
apply to (i) any offer with a view toward public resale made exclusively to the
Holding Company by underwriters or a selling group acting on this behalf, (ii)
the purchase of shares by a Tax- Qualified Employee Stock Benefit Plan
established for the benefit of the employees of the Holding Company and its
subsidiaries which is exempt from approval requirements under 12 C.F.R.
ss.574.3(c)(1)(vi) or any successor thereto, and (iii) any offer or acquisition
approved in advance by the affirmative vote of two-thirds of the entire Board of
Directors of the Holding Company. Directors, Officers or Employees of the
Holding Company or the Bank or any subsidiary thereof shall not be deemed to be
Associates or a group acting in concert with respect to their individual
acquisition of any class of equity securities of the Holding Company solely as a
result of their capacities as such.
23. TAX RULINGS OR OPINIONS
-----------------------
Consummation of the Conversion and Reorganization is conditioned upon prior
receipt by the Primary Parties of either a ruling or an opinion of counsel with
respect to federal tax laws, and either a ruling or an opinion of counsel with
respect to Pennsylvania tax laws, to the effect that consummation of the
transactions contemplated hereby will not result in a taxable reorganization
under the provisions of the applicable codes or otherwise result in any material
adverse tax consequences to the Primary Parties or to account holders receiving
Subscription Rights before or after the Conversion and Reorganization, except in
each case to the extent, if any, that Subscription Rights are deemed to have
fair market value on the date such rights are issued.
24. STOCK COMPENSATION PLANS
------------------------
A. The Holding Company and the Bank are authorized to adopt Tax-Qualified
Employee Stock Benefit Plans in connection with the Conversion and
Reorganization, including without limitation an employee stock ownership plan.
B. The Holding Company and the Bank also are authorized to adopt stock
option plans, restricted stock grant plans and other Non-Tax-Qualified Employee
Stock Benefit Plans, provided that no stock options shall be granted, and no
shares of Conversion Stock shall be purchased, pursuant to any of such plans
prior to the earlier of (i) the one-year anniversary of the consummation of the
Conversion and Reorganization or (ii) the receipt of stockholder approval of
such plans at either the annual or special meeting of stockholders of the
Holding Company to be held not earlier than six months after the completion of
the Conversion and Reorganization.
C. Existing as well as any newly created Tax-Qualified Employee Stock
Benefit Plans may purchase shares of Conversion Stock in the Offerings, to the
extent permitted by the terms of such benefit plans and this Plan.
26
<PAGE>
25. DIVIDEND AND REPURCHASE RESTRICTIONS ON STOCK
---------------------------------------------
A. Except as may otherwise may be permitted by the OTS, the Holding Company
may not repurchase any shares of its capital stock during the first year
following consummation of the Conversion and Reorganization. During the second
and third years following consummation of the Conversion and Reorganization, the
Holding Company may not repurchase any of its capital stock from any person,
other than pursuant to (i) an offer to repurchase made by the Holding Company on
a pro rata basis to all of its stockholders and which is approved by the OTS,
(ii) the repurchase of qualifying shares of a director, if any, (iii) purchases
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, or (iv) a
repurchase program approved by the OTS.
B. The Bank may not declare or pay a cash dividend on, or repurchase any of,
its capital stock if the effect thereof would cause the regulatory capital of
the Bank to be reduced below the amount required for the liquidation account.
Any dividend declared or paid on, or repurchase of, the Bank's capital stock
also shall be in compliance with Section 563.134 of the Regulations Applicable
to All Savings Associations, or any successor thereto.
C. Notwithstanding anything to the contrary set forth herein, the Holding
Company may repurchase its capital stock to the extent and subject to the
requirements set forth in Section 563b.3(g)(3) of the Regulations Applicable to
All Savings Associations, or any successor thereto, or as otherwise may be
approved by the OTS.
26. PAYMENT OF FEES TO BROKERS
--------------------------
The Primary Parties may elect to offer to pay fees on a per share basis to
securities brokers who assist purchasers of Conversion Stock in the Offerings.
27. EFFECTIVE DATE
--------------
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 Combination with the OTS with respect to the Mergers, (ii) the closing of the
issuance of the shares of Conversion Stock in the Offerings. The filing of
Articles of Combination relating to the Mergers and the closing of the issuance
of shares of Conversion Stock in the Offerings shall not occur until all
requisite regulatory, Member and Stockholder approvals 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 Mergers and the sale of shares of Conversion Stock in the Offerings shall
occur consecutively and substantially simultaneously.
28. AMENDMENT OR TERMINATION OF THE PLAN
------------------------------------
If deemed necessary or desirable by the Boards of Directors of the Primary
Parties, this Plan may be substantively amended, as a result of comments from
regulatory authorities or otherwise,
27
<PAGE>
at any time prior to the solicitation of proxies from members and Stockholders
to vote on the Plan and at any time thereafter with the concurrence of the OTS.
Any amendment to this Plan made after approval by the Members and Stockholders
with the concurrence of the OTS shall not necessitate further approval by the
Members or Stockholders unless otherwise required by the OTS. This Plan shall
terminate if the sale of all shares of Conversion Stock is not completed within
24 months from the date of the Special Meeting. Prior to the earlier of the
Special Meeting and the Stockholders' Meeting, this Plan may be terminated by
the Boards of Directors of the Primary Parties without approval of the OTS;
after the Special Meeting or the Stockholder's Meeting, the Boards of Directors
may terminate this Plan only with the approval of the OTS.
29. INTERPRETATION OF THE PLAN
--------------------------
All interpretations of this Plan and application of its provisions to
particular circumstances by a majority of each of the Boards of Directors of the
Primary Parties shall be final, subject to the authority of the OTS.
28
<PAGE>
APPENDIX A
MERGER NO. 2
Plan of Merger Between Interim Bank No. 1
(Formerly MHC) and the Bank
PLAN OF MERGER, dated as of __________ __, 1998 ("Plan of Merger") by and
between Interim Bank No. 1, an interim federal stock savings bank, which was
formerly FJF Financial, M.H.C. ("Interim Bank No. 1") and Roxborough-Manayunk
Federal Savings Bank, a federal stock savings bank (the "Bank"). Unless
otherwise noted, defined terms shall have the same meaning as those set forth in
the Plan of Conversion and Reorganization of the Mutual Holding Company and Plan
of Merger between the Mutual Holding Company, the Middle Tier Holding Company
and the Bank ("Plan") (of which this Plan of Merger is Appendix A thereto).
WITNESSETH:
WHEREAS, On December 31, 1992, Roxborough-Manayunk Federal Savings and Loan
Association (the "Association"), a federally chartered mutual savings
institution reorganized into the mutual holding company form of organization
whereby (1) the Association organized a federally chartered, stock savings bank,
Roxborough-Manayunk Federal Savings Bank (the "Bank") as a wholly owned
subsidiary and transferred substantially all of its assets and liabilities to
the Bank in exchange for a majority of the Bank's Common Stock, and reorganized
itself into a federally chartered mutual holding company, and (ii) sold the
remaining shares of the Bank Common Stock to the public;
WHEREAS, On September 30, 1997, the Bank completed a reorganization in which
the Bank became a wholly owned subsidiary of a stock middle tier holding company
known as Thistle Group Holdings, Inc., whereby shareholders of the Bank became
shareholders of the Holding Company;
WHEREAS, the Board of Directors of the Mutual Holding Company has determined
that it is in the best interests of the Mutual Holding Company and its members
to convert from the mutual to stock form of organization;
WHEREAS, the Bank is currently a wholly owned subsidiary of the Middle Tier
Holding Company, which is currently a majority owned subsidiary of the Mutual
Holding Company;
WHEREAS, pursuant to the Plan, the Mutual Holding Company will convert into
an interim federal stock savings bank to be known as Interim Bank No. 1;
WHEREAS, Middle Tier Holding Company will adopt a federal stock holding
company charter and immediately thereafter an interim federal stock savings bank
charter to be known as
A - 1
<PAGE>
Interim Bank No. 2; Interim Bank No. 2 will then merge with and into the Bank
("Merger No. 1"), with the Bank as the surviving entity;
WHEREAS, immediately following Merger No. 1, Interim Bank No. 1, formerly
the Mutual Holding Company, will merge with and into the Bank with the Bank as
the surviving entity ("Merger No. 2"). The shares of Middle Tier Holding Company
Common Stock previously held by the Mutual Holding Company (now Interim Bank No.
1) will be canceled. Eligible members of the Mutual Holding Company as of
certain specified dates will be granted interests in a liquidation account to be
established by the Bank;
WHEREAS, Holding Company will form an interim corporation ("Interim Bank No.
3"), a new, wholly owned first-tier subsidiary with an interim federal stock
savings bank charter, and immediately following Merger No. 2, Interim Bank No. 3
will merge with and into the Bank, with the Bank as the surviving entity
("Merger No. 3"). As a result of Merger No. 3, Bank stock deemed held by Public
Stockholders will be converted into Holding Company Common Stock based upon the
Exchange Ratio which is designed to ensure that the same Public Stockholders
will own approximately the same percentage of Holding Company Common Stock as
the percentage of Middle Tier Holding Company Common Stock owned by them
immediately prior to the Conversion.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein contained, and in accordance with federal law, Interim Bank
No. 1 and the Bank hereby agree that, subject to the conditions hereinafter set
forth, the Mutual Holding Company shall convert to a federal interim stock
savings bank, and Interim Bank No. 1 shall then be merged with and into the Bank
with Bank as the surviving entity. The terms and conditions of such merger shall
be as follows:
1. Regulatory Approvals. The merger shall not become effective until receipt
of approval of the OTS and any other agency having jurisdiction over the merger,
if any.
2. Identity and Name of Resulting Bank. The resulting bank in the Merger
shall be the Bank, Roxborough-Manayunk Federal Savings Bank.
3. Offices of Resulting Bank. The home office of Bank, as the resulting
company, shall be the Bank's office located at 6060 Ridge Avenue, Philadelphia,
Pennsylvania. The locations of the branch offices of the resulting savings bank
shall be those of the Bank in existence on the date of this Plan of Merger.
4. The Bank's Federal Charter and Bylaws. The federal stock charter and
bylaws of the Bank as in effect immediately prior to the effectiveness of the
Merger shall be amended as necessary to accomplish the Merger.
5. Effective Date. The effective date of the Conversion and Merger
("Effective Date") shall be the date as soon as practicable after the issuance
and/or execution by the OTS and any
A - 2
<PAGE>
other federal or state regulatory agencies, of all approvals, certificates and
documents as may be required in order to cause the Conversion and the Merger to
become effective.
6. Middle Tier Holding Company Stockholder Approval. The affirmative vote of
the holders of one-half of the outstanding shares of Middle Tier Holding Company
Common Stock and at least a majority of the shares of Middle Tier Holding
Company Common Stock cast which are not held by the Mutual Holding Company shall
be required to approve this Plan of Merger.
7. Bank Stockholder Approval. The affirmative vote of the holders of
two-thirds of the outstanding shares of the Bank shall be required to approve
this Plan of Merger.
8. Mutual Holding Company Approval. The approval of a majority of the
members of the Mutual Holding Company, as of a specified date shall be required
to approve this Plan of Merger.
9. Cancellation of Middle Tier Holding Company Common Stock held by the
Mutual Holding Company and Member Interests; Liquidation Account.
(a) On the Effective Date, (i) each share of Middle Tier Holding Company
Common Stock issued and outstanding immediately prior to the Effective Date and
held by the Mutual Holding Company shall, by virtue of the Reorganization and
without any action on the part of the holder thereof, be canceled, (ii) the
interests in the Mutual Holding Company of any person, firm or entity who or
which qualified as a member of the Mutual Holding Company in accordance with its
mutual charter and bylaws and the laws of the United States prior to the Mutual
Holding Company's conversion from mutual to stock form (the "Members") shall, by
virtue of the Reorganization and without any action on the part of the holder
thereof, be canceled, and (iii) the Bank shall establish a liquidation account
on behalf of each depositor member of the Mutual Holding Company, as defined in
the Plan, in accordance with Section 16 of the Plan.
(b) At or after the Effective Date and prior to the Merger, each
certificate or certificates theretofore evidencing issued and outstanding shares
of Middle Tier Holding Company Common Stock, other than any such certificate or
certificates held by the Mutual Holding Company, which shall be canceled, shall
be converted into outstanding shares of Holding Company Common Stock based upon
the Exchange Ratio which is designed to provide Public Stockholders
approximately a percentage of Holding Company Common Stock as Middle Tier
Holding Company Stock owned by them before the Conversion and Merger.
10. Dissenting Shares. No Member of the Mutual Holding Company or
stockholder of the Bank shall have any dissenter or appraisal rights in
connection with the Conversion. Stockholders of the Mid-Tier Holding Company
shall have dissenters' rights pursuant to Subchapter D of the Pennsylvania
Business Corporation Law.
A - 3
<PAGE>
11. Deposits of the Bank. All deposit accounts of the Bank shall remain
without change in their respective terms, interest rates, maturities, minimum
required balances or withdrawal values. After the Effective Date, the resulting
savings bank will continue to issue deposit accounts on the same basis as
immediately prior to the Effective Date.
12. Effect of Merger. Upon the Effective Date of the Merger, all assets and
property (real, personal and mixed, tangible and intangible, chooses in action,
rights and credits) then owned by Interim Bank No. 1 would inure to it, shall
immediately by operation of law and without any conveyance, transfer or further
action, become the property of the Bank, which shall have, hold and enjoy them
in its own right as fully and to the same extent as they were possessed, held
and enjoyed by the Bank immediately prior to the Effective Date of the Merger.
The resulting bank shall be deemed to be a continuation of the entity of both
Interim Bank No. 1 and the Bank and all of the rights and obligations of Interim
Bank No. 1 shall remain unimpaired; and the resulting bank, upon the Effective
Date of the Merger, shall succeed to all those rights and obligations and the
duties and liabilities connected therewith.
13. Directors and Executive Officers. The persons who are the current
officers and directors of the Bank will be the directors and officers of the
resulting bank and such terms or positions will be unchanged.
14. Abandonment of Plan of Merger. This Plan of Merger may be abandoned by
either Interim Bank No. 1 or the Bank at any time before the Effective Date in
the manner set forth in Section 28 of the Plan.
15. Amendment of this Plan of Merger. This Plan of Merger may be amended or
modified at any time by mutual agreement of the Boards of Directors of Interim
Bank No. 1 and the Bank in the manner set forth in Section 28 of the Plan.
16. Governing Law. This Plan of Merger is made pursuant to, and shall be
construed and be governed by, the laws of the United States, and the rules and
regulations promulgated thereunder, including without limitation, the rules and
regulations of the OTS.
17. All Terms Included. This Plan of Merger sets forth all terms,
conditions, agreements and understandings of the Mutual Holding Company, Interim
Bank No. 1 and the Bank with respect to the Conversion.
18. Counterparts. This Plan of Merger may be executed in several identical
counterparts, each of which when executed by the Parties and delivered shall be
an original, but all of which together shall constitute a single instrument. In
making proof of this Plan of Merger, it shall not be necessary to produce or
account for more than one such counterpart.
A - 4
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Plan of Merger to be
executed by their duly authorized officers as of the date first above written.
FJF FINANCIAL, M.H.C.
Attest: By:
--------------------------- ----------------------------------
John F. McGill, Jr.
Secretary President
INTERIM BANK NO. 1
Attest: By:
-------------------------- ----------------------------------
John F. McGill, Jr.
Secretary President
ROXBOROUGH-MANAYUNK FEDERAL
SAVINGS BANK
Attest: By:
------------------------- -----------------------------------
John F. McGill, Jr.
Secretary President
<PAGE>
APPENDIX B
MERGER NO. 1
Plan of Merger Between Interim Bank No. 2
(Formerly Middle Tier Holding Company) and the Bank
PLAN OF MERGER, dated as of __________ __, 1998 ("Plan of Merger") by and
between Interim Bank No. 2, an interim federal stock savings bank, which was
formerly Thistle Group Holdings, Inc. ("Interim Bank No. 2") and
Roxborough-Manayunk Federal Savings Bank, a federal stock savings bank (the
"Bank"). Unless otherwise noted, defined terms shall have the same meaning as
those set forth in the Plan of Conversion and Reorganization of the Mutual
Holding Company and Plan of Merger between the Mutual Holding Company, the
Middle Tier Holding Company and the Bank ("Plan") (of which this Plan of Merger
is Appendix A thereto).
WITNESSETH:
WHEREAS, On December 31, 1992, Roxborough-Manayunk Federal Savings and Loan
Association (the "Association"), a federally chartered mutual savings
institution reorganized into the mutual holding company form of organization
whereby (1) the Association organized a federally chartered, stock savings bank,
Roxborough-Manayunk Federal Savings Bank (the "Bank") as a wholly owned
subsidiary and transferred substantially all of its assets and liabilities to
the Bank in exchange for a majority of the Bank's Common Stock, and reorganized
itself into a federally chartered mutual holding company, and (ii) sold the
remaining shares of the Bank Common Stock to the public;
WHEREAS, On September 30, 1997, the Bank completed a reorganization in which
the Bank became a wholly owned subsidiary of a stock middle tier holding company
known as Thistle Group Holdings, Inc., whereby shareholders of the Bank became
shareholders of the Holding Company;
WHEREAS, the Board of Directors of the Mutual Holding Company has determined
that it is in the best interests of the Mutual Holding Company and its members
to convert from the mutual to stock form of organization;
WHEREAS, the Bank is currently a wholly owned subsidiary of the Middle Tier
Holding Company, which is currently a majority owned subsidiary of the Mutual
Holding Company;
WHEREAS, pursuant to the Plan, the Mutual Holding Company will convert into
an interim federal stock savings bank to be known as Interim Bank No. 1;
WHEREAS, Middle Tier Holding Company will adopt a federal stock holding
company charter and immediately thereafter an interim federal stock savings bank
charter to be known as Interim Bank No. 1; Interim Bank No. 1 will then merge
with and into the Bank ("Merger No. 1"), with the Bank as the surviving entity;
B - 1
<PAGE>
WHEREAS, immediately following Merger No. 1, Interim Bank No. 1, formerly
the Mutual Holding Company, will merge with and into the Bank with the Bank as
the surviving entity ("Merger No. 2"). The shares of Middle Tier Holding Company
Common Stock previously held by the Mutual Holding Company (now Interim Bank No.
1) will be canceled. Eligible members of the Mutual Holding Company as of
certain specified dates will be granted interests in a liquidation account to be
established by the Bank;
WHEREAS, Holding Company will form an interim corporation ("Interim Bank No.
3"), a new, wholly owned first-tier subsidiary with an interim federal stock
savings bank charter, and immediately following Merger No. 2, Interim Bank No. 3
will merge with and into the Bank, with the Bank as the surviving entity
("Merger No. 3"). As a result of Merger No. 3, Bank stock deemed held by Public
Stockholders will be converted into Holding Company Common Stock based upon the
Exchange Ratio which is designed to ensure that the same Public Stockholders
will own approximately the same percentage of Holding Company Common Stock as
the percentage of Middle Tier Holding Company Common Stock owned by them
immediately prior to the Conversion.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein contained, and in accordance with federal law, Interim Bank
No. 2 and the Bank hereby agree that, subject to the conditions hereinafter set
forth, the Middle Tier Holding Company will adopt a federal stock holding
company charter and immediately thereafter shall convert to a federal interim
stock savings bank, and Interim Bank No. 2 shall then be merged with and into
the Bank with Bank as the surviving entity. The terms and conditions of such
merger shall be as follows:
1. Regulatory Approvals. The merger shall not become effective until receipt
of approval of the OTS and any other agency having jurisdiction over the merger,
if any.
2. Identity and Name of Resulting Bank. The resulting bank in the Merger
shall be the Bank, Roxborough-Manayunk Federal Savings Bank.
3. Offices of Resulting Bank. The home office of Bank, as the resulting
company, shall be the Bank's office located at 6060 Ridge Avenue, Philadelphia,
Pennsylvania. The locations of the branch offices of the resulting savings bank
shall be those of the Bank in existence on the date of this Plan of Merger.
4. The Bank's Federal Charter and Bylaws. The federal stock charter and
bylaws of the Bank as in effect immediately prior to the effectiveness of the
Merger shall be amended as necessary to accomplish the Merger.
5. Effective Date. The effective date of the Conversion and Merger
("Effective Date") shall be the date as soon as practicable after the issuance
and/or execution by the OTS and any other federal or state regulatory agencies,
of all approvals, certificates and documents as may be required in order to
cause the Conversion and the Merger to become effective.
B - 2
<PAGE>
6. Middle Tier Holding Company Stockholder Approval. The affirmative vote of
the holders of one-half of the outstanding shares of Middle Tier Holding Company
Common Stock and at least a majority of the shares of Middle Tier Holding
Company Common Stock cast which are not held by the Mutual Holding Company shall
be required to approve this Plan of Merger.
7. Bank Stockholder Approval. The affirmative vote of the holders of
two-thirds of the outstanding shares of the Bank shall be required to approve
this Plan of Merger.
8. Mutual Holding Company Approval. The approval of a majority of the
members of the Mutual Holding Company, as of a specified date shall be required
to approve this Plan of Merger.
9. Cancellation of Middle Tier Holding Company Common Stock held by the
Mutual Holding Company and Member Interests; Liquidation Account.
(a) On the Effective Date, (i) each share of Middle Tier Holding Company
Common Stock issued and outstanding immediately prior to the Effective Date and
held by the Mutual Holding Company shall, by virtue of the Reorganization and
without any action on the part of the holder thereof, be canceled, (ii) the
interests in the Mutual Holding Company of any person, firm or entity who or
which qualified as a member of the Mutual Holding Company in accordance with its
mutual charter and bylaws and the laws of the United States prior to the Mutual
Holding Company's conversion from mutual to stock form (the "Members") shall, by
virtue of the Reorganization and without any action on the part of the holder
thereof, be canceled, and (iii) the Bank shall establish a liquidation account
on behalf of each depositor member of the Mutual Holding Company, as defined in
the Plan, in accordance with Section 16 of the Plan.
(b) At or after the Effective Date and prior to the Merger, each
certificate or certificates theretofore evidencing issued and outstanding shares
of Middle Tier Holding Company Common Stock, other than any such certificate or
certificates held by the Mutual Holding Company, which shall be canceled, shall
be converted into outstanding shares of Holding Company Common Stock based upon
the Exchange Ratio which is designed to provide Public Stockholders
approximately a percentage of Holding Company Common Stock as Middle Tier
Holding Company Stock owned by them before the Conversion and Merger.
10. Dissenting Shares. No Member of the Mutual Holding Company or
stockholder of the Bank shall have any dissenter or appraisal rights in
connection with the Conversion. Stockholders of the Mid-Tier Holding Company
shall have dissenters' rights pursuant to Subchapter D of the Pennsylvania
Business Corporation Law.
11. Deposits of the Bank. All deposit accounts of the Bank shall remain
without change in their respective terms, interest rates, maturities, minimum
required balances or withdrawal
B - 3
<PAGE>
values. After the Effective Date, the resulting savings bank will continue to
issue deposit accounts on the same basis as immediately prior to the Effective
Date.
12. Effect of Merger. Upon the Effective Date of the Merger, all assets and
property (real, personal and mixed, tangible and intangible, chooses in action,
rights and credits) then owned by Interim Bank No. 2 would inure to it, shall
immediately by operation of law and without any conveyance, transfer or further
action, become the property of the Bank, which shall have, hold and enjoy them
in its own right as fully and to the same extent as they were possessed, held
and enjoyed by the Bank immediately prior to the Effective Date of the Merger.
The resulting bank shall be deemed to be a continuation of the entity of both
Interim Bank No. 2 and the Bank and all of the rights and obligations of Interim
Bank No. 2 shall remain unimpaired; and the resulting bank, upon the Effective
Date of the Merger, shall succeed to all those rights and obligations and the
duties and liabilities connected therewith.
13. Directors and Executive Officers. The persons who are the current
officers and directors of the Bank will be the directors and officers of the
resulting bank and such terms or positions will be unchanged.
14. Abandonment of Plan of Merger. This Plan of Merger may be abandoned by
either Interim Bank No. 2 or the Bank at any time before the Effective Date in
the manner set forth in Section 28 of the Plan.
15. Amendment of this Plan of Merger. This Plan of Merger may be amended or
modified at any time by mutual agreement of the Boards of Directors of Interim
Bank No. 1 and the Bank in the manner set forth in Section 28 of the Plan.
16. Governing Law. This Plan of Merger is made pursuant to, and shall be
construed and be governed by, the laws of the United States, and the rules and
regulations promulgated thereunder, including without limitation, the rules and
regulations of the OTS.
17. All Terms Included. This Plan of Merger sets forth all terms,
conditions, agreements and understandings of the Mutual Holding Company, Interim
Bank No. 2 and the Bank with respect to the Conversion.
18. Counterparts. This Plan of Merger may be executed in several identical
counterparts, each of which when executed by the Parties and delivered shall be
an original, but all of which together shall constitute a single instrument. In
making proof of this Plan of Merger, it shall not be necessary to produce or
account for more than one such counterpart.
B - 4
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Plan of Merger to be
executed by their duly authorized officers as of the date first above written.
THISTLE GROUP HOLDINGS, INC.
Attest: By:
------------------------- --------------------------------
John F. McGill, Jr.
Secretary President
INTERIM BANK NO. 2
Attest: By:
------------------------ --------------------------------
John F. McGill, Jr.
Secretary President
ROXBOROUGH-MANAYUNK FEDERAL
SAVINGS BANK
Attest: By:
------------------------ --------------------------------
John F. McGill, Jr.
Secretary President
<PAGE>
APPENDIX C
MERGER NO. 3
Plan of Merger Between Interim Bank No. 3
(Subsidiary of Holding Company) and the Bank
PLAN OF MERGER, dated as of __________ __, 1998 ("Plan of Merger") by and
between Interim Bank No. 3, an interim federal stock savings bank, which is a
wholly owned subsidiary of Thistle Group Holdings, Co. or the Holding Company
("Interim Bank No. 3") and Roxborough-Manayunk Federal Savings Bank, a federal
stock savings bank (the "Bank"). Unless otherwise noted, defined terms shall
have the same meaning as those set forth in the Plan of Conversion and
Reorganization of the Mutual Holding Company and Plan of Merger between the
Mutual Holding Company, the Middle Tier Holding Company and the Bank ("Plan")
(of which this Plan of Merger is Appendix A thereto).
WITNESSETH:
WHEREAS, On December 31, 1992, Roxborough-Manayunk Federal Savings and Loan
Association (the "Association"), a federally chartered mutual savings
institution reorganized into the mutual holding company form of organization
whereby (1) the Association organized a federally chartered, stock savings bank,
Roxborough-Manayunk Federal Savings Bank (the "Bank") as a wholly owned
subsidiary and transferred substantially all of its assets and liabilities to
the Bank in exchange for a majority of the Bank's Common Stock, and reorganized
itself into a federally chartered mutual holding company, and (ii) sold the
remaining shares of the Bank Common Stock to the public;
WHEREAS, On September 30, 1997, the Bank completed a reorganization in which
the Bank became a wholly owned subsidiary of a stock middle tier holding company
known as Thistle Group Holdings, Inc., whereby shareholders of the Bank became
shareholders of the Holding Company;
WHEREAS, the Board of Directors of the Mutual Holding Company has determined
that it is in the best interests of the Mutual Holding Company and its members
to convert from the mutual to stock form of organization;
WHEREAS, the Bank is currently a wholly owned subsidiary of the Middle Tier
Holding Company, which is currently a majority owned subsidiary of the Mutual
Holding Company;
WHEREAS, pursuant to the Plan, the Mutual Holding Company will convert into
an interim federal stock savings bank to be known as Interim Bank No. 1;
WHEREAS, Middle Tier Holding Company will adopt a federal stock holding
company charter and immediately thereafter an interim federal stock savings bank
charter to be known as Interim Bank No. 2; Interim Bank No. 2 will then merge
with and into the Bank ("Merger No. 1"), with the Bank as the surviving entity;
C - 1
<PAGE>
WHEREAS, immediately following Merger No. 1, Interim Bank No. 1, formerly
the Mutual Holding Company, will merge with and into the Bank with the Bank as
the surviving entity ("Merger No. 2"). The shares of Middle Tier Holding Company
Common Stock previously held by the Mutual Holding Company (now Interim Bank No.
1) will be canceled. Eligible members of the Mutual Holding Company as of
certain specified dates will be granted interests in a liquidation account to be
established by the Bank;
WHEREAS, Holding Company will form an interim corporation ("Interim Bank No.
3"), a new, wholly owned first-tier subsidiary with an interim federal stock
savings bank charter, and immediately following Merger No. 2, Interim Bank No. 3
will merge with and into the Bank, with the Bank as the surviving entity
("Merger No. 3"). As a result of Merger No. 3, Bank stock deemed held by Public
Stockholders will be converted into Holding Company Common Stock based upon the
Exchange Ratio which is designed to ensure that the same Public Stockholders
will own approximately the same percentage of Holding Company Common Stock as
the percentage of Middle Tier Holding Company Common Stock owned by them
immediately prior to the Conversion.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein contained, and in accordance with federal law, Interim Bank
No. 3 and the Bank hereby agree that, subject to the conditions hereinafter set
forth, the Holding Company will form as a wholly owned subsidiary, a federal
interim stock savings bank, and Interim Bank No. 3 shall then be merged with and
into the Bank with Bank as the surviving entity. The terms and conditions of
such merger shall be as follows:
1. Regulatory Approvals. The merger shall not become effective until receipt
of approval of the OTS and any other agency having jurisdiction over the merger,
if any.
2. Identity and Name of Resulting Bank. The resulting bank in the Merger
shall be the Bank, Roxborough-Manayunk Federal Savings Bank.
3. Offices of Resulting Bank. The home office of Bank, as the resulting
company, shall be the Bank's office located at 6060 Ridge Avenue, Philadelphia,
Pennsylvania. The locations of the branch offices of the resulting savings bank
shall be those of the Bank in existence on the date of this Plan of Merger.
4. The Bank's Federal Charter and Bylaws. The federal stock charter and
bylaws of the Bank as in effect immediately prior to the effectiveness of the
Merger shall be amended as necessary to accomplish the Merger.
5. Effective Date. The effective date of the Conversion and Merger
("Effective Date") shall be the date as soon as practicable after the issuance
and/or execution by the OTS and any other federal or state regulatory agencies,
of all approvals, certificates and documents as may be required in order to
cause the Conversion and the Merger to become effective.
C - 2
<PAGE>
6. Middle Tier Holding Company Stockholder Approval. The affirmative vote of
the holders of one-half of the outstanding shares of Middle Tier Holding Company
Common Stock and at least a majority of the shares of Middle Tier Holding
Company Common Stock cast which are not held by the Mutual Holding Company shall
be required to approve this Plan of Merger.
7. Bank Stockholder Approval. The affirmative vote of the holders of
two-thirds of the outstanding shares of the Bank shall be required to approve
this Plan of Merger.
8. Mutual Holding Company Approval. The approval of a majority of the
members of the Mutual Holding Company, as of a specified date shall be required
to approve this Plan of Merger.
9. Cancellation of Middle Tier Holding Company Common Stock held by the
Mutual Holding Company and Member Interests; Liquidation Account.
(a) On the Effective Date, (i) each share of Middle Tier Holding Company
Common Stock issued and outstanding immediately prior to the Effective Date and
held by the Mutual Holding Company shall, by virtue of the Reorganization and
without any action on the part of the holder thereof, be canceled, (ii) the
interests in the Mutual Holding Company of any person, firm or entity who or
which qualified as a member of the Mutual Holding Company in accordance with its
mutual charter and bylaws and the laws of the United States prior to the Mutual
Holding Company's conversion from mutual to stock form (the "Members") shall, by
virtue of the Reorganization and without any action on the part of the holder
thereof, be canceled, and (iii) the Bank shall establish a liquidation account
on behalf of each depositor member of the Mutual Holding Company, as defined in
the Plan, in accordance with Section 16 of the Plan.
(b) At or after the Effective Date and prior to the Merger, each
certificate or certificates theretofore evidencing issued and outstanding shares
of Middle Tier Holding Company Common Stock, other than any such certificate or
certificates held by the Mutual Holding Company, which shall be canceled, shall
be converted into outstanding shares of Holding Company Common Stock based upon
the Exchange Ratio which is designed to provide Public Stockholders
approximately a percentage of Holding Company Common Stock as Middle Tier
Holding Company Stock owned by them before the Conversion and Merger.
10. Dissenting Shares. No Member of the Mutual Holding Company or
stockholder of the Bank shall have any dissenter or appraisal rights in
connection with the Conversion. Stockholders of the Mid-Tier Holding Company
shall have dissenters' rights pursuant to Subchapter D of the Pennsylvania
Business Corporation Law.
11. Deposits of the Bank. All deposit accounts of the Bank shall remain
without change in their respective terms, interest rates, maturities, minimum
required balances or withdrawal
C - 3
<PAGE>
values. After the Effective Date, the resulting savings bank will continue to
issue deposit accounts on the same basis as immediately prior to the Effective
Date.
12. Effect of Merger. Upon the Effective Date of the Merger, all assets and
property (real, personal and mixed, tangible and intangible, chooses in action,
rights and credits) then owned by Interim Bank No. 3 would inure to it, shall
immediately by operation of law and without any conveyance, transfer or further
action, become the property of the Bank, which shall have, hold and enjoy them
in its own right as fully and to the same extent as they were possessed, held
and enjoyed by the Bank immediately prior to the Effective Date of the Merger.
The resulting bank shall be deemed to be a continuation of the entity of both
Interim Bank No. 3 and the Bank and all of the rights and obligations of Interim
Bank No. 3 shall remain unimpaired; and the resulting bank, upon the Effective
Date of the Merger, shall succeed to all those rights and obligations and the
duties and liabilities connected therewith.
13. Directors and Executive Officers. The persons who are the current
officers and directors of the Bank will be the directors and officers of the
resulting bank and such terms or positions will be unchanged.
14. Abandonment of Plan of Merger. This Plan of Merger may be abandoned by
either Interim Bank No. 3 or the Bank at any time before the Effective Date in
the manner set forth in Section 28 of the Plan.
15. Amendment of this Plan of Merger. This Plan of Merger may be amended or
modified at any time by mutual agreement of the Boards of Directors of Interim
Bank No. 3 and the Bank in the manner set forth in Section 28 of the Plan.
16. Governing Law. This Plan of Merger is made pursuant to, and shall be
construed and be governed by, the laws of the United States, and the rules and
regulations promulgated thereunder, including without limitation, the rules and
regulations of the OTS.
17. All Terms Included. This Plan of Merger sets forth all terms,
conditions, agreements and understandings of the Mutual Holding Company, Interim
Bank No. 3 and the Bank with respect to the Conversion.
18. Counterparts. This Plan of Merger may be executed in several identical
counterparts, each of which when executed by the Parties and delivered shall be
an original, but all of which together shall constitute a single instrument. In
making proof of this Plan of Merger, it shall not be necessary to produce or
account for more than one such counterpart.
C - 4
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Plan of Merger to be
executed by their duly authorized officers as of the date first above written.
THISTLE GROUP HOLDINGS, CO.
Attest: By:
------------------------- ------------------------------------
John F. McGill, Jr.
Secretary President
INTERIM BANK NO. 3
Attest: By:
------------------------- --------------------------------
John F. McGill, Jr.
Secretary President
ROXBOROUGH-MANAYUNK FEDERAL
SAVINGS BANK
Attest: By:
------------------------- --------------------------------
John F. McGill, Jr.
Secretary President
Exhibit 8.1
<PAGE>
MALIZIA, SPIDI, SLOANE & FISCH, P.C.
One Franklin Square
1301 K Street, N.W.
Suite 700 East
Washington, D.C. 20005
Telephone: (202) 434-4660
Telecopier: (202) 434-4661
WRITER'S DIRECT DIAL NUMBER
May 7, 1998
Boards of Directors
Roxborough-Manayunk Federal Savings Bank
Thistle Group Holdings, Inc.
6060 Ridge Avenue
Philadelphia, Pennsylvania 19128
Dear Board Members:
You have asked that we provide you our opinion in regard to the material
federal income tax matters relating to the Plan of Conversion and Reorganization
of FJF Financial, M.H.C. and Plans of Merger between FJF Financial, M.H.C.,
Thistle Group Holdings, Inc. and Roxborough-Manayunk Federal Savings Bank
adopted on February 18, 1998, as amended (the "Plan"). We have examined the Plan
and certain other documents as we deemed necessary in order to provide our
opinions. Unless otherwise defined, all terms used in this letter have the
meanings given to them in the Plan.
In our examination, we assumed that original documents were authentic,
copies were accurate and signatures were genuine. We have further assumed the
absence of adverse facts not apparent from the face of the instruments and
documents we examined. In rendering our opinion, we have relied upon certain
written representations of Roxborough-Manayunk Federal Savings Bank (the
"Bank"), FJF Financial, M.H.C. (the "MHC"), and Thistle Group Holdings, Inc.
(the "Mid-Tier") (collectively referred to herein as the "Representations")
which are attached hereto.
We assumed that the Plan has been or will be duly and validly authorized
and approved and adopted and that all parties will comply with the terms and
conditions of the Plan, and that the various representations and warranties
which have been provided to us are accurate, complete, true and correct.
Accordingly, we express no opinion concerning the effect, if any, of variations
from the foregoing.
In issuing the opinions set forth below, we have referred solely to
existing provisions of (1) the Internal Revenue Code of 1986, as amended (the
"Code"), and existing and proposed Treasury Regulations thereunder; and (2)
current administrative rulings, notices and procedures and court decisions. Such
laws, regulations, administrative rulings, notices and procedures and court
decisions are subject to change at any time. Any such change could affect the
continuing
<PAGE>
Boards of Directors
Roxborough-Manayunk Federal Savings Bank
Thistle Group Holdings, Inc.
May 7, 1998
Page 2
validity of the opinions set forth below. This opinion is as of the date hereof,
and we disclaim any obligation to advise you of any change after the date
hereof.
There can be no assurance that our opinions would be adopted by the
Internal Revenue Service (the "Service") or a court. The outcome of litigation
cannot be predicted. We have, however, attempted in good faith to opine as to
the merits of each tax issue with respect to which an opinion was requested.
STATEMENT OF FACTS
On December 31, 1992, the Bank, a federally chartered mutual savings
institution at the time reorganized into the mutual holding company form of
organization and consummated a sale of stock to certain members. To accomplish
this transaction, the Bank organized a federally chartered, stock savings bank
as a wholly owned subsidiary. The Bank then transferred substantially all of its
assets and liabilities to the Bank in exchange for shares of the Bank's common
stock, and reorganized itself into a federally chartered mutual holding company
known as FJF Financial, M.H.C. and sold some of the shares of the Bank's common
stock to certain parties other than the MHC. Upon completion of the MHC
Reorganization, the MHC and the public stockholders owned an aggregate of 87.62%
and 12.38% of the outstanding common stock of the Bank, respectively. On
September 30, 1997, the Bank completed a reorganization in which the Bank became
a wholly owned subsidiary of a stock middle tier holding company known as
Thistle Group Holdings, Inc. Shareholders of the Bank became shareholders of the
Mid-Tier. As of December 31, 1997, the MHC and the public stockholders own an
aggregate of 1,415,000 (87.62%) and 206,000 (12.38%) of the outstanding Mid-Tier
common stock, respectively. Pursuant to the Plan, the Bank will form a new
Pennsylvania stock holding company named Thistle Group Holdings, Co. (the
"Holding Company") and the existing shares of the Mid-Tier owned by public
stockholders will be converted pursuant to an Exchange Ratio into shares of
Holding Company.
The Boards of Directors of the MHC, the Mid-Tier, the Holding Company, and
the Bank believe that a conversion of the MHC to stock form pursuant to the Plan
is in the best interests of the MHC, the Mid-Tier, and the Bank, as well as the
best interests of their respective members and stockholders. The Boards of
Directors have determined that the Plan equitably provides for the interests of
members through the granting of subscription rights and the establishment of a
liquidation account. The Conversion and Merger will result in the Bank being
wholly owned by a stock holding company which is owned by public stockholders,
which is a more common structure and form of ownership than a mutual holding
company. In addition, the Conversion and Merger will result in the raising of
additional capital for the Bank and the Holding Company and should result in a
more active and liquid market for the Holding Company Common Stock than
currently exists for the Mid-Tier's common stock. Finally, the
<PAGE>
Boards of Directors
Roxborough-Manayunk Federal Savings Bank
Thistle Group Holdings, Inc.
May 7, 1998
Page 3
Conversion and Merger will provide the Holding Company with additional
investment authority and is designed to enable the Bank and Holding Company to
compete more effectively in a market which is consolidating.
For valid business reasons, the present corporate structure of the MHC,
the Mid-Tier, and the Bank will be changed pursuant to the following proposed
transactions:
(i) The Bank will form a Pennsylvania corporation as a new, wholly owned,
first tier subsidiary (i.e., the "Holding Company"), which will become a new
Pennsylvania chartered savings and loan holding company.
(ii) After its formation, the Holding Company will form an interim federal
stock savings bank ("Interim Bank #3") as a new, wholly owned first tier
subsidiary.
(iii) The Mid-Tier will convert from a Pennsylvania stock holding company
into a federal holding company and immediately thereafter into an interim
federal stock savings bank ("Interim Bank #1").
(iv) MHC will convert from its mutual form to a federal interim stock
savings bank ("Interim Bank #2").
(v) Interim Bank #1 will merge with and into the Bank with the Bank being
the surviving corporation ("Merger One").
(vi) Immediately after Merger One, Interim Bank #2 will merge with and
into the Bank, with the Bank being the surviving corporation ("Merger Two"). The
Bank's common stock which was previously held by the MHC will be extinguished.
Eligible members of the MHC as of certain specified dates set forth in the Plan
will be granted interests in a liquidation account to be established by the Bank
(referred to herein as "Liquidation Interests").
(vii) Immediately following Merger Two, Interim Bank #3 will merge with
and into the Bank, with the Bank being the surviving entity ("Merger Three").
Merger One, Merger Two, and Merger Three will be completed in accordance with
applicable federal and state laws. As a result of Merger Three, the Bank's
common stock ("Bank Stock") deemed held by the Public Stockholders will be
converted into the Holding Company's common stock ("Holding Company Common
Stock") based upon an exchange ratio which ensures that the Public Stockholders
will own, in the aggregate, approximately the same percentage of Holding Company
Common Stock outstanding upon completion of the Conversion as the percentage of
the Bank Stock owned by them in the aggregate immediately prior to the
consummation of the Conversion, before giving effect to: (a) cash paid in lieu
of fractional shares, and (b) any shares of Holding Company
<PAGE>
Boards of Directors
Roxborough-Manayunk Federal Savings Bank
Thistle Group Holdings, Inc.
May 7, 1998
Page 4
Common Stock purchased by Public Stockholders in the Offerings; in addition, the
shares of Interim Bank #3 will be converted into shares of Bank Stock.
(viii) Simultaneously with the consummation of Merger Three, the Holding
Company will sell additional shares of Holding Company Common Stock, with
priority subscription rights granted to certain members of the MHC and the Bank
at specified dates, and to certain tax qualified employee benefit plans,
directors, and employees of the Bank.
ANALYSIS AND OPINION
Section 354 of the Code provides that no gain or loss shall be recognized
by stockholders who exchange common stock in a corporation, which is a party to
a reorganization, solely for common stock in another corporation which is a
party to the reorganization. Section 356 of the Code provides that stockholders
shall recognize gain to the extent they receive money as part of a
reorganization, such as money received in lieu of fractional shares. Section 358
of the Code provides that, with certain adjustments for money received in a
reorganization, a stockholder's basis in the common stock he or she receives in
a reorganization shall equal the basis of the common stock which he or she
surrendered in the transaction. Section 1223(1) states that, where a stockholder
receives property in an exchange which has the same basis as the property
surrendered, he or she shall be deemed to have held the property received for
the same period as the property exchanged, provided that the property exchanged
had been held as a capital asset.
Section 361 of the Code provides that no gain or loss shall be recognized
to a corporation which is a party to a reorganization on any transfer of
property pursuant to a plan of reorganization. Section 362 of the Code provides
that if property is acquired by a corporation in connection with a
reorganization, then the basis of such property shall be the same as it would be
in the hands of the transferor immediately prior to the transfer. Section
1223(2) of the Code states that where a corporation will have a carryover basis
in property received from another corporation which is a party to a
reorganization, the holding period of such assets in the hands of the acquiring
corporation shall include the period for which such assets were held by the
transferor, provided that the property transferred had been held as a capital
asset. Section 1032 of the Code states that no gain or loss shall be recognized
to a corporation on the receipt of property in exchange for common stock.
Section 368(a)(1)(F) of the Code provides that a mere change in identity,
form, or place of organization, however effected, is a reorganization. When MHC
converts itself from a federal mutual holding company to a federal interim stock
savings bank, the changes at the corporate level will be insubstantial.
Similarly, when the Mid-Tier adopts a federal charter and subsequently converts
itself into a federal stock savings bank, the changes at the corporate level
<PAGE>
Boards of Directors
Roxborough-Manayunk Federal Savings Bank
Thistle Group Holdings, Inc.
May 7, 1998
Page 5
will be insubstantial. In addition, Rev. Rul. 80-105 provides that the
conversion of a federal mutual savings and loan association to a state or
federal stock savings and loan association, and the conversion of a state
chartered mutual savings and loan association to a stock savings and loan
association in the same state are reorganizations under Code Section
368(a)(1)(F). Therefore, the change in the form of operation of the MHC and the
Mid-Tier should constitute reorganizations within the meaning of Section
368(a)(1)(F) of the Code.
Section 368(a)(1)(A) of the Code defines the term "reorganization" to
include a "statutory merger or consolidation" of corporations. Section
368(a)(2)(E) of the Code provides that a transaction otherwise qualifying as a
merger under Section 368(a)(1)(A), shall not be disqualified by reason of the
fact that common stock of a corporation which before the merger was in control
of the merged corporation, is used in the transaction if (i) after the
transaction, the corporation surviving the merger holds substantially all of its
properties and the properties of the merged corporation; and (ii) former
stockholders of the surviving corporation exchanged, for an amount of voting
common stock of the controlling corporation, an amount of common stock in the
surviving corporation which constitutes control of such corporation.
In order to qualify as a reorganization under Section 368(a)(1)(A), a
transaction must constitute a merger or consolidation effected pursuant to the
corporation laws of the United States or a state. Merger One, Merger Two and
Merger Three will be consummated in accordance with applicable federal and state
laws.
In addition, a transaction qualifying as a reorganization under Section
368(a)(1)(A) of the Code must satisfy the "continuity of interest doctrine"
which requires that the continuing common stock interest of the former owners of
an acquired corporation, considered in the aggregate, represents a "substantial
part" of the value of their former interest and provides them with a "definite
and substantial interest" in the affairs of the acquiring corporation or a
corporation in control of the acquiring corporation. Helvering v. Minnesota Tea
Co., 296 U.S. 378 (1935); Southwest Natural Gas Co. v. Comm'r., 189 F.2d 332
(5th Cir. 1951), cert. denied, 342 U.S. 860 (1951).
As a result of Merger One, the shareholders of the Mid-Tier receive a
continuing proprietary interest in the Bank which will subsequently be converted
into a continuing proprietary interest in the Holding Company. Consequently, the
continuity of interest doctrine should be satisfied with regard to Merger One.
With regard to Merger Two, the MHC, as a federally-chartered mutual
holding company, does not have stockholders and has no authority to issue
capital stock. Instead, the MHC has members who are accorded a variety of
proprietary rights such as voting rights and certain rights in the unlikely
event of liquidation. Prior to Merger Two, certain depositors in the Bank have
<PAGE>
Boards of Directors
Roxborough-Manayunk Federal Savings Bank
Thistle Group Holdings, Inc.
May 7, 1998
Page 6
both a deposit account in the institution and a pro rata inchoate proprietary
interest in the net worth of the MHC based upon the balance in his account in
the Bank, an interest which may only be realized in the event of a liquidation
of the MHC. However, this inchoate proprietary interest is tied to 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 ownership interest in the net
worth of the MHC, which is lost to the extent that the balance in the account is
reduced.
In accordance with the Plan, the Members will receive Liquidation
Interests and continue their inchoate proprietary interests in the Bank
following Merger Two. Although the Liquidation Interests would not allow the
Members the right to vote or the right to pro rata distributions of earnings,
they would be entitled to share in the distribution of assets upon the
liquidation of the Bank following Merger Two. The Members' Liquidation Interests
in the Bank is substantially similar to their current ownership interest in the
MHC (a liquidation interest in the MHC). Because the Members are not in effect
"cashing out" their inchoate proprietary interests in the MHC, they would
continue to maintain an inchoate proprietary interest in the Bank upon the
consummation of Merger Two. Such payments to be received as Liquidation
Interests are not guaranteed and can only be received by Members who continue to
maintain deposit accounts in the Bank following Merger One. Therefore, it would
seem that the exchange of the Members' equity interests in the MHC for
Liquidation Interests should not violate the continuity of interest requirement
of Section 1.368-1(b) of the Treasury Regulations. In addition, in PLR 9602015,
the Service previously provided the Bank rulings on facts which are identical to
those of Merger Two, as described above, that the continuity of interest
doctrine would be satisfied in such transaction. We believe the Bank can rely on
PLR 9602015 with respect to Merger Two because the facts regarding Merger Two
are identical to the facts that were provided by the Bank in PLR 9602015, and
such ruling was specifically rendered on behalf of the Bank as the taxpayer in
PLR 9602015. Consequently, the continuity of interest doctrine should be
satisfied with regard to Merger Two.
As a result of Merger Three, the shareholders of the Bank will receive a
continuing proprietary interest in the Holding Company, the sole shareholder of
the Bank. Consequently, the continuity of interest doctrine should be satisfied
with regard to Merger Three.
One of the requirements of Section 368(a)(2)(E) of the Code is that
subsequent to the transaction, the corporation surviving the merger must hold
substantially all of its properties and the properties of the merged
corporation. The Bank has represented that, following Merger Three, it will hold
at least 90% of the fair-market value of its net assets and at least 70% of the
fair-market value of its gross assets, and at least 90% of the fair-market value
of Interim Bank #3's net assets and at least 70% of the fair-market value of
Interim Bank #3's gross assets held
<PAGE>
Boards of Directors
Roxborough-Manayunk Federal Savings Bank
Thistle Group Holdings, Inc.
May 7, 1998
Page 7
immediately prior to Merger Three. Based upon representations received from the
Bank's management, the Bank will clearly satisfy this requirement of Code
Section 368(a)(2)(E).
Pursuant to Code Section 368(a)(2)(E), the Holding Company must also
acquire control of the Bank in Merger Three. Control is defined as at least 80%
of the total combined voting power of all classes of stock entitled to vote, and
at least 80% of the total number of shares. Subsequent to Merger Three, the
Holding Company will hold all of the Bank Stock. However, there is an issue as
to whether the Liquidation Interests must be taken into account for purposes of
the "control" test. If the Liquidation Interests are to be included in
determining whether the Holding Company acquired control of the Bank in Merger
Three, it would be necessary to recognize such interests as another class of
Bank Stock. Although the Liquidation Interests may be compared to the equity
interests held by members of the MHC, which afforded members an equity/ownership
interest in the MHC, these interests in the Bank are too remote to qualify as a
separate class of Bank Stock. Therefore, the Liquidation Interests should be
disregarded in determining whether the Holding Company acquires control of the
Bank in Merger Three. The Service's analysis in PLR 9602015 supports this
conclusion. PLR 9602015 involved the MHC's earlier proposed conversion from the
mutual to stock form and the Bank's proposed merger with a third party, which
was never consummated. The transaction described in PLR 9602015 involved the MHC
converting to an interim federal stock savings bank and subsequently merging
with and into the Bank. As described in PLR 9602015, the stock of the Bank held
by the MHC was to be extinguished and members of the MHC were to be granted
interests in a liquidation account established at the Bank. Subsequent thereto,
the Bank was to merge with a third party in accordance with Section 368(a)(2)(E)
of the Code, with the Bank surviving, to create a holding company structure
identical to the structure of the Bank subsequent to Merger Three. The Service
held that the liquidation interests in the Bank (as well as Bank Stock
previously held by the MHC) were to be disregarded in determining whether
control of the Bank was obtained by the third party holding company in
accordance with Section 368(c) of the Code.
In addition to the requirements discussed above, there is a judicially
created substance over form concept often referred to as the "step transaction
doctrine" which applies throughout tax law, including the corporate
reorganization area. The step transaction doctrine is an extremely amorphous
concept. Often, application of the doctrine hinges on whether a court finds that
a particular series of transactions runs counter to a significant tax policy.
Notwithstanding years of litigation and hundreds of cases, the exact contours of
the step transaction doctrine, and even its proper formulation, are still the
subject of intense debate. Consequently, it often will be difficult to determine
with a high degree of certainty whether a series of related transactions will be
stepped together in some fashion for tax purposes.
The courts over the years have developed three distinct verbal
formulations of the doctrine: (i) the binding commitment test, (ii) the end
result test, and (iii) the interdependence
<PAGE>
Boards of Directors
Roxborough-Manayunk Federal Savings Bank
Thistle Group Holdings, Inc.
May 7, 1998
Page 8
test. While the courts nominally apply one or more of these three tests, a
careful reading of the relevant cases indicates that the courts, as a
preliminary matter, in deciding whether to apply the step transaction doctrine,
tend to focus primarily on two key factors: intent and temporal proximity.
However, case law and the Service's pronouncements indicate that there are
limitations on the ability to assert the step transaction doctrine, regardless
of (i) the taxpayer's intent at the time of the first transaction to engage in
the later transactions, and (ii) the short period of time that elapses between
the transactions.
Case law and the Service's pronouncements indicate that if two or more
transactions carried out pursuant to an overall plan have economic significance
independent of each other, the transactions generally will not be stepped
together. The Service's most significant pronouncement regarding independent
economic significance is Rev. Rul. 79-250. In that ruling, the Service asserted
that:
the substance of each of a series of steps will be recognized and the step
transaction doctrine will not apply, if each such step demonstrates
independent economic significance, is not subject to attack as a sham, and
was undertaken for valid business purposes and not mere avoidance of
taxes.
The parties to Merger Two maintain a separate and distinct business
purpose for consummating Merger Two (e.g., allowing for the conversion of the
MHC from mutual to stock form). Immediately after the consummation of Merger
Two, the Bank will no longer be controlled by the MHC but will instead be
controlled by its public stockholders. The facts indicate that the merger of MHC
with and into the Bank will result in a real and substantial change in the form
of ownership of the Bank that is sufficient to conclude that Merger Two comports
with the underlying purposes and assumptions of a reorganization under Section
368(a)(1)(A) of the Code.
In addition, we believe that, because the various steps contemplated by
the Plan were necessitated by the requirements of the Office of Thrift
Supervision, each of Merger One, Merger Two and Merger Three has a business
purpose and independent significance and, as a result, the step transaction
doctrine should not be applied to these transactions. However, our opinion is
not binding upon the Service, and there can be no assurance that the Service
will not assert a contrary position. Revenue Ruling 72-405 involved Corporation
X which formed a wholly owned subsidiary, merged an unrelated corporation Y into
the subsidiary and then liquidated the subsidiary. The Service held that the
overall plan for the transactions was the acquisition of Corporation Y assets by
Corporation X and that the transitory existence of the subsidiary did not have
independent economic significance. As a result, the step transaction doctrine
was applied, the transitory existence of the subsidiary was ignored and the
transaction was treated as a direct acquisition of Corporation Y assets by
Corporation X.
<PAGE>
Boards of Directors
Roxborough-Manayunk Federal Savings Bank
Thistle Group Holdings, Inc.
May 7, 1998
Page 9
It is possible that the Service could assert, based upon reasoning similar
to that which was applied in Revenue Ruling 72-405, that the overall plan of the
transactions contemplated by the Plan is the maintenance of the Bank's holding
company structure and the merger of MHC into Bank and that, as a result, the
step transaction doctrine should be applied and the transitory elimination of
the holding company structure in Merger One and re-creation of the holding
company structure in Merger Three should be ignored for tax purposes. If the
Service were successful with such an assertion, the transaction would be treated
as a direct merger of MHC into the Bank which may not qualify as a tax free
reorganization resulting in taxable gain to the parties to the transaction.
The Service is currently reviewing the question of whether certain
downstream mergers of a parent corporation into its subsidiary (where the parent
does not own 80% or more of its subsidiary before a downstream merger) or
inversion transactions, where a parent and its subsidiary reverse positions,
which otherwise qualify for tax-free treatment nevertheless should be treated as
taxable transactions because they circumvent the repeal of the "General
Utilities doctrine." The MHC currently owns 87.29% of the Mid-Tier and we do not
believe that the transactions undertaken pursuant to the Plan constitute the
type of transactions which circumvent the "General Utilities doctrine."
Based upon the foregoing, and assuming Merger One, Merger Two, and Merger
Three are consummated as described herein and in the Plan, we are of the opinion
that:
1. The change in the form of operation of the MHC to an interim federal
stock savings bank and the change in form of operation of the Mid-Tier to an
interim federal stock savings bank constitute reorganizations under Section
368(a)(1)(F) of the Code, and Merger One and Merger Two each qualify as a
reorganization within the meaning of Section 368(a)(1)(A) of the Code. The MHC,
the Mid-Tier, the Holding Company, and the Bank will be a party to a
"reorganization," with respect to Merger One and Merger Two, as defined in
Section 368(b) of the Code.
2. Interim Bank #1 and Interim Bank #2 will recognize no gain or loss
pursuant to Merger One and Merger Two.
3. No gain or loss will be recognized by the Bank upon the receipt of the
assets of Interim Bank #1 and Interim Bank #2 in Merger One and Merger Two,
respectively.
4. Merger Three qualifies as a reorganization within the meaning of
Section 368(a)(1)(A) of the Code. Therefore, the Bank, the Holding Company, and
Interim Bank #3 will each be a party to a reorganization, with respect to Merger
Three, as defined in Section 368(b) of the Code.
<PAGE>
Boards of Directors
Roxborough-Manayunk Federal Savings Bank
Thistle Group Holdings, Inc.
May 7, 1998
Page 10
5. No gain or loss will be recognized by Interim Bank #3 upon the transfer
of its assets to the Bank pursuant to Merger Three.
6. No gain or loss will be recognized by the Bank upon the receipt of the
assets of Interim Bank #3.
7. No gain or loss will be recognized by the Holding Company upon the
receipt of Bank Stock solely in exchange for Holding Company Common Stock.
8. No gain or loss will be recognized by the Bank's public stockholders
upon their receipt of Holding Company Common Stock solely in exchange for their
Bank Stock.
9. The basis of the Holding Company Common Stock to be received by the
Public Stockholders will be the same as their basis in the Bank Stock
surrendered before giving effect to any payment of cash in lieu of fractional
shares.
10. No gain or loss will be recognized by the Holding Company upon the
sale of Holding Company Common Stock in the Offerings.
11. The Eligible Account Holders, Supplemental Eligible Account Holders,
and Other Members (as such terms are defined in the Plan) will recognize gain,
if any, upon the issuance to them of: (i) withdrawable savings accounts in the
Bank following the Conversion, (ii) Liquidation Interests, and (iii)
nontransferable subscription rights to purchase Holding Company Common Stock,
but only to the extent of the value, if any, of the subscription rights.
The opinions set forth above represent our conclusions as to the
application of existing federal income tax law to the facts of the above
described transaction. We can give no assurance that changes in such law, or in
the interpretation thereof, will not affect the opinions expressed by us.
Moreover, there can be no assurance that contrary positions may not be taken by
the Service, or that a court considering the issues would not hold contrary to
such opinions. However, we believe that a court, if such issues were litigated,
is more likely than not to concur with our opinion.
All of the opinions set forth above are qualified to the extent that the
validity or enforceability of any provision of any agreement may be subject to
or affected by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the rights of creditors generally. We do not express any
opinion as to the availability of any equitable or specific remedy upon any
breach of any of the covenants, warranties or other provisions contained in any
agreement. We have not examined, and we express no opinion with respect to the
applicability of, or liability under, any federal, state or local law,
ordinance, or regulation
<PAGE>
Boards of Directors
Roxborough-Manayunk Federal Savings Bank
Thistle Group Holdings, Inc.
May 7, 1998
Page 11
governing or pertaining to environmental matters, hazardous wastes, toxic
substances, asbestos, or the like.
Further, the opinions set forth above represent our conclusions based upon
the documents reviewed by us and the facts presented to us. Any material
amendments to such documents or changes in any significant fact would affect the
opinions expressed herein.
We have not been asked to, and we do not, render any opinion with respect
to any matters other than those expressly set forth above.
CONSENT
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement on Form S-1 ("Form S-1") to be filed by the Holding
Company with the Securities and Exchange Commission, and as an exhibit to the
MHC's Application for Conversion on the Form AC as filed with the OTS ("Form
AC"), and to the references to our firm in the Prospectus which is part of both
the Form S-1 and the Form AC.
Very truly yours,
/s/Malizia, Spidi, Sloane & Fisch
--------------------------------------
Malizia, Spidi, Sloane & Fisch, P.C.
Exhibit 8.2
<PAGE>
MALIZIA, SPIDI, SLOANE & FISCH, P.C.
One Franklin Square
1301 K Street, N.W.
Suite 700 East
Washington, D.C. 20005
Telephone: (202) 434-4660
Telecopier: (202) 434-4661
WRITER'S DIRECT DIAL NUMBER
May 7, 1998
Board of Directors
Roxborough-Manayunk Federal Savings Bank
Thistle Group Holdings, Inc.
6060 Ridge Avenue
Philadelphia, Pennsylvania 19128
Board Members:
You have requested our opinion regarding certain Pennsylvania tax
consequences to FJF Financial, M.H.C. (the "MHC"), Thistle Group Holdings, Inc.
(the "Mid-Tier") and Roxborough-Manayunk Federal Savings Bank (the "Bank"), and
the Bank's depositors under the laws of the Commonwealth of Pennsylvania of the
proposed mutual-to-stock conversion and reorganization (the "Conversion and
Reorganization") under which the MHC will convert from the mutual holding
company form to the stock form. In addition, the MHC will simultaneously
reorganize its corporate structure to the holding company structure as described
in the Plan of Conversion and Reorganization of FJF Financial, M.H.C. and Plans
of Merger between FJF Financial, M.H.C., Thistle Group Holdings, Inc. and
Roxborough-Manayunk Federal Savings Bank adopted on February 18, 1998, as
amended (the "Plan").
We have provided the Mid-Tier and the Bank an opinion of this firm
regarding the material federal income tax consequences of the Conversion and
Reorganization (the "Federal Tax Opinion"). Based upon the facts stated in the
Federal Tax Opinion, including certain representations of the MHC, the Mid-Tier,
and the Bank, the Federal Tax Opinion concludes, among other things, that
certain transactions contemplated by the Conversion and Reorganization qualify
as tax-free reorganizations under ss. 368(a)(1)(F) of the Internal Revenue Code
of 1986, as amended ("Code"), and that the MHC, the Bank, the Mid-Tier, and
members of the MHC will not recognize income, gain, or loss for federal income
tax purposes upon the implementation of the Plan.
Based upon (1) the facts and circumstances attendant to the Conversion
and Reorganization, including the representations of the Bank, as described in
the Federal Tax Opinion, (2) current provisions of Pennsylvania law, as
reflected in Pennsylvania statutes, administrative regulations and rulings
thereunder, and court decisions, (3) the Federal Tax Opinion, and (4) the
assumption that the Conversion and Reorganization will not result in the
recognition of any gain or income on the books of the Bank, the Mid-Tier, or the
MHC under
<PAGE>
Boards of Directors
Roxborough-Manayunk Federal Savings Bank
Thistle Group Holdings, Inc.
May 7, 1998
Page 2
generally accepted accounting principles, it is our opinion that under the laws
of the Commonwealth of Pennsylvania, the implementation of the Conversion and
Reorganization will not cause any tax liability to be incurred by the Bank, the
MHC, the Mid-Tier, the members of the MHC, or Thistle Group Holdings, Co. (the
"Holding Company").
Our opinions herein are expressly limited to the Pennsylvania Mutual
Thrift Institutions Tax ("MTIT"), the Pennsylvania Personal Income Tax ("PIT"),
and the Pennsylvania Corporate Net Income Tax ("CNIT"), and specifically do not
include any opinions with respect to the consequences to depositors of the
implementation of the Conversion and Reorganization under any other taxes
imposed by the Commonwealth of Pennsylvania or any other subdivision thereof, or
imposed by states other than Pennsylvania and local jurisdictions of such
states. In addition, the opinions herein specifically do not include (1) an
opinion with respect to the consequences to the Bank, the MHC, the Mid-Tier, and
the Holding Company of the implementation of the Plan under any local taxes
imposed by any political subdivision of the Commonwealth of Pennsylvania, and
under any state or local realty or other transfer tax, or (2) an opinion with
respect to tax liabilities under the MTIT, the PIT, or the CNIT attributable to
events after the Conversion and Reorganization or to any assets held or acquired
by the Holding Company other than stock of the Bank.
Our opinion is based on the facts and conditions as stated herein,
whether directly or by reference to the Federal Tax Opinion. If any of the facts
and conditions are not entirely complete or accurate, it is imperative that we
be informed immediately, as the inaccuracy or incompleteness could have a
material effect on our conclusions. In rendering our opinion, we are relying
upon the relevant provisions of the Code, the laws of the Commonwealth of
Pennsylvania, as amended, the regulations and rules thereunder and judicial and
administrative interpretations thereof, which are subject to change or
modification by subsequent legislative, regulatory, administrative, or judicial
decisions. Any such changes could also have an effect on the validity of our
opinion. We undertake no responsibility to update or supplement our opinion. Our
opinion is not binding on the Internal Revenue Service or the Commonwealth of
Pennsylvania, nor can any assurance be given that any of the foregoing parties
will not take a contrary position or that our opinion will be upheld if
challenged by such parties.
Finally, we hereby consent to the filing of this opinion as an exhibit
to the Application for Conversion on Form AC ("Form AC") of the MHC filed with
the Office of Thrift Supervision, the filing of this opinion as an exhibit to
the Application H-(e)(1)S of the Holding
<PAGE>
Boards of Directors
Roxborough-Manayunk Federal Savings Bank
Thistle Group Holdings, Inc.
May 7, 1998
Page 3
Company to be filed with the Office of Thrift Supervision, and the filing of
this opinion as an exhibit to the Holding Company's Registration Statement on
Form S-1 ("Form S-1") to be filed with the Securities and Exchange Commission,
and to reference to our firm in the prospectus contained in the Form AC and Form
S-1.
Very truly yours,
/s/Malizia, Spidi, Sloane & Fisch
--------------------------------------
Malizia, Spidi, Sloane & Fisch, P.C.
Exhibit 10.7
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT, is entered into this 21st day of January, 1998,
("Effective Date") by and between Roxbough-Manayunck Federal Savings Bank (the
"Bank") and John F. McGill, Jr. (the "Executive").
WITNESSETH
WHEREAS, the Executive has heretofore been employed by the Bank as the
President and Chief Executive Officer and is experienced in all phases of the
business of the Bank; and
WHEREAS, the Bank desires to be ensured of the Executive's continued
active participation in the business of the Bank; and
WHEREAS, in order to induce the Executive to remain in the employ of the
Bank and in consideration of the Executive's agreeing to remain in the employ of
the Bank, the parties desire to specify the continuing employment relationship
between the Bank and the Executive;
NOW THEREFORE, in consideration of the premises and the mutual agreements
herein contained, the parties hereby agree as follows:
1. Employment. The Bank hereby employs the Executive in the capacity of
President and Chief Executive Officer. The Executive hereby accepts said
employment and agrees to render such administrative and management services to
the Bank, Thistle Group Holdings ("Parent") and FJF Financial, M.H.C. ("MHC") as
are currently rendered and as are customarily performed by persons situated in a
similar executive capacity. The Executive shall promote the business of the Bank
and Parent. The Executive's other duties shall be such as the Board of Directors
for the Bank (the "Board of Directors" or "Board") may from time to time
reasonably direct, including normal duties as an officer of the Bank.
2. Term of Employment. The term of employment of Executive under this
Agreement shall be for the period commencing on the Effective Date and ending
thirty-six (36) months thereafter ("Term"). Additionally, on, or before, each
annual anniversary date from the Effective Date, the Term of employment under
this Agreement shall be extended for up to an additional period beyond the then
effective expiration date upon a determination and resolution of the Board of
Directors that the performance of the Executive has met the requirements and
standards of the Board, and that the Term of such Agreement shall be extended.
References herein to the Term of this Agreement shall refer both to the initial
term and successive terms.
<PAGE>
3. Compensation, Benefits and Expenses.
-----------------------------------
(a) Base Salary. The Bank shall compensate and pay the Executive
during the Term of this Agreement a minimum base salary at the rate of $225,000
per annum ("Base Salary"), payable in cash not less frequently than monthly;
provided, that the rate of such salary shall be reviewed by the Board of
Directors not less often than annually, and the Executive shall be entitled to
receive increases at such percentages or in such amounts as determined by the
Board of Directors. The base salary may not be decreased without the Executive's
express written consent.
(b) Discretionary Bonus. The Executive shall be entitled to
participate in an equitable manner with all other senior management employees of
the Bank in discretionary bonuses that may be authorized and declared by the
Board of Directors to its senior management executives from time to time. No
other compensation provided for in this Agreement shall be deemed a substitute
for the Executive's right to participate in such discretionary bonuses when and
as declared by the Board.
(c) Participation in Benefit and Retirement Plans. The Executive shall
be entitled to participate in and receive the benefits of any plan of the Bank
which may be or may become applicable to senior management relating to pension
or other retirement benefit plans, profit-sharing, stock options or incentive
plans, or other plans, benefits and privileges given to employees and executives
of the Bank, to the extent commensurate with his then duties and
responsibilities, as fixed by the Board of Directors of the Bank.
(d) Participation in Medical Plans and Insurance Policies. The
Executive shall be entitled to participate in and receive the benefits of any
plan or policy of the Bank which may be or may become applicable to senior
management relating to life insurance, short and long term disability, medical,
dental, eye-care, prescription drugs or medical reimbursement plans.
Additionally, Executive's dependent family shall be eligible to participate in
medical and dental insurance plans sponsored by the Savings Bank or Parent with
the cost of such premiums paid by the Savings Bank.
(e) Vacations and Sick Leave. The Executive shall be entitled to paid
annual vacation leave in accordance with the policies as established from time
to time by the Board of Directors, which shall in no event be less than four
weeks per annum. The Executive shall also be entitled to an annual sick leave
benefit as established by the Board for senior management employees of the Bank.
The Executive shall not be entitled to receive any additional compensation from
the Bank for failure to take a vacation or sick leave, nor shall he be able to
accumulate unused vacation or sick leave from one year to the next, except to
the extent authorized by the Board of Directors.
2
<PAGE>
(f) Expenses. The Bank shall reimburse the Executive or otherwise provide
for or pay for all reasonable expenses incurred by the Executive in furtherance
of, or in connection with the business of the Bank, including, but not by way of
limitation, automobile and traveling expenses, and all reasonable entertainment
expenses, subject to such reasonable documentation and other limitations as may
be established by the Board of Directors of the Bank. If such expenses are paid
in the first instance by the Executive, the Bank shall reimburse the Executive
therefor.
(g) Changes in Benefits. The Bank shall not make any changes in such
plans, benefits or privileges previously described in Section 3(c), (d) and (e)
which would adversely affect the Executive's rights or benefits thereunder,
unless such change occurs pursuant to a program applicable to all executive
officers of the Bank and does not result in a proportionately greater adverse
change in the rights of, or benefits to, the Executive as compared with any
other executive officer of the Bank. Nothing paid to Executive under any plan or
arrangement presently in effect or made available in the future shall be deemed
to be in lieu of the salary payable to Executive pursuant to Section 3(a)
hereof.
4. Loyalty; Noncompetition.
-----------------------
(a) The Executive shall devote his full time and attention to the
performance of his employment under this Agreement. During the term of the
Executive's employment under this Agreement, the Executive shall not engage in
any business or activity contrary to the business affairs or interests of the
Bank or Parent.
(b) Nothing contained in this Section 4 shall be deemed to prevent or
limit the right of Executive to invest in the capital stock or other securities
of any business dissimilar from that of the Bank or Parent, or, solely as a
passive or minority investor, in any business.
5. Standards. During the term of this Agreement, the Executive shall
perform his duties in accordance with such reasonable standards expected of
executives with comparable positions in comparable organizations and as may be
established from time to time by the Board of Directors.
6. Termination and Termination Pay. The Executive's employment under this
Agreement shall be terminated upon any of the following occurrences:
(a) The death of the Executive during the term of this Agreement, in
which event the Executive's estate shall be entitled to receive the compensation
due the Executive through the last day of the calendar month in which
Executive's death shall have occurred.
(b) The Board of Directors may terminate the Executive's employment at
any time, but any termination by the Board of Directors other than termination
for Just Cause, shall not prejudice the Executive's right to compensation or
other benefits under the Agreement. The Executive shall have no right to receive
compensation or other benefits for any period after termination for Just Cause.
The Board may within its sole discretion, acting in good faith, terminate the
Executive for Just Cause and shall notify such Executive accordingly.
3
<PAGE>
Termination for "Just Cause" shall include termination because of the
Executive's personal dishonesty, incompetence, willful misconduct, breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule or regulation (other than traffic
violations or similar offenses) or final cease-and-desist order, or material
breach of any provision of the Agreement.
(c) Except as provided pursuant to Section 9 hereof, in the event
Executive's employment under this Agreement is terminated by the Board of
Directors without Just Cause, the Bank shall be obligated to continue to pay the
Executive the salary provided pursuant to Section 3(a) herein, up to the date of
termination of the remaining Term of this Agreement, but in no event for a
period of less than eighteen (18) months, and the cost of Executive obtaining
all health, life, disability, and other benefits which the Executive would be
eligible to participate in through such date based upon the benefit levels
substantially equal to those being provided Executive at the date of termination
of employment.
(d) The voluntary termination by the Executive during the term of this
Agreement with the delivery of no less than 60 days written notice to the Board
of Directors, other than pursuant to Section 9(b), in which case the Executive
shall be entitled to receive only the compensation, vested rights, and all
employee benefits up to the date of such termination.
7. Regulatory Exclusions.
---------------------
(a) If the Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice served under
Section 8(e)(3) or (g)(1) of the FDIA (12 U.S.C. 1818(e)(3) and (g)(1)), the
Bank's obligations under the Agreement shall be suspended as of the date of
service, unless stayed by appropriate proceedings. If the charges in the notice
are dismissed, the Bank may within its discretion (i) pay the Executive all or
part of the compensation withheld while its contract obligations were suspended
and (ii) reinstate any of its obligations which were suspended.
(b) If the Executive is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Sections 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act ("FDIA") (12
U.S.C. 1818(e)(4) and (g)(1)), all obligations of the Bank under this Agreement
shall terminate, as of the effective date of the order, but the vested rights of
the parties shall not be affected.
(c) If the Bank is in default (as defined in Section 3(x)(1) of FDIA) all
obligations under this Agreement shall terminate as of the date of default, but
this paragraph shall not affect any vested rights of the contracting parties.
(d) All obligations under this Agreement shall be terminated, except
to the extent determined that continuation of this Agreement is necessary for
the continued operation of the Bank: (i) by the Director of the Office of Thrift
Supervision ("Director of OTS"), or his or her designee, at the time that the
Federal Deposit Insurance Corporation ("FDIC") enters into an agreement to
provide assistance to or on behalf of the Bank under the authority contained in
Section 13(c) of FDIA; or (ii) by the Director of the OTS, or his or her
designee, at the time that the Director of the OTS, or his or her designee
approves a supervisory merger to resolve
4
<PAGE>
problems related to operation of the Bank or when the Bank is determined by the
Director of the OTS to be in an unsafe or unsound condition. Any rights of the
parties that have already vested, however, shall not be affected by such action.
(e) Notwithstanding anything herein to the contrary, any payments made to
the Executive pursuant to the Agreement, or otherwise, shall be subject to and
conditioned upon compliance with 12 USC ss.1828(k) and any regulations
promulgated thereunder.
8. Disability. If the Executive shall become disabled or incapacitated to
the extent that he is unable to perform his duties hereunder, by reason of
medically determinable physical or mental impairment, as determined by a doctor
engaged by the Board of Directors, Executive shall nevertheless continue to
receive the compensation and benefits provided under the terms of this Agreement
as follows: 100% of such compensation and benefits for a period of 12 months,
but not exceeding the remaining term of the Agreement, and 65% thereafter for
the remainder of the term of the Agreement. Such benefits noted herein shall be
reduced by any benefits otherwise provided to the Executive during such period
under the provisions of disability insurance coverage in effect for Bank
employees. Thereafter, Executive shall be eligible to receive benefits provided
by the Bank under the provisions of disability insurance coverage in effect for
Bank employees. Upon returning to active full-time employment, the Executive's
full compensation as set forth in this Agreement shall be reinstated as of the
date of commencement of such activities. In the event that the Executive returns
to active employment on other than a full-time basis, then his compensation (as
set forth in Section 3(a) of this Agreement) shall be reduced in proportion to
the time spent in said employment, or as shall otherwise be agreed to by the
parties.
9. Change in Control.
-----------------
(a) Notwithstanding any provision herein to the contrary, in the event
of the involuntary termination of Executive's employment during the term of this
Agreement following any Change in Control of the Bank or Parent, or within 24
months thereafter of such Change in Control, absent Just Cause, Executive shall
be paid an amount equal to the product of 2.999 times the Executive's "base
amount" as defined in Section 280G(b)(3) of the Internal Revenue Code of 1986,
as amended (the "Code") and regulations promulgated thereunder. Said sum shall
be paid, at the option of Executive, either in one (1) lump sum within thirty
(30) days of such termination of service or in periodic payments over the next
36 months or the remaining term of this Agreement whichever is less, as if
Executive's employment had not been terminated, and such payments shall be in
lieu of any other future payments which the Executive would be otherwise
entitled to receive under Section 6 of this Agreement. Notwithstanding the
forgoing, all sums payable hereunder shall be reduced in such manner and to such
extent so that no such payments made hereunder when aggregated with all other
payments to be made to the Executive by the Bank or the Parent shall be deemed
an "excess parachute payment" in accordance with Section 280G of the Code and be
subject to the excise tax provided at Section 4999(a) of the Code. The term
"Change in Control" shall refer to (i) the sale of all, or a material portion,
of the assets of the Bank or the Parent; (ii) the merger or recapitalization of
the Bank or the Parent whereby the Bank or
5
<PAGE>
the Parent is not the surviving entity; (iii) a change in control of the Bank or
the Parent, as otherwise defined or determined by the Office of Thrift
Supervision or regulations promulgated by it; or (iv) the acquisition, directly
or indirectly, of the beneficial ownership (within the meaning of that term as
it is used in Section 13(d) of the Securities Exchange Act of 1934 and the rules
and regulations promulgated thereunder) of twenty-five percent (25%) or more of
the outstanding voting securities of the Bank or the Parent by any person,
trust, entity or group other than by Parent or MHC. Notwithstanding the
foregoing, a Change in Control shall not include a transaction whereby Parent or
MHC merges directly or indirectly with and into the Bank and 100% of the Common
Stock of the Bank is simultaneously acquired by a newly established parent bank
holding company or unitary savings and loan holding company. The term "person"
means an individual other than the Executive, or a corporation, partnership,
trust, association, joint venture, pool, syndicate, sole proprietorship,
unincorporated organization or any other form of entity not specifically listed
herein.
(b) Notwithstanding any other provision of this Agreement to the
contrary, Executive may voluntarily terminate his employment during the term of
this Agreement following a Change in Control of the Bank or Parent, or within
twenty-four months following such Change in Contriol, and Executive shall
thereupon be entitled to receive the payment described in Section 9(a) of this
Agreement, upon the occurrence, or within 120 days thereafter, of any of the
following events, which have not been consented to in advance by the Executive
in writing: (i) if Executive would be required to move his personal residence or
perform his principal executive functions more than thirty-five (35) miles from
the Executive's primary office as of the signing of this Agreement; (ii) if in
the organizational structure of the Bank, Executive would be required to report
to a person or persons other than the Board of Directors of the Bank; (iii) if
the Bank should fail to maintain Executive's base compensation in effect as of
the date of the Change in Control and the existing employee benefits plans,
including material fringe benefit, stock option and retirement plans; (iv) if
Executive would be assigned duties and responsibilities other than those
normally associated with his position as referenced at Section 1, herein; (v) if
Executive's responsibilities or authority have in any way been materially
diminished or reduced; or (vi) if Executive would not be reelected to the Board
of Directors of the Bank.
10. Withholding. All payments required to be made by the Bank hereunder to
the Executive shall be subject to the withholding of such amounts, if any,
relating to tax and other payroll deductions as the Bank may reasonably
determine should be withheld pursuant to any applicable law or regulation.
11. Successors and Assigns.
----------------------
(a) This Agreement shall inure to the benefit of and be binding upon
any corporate or other successor of the Bank or Parent which shall acquire,
directly or indirectly, by merger, consolidation, purchase or otherwise, all or
substantially all of the assets or stock of the Bank or Parent.
(b) Since the Bank is contracting for the unique and personal skills
of the Executive, the
6
<PAGE>
Executive shall be precluded from assigning or delegating his rights or duties
hereunder without first obtaining the written consent of the Bank.
12. Amendment; Waiver. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing, signed by the Executive and such officer or officers as may be
specifically designated by the Board of Directors of the Bank to sign on its
behalf. No waiver by any party hereto at any time of any breach by any other
party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time.
13. Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the United States
where applicable and otherwise by the substantive laws of the State of
Pennsylvania.
14. Nature of Obligations. Nothing contained herein shall create or
require the Bank to create a trust of any kind to fund any benefits which may be
payable hereunder, and to the extent that the Executive acquires a right to
receive benefits from the Bank hereunder, such right shall be no greater than
the right of any unsecured general creditor of the Bank.
15. Headings. The section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
16. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of the other
provisions of this Agreement, which shall remain in full force and effect.
17. Arbitration. Any controversy or claim arising out of or relating to
this Agreement, or the breach thereof, shall be settled by arbitration in
accordance with the rules then in effect of the district office of the American
Arbitration Association ("AAA") nearest to the home office of the Bank, and
judgment upon the award rendered may be entered in any court having jurisdiction
thereof, except to the extent that the parties may otherwise reach a mutual
settlement of such issue. Further, the settlement of the dispute to be approved
by the Board of the Bank may include a provision for the reimbursement by the
Bank to the Executive for all reasonable costs and expenses, including
reasonable attorneys' fees, arising from such dispute, proceedings or actions,
or the Board of the Bank or the Parent may authorize such reimbursement of such
reasonable costs and expenses by separate action upon a written action and
determination of the Board following settlement of the dispute. Such
reimbursement shall be paid within ten (10) days of Executive furnishing to the
Bank or Parent evidence, which may be in the form, among other things, of a
canceled check or receipt, of any costs or expenses incurred by Executive.
7
<PAGE>
18. Confidential Information. The Executive acknowledges that during his
or her employment he or she will learn and have access to confidential
information regarding the Bank and the Parent and its customers and businesses
("Confidential Information"). The Executive agrees and covenants not to disclose
or use for his or her own benefit, or the benefit of any other person or entity,
any such Confidential Information, unless or until the Bank or the Parent
consents to such disclosure or use or such information becomes common knowledge
in the industry or is otherwise legally in the public domain. The Executive
shall not knowingly disclose or reveal to any unauthorized person any
Confidential Information relating to the Bank, the Parent, or any subsidiaries
or affiliates, or to any of the businesses operated by them, and the Executive
confirms that such information constitutes the exclusive property of the Bank
and the Parent. The Executive shall not otherwise knowingly act or conduct
himself (a) to the material detriment of the Bank or the Parent, or its
subsidiaries, or affiliates, or (b) in a manner which is inimical or contrary to
the interests of the Bank or the Parent. Executive acknowledges and agrees that
the existence of this Agreement and its terms and conditions constitutes
Confidential Information of the Bank, and the Executive agrees not to disclose
the Agreement or its contents without the prior written consent of the Bank.
Notwithstanding the foregoing, the Bank reserves the right in its sole
discretion to make disclosure of this Agreement as it deems necessary or
appropriate in compliance with its regulatory reporting requirements.
Notwithstanding anything herein to the contrary, failure by the Executive to
comply with the provisions of this Section may result in the immediate
termination of the Agreement within the sole discretion of the Bank,
disciplinary action against the Executive taken by the Bank, including but not
limited to the termination of employment of the Executive for breach of the
Agreement and the provisions of this Section, and other remedies that may be
available in law or in equity.
19. Entire Agreement. This Agreement together with any understanding or
modifications thereof as agreed to in writing by the parties, shall constitute
the entire agreement between the parties hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first hereinabove written.
Roxborough-Manayunck Federal
Savings Bank
ATTEST: By:/s/ John F. McGill
---------------------------------
John F. McGill, Chairman
/s/ Jerry Naessens
- -----------------------------------
Secretary
WITNESS:
/s/ Delores M. Lush /s/ John F. McGill, Jr.
- ----------------------------------- ---------------------------------
John F. McGill, Jr., Executive
8
Exhibit 23.2
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Thistle Group Holdings,
Co. on Form S-1 to be filed with the Securities and Exchange Commission and Form
AC to be filed with the Office of Thrift Supervision of our report on Thisle
Group Holdings, Inc and subsidiary dated February 5, 1998 appearing in the
Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/DELOITTE & TOUCHE LLP
- ------------------------
DELOITTE & TOUCHE LLP
Philadelphia, PA
May 7, 1998
Exhibit 23.3
<PAGE>
[FINPRO LOGO]
26 Church Stret o P.O. Box 323
Liberty Corner, N.J. 07938
(908) 604-9336 o (908) 604-5951 (FAX)
May 7, 1998
Board of Directors
Roxborough Manayunk Federal Savings Bank
6060 Ridge Avenue
Philadelphia, PA 19128
Dear Board Members:
We hereby consent to the use of our firm's name, FinPro, Inc. ("FinPro") in the
Form S-1 Registration Statement and Amendments thereto of Thistle Group
Holdings, co. so filed with the Securities and Exchange Commission, the Form AC
Application for Conversion and the prospectus included therein filed by FJF
Financial, M.H.C. and any amendments thereto, for the Valuation Appraisal Report
("Report") regarding the valuation of Thistle Group Holdings, Co. provided by
FinPro, and our opinion regarding subscription rights filed as exhibits to the
Form S-1 and Form AC referred to below. We also consent to the use of our firms'
name and the inclusion of, summary of and references to our Report and Opinion
in the prospectus included in the Form S-1, and any amendments thereto.
Very Truly Yours,
/s/ Donald J. Musso
-------------------
Donald J. Musso
Liberty Corner, New Jersey
May 7, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION DERIVED FROM THE
FINANCIAL INFORMATION PROVIDED IN THE REGISTRANT'S FORM S-1/A AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL INFORMATION.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,839
<INT-BEARING-DEPOSITS> 15,312
<FED-FUNDS-SOLD> 2,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 115,184
<INVESTMENTS-CARRYING> 34,529
<INVESTMENTS-MARKET> 35,154
<LOANS> 96,280
<ALLOWANCE> 783
<TOTAL-ASSETS> 276,650
<DEPOSITS> 230,558
<SHORT-TERM> 14,921
<LIABILITIES-OTHER> 0
<LONG-TERM> 2,701
0
0
<COMMON> 162
<OTHER-SE> 28,308
<TOTAL-LIABILITIES-AND-EQUITY> 276,650
<INTEREST-LOAN> 8,763
<INTEREST-INVEST> 11,819
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 20,582
<INTEREST-DEPOSIT> 10,538
<INTEREST-EXPENSE> 11,002
<INTEREST-INCOME-NET> 9,580
<LOAN-LOSSES> 120
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 6,824
<INCOME-PRETAX> 5,444
<INCOME-PRE-EXTRAORDINARY> 5,444
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,354
<EPS-PRIMARY> 2.07
<EPS-DILUTED> 2.04
<YIELD-ACTUAL> 4.66
<LOANS-NON> 0
<LOANS-PAST> 716
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2,607
<ALLOWANCE-OPEN> 577
<CHARGE-OFFS> 83
<RECOVERIES> 169
<ALLOWANCE-CLOSE> 783
<ALLOWANCE-DOMESTIC> 783
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
Exhibit 99.1
<PAGE>
FJF FINANCIAL, M.H.C.
PROPOSED LETTERS/QUESTION & ANSWER BROCHURE
INDEX
-----
1. Dear Member Letter including IRA or Qualified Plan *
2. Dear Member Letter for Non Eligible States
3. Dear Friend Letter - Eligible Account Holders who are no longer Members *
4. Dear Potential Investor Letter *
5. Dear Customer Letter - Used as a Cover Letter for States Requiring
"Agent" Mailing *
6. Proxy Request
7. Proxy and Stock Question and Answer Brochure *
8. Mailing Insert/Lobby Poster
9. Invitation Letter - Informational Meetings
10. Dear Subscriber/Acknowledgment Letter - Initial Response to Stock Order
Received
11. Dear Shareholder - Confirmation Letter
12. Dear Interested Investor - No Shares Available Letter
13. Welcome Shareholder Letter - For Initial Certificate Mailing
14. Dear Interested Subscriber Letter - Subscription Rejection
15. Letter for Sandler O'Neill Mailing to Clients *
* Accompanied by a Prospectus
Note: Items 1 through 8 are produced by the Financial Printer
and Items 9 through 15 are produced by the Stock
Center.
<PAGE>
[Roxborough-Manayunk Federal Savings Bank, A Subsidiary of
FJF Financial, M.H.C.]
Dear Member:
The Boards of Directors of Roxborough-Manayunk Federal Savings Bank (the
"Bank"), FJF Financial, M.H.C. (the "MHC") and Thistle Group Holdings, Co. (the
"Mid-Tier Holding Company"), have voted unanimously in favor of a Plan of
Conversion and Reorganization (the "Plan of Conversion"). As part of this plan,
we have formed Thistle Group Holdings, Co. (the "Company") which will own all of
the Mid-Tier Holding Company Common Stock. Pursuant to the Plan of Conversion,
the existing stockholders of the Mid-Tier Holding Company (other than the MHC)
will be issued shares of the Company Common Stock in exchange for their shares
of Mid-Tier Holding Company Common Stock ( the "Exchange Shares"). The Exchange
Shares will result in those stockholders owning in the aggregate approximately
the same percentage of the Company as they had owned in the Mid-Tier Holding
Company. In addition to the shares of Company Common Stock to be issued in the
Exchange, the Company is offering up to X,XXX,XXX shares of Common Stock to the
Bank's members, the Mid-Tier Holding Company stockholders and members of the
public. We are converting so that the Company will be structured in a form used
by most other holding companies of commercial banks, many business entities, and
a growing number of savings institutions
To accomplish the Conversion and Reorganization, your participation is extremely
important. On behalf of the Boards, I ask that you help us meet our goal by
reading the enclosed Proxy Statement and Question and Answer Brochure and then
casting your vote in favor of the Plan of Conversion, and mailing your signed
proxy card immediately in the _______ postage-paid envelope provided marked
"PROXY RETURN". Should you choose to attend the Special Meeting of Members and
wish to vote in person, you may do so by revoking any previously executed proxy.
If you have an IRA or other Qualified Plan account for which the Bank acts as
trustee and we do not receive a proxy from you, the Bank intends, as trustee for
such account, to vote for the Plan of Conversion on your behalf.
If the Plan of Conversion is approved let me assure you that:
o Deposit accounts will continue to be federally insured to the
fullest extent permitted by law.
o Existing deposit accounts and loans will not undergo any change
as a result of the Conversion and Reorganization.
o Voting for approval will not obligate you to buy any shares of
Common Stock.
As a qualifying account holder, you may also take advantage of your
nontransferable rights to subscribe for shares of Thistle Group Holdings, Co.'s
Common Stock on a priority basis, before the stock is offered to the general
public. The enclosed Proxy Statement and Prospectus describes the stock offering
and the operations of Roxborough- Manayunk Federal Savings Bank. If you wish to
purchase stock, please complete the stock order and certification form and mail
it to Roxborough-Manayunk Federal Savings Bank in the enclosed [COLOR]
postage-paid envelope marked "STOCK ORDER RETURN", or return it to any branch
office of Roxborough-Manayunk Federal Savings Bank. Your order must be
physically received no later than 12:00 noon Philadelphia time on Day, Month X,
199X. Please read the Prospectus carefully before making an investment decision.
If you wish to use funds in your IRA or Qualified Plan maintained at the Bank to
subscribe for Common Stock, please be aware that federal law requires that such
funds first be transferred to a self-directed retirement account with a trustee
other than the Bank. The transfer of such funds to a new trustee takes time, so
please make arrangements as soon as possible.
If you have any questions after reading the enclosed material, please call our
Stock Center at (215) 483-4212. The Stock Center is open Monday through Friday
between the hours of 10:00 a.m. and 4:00 p.m. Please note that the Stock Center
will be closed from 12:00 noon DAY, MONTH DATE, 199X, through 12 noon DAY, MONTH
DATE, 199X, in observance of the _________________ holiday.
Sincerely,
Signature
Title
The shares of Common Stock offered in the Conversion and Reorganization are not
savings accounts or deposits and are not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency.
#1
<PAGE>
[Roxborough-Manayunk Federal Savings Bank, A Subsidiary of
FJF Financial, M.H.C.]
Dear Member:
The Boards of Directors of Roxborough-Manayunk Federal Savings Bank (the
"Bank"), FJF Financial, M.H.C. (the "MHC") and Thistle Group Holdings, Inc. (the
"Mid-Tier Holding Company") have voted unanimously in favor of a Plan of
Conversion and Reorganization (the "Plan of Conversion"). As part of this plan,
we have formed Thistle Group Holdings, Co. (the "Company") which will own all of
the Mid-Tier Holding Company Common Stock. Pursuant to the Plan of Conversion,
the existing stockholders of the Mid-Tier Holding Company (other than the MHC)
will be issued shares of the Company Common Stock in exchange for their shares
of Mid-Tier Holding Company Common Stock ( the "Exchange Shares"). The Exchange
Shares will result in those stockholders owning in the aggregate approximately
the same percentage of the Company as they had owned in the Mid-Tier Holding
Company. In addition to the shares of Company Common Stock to be issued in the
Exchange, the Company is offering up to X,XXX,XXX shares of Common Stock to the
Bank's members, the Mid-Tier Holding Company's stockholders and members of the
public. We are converting so that the Company will be structured in a form used
by most other holding companies of commercial banks, many business entities, and
a growing number of savings institutions.
To accomplish the Conversion and Reorganization, your participation is extremely
important. On behalf of the Boards, I ask that you help us meet our goal by
reading the enclosed Proxy Statement and Question and Answer Brochure and then
casting your vote in favor of the Plan of Conversion, and mailing your signed
proxy card immediately in the _______ postage-paid envelope provided marked
"PROXY RETURN". Should you choose to attend the Special Meeting of Members and
wish to vote in person, you may do so by revoking any previously executed proxy.
If you have an IRA or other Qualified Plan account for which the Bank acts as
trustee and we do not receive a proxy from you, the Bank intends, as trustee for
such account, to vote for the Plan of Conversion on your behalf.
If the Plan of Conversion is approved let me assure you that:
o Deposit accounts will continue to be federally insured to the
fullest extent permitted by law.
o Existing deposit accounts and loans will not undergo any change
as a result of the Conversion and Reorganization.
We regret that we are unable to offer you Common Stock in the Subscription and
Community Offerings, because the laws of your state or jurisdiction require us
to register either (1) the to-be-issued Common Stock of Thistle Group Holdings,
Co., or (2) an agent of the Bank to solicit the sale of such stock, and the
number of eligible subscribers in your state or jurisdiction does not justify
the expense of such registration.
If you have any questions after reading the enclosed material, please call our
Stock Center at (215) 483-4212. The Stock Center is open Monday through Friday
between the hours of 10:00 a.m. and 4:00 p.m. Please note that the Stock Center
will be closed from 12:00 noon DAY, MONTH DATE, 199X, through 12 noon DAY, MONTH
DATE, 199X, in observance of the _________________ holiday.
Sincerely,
Signature
Title
The shares of Common Stock offered in the Conversion and Reorganization are not
savings accounts or deposits and are not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency.
#2
<PAGE>
[Roxborough-Manayunk Federal Savings Bank, A Subsidiary of
FJF Financial, M.H.C.]
Dear Friend:
The Boards of Directors of Roxborough-Manayunk Federal Savings Bank (the
"Bank"), FJF Financial, M.H.C. (the "MHC") and Thistle Group Holdings, Inc. (the
"Mid-Tier Holding Company") have voted unanimously in favor of a Plan of
Conversion and Reorganization (the "Plan of Conversion"). As part of this plan,
we have formed Thistle Group Holdings, Co. (the "Company") which will own all of
the Mid-Tier Holding Company Common Stock. Pursuant to the Plan of Conversion,
the existing stockholders of the Mid-Tier Holding Company (other than the MHC)
will be issued shares of the Company Common Stock in exchange for their shares
of Mid-Tier Holding Company Common Stock ( the "Exchange Shares"). The Exchange
Shares will result in those stockholders owning in the aggregate approximately
the same percentage of the Company as they had owned in the Mid-Tier Holding
Company. In addition to the shares of Company Common Stock to be issued in the
Exchange, the Company is offering up to X,XXX,XXX shares of Common Stock to the
Bank's members, the Mid-Tier Holding Company's stockholders and members of the
public. We are converting so that the company will be structured in a form used
by most other holding companies of commercial banks, many business entities, and
a growing number of savings institutions.
As a former account holder, you may take advantage of your nontransferable
rights to subscribe for shares of Thistle Group Holdings, Co.'s Common Stock
without commission or fee on a priority basis, before the stock is offered to
the general public. The enclosed Prospectus describes the stock offering and the
operations of Roxborough-Manayunk Federal Savings Bank. If you wish to purchase
stock, please complete the stock order and certification form and mail it to
Roxborough-Manayunk Federal Savings Bank in the enclosed [COLOR] postage-paid
envelope marked "STOCK ORDER RETURN", or return it to any branch office of
Roxborough-Manayunk Federal Savings Bank. Your order must be physically received
no later than 12:00 Noon Philadelphia Time on DAY, MONTH XX, 199X. Please read
the Prospectus carefully before making an investment decision.
If you have any questions after reading the enclosed material, please call our
Stock Center at (215) 483-4212. The Stock Center is open Monday through Friday
from 10:00 a.m. to 4:00 p.m. Please note that the Stock Center will be closed
from 12:00 noon DAY, MONTH DATE, 199X, through 12 noon DAY, MONTH DATE, 199X, in
observance of the _________________ holiday.
Sincerely,
Signature
Title
The shares of Common Stock offered in the Conversion and Reorganization are not
savings accounts or deposits and are not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency.
#3
<PAGE>
[THISTLE GROUP HOLDINGS, CO.]
Dear Potential Investor:
We are pleased to provide you with the enclosed material in connection with the
Conversion and Reorganization of Roxborough-Manayunk Federal Savings Bank (the
"Bank") FJF Financial, M.H.C., the Mutual Holding Company and Thistle Group
Holdings, Inc., the Mid-Tier Holding Company into the stock holding company
structure.
This information packet includes the following:
PROSPECTUS: This document provides detailed information about the Bank's
operations, the proposed stock offering by Thistle Group Holdings, Co., the
holding company formed by the Bank to become the Bank's parent company upon
completion of the Conversion and Reorganization. Please read it carefully
prior to making an investment decision.
QUESTION AND ANSWER BROCHURE: This answers commonly asked questions about the
stock offering.
STOCK ORDER AND CERTIFICATION FORMS: Use these forms to subscribe for stock
and return them together with your payment in the postage-paid envelope
provided. The deadline to subscribe for stock is 12:00 noon, Philadelphia
Time on Day, Month Date, 199X.
We are pleased to offer you this opportunity to become one of our stockholders.
If you have any questions regarding the Conversion and Reorganization or the
Prospectus, please call our Stock Center at (215) 483-4212. The Stock Center is
open Monday through Friday between the hours of 10:00 a.m. and 4:00 p.m. Please
note that the Stock Center will be closed from 12:00 noon DAY, MONTH DATE, 199X,
through 12 noon DAY, MONTH DATE, 199X, in observance of the _________________
holiday.
Sincerely,
Signature
Title
The shares of Common Stock offered in the Conversion and Reorganization are not
savings accounts or deposits and are not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency.
#4
<PAGE>
[SANDLER O'NEILL & PARTNERS, L.P. LETTERHEAD]
Dear Customer:
At the request of Roxborough-Manayunk Federal Savings Bank, (the "Bank") FJF
Financial, M.H.C.(the "MHC") and Thistle Group Holdings, Inc. (the "Mid-Tier
Holding Company") we have enclosed material regarding the offering of Common
Stock by Thistle Group Holdings, Co. the holding company formed by the Bank to
become the Bank's parent company. This material is offered in connection with
the Conversion and Reorganization of the Bank , the MHC and the Mid-Tier Holding
Company. These materials include a Prospectus and stock order and certification
forms which offer you the opportunity to subscribe for shares of Common Stock of
Thistle Group Holdings, Co.
We recommend that you read this material carefully. If you decide to subscribe
for shares, you must return the properly completed stock order form and signed
certification form along with full payment for the shares (or appropriate
instructions authorizing withdrawal from a deposit account at
Roxborough-Manayunk Federal Savings Bank) no later than 12:00 noon, Philadelphia
Time on Month Date, 199X in the accompanying postage-paid envelope. If you have
any questions after reading the enclosed material, please call the Stock Center
at (215) 483-4212 and ask for a Sandler O'Neill representative. The Stock Center
is open Monday through Friday between the hours of 10:00 a.m. and 4:00 p.m.
Please note that the Stock Center will be closed from 12:00 noon DAY, MONTH
DATE, 199X, through 12 noon DAY, MONTH DATE, 199X, in observance of the
_________________ holiday.
We have been asked to forward these documents to you in view of certain
requirements of the securities laws of your jurisdiction. We should not be
understood as recommending or soliciting in any way any action by you with
regard to the enclosed materials.
Sincerely,
Sandler O'Neill & Partners, L.P.
The shares of Common Stock offered in the Conversion and Reorganization are not
savings accounts or deposits and are not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency.
Enclosure
#5
<PAGE>
LOGO: [ROXBOROUGH-MANAYUNK FEDERAL SAVINGS BANK]
A SUBSIDIARY OF
FJF FINANCIAL, M.H.C.
P R O X Y R E Q U E S T
WE NEED YOUR VOTE!
DEAR CUSTOMER:
YOUR VOTE ON OUR PLAN OF CONVERSION AND REORGANIZATION HAS NOT YET BEEN
RECEIVED. YOUR VOTE IS VERY IMPORTANT TO US. PLEASE VOTE AND MAIL THE ENCLOSED
PROXY TODAY.
REMEMBER: VOTING FOR THE PLAN OF CONVERSION DOES NOT OBLIGATE YOU TO
BUY STOCK. YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED
THE PLAN OF CONVERSION, AND URGES YOU TO VOTE IN FAVOR OF
IT. YOUR DEPOSIT ACCOUNTS OR LOANS WITH THE BANK WILL NOT
BE AFFECTED IN ANY WAY. DEPOSIT ACCOUNTS WILL CONTINUE TO
BE FEDERALLY INSURED.
A POSTAGE-PAID ENVELOPE IS ENCLOSED WITH THE PROXY FORM. IF YOU HAVE ANY
QUESTIONS, PLEASE CALL OUR STOCK CENTER AT (215) 483-4212, MONDAY THROUGH
FRIDAY, BETWEEN THE HOURS OF 10:00 A.M. AND 4:00 P.M.
IF YOU HAVE MORE THAN ONE ACCOUNT YOU MAY RECEIVE MORE THAN ONE PROXY.
PLEASE VOTE TODAY BY RETURNING ALL PROXY CARDS RECEIVED.
---
SINCERELY,
FJF FINANCIAL, M.H.C.
#6
<PAGE>
7-1
QUESTIONS AND ANSWERS
Background
Roxborough-Manayunk is a federally-chartered stock savings association, which
was originally chartered as a mutual savings association known as
Roxborough-Manayunk Federal Savings and Loan Association (the "Association") on
May 3, 1939, at which time the Association's accounts were insured by the
Federal Savings and Loan Insurance Corporation ("FSLIC") and currently the SAIF.
In 1939, the Association became a member of the FHLB System. On December 31,
1992, the Association reorganized from a mutual savings association into a
mutual holding company named FJF Financial, M.H.C. and chartered a new stock
savings bank named Roxborough- Manayunk Federal Savings Bank. On October 1, 1997
the Bank formed a middle-tier stock holding company (Thistle Group) whereby the
Bank became a wholly-owned subsidiary of the Mid-Tier Holding Company, which in
turn is over 80% owned by the Mutual Holding Company.
The Conversion and Reorganization
The Boards of Directors of the Mid-Tier Holding Company, the Bank and the MHC
have unanimously adopted a Plan, whereby the Mid-Tier Holding Company will
become a federal holding company then convert to an interim federal stock
savings bank and merge with and into the Bank with the Bank as the survivor.
Next, the Mutual Holding Company will convert to an interim Federal stock
savings bank and merge with and into the Bank, pursuant to which the Mutual
Holding Company will cease to exist and the shares of Mid-Tier Common Stock held
by the Mutual Holding Company will be canceled. As a result of the merger of the
Mutual Holding Company with and into the Bank, the Public Mid-Tier shares will
be converted into and become shares of Common Stock. The Bank has formed Thistle
Group Holdings, Co., a Pennsylvania chartered corporation (the "Company"), and,
pursuant to a reorganization and merger, the Bank will become the wholly owned
subsidiary of the Company.
It is necessary for the MHC to receive a majority of the outstanding votes in
favor of the Conversion and Reorganization, so YOUR VOTE IS VERY IMPORTANT.
Please return your proxy in the enclosed _______ postage-paid envelope.
YOUR BOARDS OF DIRECTORS URGE YOU TO VOTE "FOR" THE CONVERSION AND
REORGANIZATION AND RETURN YOUR PROXY CARD TODAY.
<PAGE>
7-2
Q. What is the reason for the Conversion and Reorganization?
A. The MHC does not have stockholders and has no authority to
issue capital stock. As a result of the Conversion and Reorganization,
the Company will be structured into the form used by holding companies
of commercial banks, many business entities and a growing number of
savings institutions. The Conversion and Reorganization will enhance
the ability of the Company and the Bank to access capital markets,
expand current operations, and diversify into other financial services
to the extent allowable by applicable law and regulation.
Q. What will be the effect of the Conversion and
Reorganization?
A. o The Conversion and Reorganization will have no effect on the
balance or terms of any deposit account or loan. Your deposits will
continue to be federally insured to the fullest extent permissible.
o The officers and employees of Roxborough-Manayunk will continue in
their current capacities.
o The Company will replace the MHC, and the Mid-Tier Holding Company.
Roxborough-Manayunk will become the wholly-owned subsidiary of the
Company.
o The Company will be a stock corporation and will sell its Common
Stock.
o The Company's Common Stock will be publicly held and will be traded
on the Nasdaq National Market under the symbol " ".
o The Public Stockholders will exchange their Mid-Tier Holding
Company stock for stock of the Company pursuant to an exchange
ratio.
About Voting
Q. Who is eligible to vote on the Conversion?
A. Depositors and certain borrowers as of MONTH, DATE, 1998 (the "Voting
Record Date") who continue to be members of the MHC as of the Special
Meeting of Members to be held on MONTH DATE, 1998. The Stockholders of
Thistle Group Holdings, Inc. as of a Voting Record Date also have the
right to vote and will be mailed a separate proxy card.
Q. Am I required to vote?
A. No. Members are not required to vote. However, because the Conversion
and Reorganization will produce a fundamental change in the Bank's
corporate structure, the Boards of Directors encourages all members to
vote.
Q. Why did I receive several proxies?
A. If you have more than one account you may have received more than one
proxy depending upon the ownership structure of your accounts. Please
vote and sign all proxy cards that you received.
<PAGE>
7-3
Q. How do I vote?
A. You may vote by mailing your signed proxy card in the _______
postage-paid envelope provided. Should you choose to attend the Special
Meeting of Members and decide to change your vote, you may do so by
revoking any previously executed proxy.
Q. Does my vote for the Conversion and Reorganization mean that I must buy
Common Stock in Thistle Group Holdings, Co.?
A. No. Voting for the Conversion and Reorganization does not obligate you
to buy shares of Common Stock of Thistle Group Holdings, Co.
Q. I have a joint savings account. Must both parties sign the
proxy card?
A. Only one signature is required, but both parties should sign if
possible.
Q. Who must sign trust or custodian accounts?
A. The trustee or custodian must sign such accounts, not the beneficiary.
Q. I am the executor (administrator) for a deceased depositor.
Can I sign the proxy card?
A. Yes. Please indicate on the card the capacity in which you are signing
the card.
About The Stock
Investment in Common Stock involves certain risks. For a discussion of these
risks and other factors, investors are urged to read the accompanying
Prospectus.
Q. What are the priorities of purchasing the Common Stock?
A. The Common Stock of Thistle Group Holdings, Co.. will be offered in the
following order of priority to the Bank's:
o Eligible Account Holders, (depositors with accounts totaling $50 or
more as of December 31, 1996).
o The Employee Plans, including the ESOP.
o Supplemental Eligible Account Holders (depositors with accounts
totaling $50 or more as of March 31, 1998).
o Other Members (depositors as of __________ XX, 199X) along with
borrowers with loans outstanding as of December 31, 1992 which
continue to be outstanding as of __________ XX, 199X) in a
Subscription Offering.
Commencing concurrently with the Subscription Offering, Common Stock
that is not sold in the Subscription Offering will be offered to
certain members of the general public in a Community Offering and then
to the general public in a Syndicated Community Offering.
<PAGE>
7-4
Q. Will any account I hold with the Bank be converted into
stock?
A. No. All accounts remain as they were prior to the Conversion. As an
Eligible Account Holder, Supplemental Eligible Account Holder or Other
Member your receive priority over the general public in exercising your
right to subscribe for shares of Common Stock.
Q. Will I receive a discount on the price of the stock?
A. No. Conversion regulations require that the offering price of the stock
be the same for everyone: customers, directors, officers and employees
of the Bank, and the general public.
Q. How many shares of stock are being offered, and at what
price?
A. Excluding Exchange Shares, the Company is offering between ________ and
_______ shares of Common Stock a purchase price of $10 per share
through the Prospectus. Under certain circumstances, Thistle Group
Holdings, Co. may issue up to X,XXX,XXX shares.
Q. How much stock can I purchase?
A. The minimum purchase is 25 shares; the maximum purchase by any person
in the Subscription Offering is $300,000 (30,000 shares); the maximum
purchase by any person or entity, including purchases by associates of
such person or entity, in the Community Offering and Syndicated
Community Offering is $300,000 (30,000 shares); In addition, no person,
together with associates of and persons acting in concert with such
person, may purchase in the aggregate more than the number of shares of
Subscription Shares that when combined with Exchange Shares received by
such person would exceed the overall maximum purchase limitation of
$904,000 (90,400 shares).
Q. How do I order stock?
A. You may subscribe for shares of Common Stock by completing and
returning the stock order form and certification form, together with
your payment either in person to any branch of Roxborough-Manayunk
Federal Savings Bank or by mail in the [COLOR] postage-paid envelope
marked "STOCK ORDER RETURN" that has been provided. Stock Order Forms
may not be delivered to a walk up or drive through window located at
any of the bank's branch offices.
Q. How can I pay for my shares of stock?
A. You can pay for the Common Stock by check, cash, money order or
withdrawal from your deposit account at Roxborough-Manayunk Federal
Savings Bank. If you choose to pay by cash, you must deliver the stock
order form and payment in person to any branch office of Roxborough-
Manayunk Federal Savings Bank and it will be converted to a bank check
or a money order. PLEASE DO NOT SEND CASH IN THE MAIL.
<PAGE>
7-5
Q. When is the deadline to subscribe for stock?
A. An executed order form and certification form with the required full
payment must be physically received by 12:00 Noon, Philadelphia Time,
on DAY, MONTH, DATE, 199X.
Q. Can I subscribe for shares using funds in my Roxborough-Manayunk IRA/
Qualified Plan?
A. Federal regulations do not permit the purchase of Common Stock with
your existing IRA or Qualified Plan at Roxborough-Manayunk Federal
Savings Bank. To use such funds to subscribe for Common Stock, you need
to establish a "self-directed" trust account with an outside trustee.
Please call our Stock Center if you require additional information.
TRANSFER OF SUCH FUNDS TAKES TIME, SO PLEASE MAKE ARRANGEMENTS AS SOON
AS POSSIBLE.
Q. Can I subscribe for shares and add someone else who is not on my
account to my stock registration?
A. No. Federal regulations prohibit the transfer of subscription rights.
Adding the names of other person(s) who are not owners of your
qualifying account(s) will result in your order becoming null and void.
Q. Will payments for stock earn interest until the Conversion and
Reorganization closes?
A. Yes. Any payments made by cash, check or money order will earn interest
at the Bank's passbook rate from the date of receipt to the completion
or termination of the Conversion and Reorganization. Withdrawals from a
deposit account or a certificate of deposit at the Bank to buy Common
Stock may be made without penalty. Depositors who elect to pay for
their Common Stock by withdrawal will receive interest at the contract
rate on the account until the completion or termination of the
Conversion and Reorganization.
Q. Are dividends currently paid on the stock?
A. Since the completion of the first full quarter after the MHC
Reorganization (March 31, 1993) until adoption of the Plan, the
Mid-Tier Holding Company or the Bank has paid a regular quarterly cash
dividend. Following the consummation of the Conversion and
Reorganization, the Board of Director of the Company will consider
whether to pay cash dividends on the Common Stock. No assurances,
however, can be given as to whether the dividend payments will continue
or, if continued the amount of such dividends. Pending completion of
the Conversion and Reorganization the Mid-Tier Holding Company intends
to continue paying the regular quarterly cash dividends.
<PAGE>
7-6
Q. Will my stock be covered by deposit insurance?
A. No. The Common Stock cannot be insured or guaranteed by the Bank
Insurance Fund or the Savings Association Insurance Fund of the FDIC or
any other government agency nor is it insured or guaranteed by
Roxborough-Manayunk Federal Savings Bank, FJF Financial, M.H.C.,
Thistle Group Holdings, Inc. or Thistle Group Holdings, Co.
Q. Where will the stock be traded?
A. Upon completion of the Conversion and Reorganization, Thistle Group
Holdings, Co. expects the stock to be traded over-the-counter and to be
quoted on the Nasdaq National Market under the symbol " ".
Q. Can I change my mind after I place an order to subscribe for stock?
A. No. After receipt, your order may not be modified or withdrawn.
Additional Information
Q. What if I have additional questions or require more information?
A. The Proxy Statement and Prospectus describes the Conversion and
Reorganization in detail. Please read the Proxy Statement and
Prospectus carefully before voting. If you have any questions after
reading the enclosed material you may call our Stock Center at (215)
483-4212, Monday through Friday, between the hours of 10:00 a.m. and
4:00 p.m. Please note, the Stock Center will be closed for the
____________ holiday, from 12:00 Noon, DAY, MONTH DATE through 12:00
Noon DAY, MONTH DATE. Additional materials may only be obtained form
the Stock Center.
The shares of Common Stock offered in the Conversion and Reorganization are not
savings accounts or deposits and are not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency nor is the Common
Stock insured or guaranteed by Roxborough-Manayunk Federal Savings Bank or
Thistle Group Holdings, Co.. To ensure that each purchaser receives a Prospectus
at least 48 hours prior to the Expiration Date of _______________, ____, 199X at
12:00 noon, Philadelphia Time, in accordance with Rule 15c2-8 of the Securities
Exchange Act of 1934, as amended, 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.
<PAGE>
================================================================================
L O G O
================================================================================
Roxborough-Manayunk Federal Savings Bank
Please Support Us
Vote Your
Proxy Card Today
================================================================================
If you have more than one account, you may have received more than one Proxy
Card depending upon the ownership structure of your accounts. Please vote, sign
and return all Proxy Cards that you received.
================================================================================
#8
<PAGE>
[Roxborough-Manayunk Federal Savings Bank]
____________________, 1998
Mr. John Smith
00-00 00 Drive
City, State 00000
Dear Mr. Smith:
We are pleased to announce that the Boards of Directors of Roxborough-Manayunk
Federal Savings Bank (the "Bank"), FJF Financial, M.H.C. (the "MHC") and Thistle
Group Holdings, Inc.(the "Mid-Tier Holding Company") have adopted a Plan of
Conversion and Reorganization (the "Plan of Conversion"). As part of this plan,
we have formed Thistle Group Holdings, Co. (the "Company") which will own all of
the Mid-Tier Holding Company's stock. We are converting so that the Company will
be structured in a form used by most other holding companies of savings
institutions and commercial banks and many business entities, and a growing
number of savings institutions.
You are cordially invited to join members of our senior management team at an
informational meeting to be held on ___________ at 7:30 p.m. to learn more about
the conversion and the stock offering.
A member of our staff will be calling to confirm your interest in attending the
meeting.
If you would like additional information regarding the meeting or our
conversion, please call our Stock Center at (215) 483-4212. The Stock
Information Center is open Monday through Friday between the hours of 10:00 a.m.
and 4:00 p.m.
Sincerely,
SIGNATURE
TITLE
The shares of Common Stock offered in the Conversion and Reorganization are not
savings accounts or deposits and are not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency.
This is not an offer to sell or a solicitation of an offer to buy Common Stock.
The offer is made only by the Prospectus.
(Printed by Stock Center)
#9
<PAGE>
[THISTLE GROUP HOLDINGS, CO.]
____________________, 1998
Dear Subscriber:
We hereby acknowledge receipt of your order for shares of Common Stock of
Thistle Group Holdings, Co.
At this time, we cannot confirm the number of shares of Thistle Group Holdings,
Co. Common Stock that will be issued to you. Such allocation will be made in
accordance with the Plan of Conversion and Reorganization following completion
of the stock offering.
If you have any questions, please call our Stock Center at (215) 483-4212.
Sincerely,
Thistle Group Holdings, Co.
Stock Center
The shares of Common Stock offered in the Conversion and Reorganization are not
savings accounts or deposits and are not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency.
(Printed by Stock Center)
#10
<PAGE>
[THISTLE GROUP HOLDINGS, CO.]
____________________, 199X
Dear Shareholder:
We appreciate your interest in the stock offering of Thistle Group Holdings, Co.
Due to the excellent response from our Eligible Account Holders, we are unable
to fill all orders in full. Consequently, in accordance with the provisions of
the Plan of Conversion and Reorganization, you were allocated ______ shares at a
price of $10.00 per share. If your subscription was paid for by check, a refund
of any balance due you with interest will be mailed to you promptly.
The purchase date and closing of the transaction occurred on Month __, 199X. The
Common Stock will trade on the Nasdaq National Market under the symbol " on
_____, Month __, 199X. Your stock certificate will be mailed to you shortly.
We thank you for your interest in Thistle Group Holdings, Co., and welcome you
as a shareholder.
Sincerely,
THISTLE GROUP HOLDINGS, CO.
Stock Center
The shares of Common Stock offered in the Conversion and Reorganization are not
savings accounts or deposits and are not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency.
Center)
(Printed by Stock Center)
#11
<PAGE>
[THISTLE GROUP HOLDINGS, CO.]
____________________, 199X
Dear Interested Investor:
We recently completed our Subscription and Community Offerings. Unfortunately,
due to the excellent response from our Eligible Account Holders, stock was not
available for our Supplemental Eligible Account Holders, Other Members or
community friends. If your subscription was paid for by check, a refund of any
balance due you with interest will be mailed to you promptly.
We appreciate your interest in Thistle Group Holdings, Co. and hope you become
an owner of our stock in the future. The stock will trade on the Nasdaq National
Market under the symbol " ".
Sincerely,
THISTLE GROUP HOLDINGS, CO.
Stock Center
The shares of Common Stock offered in the Conversion are not savings accounts or
deposits and are not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
(Printed by Stock Center)
#12
<PAGE>
[THISTLE GROUP HOLDINGS, CO.]
____________________, 199X
Welcome Shareholder:
We are pleased to enclose the stock certificate that represents your share of
ownership in Thistle Group Holdings, Co., the holding company of
Roxborough-Manayunk Federal Savings Bank.
Please examine your stock certificate to be certain that it is properly
registered. If you have any questions about your certificate, you should contact
the Transfer Agent immediately at the following address:
TRANSFER AGENT
Address
Telephone Number
Also, please remember that your certificate is a negotiable security which
should be stored in a secure place, such as a safe deposit box or on deposit
with your stockbroker.
On behalf of the Board of Directors of Thistle Group Holdings, Co. and the
employees of Roxborough-Manayunk Federal Savings Bank, I would like to thank you
for supporting our offering.
Sincerely,
SIGNATURE
TITLE
The shares of Common Stock offered in the Conversion and Reorganization are not
savings accounts or deposits and are not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency.
(Printed by Stock Center)
#13
<PAGE>
[THISTLE GROUP HOLDINGS, CO.]
____________________, 199X
Dear Interested Subscriber:
We regret to inform you that Roxborough-Manayunk Federal Savings Bank, FJF
Financial, M.H.C., Thistle Group Holdings, Inc. and Thistle Group Holdings, Co.,
have decided not to accept your order for shares of Thistle Group Holdings, Co.
Common Stock in our Community Offering. This action is in accordance with our
Plan of Conversion and Reorganization which gives the Bank and the Holding
Company, the Mid-Tier Holding Company and the Company the absolute right to
reject the subscription of any Community Member, in whole or in part, in the
Community Offering.
Enclosed, therefore, is a check representing your subscription and interest
earned thereon.
Sincerely,
THISTLE GROUP HOLDINGS, CO.
Stock Center
(Printed by Stock Center)
#14
<PAGE>
[SANDLER O'NEILL & PARTNERS, L.P. LETTERHEAD]
____________________, 1998
To Our Friends:
We are enclosing the offering material for Thistle Group Holdings, Co. in
connection with the reorganization of Roxborough-Manayunk Federal Savings Bank,
FJF Financial, M.H.C. and Thistle Group Holdings, Inc., into the stock holding
company structure.
Sandler O'Neill & Partners, L.P. is managing Thistle Group Holdings, Co.
Subscription and Community Offerings, which will conclude at 12:00 noon,
Philadelphia Time on , 1998. Sandler O'Neill is also providing conversion agent
and proxy solicitation services. In the event that all the stock is not
subscribed for in the Subscription and Community Offerings, Sandler O'Neill will
form and manage a syndicate of broker/dealers to sell the remaining stock.
Members of the general public, other than residents of , are eligible to
participate. If you have any questions about this transaction, please do not
hesitate to call or write.
Sincerely,
SANDLER O'NEILL & PARTNERS, L.P.
The shares of Common Stock offered in the Conversion and Reorganization are not
savings accounts or deposits and are not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency.
This is not an offer to sell or a solicitation of an offer to buy Common Stock.
The offer is made only by the Prospectus.
(Printed by Sandler O'Neill)
#15
Exhibit 99.2
<PAGE>
THISTLE GROUP HOLDINGS, INC.
6060 Ridge Avenue
Philadelphia, Pennsylvania 19128
(215) 483-2800
-----------------------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
-----------------------------------------
Notice is hereby given that a Special Meeting of Stockholders (the
"Special Meeting") of Thistle Group Holdings, Inc. (the "Mid-Tier Holding
Company") will be held at the office of the Mid-Tier Holding Company, located at
6060 Ridge Avenue, Philadelphia, Pennsylvania on ___day, ________ __, 1998 at
_:__ _.m., Pennsylvania Time. Business to be taken up at said special meeting
shall be to consider and vote upon:
(1) A Plan of Conversion and Reorganization (the "Plan") and transactions
incident to the Plan, pursuant to which (i) the Bank will establish Thistle
Group Holdings, Co. (the "Company") as a first-tier Pennsylvania chartered
corporation subsidiary; (ii) the Company will charter an interim federal
association ("Interim"); (iii) the Mutual Holding Company will merge with and
into the Mid-Tier Holding Company (upon its conversion to a mid-tier federal
corporation), shares of the common stock of the Mid- Tier Holding Company
("Mid-Tier Common Stock") held by the Mutual Holding Company will be canceled
and certain depositors of the Bank will receive an interest in a liquidation
account of the Mid- Tier Holding Company in exchange for such depositors'
interest in the Mutual Holding Company; (iv) the Mid-Tier Holding Company will
convert into an interim federal savings association which will merge with and
into the Bank (the "Mid-Tier Merger") with the Bank as the resulting entity and
stockholders of the Mid-Tier Holding Company other than the Mutual Holding
Company ("Minority Stockholders") will constructively receive shares of the
Bank's common stock in exchange for their Mid-Tier Common Stock and certain
depositors will receive an interest in a liquidation account of the Bank in
exchange for such depositors' interest in the Mid-Tier Holding Company; (v)
contemporaneously with the Mid-Tier Merger, Interim will merge with and into the
Bank with the Bank as the surviving entity (the "Bank Merger") and Minority
Stockholders will exchange the shares of the Bank's common stock that they
constructively received in the Mid-Tier Merger for the Company's common stock
pursuant to the "Exchange Ratio" as defined in the Proxy Statement/Prospectus;
(vi) contemporaneously with the Bank Merger, the Company will offer for sale
shares of common stock in a subscription offering and; (vii) the Bank will
change its name to "Roxborough-Manayunk Bank"; and
(2) Any other matters that may lawfully come before the Special Meeting.
As of the date of mailing of this Notice, the Board of Directors is not aware of
any other matters that may come before the Special Meeting.
Stockholders of the Mid-Tier Holding Company, at the close of business on
May 6, 1998, are entitled to notice of and to vote at the Special Meeting.
__________, 1998 Jerry Naessens
Philadelphia, Pennsylvania Secretary
-------------------------
Your vote is very important. The Prospectus provides a more detailed
description of the proposed transaction and is incorporated by reference hereto.
If you have any questions, call our stock center at (215) 483-4212.
Your Board of Directors unanimously recommends that you vote for approval
of the Plan by completing the enclosed proxy card and promptly returning it in
the enclosed postage-paid envelope as soon as possible. Your vote is very
important. Any proxy given by a stockholder may be revoked by filing with the
secretary of the Mid-Tier Holding Company a written revocation or a duly
executed proxy bearing a later date. Any stockholder present at the meeting may
revoke his or her proxy and vote in person on each matter brought before the
Special Meeting.
<PAGE>
Thistle Group Holdings, Inc.
6060 Ridge Avenue
Philadelphia, Pennsylvania 19128
(215) 483-2800
PROXY STATEMENT/PROSPECTUS
___________, 1998
YOUR PROXY, IN THE FORM ENCLOSED, IS SOLICITED BY THE BOARD OF DIRECTORS
OF THE Mid-TIER HOLDING COMPANY, FOR USE AT THE SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE __, 1998, AND AT ANY ADJOURNMENT OF THAT MEETING, FOR THE
PURPOSES SET FORTH IN THE FOREGOING NOTICE OF SPECIAL MEETING.
VOTING IN FAVOR OF THE PLAN WILL NOT OBLIGATE ANY PERSON TO PURCHASE
CONVERSION STOCK. SHARES OF CONVERSION STOCK ARE BEING OFFERED ONLY BY THE
PROSPECTUS.
THIS PROXY STATEMENT IS A SUMMARY OF INFORMATION ABOUT THE PARTIES AND THE
PROPOSED CONVERSION AND REORGANIZATION. A MORE DETAILED DESCRIPTION OF THE
MUTUAL HOLDING COMPANY, THE MID-TIER HOLDING COMPANY AND THE COMPANY
(COLLECTIVELY, THE "PRIMARY PARTIES"), AND THE CONVERSION AND REORGANIZATION IS
INCLUDED IN THE PROSPECTUS WHICH IS INCORPORATED BY REFERENCE HEREIN.
VOTING RIGHTS AND VOTE REQUIRED FOR APPROVAL
Only stockholders of record at the close of business on May 6, 1998 (the
"Voting Record Date") are entitled to notice of and to vote at the Special
Meeting. Pursuant to Office of Thrift Supervision ("OTS") regulations,
consummation of the Conversion and Reorganization are conditioned upon the
approval of the Plan by the OTS, as well as (1) the approval of at least
two-thirds of the total number of votes eligible to be cast by the stockholders
of the Mid-Tier Holding Company, and a majority of the votes cast at the Special
Meeting by the stockholders of the Mid-Tier Holding Company other than the
Mutual Holding Company (the "Public Stockholders"), as of the close of business
on the Voting Record Date, and (2) the approval of at least majority of the
votes entitled to be cast by the members of the Mutual Holding Company as of the
voting record date for the special meeting of members called for the purpose of
considering the Plan. The Mutual Holding Company intends to vote its shares of
the Mid-Tier Holding Company Common Stock, which amounted to 87.29 of the
outstanding shares, in favor of the Plan at the Special Meeting.
This Proxy Statement, including the Prospectus dated ___________, 1998,
which is incorporated by reference, and related materials are first being mailed
to stockholders of the Mid-Tier Holding Company on or about ___________, 1998.
THE BOARD OF DIRECTORS OF THE MID-TIER HOLDING COMPANY URGES YOU TO VOTE
FOR THE PLAN AND TO SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD IN THE
ENCLOSED POSTAGE-PAID ENVELOPE AS SOON AS POSSIBLE, EVEN IF YOU DO NOT INTEND TO
PURCHASE COMMON STOCK. THIS WILL ENSURE THAT YOUR VOTE WILL BE COUNTED.
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THE OTS HAS APPROVED THE PLAN SUBJECT TO THE APPROVAL OF THE STOCKHOLDERS
OF THE MID-TIER HOLDING COMPANY AND THE SATISFACTION OF CERTAIN OTHER
CONDITIONS. HOWEVER, SUCH APPROVAL DOES NOT CONSTITUTE A RECOMMENDATION OR
ENDORSEMENT OF THE PLAN BY THE OTS.
PROXIES
The Board of Directors of the Mid-Tier Holding Company is soliciting the
proxy which accompanies this Proxy Statement for use at the Special Meeting.
Stockholders may vote at the Special Meeting or any adjournment thereof in
person or by proxy. All properly executed proxies received by the Board of
Directors of the Mid-Tier Holding Company will be voted in accordance with the
instructions indicated thereon by the stockholders giving such proxies. If no
contrary instructions are given, such proxies will be voted in favor of the Plan
as described herein. If any other matters are properly presented before the
Special Meeting and may properly be voted upon, the proxies solicited hereby
will be voted on such matters in accordance with the best judgment of the proxy
holders named therein. Any member giving a proxy will have the right to revoke
his proxy at any time before it is voted by delivering written notice or a duly
executed proxy bearing a later date to the Secretary of the Mid-Tier Holding
Company, provided that such notice or proxy is received by the Secretary prior
to the Special Meeting or any adjournment thereof, or by attending the Special
Meeting and voting in person. If there are not sufficient votes for approval of
the Plan at the time of the Special Meeting, the Special Meeting may be
adjourned to permit further solicitation of proxies.
Proxies may be solicited by officers, directors or other employees of the
Mutual Holding Company in person, by telephone or through other forms of
communication. Such persons will be reimbursed by the Mutual Holding Company for
their expenses incurred in connection with such solicitation. Sandler O'Neill &
Partners, L.L.P. ("Sandler") will assist in the solicitation of proxies. Sandler
will receive a $25,000 management fee plus out-of-pocket expenses for its
management and proxy solicitation services in connection with the Conversion and
Reorganization.
The proxies solicited hereby will be used only at the Special Meeting and
at any adjournment thereof; they will not be used at any other meeting.
The approval of the Plan will require the affirmative vote of at least
two-thirds of the total votes eligible to be cast by all stockholders of the
Mid-Tier Holding Company, including the Mutual Holding Company, and the
affirmative vote of at least a majority of the total votes cast by the Public
Stockholders.
VOTING SECURITIES AND BENEFICIAL OWNERSHIP THEREOF
On the Voting Record Date, there were 1,621,000 shares of the Mid-Tier
Holding Company Common Stock outstanding, and the Mid-Tier Holding Company had
no other class of equity securities outstanding. Each share of the Mid-Tier
Holding Company Common Stock outstanding on the Voting Record Date is entitled
to one vote at the Special Meeting on all matters properly presented at the
Special Meeting.
A majority of the outstanding shares of Mid-Tier Holding Company Common
Stock entitled to vote, represented in person or by proxy, shall constitute a
quorum at the Special Meeting. Shares as to which the "ABSTAIN" box has been
marked on the proxy and any shares held by brokers in street name for customers
which are not voted in the absence of instructions from the customers ("broker
non-votes") will be counted as present for determining if a quorum is present.
Because the Plan must be approved
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by the vote of at least two-thirds of the outstanding Mid-Tier Holding Company
Common Stock, abstentions and broker non-votes will have the same effect as a
vote against such proposal.
DISSENTERS' RIGHTS
Under Pennsylvania Law, PSFC stockholders have a right to dissent and
obtain the fair value of their shares by complying with the terms of Subchapter
D of the PBCL. The full text of Subchapter D of the PBCL can be found at
Appendix II to this Prospectus/Joint Prosy Statement.
The PBCL generally provides that a stockholder of a Pennsylvania
corporation that engages in a merger transaction shall have the right to demand
from the corporation the payment of the fair or appraised value of his stock in
the corporation, subject to the satisfaction of specified procedural
requirements. There are certain exceptions to dissenter's rights under the PBCL,
however, none are applicable in the Merger. Therefore stockholders of the
Mid-Tier Holding Company have dissenters' rights of appraisal in connection with
the Merger.
Holders of Mid-Tier Holding Company Common Stock are entitled to dissenter
rights under Subchapter D of the PBCL as a result of the Merger. A holder of
shares of Mid-Tier Holding Company wishing to exercise his dissenter rights must
deliver to the Secretary of the Mid-Tier Holding Company, before the vote on the
Plan of Reorganization at the PSFC Special Meeting, a writing which identifies
such stockholder and which states his intention to demand that he be paid the
fair value for his shares if the proposed Merger is effectuated. Furthermore,
the stockholder must effect no change in the beneficial ownership of his shares
from the date of such filing continuously through the effective date of the
proposed action (the Merger) and must refrain from voting his shares in approval
of such action. A dissenter who fails to satisfy the statutory requirements in
any respect shall not acquire any right to payment of the fair value of his
shares under Subchapter D of the PBCL. A vote against it shall constitute the
written notice require by the PBCL. Any such stockholder who wishes to exercise
such dissenter rights should review carefully the discussion of such rights in
this Proxy Statement, including Appendix II hereto, because failure to timely
and properly comply with the procedures specified will result in the loss of
dissenter rights under the PBCL. All written demands for appraisal should be
sent or delivered to the attention of Jerry Naessens, Secretary, Thistle Group
Holdings, Inc., 6060 Ridge Avenue, Philadelphia, Pennsylvania 19128, so as to be
received prior to the vote at the Mid- Tier Holding Company Special Meeting with
respect to the Plan of Reorganization, the Articles Amendment, and the proposal
to adjourn the PSFC Special Meeting to solicit additional proxies.
If the Plan of Reorganization is approved by the required vote at the
Mid-Tier Holding Company Special Meeting, the Mid-Tier Holding Company shall
mail a further notice to all dissenters who gave due notice of intention to
demand payment of the fair value of their shares and who refrained from voting
in favor of the proposed action setting forth the following: (i) state where and
when a demand for payment must be sent and certificates for certificated shares
must be deposited in order to obtain payment; (ii) supply a form for demanding
payment that includes a request for certification of the date on which the
stockholder, or the person on whose behalf the stockholder dissents, acquired
beneficial ownership of the shares; and (iv) be accompanied by a copy of
Subchapter D of the PBCL. The time set for receipt of the demand and deposit of
certificated shares shall be not less than 30 days from the mailing of the
notice.
In determining whether or not to exercise dissenter rights, current
stockholders should review the comparison of their rights as a Mid-Tier Holding
Company stockholder with their right as stockholders
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of the Company following consummation of the Conversion and Reorganization
and/or the proposed cash payment. See "COMPARISON OF STOCKHOLDERS' RIGHTS" in
the Prospectus.
INCORPORATION OF INFORMATION BY REFERENCE
The Prospectus of the Company which accompanies this Proxy Statement is
incorporated herein by reference in its entirety. The Mid-Tier Holding Company
urges you to carefully read the Prospectus prior to voting on the proposal to be
presented at the Special Meeting. The Prospectus sets forth a description of the
Conversion and Reorganization and the related offering of Company Common Stock
under the section "THE CONVERSION AND REORGANIZATION." Such section also
describes the effects of the Conversion and Reorganization on the stockholders
of the Mid-Tier Holding Company, including the tax consequences thereof.
Information regarding the Primary Parties is set forth in the Prospectus
under the captions "SUMMARY -- Thistle Group Holdings, Co.," "-- Thistle Group
Holdings, Inc.," "-- FJF Financial, MHC," and "-- Roxborough-Manayunk Federal
Savings Bank" as well as under "THISTLE GROUP HOLDINGS, CO.," "THISTLE GROUP
HOLDINGS, INC.," "FJF FINANCIAL, MHC," and "ROXBOROUGH-MANAYUNK FEDERAL SAVINGS
BANK" " The Prospectus also describes the business and financial condition of
the Bank under the captions "BUSINESS OF THE BANK," "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and "RECENT
DEVELOPMENTS". The Capital Stock of the Company is described in the Prospectus
in "DESCRIPTION OF CAPITAL STOCK OF THE COMPANY." A discussion of the material
differences between the corporate documents of the Mid-Tier Holding Company and
the Company can be found in the Prospectus at "COMPARISON OF STOCKHOLDERS'
RIGHTS" and "RESTRICTIONS ON ACQUISITIONS OF THE COMPANY." In addition, the
historical, consolidated financial statements of the Bank are included in the
Prospectus. Information regarding the use of proceeds from the sale of Company
Common Stock in connection with the Conversion and Reorganization, the
historical capitalization and the pro forma capitalization of the Bank, other
pro forma data, as well as information pertaining to regulation, employees and
legal proceedings are set forth in the Prospectus under the captions "USE OF
PROCEEDS," "CAPITALIZATION," "HISTORICAL AND PRO FORMA CAPITAL COMPLIANCE," "PRO
FORMA DATA," "REGULATION," "BUSINESS OF THE BANK - Employees" and "- Legal
Proceedings," respectively. The Pro Forma Data shows the effects of the
Conversion and Reorganization on the Bank's total stockholders' equity and net
income, on both an aggregate and per share basis, based upon the assumptions set
forth therein. The consents of certain experts are discussed in the Prospectus
in "LEGAL AND TAX MATTERS" and "EXPERTS."
The Prospectus also sets forth a description of the current management of
the Mutual Holding Company and the Bank, as well as the management of the
Company after the Conversion and Reorganization, including current compensation
and benefits as well as proposed future stock benefit plans. See "MANAGEMENT OF
THE COMPANY" and "MANAGEMENT OF THE BANK" in the Prospectus.
PROPOSAL TO APPROVE PLAN OF CONVERSION AND REORGANIZATION
The Boards of Directors of the Mutual Holding Company, the Mid-Tier
Holding Company and the Company have approved the Plan, as has the OTS, subject
to approval by the members of the Mutual Holding Company and the stockholders of
the Mid-Tier Holding Company entitled to vote on the matter, and subject to the
satisfaction of certain other conditions. Such OTS approval, however, does not
constitute a recommendation or endorsement of the Plan by such agency.
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RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF THE MID-TIER HOLDING COMPANY UNANIMOUSLY
RECOMMENDS THAT YOU VOTE FOR THE PLAN. NOT VOTING WILL HAVE THE SAME EFFECT AS
VOTING AGAINST THE PLAN. VOTING FOR THE PLAN WILL NOT OBLIGATE ANY VOTER TO
PURCHASE ANY SHARES OF COMPANY COMMON STOCK. SHARES OF COMPANY COMMON STOCK ARE
BEING OFFERED ONLY BY THE PROSPECTUS, WHICH IS INCORPORATED BY REFERENCE HERETO.
ADDITIONAL INFORMATION
The information contained in the accompanying Prospectus, including a more
detailed description of the Plan, certain financial statements of the Mid-Tier
Holding Company and the Company, a description of the capitalization, business,
the directors and officers of the Company, the Mid-Tier Holding Company and the
Mutual Holding Company, and the compensation and other benefits of directors and
officers, the anticipated use of the net proceeds from the sale of the Company
Common Stock and a description of the Company Common Stock, is intended to help
you evaluate the Conversion and Reorganization and is incorporated herein by
reference.
Public Stockholders whose shares are held in street name may obtain an
order form and instructions for the purchase of shares in the Public
Stockholders Offering by contacting our Stock Center at (215) 483-4212.
The Plan is attached hereto as Appendix 1. The Certificate and Company
Bylaws are available at no cost by contacting the Mid-Tier Holding Company at
(215) 483-2800, stopping by any Mid-Tier Holding Company office or writing to
the Corporate Secretary at 6060 Ridge Avenue, Philadelphia, Pennsylvania 19128.
Adoption of the Plan by the Members authorizes the Board of Directors of the
Mutual Holding Company, to amend or terminate the Plan. All statements made in
this document are hereby qualified by the contents of such documents as set
forth above.
All persons eligible to vote at the Special Meeting should review both
this Proxy Statement and the accompanying Prospectus carefully. However, no
person is obligated to purchase any Company Common Stock.
YOUR BOARD OF DIRECTORS URGES YOU TO CONSIDER CAREFULLY THIS PROXY
STATEMENT AND THE PROSPECTUS AND URGES YOU TO VOTE. NO PERSON WILL BE OBLIGATED
TO ORDER ANY COMPANY COMMON STOCK.
THIS PROXY STATEMENT IS NOT AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY COMPANY COMMON STOCK. THE OFFER WILL BE MADE ONLY BY MEANS OF THE
PROSPECTUS MEETING THE REQUIREMENTS OF SECTION 10 OF THE SECURITIES ACT OF 1933,
AS AMENDED, AND THE RULES PROMULGATED THEREUNDER AND ACCOMPANIED BY AN ORDER
FORM.
STOCK CENTER:
(215) 483-4212
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ANNEX II
PENNSYLVANIA Business Corporation Law
Subchapter D, Dissenters Rights
1571 APPLICATION AND EFFECT OF SUBCHAPTER.--(a) General rule.--Except as
otherwise provided in
subsection (b), any shareholder of a business corporation shall have the right
to dissent from, and to obtain payment of the fair value of his shares in the
event of, any corporate action, or to otherwise obtain fair value for his
shares, where this lpart expressly provides that a shareholder shall have the
rights and remedies provided in this subchapter.
See:
Section 1906(c) (relating to dissenters rights upon special treatment).
Section 1930 (relating to dissenters rights). Section 1931(d) (relating to
dissenters rights in share exchanges). Section 1932(c) (relating to
dissenters rights in asset transfers). Section 1952(d) (relating to
dissenters rights in division). Section 1962(c) (relating to dissenters
rights in conversion).
Section 2104(b) (relating to procedure).
Section 2324 (relating to corporation option where a restriction on transfer
of a security is held invalid). Section 2325(b) (relating to minimum vote
requirement).
Section 2704(c) (relating to dissenters rights upon election). Section
2705(d) (relating to dissenters rights upon renewal of election). Section
2907(a) (relating to proceedings to terminate breach of qualifying
conditions).
Section 7104(b)(3) (relating to procedure).
(b) Exceptions.--(1) Except as otherwise provided in paragraph (2), the
holders of the shares of any class or series of shares that, at the record date
fixed to determine the shareholders entitled to notice of and to vote at the
meeting at which a plan specified in any of section 1930, 193 1 (d), 1932(c) or
1952(d) is to be voted on, are either:
(i) listed on a national securities exchange; or (ii) held of record by
more than 2,000 shareholders;
shall not have the right to obtain payment of the fair value of any such shares
under this subchapter. (2) Paragraph (1) shall not apply to and dissenters
rights shall be available without regard to the exception
provided in that paragraph in the case of.
(i) Shares converted by a plan if the shares are not converted solely into
shares of the acquiring, surviving, new or other corporation or solely into such
shares and money in lieu of fractional shares.
(ii) Shares of any preferred or special class unless the articles, the
plan or the terms of the transaction entitle all shareholders of the class to
vote thereon and require for the adoption of the plan or the effectuation of the
transaction the affirmative vote of a majority of the votes cast by all
shareholders of the class.
(iii) Shares entitled to dissenters rights under section 1906(c) (relating
to dissenters rights upon special treatment).
(3) The shareholders of a corporation that acquires by purchase, lease,
exchange or other disposition all or substantially all of the shares, property
or assets of another corporation by the issuance of shares, obligations or
otherwise, with or without assuming the liabilities of the other corporation and
with or without the intervention of another corporation or other person, shall
not be entitled to the rights and remedies of dissenting shareholders provided
in this subchapter regardless of the fact, if it be the case, that the
acquisition was accomplished by the issuance of voting shares of the corporation
to be outstanding immediately after the acquisition sufficient to elect a
majority or more of the directors of the corporation.
(c) Grant of optional dissenters rights.--The bylaws or a resolution of
the board of directors may direct that all or a part of the shareholders shall
have dissenters rights in connection with any corporate action or other
transaction that would otherwise not entitle such shareholder to dissenters
rights.
(d) Notice of dissenters rights.--Unless otherwise provided by statute, if
a proposed corporate action that would give rise to dissenters rights under this
subpart is submitted to a vote at a meeting of shareholders, there shall be
included in or enclosed with the notice of meeting:
(1) A statement of the proposed action and a statement that the
shareholders have a right to dissent and obtain payment of the fair value of
their shares by complying with the terms of this subchapter; and
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(2) A copy of this subchapter.
(e) Other statutes.--The procedures of this subchapter shall also be
applicable to any transaction described in any statute other than this part that
makes reference to this subchapter for the purpose of granting dissenters
rights.
(f) Certain provisions of articles ineffective.--This subchapter may not
be relaxed by any provision of the articles.
(g) Cross references.--See sections 1105 (relating to restriction on
equitable relief), 1904 (relating to de facto transaction doctrine abolished)
and 2512 (relating to dissenters rights procedure).
1572 DEFINITIONS.--The following words and phrases when used in this
subchapter shall have the meanings given to them in this section unless the
context clearly indicates otherwise:
"Corporation." The issuer of the shares held or owned by the dissenter
before the corporate action or the successor by merger, consolidation, division,
conversion or otherwise of that issuer. A plan of division may designate which
of the resulting corporations is the successor corporation for the purposes of
this subchapter. The successor corporation in a division shall have sole
responsibility for payments to dissenters and other liabilities under this
subchapter except as otherwise provided in the plan of division.
"Dissenter." A shareholder or beneficial owner who is entitled to and does
assert dissenters rights under this subchapter and who has performed every act
required up to the time involved for the assertion of those rights.
"Fair value." The fair value of shares immediately before the effectuation
of the corporate action to which the dissenter objects, taking into account all
relevant factors, but excluding any appreciation or depreciation in anticipation
of the corporate action.
"Interest." Interest from the effective date of the corporate action until
the date of payment at such rate as is fair and equitable under all the
circumstances, taking into account all relevant factors, including the average
rate currently paid by the corporation on its principal bank loans.
1573 RECORD AND BENEFICIAL HOLDERS AND OWNERS.--(a) Record holders of
shares--A record holder of shares of a business corporation may assert
dissenters rights as to fewer than all of the shares registered in his name only
if he dissents with respect to all the shares of the same class or series
beneficial owned by any one person and discloses the name and address of the
person. or persons on whose behalf he dissents. In that event, his rights shall
be determined as if the shares as to which he has dissented and his other shares
were registered in the names of different shareholders.
(b) Beneficial owners of shares.--A beneficial owner of shares of a
business corporation who is not the record holder may assert dissenters rights
with respect to shares held on his behalf and shall be treated as a dissenting
shareholder under the terms of this subchapter if he submits to the corporation
not later than the time of the assertion of dissenters rights a written consent
of the record holder. A beneficial owner may not dissent with respect to some I
but less than all shares of the same class or series owned by the owner, whether
or not the shares so owned by him are registered in his name.
1574 NOTICE OF INTENTION TO DISSENT.--If the proposed corporate action is
submitted to a vote at a meeting of shareholders of a business corporation, any
person who wishes to dissent and obtain payment of the fair value of his shares
must file with the corporation, prior to the vote, a written notice of intention
to demand that he be paid the fair value for his shares if the proposed action
is effectuated, must effect no change in the beneficial ownership of his shares
from the date of such filing continuously through the effective date of the
proposed action and must refrain from voting his shares in approval of such
action. A dissenter who fails in any respect shall not acquire any right to
payment of the fair value of his shares under this subchapter. Neither a proxy
nor a vote against the proposed corporate action shall constitute the written
notice required by this section.
1575 NOTICE OF DEMAND PAYMENT.--(a) General rule.--If the proposed
corporate action is approved by the required vote at a meeting of shareholders
of a business corporation, the corporation shall mail a further notice to all
dissenters who gave due notice of intention to demand payment of the fair value
of their shares and who refrained from voting in favor of the proposed action.
If the proposed corporate action is to be taken without a vote of shareholders,
the corporation shall send to all shareholders who are entitled to dissent and
demand payment of the fair value of their shares a notice of the adoption of the
plan or other corporate action. In either case, the notice shall:
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(1) State where and when a demand for payment must be sent and
certificates for certificated shares must be deposited in order to obtain
payment.
(2) Inform holders of uncertificated shares to what extent transfer of
shares will be restricted from the time that demand for payment is received.
(3) Supply a form for demand payment that includes a request for
certification of the date on which the shareholder, or the person on whose
behalf the shareholder dissents, acquired beneficial ownership of the shares.
(4) Be accompanied by a copy of this subchapter.
(b) Time for receipt of demand for payment.--The time set for receipt of
the demand and deposit of certificated shares shall be not less than 30 days
from the mailing of the notice.
1576 FAILURE TO COMPLY WITH NOTICE TO DEMAND PAYMENT, ETC.--(a) Effect of
failure of shareholder to act.--A shareholder who fails to timely deposit
certificates, as required by a notice pursuant to section 1575 (relating to
notice to demand payment) shall not have any right under this subchapter to
receive payment of the fair value of his shares.
(b) Restriction on uncertificated shares.--If the shares are not
represented by certificates, the business corporation may restrict their
transfer from the time of receipt of demand for payment until effectuation of
the proposed corporate action or the release of restrictions under the terms of
section 1577(a) (relating to failure to effectuate corporate action).
(c) Rights retained by shareholder.--The dissenter shall retain all other
rights of a shareholder until those rights are modified by effectuation of the
proposed corporate action.
1577 RELEASE OF RESTRICTIONS OR PAYMENT FOR SHARES.--(a) Failure to
effectuate corporate action. Within 6O days after the date set for demanding
payment and depositing certificates, if the business corporation has not
effectuated the proposed corporate action, it shall return any certificates that
have been deposited and release uncertificated shares from any transfer
restrictions imposed by reason of the demand for payment.
(b) Renewal of notice to demand payment.--When uncertificated shares have
been have been released from transfer restrictions and deposited certificates
have been returned, the corporation may at any later time send a new notice
conforming to the requirements of section 1575 (relating to notice to demand
payment), with like effect.
(c) Payment of fair value of shares.--Promptly after effectuation of the
proposed corporate action, or upon timely receipt of demand for payment if the
corporate action has already been effectuated, the corporation shall either
remit to dissenters who have made demand and (if their shares are certificated)
have deposited their certificates the amount that the corporation estimates to
be the fair value of the shares, or give written notice that no remittance under
this section will be made. The remittance or notice shall be accompanied by:
(1) The closing balance sheet and statement of income of the issuer of the
shares held or owned by the dissenter for a fiscal year ending not more than 16
months before the date of remittance or notice together with the latest
available interim financial statements.
(2) A statement of the corporation's estimate of the fair value of the
shares.
(3) A notice of the right of the dissenter to demand payment or
supplemental payment, as the case may be, accompanied by a copy of this
subchapter.
(d) Failure to make payment.--If the corporation does not remit the amount
of its estimate of the fair value of the shares as provided by subsection (c),
it shall return any certificates that have been deposited and release
uncertificated shares from any transfer restrictions imposed by reason of the
demand for payment. The corporation may make a notation on any such certificate
or on the records of the corporation relating to any such uncertificated shares
that such demand has been made. If shares with respect to which notation has
been so made shall be transferred, each new certificate issued therefor or the
records relating to any transferred uncertiftcated shares shall bear a similar
notation, together with the name of the original dissenting holder or owner of
such shares. A transferee of such shares shall not acquire by such transfer any
rights in the corporation other than those that the original dissenter had after
making demand for payment of their fair value.
1578 ESTIMATE BY DISSENTER OF FAIR VALUE OF SHARES.--(a) General rule.--If
the business corporation gives notice of its estimate of the fair value of the
shares, without remitting such amount, or remits payment of its estimate of the
fair value of a dissenter's shares as permitted by section 1577(c) (relating to
payment of fair value of shares and the dissenter believes that the amount
stated or remitted is less than the fair value of his
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shares, he may send to the
corporation his own estimate of the fair value of the shares, which shall be
deemed a demand for payment of the amount or the deficiency.
(b) Effect of failure to file estimate.--Where the dissenter does not file
his own estimate under subsection (a) within 30 days after the mailing by the
corporation of its remittance or notice, the dissenter shall be entitled to no
more than the amount stated in the notice or remitted to him by the corporation.
1579 VALUATION PROCEEDINGS GENERALLY.--(a) General rule.--Within 60 days
after the latest of:
(1) Effectuation of the proposed corporate action;
(2) Timely receipt of any demands for payment under section 1575
(relating to notice to demand payment); or
(3) Timely receipt of any estimates pursuant to section 1578 (relating to
estimate by dissenter of fair value of shares); If any demands for payment
remain unsettled, the business corporation may file in court an application for
relief requesting that the fair value of the shares be determined by the court.
(b) Mandatory joinder of dissenters.--All dissenters, wherever residing,
whose demands have not been settled shall be made parties to the proceeding as
in an action against their shares. A copy of the application shall be served on
each such dissenter. If a dissenter is a nonresident, the copy may be served on
him in the manner provided or prescribed by or pursuant to 42 Pa.C.S. Ch. 53
(relating to bases of jurisdiction and interstate and international procedure).
(c) Jurisdiction of the court.--The jurisdiction of the court shall be
plenary and exclusive. The court may appoint an appraiser to receive evidence
and recommend a decision on the issue of fair value. The appraiser shall have
such power and authority as may be specified in the order of appointment or in
any amendment thereof.
(d) Measure of recovery.--Each dissenter who is made a party shall be
entitled to recover the amount by which the fair value of his shares is found to
exceed the amount, if any, previously remitted, plus interest.
(e) Effect of corporation's failure to file application.--If the
corporation fails to file an application as provided in subsection (a), any
dissenter who made a demand and who has not already settled his claim against
the corporation may do so in the name of the corporation at any time within 30
days after the expiration of the 60-day period. If a dissenter does not file an
application within the 30-day period, each dissenter entitled to file an
application shall be paid the corporation's estimate of the fair value of the
shares and no more, and may bring an action to recover any amount not previously
remitted.
1580 COSTS AND EXPENSES OF VALUATION PROCEEDINGS.--(a) General rule.--The
costs and expenses of any proceeding under section 1579 (relating to valuation
proceedings generally), including the reasonable compensation and expenses of
the appraiser appointed by the court, shall be determined by the court and
assessed against the business corporation except that any part of the costs and
expenses may be apportioned and assessed as the court deems appropriate against
all or some of the dissenters who are parties and whose action in demanding
supplemental payment under section 1578 (relating to estimate by dissenter of
fair value of shares) the court finds to be dilatory, obdurate, arbitrary,
vexatious or in bad faith.
(b) Assessment of counsel fees and expert fees where lack of good faith
appears.--Fees and expenses of counsel and of experts for the respective parties
may be assessed as the court deems appropriate against the corporation and in
favor of any or all dissenters if the corporation failed to comply substantially
with the requirements of this subchapter and may be assessed against either the
corporation or a dissenter, in favor of any other party, if the court finds that
the party against whom the fees and expenses are assessed acted in bad faith or
in a dilatory, obdurate, arbitrary or vexatious manner in respect to the rights
provided by this subchapter.
(c) Award of fees for benefits to other dissenters.--If the court finds
that the services of counsel for any dissenter were of substantial benefit to
other dissenters similarly situated and should not be assessed against the
corporation, it may award to those counsel reasonable fees to be paid out of the
amounts awarded to the dissenters who were benefitted.
II-4
<PAGE>
REVOCABLE PROXY
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
THISTLE GROUP HOLDINGS, INC.
FOR A SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON ________ __, 1998
The undersigned stockholder of Thistle Group Holding, Inc. ("the
Mid-Tier Holding Company") hereby appoints the full Board of Directors, with
full powers of substitution, as attorneys-in-fact and agents for and in the name
of the undersigned, to vote such votes as the undersigned may be entitled to
vote at the special meeting of stockholders of the Mid-Tier Holding Company to
be held at ________________________ located at ___________________________,
_____________, Pennsylvania on _______ __, 1998, at __:__ __.m., Pennsylvania
Time, and at any and all adjournments thereof (the "Special Meeting"). They are
authorized to cast all votes to which the undersigned is entitled as follows:
1. The approval of the Plan of Conversion and Reorganization (the
"Plan") and transactions incident to the Plan, pursuant to
which (i) the Roxborough-Manayunk Federal Savings Bank (the
"Bank") will establish Thistle Group Holdings, Co. (the
"Company") as a first-tier Pennsylvania chartered corporation
subsidiary; (ii) the Company will charter an interim federal
association ("Interim"); (iii) FJF Financial, M.H.C. (the
"Mutual Holding Company") will merge with and into the Mid-
Tier Holding Company (upon its conversion to a mid-tier
federal corporation), shares of the common stock of the Mid-
Tier Holding Company ("Mid-Tier Common Stock") held by the
Mutual Holding Company will be canceled and certain depositors
of the Bank will receive an interest in a liquidation account
of the Mid-Tier Holding Company in exchange for such
depositors' interest in the Mutual Holding Company; (iv) the
Mid-Tier Holding Company will convert into an interim federal
savings association which will merge with and into the Bank
(the "Mid-Tier Merger") with the Bank as the resulting entity
and stockholders of the Mid-Tier Holding Company other than
the Mutual Holding Company ("Minority Stockholders") will
constructively receive shares of the Bank's common stock in
exchange for their Mid-Tier Common Stock and certain
depositors will receive an interest in a liquidation account
of the Bank in exchange for such depositors' interest in the
Mid-Tier Holding Company; (v) contemporaneously with the Mid-
Tier Merger, Interim will merge with and into the Bank with
the Bank as the surviving entity (the "Bank Merger") and
Minority Stockholders will exchange the shares of the Bank's
common stock that they constructively received in the Mid-Tier
Merger for the Company's common stock pursuant to the
"Exchange Ratio" as defined in the Proxy Statement/Prospectus;
(vi) contemporaneously with the Bank Merger, the Company will
offer for sale shares of common stock in a subscription
<PAGE>
offering and; (vii) the Bank will change its name to
"Roxborough- Manayunk Bank."
FOR AGAINST ABSTAIN
--- ------- -------
|_| |_| |_|
In their discretion upon such other matters that may lawfully come before the
Special Meeting or any adjournments thereof. The Board of Directors is not aware
of any other matter that may come before the Special Meeting.
IMPORTANT: PLEASE DATE AND SIGN THE PROXY ON THE REVERSE
SIDE. VOTING FOR THE MERGER AND SIGNING THIS PROXY CARD DOES
NOT OBLIGATE YOU TO BUY ANY STOCK.
<PAGE>
THIS PROXY WILL BE VOTED FOR THE PROPOSITION
STATED IF NO CHOICE IS MADE HEREON
All votes will be cast in accordance with this Proxy. Should the
undersigned be present and elect to vote at the Special Meeting or at any
adjournment thereof and after notification to the Secretary of the Bank at said
meeting of the stockholder's decision to terminate this Proxy, then the power of
said attorney-in-fact or agents shall be deemed terminated and of no further
force and effect.
The undersigned acknowledges receipt of a Notice of Special Meeting of
Stockholders, a Proxy Statement dated ________ __, 1998 and a Prospectus dated
_______ __, 1998, prior to the execution of this Proxy.
Date
Signature
Signature
NOTE: Please sign your name exactly as it appears hereon. If shares are
held jointly, each stockholder should sign. When signing as an
attorney, administrator, agent, corporation, officer, executor,
trustee, guardian or similar position, please add your full title to
your signature.
