As filed with the Securities and Exchange Commission on June 30, 1995
Registration No. 33-_______
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
Progress Financial Corporation
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(Exact name of registrant as specified in its certificate of incorporation)
<TABLE>
<S> <C> <C> <C>
Delaware 6711 23-2413363
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(State or other jurisdiction of (Primary Standard (I.R.S. Employer
incorporation or organization) Industrial Classification Code Number) Identification No.)
</TABLE>
Plymouth Meeting Executive Campus
600 East Germantown Pike
Plymouth Meeting, Pennsylvania 19462
(610) 825-8800
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(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
W. Kirk Wycoff, President and Chief Executive Officer
Progress Financial Corporation
Plymouth Meeting Executive Campus
600 East Germantown Pike
Plymouth Meeting, Pennsylvania 19462
(610) 825-8800
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(Name, address, including zip code, and telephone number, including area
code, of agent for service)
Copy to:
Gerald F. Heupel, Jr., Esq.
Jeffrey D. Haas, Esq.
Elias, Matz, Tiernan & Herrick L.L.P.
734 15th Street, N.W., 12th Floor
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, check the following box. [ X ]
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Title of Each Class of Proposed Maximum
Securities Aggregate Amount of
to be Registered Offering Price(1) Registration Fee
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Common Stock, par
value $1.00 per share $42,421,812.00 $14,628.21
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(1) Calculated pursuant to Rule 457(o) of the Securities Act of 1933 and
consists of $37,030,000 of Conversion Stock and $5,391,812 of Exchange
Shares based upon a 15% increase in the maximum of the Estimated Price
Range, as such terms are defined in the Prospectus.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
============================================================================
<PAGE>
Cross Reference Sheet Showing Location in the Prospectus of Information
Required by Items of Form S-1
Registration Statement Item and Caption Prospectus Headings
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1. Forepart of the Registration Front Cover Page
Statement and Outside Front
Cover Page of Prospectus
2. Inside Front and Outside Back Inside Front and Outside
Cover Pages of Prospectus Back Cover Pages
3. Summary Information, Risk Summary; Special
Factors and Ratio of Earnings Considerations
to Fixed Charges
4. Use of Proceeds Use of Proceeds
5. Determination of Offering The Offerings -- Stock
Price Pricing, Exchange Ratio
and Number of Shares to
be Issued
6. Dilution Not applicable
7. Selling Security Holders Not applicable
8. Plan of Distribution Front Cover Page; The
Offerings -- Subscription
Offering; -- Community
Offering; -- Syndicated
Community Offering
9. Description of Securities to Description of Capital
be Registered Stock of the Company;
Restrictions on
Acquisition of the
Company and Progress Bank
10. Interests of Named Experts Not applicable
and Counsel
11. Information with Respect to Front Cover Page;
the Registrant Summary; Selected
Consolidated Financial
and Other Data of the
Company; Selected
Consolidated Finanical
and Other Data of
Roxborough-Manayunk;
Selected Pro Forma
Unaudited Consolidated
Financial Data of the
Company; Market Price for
Company Common Stock and
Dividends;
Capitalization;
Regulatory Capital;
Management's Discussion
and Analysis of Financial
Condition and Results of
Operations of the
Company; Business of the
Company; Management's
Discussion and Analysis
of Financial Condition
and Results of Operations
of Roxborough-Manayunk;
Business of Roxborough-
Manayunk; Regulation;
Taxation; Management of
the Company; Management
of Roxborough-Manayunk;
Management of the Company
and Progress Bank
Following the Conversion
and the Merger; The
Conversion and the
Merger; Description of
Capital Stock of the
Company; Consolidated
Financial Statements of
the Company; Consolidated
Financial Statements of
Roxborough-Manayunk.
12. Disclosure of Commission Not applicable
Position on Indemnification
for Securities Act
Liabilities
<PAGE>
PROSPECTUS
PROGRESS FINANCIAL CORPORATION
Up to $32.2 Million of Conversion Stock
and Up to $4.7 Million of Exchange Shares
Progress Financial Corporation (the "Company"), a Delaware
corporation, is offering up to $32.2 million (which may be increased up to
$37.0 million under certain circumstances described below) of its common
stock, par value $1.00 per share (the "Company Common Stock"), in
connection with the Offerings described herein (the "Conversion Stock").
The Company is also offering up to $4.7 million of Company Common Stock
(which may be increased up to $5.4 million) in connection with the Exchange
described herein to be effected in connection with the merger of Progress
Federal Savings Bank ("Progress"), a subsidiary of the Company, and
Roxborough-Manayunk Federal Savings Bank ("Roxborough-Manayunk").
The Offerings. Pursuant to a Plan of Conversion and related Plan of
Merger (together, the "Plan" or the "Plan of Conversion") adopted by
Roxborough-Manayunk and FJF Financial, M.H.C. (the "Mutual Holding
Company") and an Agreement and Plan of Reorganization and related Plan of
Merger (together, the "Merger Agreement") adopted by Roxborough-Manayunk,
the Mutual Holding Company, the Company and Progress (collectively, the
"Parties"), the Mutual Holding Company will convert to stock form and merge
with Roxborough-Manayunk, which will then merge with Progress and become a
subsidiary of the Company, all as more fully described herein
(collectively, with the Exchange, the "Conversion and the Merger").
Nontransferable subscription rights to subscribe for up to $32,200,000
(which may be increased up to $37,030,000) of Company Common Stock (the
"Conversion Stock") have been granted to certain depositors and borrowers
of Roxborough-Manayunk as of specified record dates, an Employee Stock
Ownership Plan ("ESOP") of the Company, and the stockholders of Roxborough-
Manayunk and the Company as of specified record dates, subject to the
limitations described herein (the "Subscription Offering"). Commencing
concurrently with the Subscription Offering, and subject to the prior
rights of holders of subscription rights, the right of the Company and
Roxborough-Manayunk to reject such orders in whole or in part and the other
limitations described herein, the Company is offering the shares of
Conversion Stock not subscribed for in the Subscription Offering, if any,
for sale in a community offering (the "Community Offering") to certain
members of the general public to whom a copy of this Prospectus is
delivered by or on behalf of the Company, with preference given to natural
persons residing in Philadelphia, Bucks, Delaware, Chester and Montgomery
Counties, Pennsylvania.
It is anticipated that shares of Conversion Stock not subscribed for
in the Subscription and Community Offerings, if any, will be offered by the
Company to members of the general public to whom a copy of this Prospectus
is delivered by or on behalf of the Company in a syndicated community
offering (the "Syndicated Community Offering") (the Subscription Offering,
Community Offering and any Syndicated Community Offering are
<PAGE>
referred to collectively as the "Offerings"). The Parties have engaged
Sandler O'Neill Corporate Strategies, a division of Sandler O'Neill &
Partners, L.P. ("Sandler O'Neill") to consult with and advise them in the
Conversion and the Merger and to provide recordkeeping and proxy
solicitation services, and Sandler O'Neill has agreed to use its best
efforts to solicit subscriptions and purchase orders for shares of
Conversion Stock in the Offerings. Sandler O'Neill is not obligated to
take or purchase any shares of Conversion Stock in the Offerings. See "The
Offerings - Marketing Arrangements."
The Subscription Offering will terminate at _:00 p.m., Eastern Time,
on ________, 1995 (the "Expiration Date"), unless extended by the Parties,
with approval of the Office of Thrift Supervision ("OTS"), if necessary.
The Community Offering is expected to terminate at the same time as the
Subscription Offering. The Community Offering and/or any Syndicated
Community Offering must be completed within 45 days after the close of the
Subscription Offering, or _____, 1995, unless extended by the Parties with
the approval of the OTS, if necessary. Orders submitted are irrevocable
until the completion of the Conversion and the Merger; provided that, if
the Conversion and the Merger are not completed within the 45-day period
referred to above, unless such period has been extended with the consent of
the OTS, if necessary, all subscribers will have their funds returned
promptly with interest (at Roxborough-Manayunk's passbook rate), and all
withdrawal authorizations will be cancelled. See "The Offerings -
Subscription Offering."
The Exchange. Each share of common stock, par value $1.00 per share,
of Roxborough-Manayunk ("RM Bank Common Stock") held by the Mutual Holding
Company, which currently holds 1,415,000 shares or 87.29% of the
outstanding RM Bank Common Stock, will be cancelled and each share of RM
Bank Common Stock held by the public stockholders of Roxborough-Manayunk
(the "RM Public Bank Shares"), which amounted to 206,000 shares or 12.71%
of the outstanding RM Bank Common Stock at March 31, 1995, will be
converted into shares of Company Common Stock (the "Exchange Shares")
pursuant to a ratio (the "Exchange Ratio") that will result in the holders
of such shares (the "RM Public Stockholders") receiving in the aggregate
approximately the same percentage of the Company Common Stock to be issued
in the Conversion and the Merger as the percentage of RM Bank Common Stock
owned by them in the aggregate immediately prior to consummation of the
Conversion and the Merger, before giving effect to (a) the payment of cash
in lieu of issuing fractional Exchange Shares, (b) any shares of Company
Common Stock purchased by such stockholders in the Offerings described
herein and (c) any exercise of dissenters' rights (the "Exchange").
Independent Valuation. Pursuant to regulations of the OTS, the
offering of Conversion Stock in the Offerings is required to be based on an
independent valuation of the incremental pro forma market value of
Roxborough-Manayunk and the Mutual Holding Company to the Company. RP
Financial, Inc. ("RP Financial") has prepared an independent appraisal,
which states that the estimated incremental pro forma market value of
Roxborough-Manayunk and the Mutual Holding Company on a combined basis was
$32.0 million as of June 16, 1995 (the "Appraisal"). The Appraisal was
multiplied by the Mutual
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<PAGE>
Holding Company's percentage interest in Roxborough-Manayunk (i.e., 87.29%)
to determine a midpoint ($28,000,000 rounded), and the minimum and maximum
range were set at 15% below and above the midpoint, respectively, resulting
in a range of $23,800,000 to $32,200,000 for the Conversion Stock (the
"Estimated Price Range").
The Estimated Price Range may be increased or decreased to reflect
changes in market and economic conditions prior to completion of the
Conversion and the Merger or to fill the order of the ESOP. RP Financial
will update its appraisal upon the expiration of the Subscription and
Community Offerings and will state its opinion as to the aggregate
estimated incremental pro forma market value of the Mutual Holding Company
and Roxborough-Manayunk at such time (the "Appraised Value"). The Plan of
Conversion provides that the per share price of the Conversion Stock (the
"Actual Purchase Price") will be the average closing price of the Company
Common Stock as reported on the Nasdaq National Market during the 20
trading days ending on the day prior to the close of the Offerings. The
actual number of shares of Conversion Stock to be issued will be determined
by dividing the Appraised Value, as determined by RP Financial, by the
Actual Purchase Price, with the resulting number of shares being rounded
down to the nearest whole number. All shares of Conversion Stock sold in
the Conversion and the Merger will be sold at a uniform price per share.
The aggregate Actual Purchase Price for all shares of Conversion Stock will
not be inconsistent with the estimated incremental pro forma market value
of Roxborough-Manayunk and the Mutual Holding Company. No resolicitation
of subscribers will be made and subscribers will not be permitted to modify
or cancel their subscriptions unless (i) the gross proceeds from the sale
of the Conversion Stock are less than the minimum or more than 15% above
the maximum of the current Estimated Price Range or (ii) the Offerings are
extended beyond _____, 1995. See "The Offerings - Stock Pricing, Exchange
Ratio and Number of Shares to be Issued."
Purchase Limitations. The Plan sets forth various purchase
limitations which are applicable in the Offerings. Subscribers must
indicate on their order forms the aggregate dollar amount of Conversion
Stock they wish to order, which amount will be divided by the Actual
Purchase Price to determine the number of whole shares to be issued to each
subscriber, with any difference to be refunded in lieu of a fractional
share. See "The Offerings - Subscription Offering," "- Community Offering"
and "- Limitations on Conversion Stock Purchases."
Required Approvals. The consummation of the Conversion and the Merger
is subject to the receipt of various regulatory approvals and the approval
of members of the Mutual Holding Company, the stockholders of Roxborough-
Manayunk and the stockholders of the Company in the manner set forth
herein.
Market for Common Stock. The Company Common Stock is quoted on the
Nasdaq National Market under the symbol "PFNC." The closing sale price for
the Company Common Stock on _________, 1995 was $______ per share. See
"Market Price for Company Common Stock and Dividends."
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<PAGE>
For a discussion of certain factors that should be considered by each
prospective investor, see "Risk Factors."
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 PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS
ACCOUNTS OR DEPOSITS AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR
ANY OTHER GOVERNMENT AGENCY.
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<PAGE>
Estimated
Underwriting Estimated
Actual Purchase Fees and Net
Price Other Proceeds(3)
Expenses(2)
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Per Share (1) (4) (4)
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Total Minimum(5) $23,800,000 $1,327,800 $22,472,200
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Total Midpoint(5) $28,000,000 $1,422,800 $26,577,200
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Total Maximum(5) $32,200,000 $1,517,720 $30,682,280
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Total Maximum, as $37,030,000 $1,626,878 $35,403,122
adjusted(5)
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- --------------------
(1) The Actual Purchase Price per share will equal the average closing
price of the Company Common Stock as reported on the Nasdaq National
Market during the 20 trading days ending on the day prior to the close
of the Offerings. The 20 trading day average for the Company Common
Stock was $_____ as of August __, 1995. See "The Offerings - Stock
Pricing, Exchange Ratio and Number of Shares to be Issued."
(2) Consists of the estimated costs to the Parties to be incurred in
connection with the Conversion and the Merger, including estimated
fixed expenses of $850,000 and marketing fees to be paid to Sandler
O'Neill in connection with the Offerings, which fees are estimated to
be $477,800 and $667,720 based on the minimum and the maximum of the
Estimated Price Range, respectively. See "The Offerings - Marketing
Arrangements." The actual fees and expenses may vary from the
estimates. Such fees paid to Sandler O'Neill may be deemed to be
underwriting fees. See "Pro Forma Unaudited Financial Information."
(3) Actual net proceeds may vary substantially from estimated amounts
depending on the number of shares sold in the Offerings and other
factors. Includes the purchase of shares of Conversion Stock by the
ESOP, which initially will be deducted from the Company's
stockholders' equity. For the effects of such purchases, see
"Capitalization" and "Pro Forma Unaudited Financial Information."
(4) The per share amounts cannot be calculated at this time since the
Actual Purchase Price and the number of shares will not be determined
until the close of the Offerings.
(5) Based upon the minimum, midpoint, maximum and 15% above the maximum of
the Estimated Price Range, respectively.
_________________________
Sandler O'Neill & Partners, L.P.
_________________________
The date of this Prospectus is August __, 1995.
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<PAGE>
[insert map]
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<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information
with the Securities and Exchange Commission (the "SEC"). The reports,
proxy statements and other information filed by the Company with the SEC
can be inspected and copied at the public reference facilities maintained
by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
SEC's Regional Offices at 7 World Trade Center, Suite 1300, New York, New
York 10048, and Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such material also can be
obtained from the Public Reference Section of the SEC at 450 Fifth Street,
N.W., Washington, D.C. 20549, upon payment of prescribed rates. Copies of
the reports, proxy statements and other information filed by the Company
may also be inspected at the National Association of Securities Dealers,
Inc., located at 1735 K Street, N.W., Washington, D.C. 20006.
The Company has filed with the SEC a Registration Statement on
Form S-1 under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to the Company Common Stock 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, including the appraisal report which is an exhibit to the
Registration Statement, 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 statements contained in this Prospectus
as to the contents of any contract or other document filed as an exhibit to
the Registration Statement are, of necessity, brief descriptions thereof
and are not necessarily complete; each such statement is qualified by
reference to such contract or document. This Prospectus contains a
description of the material provisions of such contracts or documents.
The Mutual Holding Company has filed an Application for Conversion
with the OTS with respect to the Conversion and the Merger. This
Prospectus omits certain information contained in that application. The
application may be examined at the principal office of the OTS, 1700 G
Street, N.W., Washington, D.C. 20552, and at the Northeast Regional Office
of the OTS located at 10 Exchange Place, 18th Floor, Jersey City, New
Jersey 07302.
Roxborough-Manayunk is not subject to the informational requirements
of the Exchange Act, and as of March 31, 1995, there are less than 35 RM
Public Stockholders.
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<PAGE>
SUMMARY
This summary is qualified in its entirety by the more detailed
information regarding the Parties and the Consolidated Financial Statements
of the Company and of Roxborough-Manayunk appearing elsewhere in this
Prospectus.
The Company and Progress
Progress Financial Corporation is the sole stockholder of Progress
Federal Savings Bank, a federally chartered savings bank, which has been
engaged in the thrift business since 1878. The Company was organized in
1986 as a Delaware corporation in connection with the reorganization of
Progress into a thrift holding company structure. Progress currently
conducts its business through six full-service offices located in
Montgomery County, one full-service office in Delaware County, one full-
service office in the Andorra section of Philadelphia, and two loan
production offices in Montgomery and Lancaster Counties in southeastern
Pennsylvania. At March 31, 1995, the Company had total consolidated assets
of $347.0 million, total consolidated liabilities of $333.2 million,
including total consolidated deposits of $277.8 million, and total
consolidated stockholders' equity of $13.7 million. The principal
executive offices of the Company and Progress are located at Plymouth
Meeting Executive Campus, 600 West Germantown Pike, Plymouth Meeting,
Pennsylvania 19462-1003, and their telephone number is (610) 825-8800.
Unless the context otherwise requires, references herein to the Company
include Progress.
Roxborough-Manayunk and the Mutual Holding Company
Roxborough-Manayunk Federal Savings Bank is a federally chartered
stock savings bank which was organized in 1992 as a subsidiary of the
Mutual Holding Company. Prior to that date, Roxborough-Manayunk Federal
Savings and Loan Association in its mutual form ("the Association") had
operated in its market since it was formed in 1933. In connection with the
organization of the Mutual Holding Company (the "MHC Reorganization"), on
December 31, 1992, the Association transferred substantially all of its
assets and liabilities to Roxborough-Manayunk and converted its charter to
that of a federal mutual holding company known as FJF Financial, M.H.C.
Roxborough-Manayunk currently conducts its business through six full-
service offices located in Philadelphia County (West and South) and two
full-service offices in Delaware County in southeastern Pennsylvania. At
March 31, 1995, Roxborough-Manayunk had $272.7 million of total assets,
$249.7 million of total liabilities, including $239.0 million of deposits,
and $23.0 million of stockholders' equity. At March 31, 1995, the Mutual
Holding Company's principal asset was 1,415,000 shares or 87.29% of the
total issued and outstanding RM Bank Common Stock, and there were 206,000
RM Public Bank Shares outstanding representing 12.71% of the total issued
and outstanding RM Bank Common Stock. The principal executive offices of
Roxborough-Manayunk and the Mutual Holding Company are located at 6060
Ridge Avenue, Philadelphia, Pennsylvania 19128, and their telephone number
is (215) 483-2800.
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<PAGE>
Reasons for the Conversion and the Merger
The respective Boards of Directors of each of the Parties believe that
the combination of the Parties will enhance the competitive position of the
combined entities and will enable the resulting institution to compete more
effectively than either Roxborough-Manayunk or Progress could on its own.
The combined entity will have greater financial resources and, as a result
of the Offerings, increased capital levels. The Company's stockholders'
equity will increase from $13.7 million or 4.0% of total assets at March
31, 1995 to $62.3 million or 9.7% of pro forma total assets at March 31,
1995, assuming the Conversion Stock is sold at the midpoint of the
Estimated Price Range. The combination 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.
The terms of the Merger Agreement were the result of arm's length
negotiations between the representatives of the Company and Roxborough-
Manayunk. Among the factors considered by the Boards of Directors of the
Company and Roxborough-Manayunk, as appropriate, were (i) the ability to
expand the Company's and Roxborough-Manayunk's presence in southeastern
Pennsylvania (upon consummation of the Conversion and the Merger, Progress
Bank will have 17 branches in southeastern Pennsylvania); (ii) information
concerning the financial condition, results of operations, capital levels,
asset quality and prospects of the Company and Roxborough-Manayunk; (iii)
the short-term and long-term impact the Conversion and the Merger will have
on the Company's consolidated results of operations, including potential
cost savings resulting from consolidation in certain areas and expanded
commercial business, residential construction, commercial real estate
(primarily multi-family residential) and consumer lending as well as
expanded retail banking products and services; (iv) the general structure
of the transaction and the compatibility of the respective managements and
business philosophies; (v) the enhancement of the franchise value of the
Company; (vi) the ability of the combined enterprise to compete in relevant
banking and non-banking markets; (vii) industry and economic conditions;
and (viii) the impact of the Conversion and the Merger on the depositors,
employees, customers and communities served by the Company and Roxborough-
Manayunk as well as their respective stockholders through the contemplated
expansion of commercial business, residential construction, commercial real
estate (primarily multi-family residential) and consumer lending and the
proposed expansion of retail banking products and services.
The Conversion and the Merger
On May 24, 1995, the Boards of Directors of Roxborough-Manayunk and
the Mutual Holding Company adopted the Plan of Conversion and the Parties
adopted the Merger Agreement. Pursuant to the Plan of Conversion and the
Merger Agreement, (i) the Mutual Holding Company will convert from mutual
to stock form and simultaneously merge with and into Roxborough-Manayunk,
pursuant to which the Mutual Holding Company will cease to exist and the
1,415,000 shares or 87.29% of the outstanding RM Bank Common Stock
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<PAGE>
held by the Mutual Holding Company will be cancelled, and (ii) Progress
will then merge with and into Roxborough-Manayunk, and Roxborough-Manayunk
as the surviving entity will change its name to "Progress Bank" ("Progress
Bank") and become a wholly owned subsidiary of the Company. The
outstanding RM Public Bank Shares, which amounted to 206,000 shares or
12.71% of the outstanding RM Bank Common Stock at March 31, 1995, will be
converted into the Exchange Shares pursuant to the Exchange Ratio, which
will result in the holders of such shares receiving in the aggregate
approximately the same percentage of Company Common Stock to be issued in
the Conversion and the Merger (i.e., the Conversion Stock and the Exchange
----
Shares) as the percentage of RM Bank Common Stock owned by them in the
aggregate immediately prior to consummation of the Conversion and the
Merger, before giving effect to (a) the payment of cash in lieu of issuing
fractional Exchange Shares, (b) any shares of Conversion Stock purchased by
the RM Public Stockholders in the Offerings, and (c) any exercise of
dissenters' rights. For diagrams of the corporate structure of the Mutual
Holding Company and Roxborough-Manayunk prior to consummation of the
Conversion and the Merger and the corporate structure of the Company
thereafter, see "The Conversion and the Merger - Description of the
Conversion and the Merger."
In addition to shares of Company Common Stock to be issued pursuant to
the Exchange, pursuant to the Plan of Conversion, the Company is offering
shares of Conversion Stock in the Offerings as part of the Conversion and
the Merger. See "- The Offerings" below and "The Offerings." The
conversion of the Mutual Holding Company from mutual to stock form, the
merger of the Mutual Holding Company with and into Roxborough-Manayunk, the
merger of Progress with and into Roxborough-Manayunk, and the Offerings are
interdependent transactions, and none of such transactions will occur
unless all of them do.
Pursuant to OTS regulations, consummation of the Conversion and the
Merger is conditioned upon the approval of the Plan of Conversion by the
OTS, as well as (1) the approval of the Merger Agreement and the Plan of
Conversion by 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
("Members") as of the close of business on __________, 1995 (the "Voting
Record Date") at a special meeting of Members called for the purpose of
submitting such documents for approval (the "Members' Meeting"), and (2)
the approval of the Merger Agreement and the Plan of Conversion by the
holders of at least two-thirds of the shares of the RM Bank Common Stock,
including the Mutual Holding Company (the "Stockholders"), outstanding as
of the close of business on the Voting Record Date eligible to be voted at
the special meeting of the stockholders of Roxborough-Manayunk called for
the purpose of submitting such documents for approval (the "Roxborough-
Manayunk Stockholders' Meeting"). In addition, the Parties have
conditioned the consummation of the Conversion and the Merger on the
approval of the Merger Agreement and the Plan of Conversion by at least a
majority of the votes cast, in person or by proxy, by the RM Public
Stockholders at the Roxborough-Manayunk Stockholders' Meeting. The Mutual
Holding Company intends to vote its shares of RM Bank Common Stock, which
amount to 87.29%
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<PAGE>
of the outstanding shares, in favor of the Merger Agreement and the Plan of
Conversion at the Roxborough-Manayunk Stockholders' Meeting. Under
Delaware law, the Merger Agreement must be approved by a majority of the
outstanding Company Common Stock as of the close of business on _______,
1995 entitled to vote thereon at a special meeting of stockholders called
for the purpose of submitting such documents for approval (the "Company
Stockholders' Meeting").
In connection with the Conversion and the Merger, certain benefits
will be provided to certain directors, officers and employees of the
Company and Roxborough-Manayunk. For additional information, see "The
Conversion and the Merger - Interests of Certain Persons in the Conversion
and the Merger."
The Company and Progress Bank Following the Conversion and the Merger
General. Assuming the Conversion and the Merger had been consummated
as of March 31, 1995, the Company would have had, on a pro forma basis at
the midpoint of the Estimated Price Range, total consolidated assets of
$645.0 million, total consolidated liabilities of $582.7 million, including
$516.9 million of deposits, and total consolidated stockholders' equity of
$62.3 million. See "Pro Forma Unaudited Financial Information." In
addition, at March 31, 1995, Progress Bank would have had, on a pro forma
basis at the midpoint of the Estimated Price Range, tangible, core and
risk-based capital of $62.6 million or 9.70% of adjusted total assets,
$62.9 million or 9.75% of adjusted total assets and $64.9 million or 23.52%
total risk-weighted assets, respectively. See "Regulatory Capital."
Market Area. Progress and Roxborough-Manayunk currently serve
contiguous market areas. Progress operates in Montgomery County through
six full service offices located in King of Prussia, Norristown,
Bridgeport, Conshohocken, Jeffersonville and Plymouth Meeting and in the
counties of Delaware and Philadelphia through offices in Rosemont and the
Andorra section of Philadelphia. With the opening of the Paoli branch in
August 1995, Progress will add a Chester County branch and has added
Lancaster County and the Pottstown area of Montgomery County to its lending
area with the recent opening of two residential loan origination offices.
Roxborough-Manayunk maintains four full-service offices in Northwest
Philadelphia, an office in South Philadelphia and an office in the
Overbrook section of Philadelphia, as well as offices in the Drexel Hill
and Yeadon areas of Delaware County. As a result of the Conversion and the
Merger, Progress Bank will maintain offices in four of the five counties
included in the Philadelphia Metropolitan Statistical Area ("MSA"). The
Philadelphia MSA is the nation's fourth largest metropolitan area in terms
of population based on 1993 U.S. census data and the Pennsylvania counties
included in the MSA account for nearly one-third of the total population of
Pennsylvania. In recent years, the Philadelphia area economy has moved
from a traditional manufacturing-based economy towards a service-based
economy, thereby providing more economic diversity to the area. Management
of Progress Bank believes that the market area which it will serve consists
primarily of stable middle class neighborhoods as well as affluent suburbs
of Philadelphia.
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Business. Upon completion of the Conversion and the Merger, Progress
Bank will be a well capitalized, independent community oriented financial
institution with 17 full service offices and two residential loan
origination offices. Progress Bank's business strategy will be to operate
as a community oriented financial institution dedicated to meeting the
borrowing and savings needs of its individual and business customers
through superior service and innovative products. Progress Bank will seek
to implement this strategy by (i) increasing its origination of commercial
business loans to small and medium-sized businesses in its primary market
area and residential construction loans and commercial real estate loans
secured by properties located in its primary market area; (ii) emphasizing
retail banking, including the origination of single-family residential
loans (primarily for resale) and secured consumer loans (such as home
equity loans) and the offering of individual and commercial checking and
passbook deposit accounts; (iii) continuing to emphasize Progress' mortgage
banking activities, which provide a source of fee income and enhance its
core banking operations; (iv) maintaining asset quality; (v) maintaining a
high level of capital; and (vii) controlling growth.
Assuming the Conversion and the Merger had been consummated as of
March 31, 1995, the Company's total loan portfolio would have amounted to,
on a pro forma basis at the midpoint of the Estimated Price Range, $309.7
million or 48.0% of total assets, $174.0 million or 56.2% of which would
consist of single-family residential loans, $5.9 million or 1.9% of which
would consist of residential construction loans, $90.3 million or 29.2% of
which would consist of commercial real estate loans (including multi-family
residential loans), $15.0 million or 4.8% of which would consist of
commercial business loans and $24.5 million or 7.9% of which would consist
of consumer loans. In addition, the Company's total deposits would have
amounted to $516.9 million, of which $241.3 million or 46.7% would consist
of core checking, money market deposit and passbook savings accounts.
Moreover, the Company would have had $10.0 million of non-performing assets
or 1.6% of total assets (approximately $4.0 million of which is currently
under contract for sale). For additional information with respect to the
Company's pro forma consolidated financial condition and results of
operations, see "Selected Pro Forma Unaudited Consolidated Financial Data
of the Company" and "Pro Forma Unaudited Financial Information."
Management. The Board of Directors of the Company will consist of 12
members, six of whom shall have been designated from the current Board of
Directors of Roxborough-Manayunk and six of whom shall have been designated
from the current Board of Directors of the Company, and the Board of
Directors of Progress Bank will consist of 16 members, eight of whom shall
have been designated from the current Board of Directors of Roxborough-
Manayunk and eight of whom shall have been designated from the current
Board of Directors of Progress. Management of the Company and Progress
Bank following the Conversion and the Merger will be drawn from the current
management of the Parties. John F. McGill shall serve as Chairman of the
Board of Directors of both the Company and Progress Bank and W. Kirk Wycoff
shall serve as President and Chief Executive Officer of both the Company
and Progress Bank. John F. McGill, Jr. shall serve as Executive Vice
President of the Company and Progress Bank, Jerry A. Naessens shall serve
as Chief
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Financial Officer and Treasurer of the Company and Progress Bank and Eric
J. Morgan shall serve as Senior Vice President and Secretary of the Company
and Progress Bank. See "Management of the Company and Progress Bank
Following the Conversion and the Merger."
Regulation. Progress Bank, as a federally chartered savings bank,
will be subject to comprehensive regulation and examination by the OTS, as
its chartering authority and primary regulator, and by the Federal Deposit
Insurance Corporation ("FDIC"), which administers the Savings Association
Insurance Fund ("SAIF"), which will insure Progress Bank's deposits to the
maximum extent permitted by law. Progress Bank will be a member of the
FHLB of Pittsburgh, which is one of the 12 regional banks which comprise
the FHLB System. Progress Bank will be further subject to regulations of
the Board of Governors of the Federal Reserve System ("Federal Reserve
Board") governing reserves required to be maintained against deposits and
certain other matters. The Company, as a registered savings and loan
holding company, will remain subject to examination and regulation by the
OTS and will remain subject to various reporting and other requirements of
the SEC. The principal executive offices of the Company and Progress Bank
following consummation of the Conversion and the Merger will be located at
Plymouth Meeting Executive Campus, 600 West Germantown Pike, Plymouth
Meeting, Pennsylvania, and their telephone number will be (610) 825-8800.
The Offerings
Pursuant to the Plan of Conversion and in connection with the
Conversion and the Merger, the Company is offering shares of Conversion
Stock in the Offerings. The Conversion Stock is first being offered in the
Subscription Offering with nontransferable subscription rights being
granted, in the following order of priority, to (i) depositors of
Roxborough-Manayunk with account balances of $50.00 or more as of the close
of business on February 28, 1994 ("Eligible Account Holders"); (ii) the
ESOP; (iii) depositors of Roxborough-Manayunk with account balances of
$50.00 or more as of the close of business on June 30, 1995 ("Supplemental
Eligible Account Holders"); (iv) depositors of Roxborough-Manayunk as of
the close of business on __________, 1995 (other than Eligible Account
Holders and Supplemental Eligible Account Holders) and borrowers of
Roxborough-Manayunk as of the close of business on December 31, 1992 who
continue to be borrowers as of the close of business on __________, 1995
("Other Members"); and (v) stockholders of Roxborough-Manayunk as of
___________, 1995 and of the Company as of ___________, 1995 ("Eligible
Stockholders"). Subscription rights will expire if not exercised by _:00
p.m., Eastern Time, on ________, 1995, unless extended.
Subject to the prior rights of holders of subscription rights,
Conversion Stock not subscribed for in the Subscription Offering is being
offered in the Community Offering to certain members of the general public
to whom a copy of this Prospectus is delivered, with preference given to
natural persons residing in Philadelphia, Bucks, Delaware, Chester and
Montgomery Counties, Pennsylvania. To the extent necessary, shares not
subscribed for in
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the Subscription and Community Offerings will be offered to certain members
of the general public in a Syndicated Community Offering. The Company and
Roxborough-Manayunk reserve the absolute right to reject or accept any
orders in the Community Offering and the Syndicated 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 Parties have retained Sandler O'Neill as consultant and advisor in
connection with the Offerings and to assist in soliciting subscriptions in
the Offerings. The Parties have also retained Sandler O'Neill as a
conversion agent to provide recordkeeping services and to solicit proxies
in connection with the Conversion and the Merger. See "The Offerings -
Subscription Offering," "- Community Offering," "- Syndicated Community
Offering" and "- Marketing Arrangements." Sandler O'Neill was also engaged
by the Company prior to the execution of the Merger Agreement to act as a
financial advisor to the Company and its subsidiaries in connection with
the Conversion and the Merger, and Sandler O'Neill has engaged in other
transactions with the Company and Roxborough-Manayunk in the past.
Furthermore, an affiliate of Sandler O'Neill, SOP Partners, L.P., is
currently deemed to beneficially own 6.10% of the outstanding Company
Common Stock. See "Management of the Company - Beneficial Ownership of
Company Common Stock."
Stock Pricing, Exchange Ratio and Number of Shares to be Issued in the
Conversion and the Merger
Federal regulations require the aggregate purchase price of the
Conversion Stock to be consistent with RP Financial's appraisal of the
incremental pro forma market value of Roxborough-Manayunk and the Mutual
Holding Company, which was $32.0 million as of June 16, 1995. Because the
holders of the RM Public Bank Shares will receive in the aggregate
approximately the same percentage of the Company Common Stock to be issued
in the Conversion and the Merger as the percentage of RM Bank Common Stock
owned by them in the aggregate immediately prior to consummation of the
Conversion and the Merger (before giving effect to additional purchases in
the Offerings, fractional shares and any exercise of dissenters' rights),
the Appraisal was multiplied by the Mutual Holding Company's percentage
interest in Roxborough-Manayunk (i.e., 87.29%) to determine the midpoint of
the Estimated Price Range, which was rounded to $28,000,000. In accordance
with OTS regulations, the minimum and maximum of the Estimated Price Range
were set at 15% below and above the midpoint, respectively, resulting in a
range of $23,800,000 to $32,200,000. The full text of the appraisal report
of RP Financial describes the procedures followed, the assumptions made,
limitations on the review undertaken and matters considered. The appraisal
report has been filed as an exhibit to the Application for Conversion of
which this Prospectus is a part, and is available in the manner set forth
under "Available Information." This appraisal of the Conversion Stock is
not intended and should not be construed as a recommendation of any kind as
to the advisability of purchasing such stock.
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The Estimated Price Range may be increased or decreased to reflect
changes in market and financial conditions prior to completion of the
Conversion and the Merger or to fill the order of the ESOP. RP Financial
will update its appraisal upon the expiration of the Subscription and
Community Offerings and will state its opinion as to the aggregate
estimated incremental pro forma market value of the Mutual Holding Company
and Roxborough-Manayunk at such time. The Plan of Conversion provides that
the Actual Purchase Price will be the average closing price of the Company
Common Stock as reported on the Nasdaq National Market during the 20
trading days ending on the day prior to the close of the Offerings. The
actual number of shares of Conversion Stock to be issued will be determined
by dividing the Appraised Value, as determined by RP Financial, by the
Actual Purchase Price, with the resulting number of shares being rounded
down to the nearest whole number. All shares of Conversion Stock sold in
the Conversion and the Merger will be sold at a uniform price per share.
The aggregate Actual Purchase Price for all shares of Conversion Stock will
not be inconsistent with the estimated incremental pro forma market value
of Roxborough-Manayunk and the Mutual Holding Company.
The Merger Agreement provides that the Company and Progress have the
right to terminate the Merger Agreement if the aggregate number of shares
of Conversion Stock, Exchange Shares and shares of Company Common Stock to
be subject to options to purchase Company Common Stock upon the conversion
of existing options to purchase RM Bank Common Stock (collectively, "New
Shares") would exceed 64% of the total number of shares of Company Common
Stock to be outstanding on a fully diluted basis upon consummation of the
Conversion and the Merger. The Mutual Holding Company and Roxborough-
Manayunk have the right to terminate the Merger Agreement if the aggregate
number of New Shares would be less than 56% of the total number of shares
of Company Common Stock to be outstanding on a fully diluted basis upon
consummation of the Conversion and the Merger. The following table sets
forth, based upon the number of shares of Company Common Stock currently
outstanding on a fully diluted basis, the minimum and maximum number of
shares of Conversion Stock and Exchange Shares that can be issued in the
Conversion and the Merger without giving rise to a right of termination by
the Parties:
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Minimum Maximum
--------- ---------
Conversion Stock(1) 4,138,143 5,780,263
Exchange Shares(1) 602,541 841,644
--------- ---------
Total to be issued in the Conversion
and the Merger 4,740,684 6,621,907
Exchange Ratio(2) 2.92496 4.08565
Conversion of existing options to
purchase RM Bank Common Stock(3) 116,998 163,426
--------- ---------
Total New Shares 4,857,682 6,785,333
Company Common Stock currently
outstanding 3,816,750 3,816,750
--------- ---------
on a fully diluted basis (4)
Company Common Stock to be outstanding
on a fully diluted basis 8,674,432 10,602,083
========= ==========
Total New Shares as a percentage of
Company
Common Stock to be outstanding on a 56.0% 64.0%
======== =======
fully diluted basis
_____________________________
(1) In accordance with OTS policies, the shares of Conversion Stock and
Exchange Shares to be issued in the Conversion and the Merger will
represent 87.29% and 12.71%, respectively, of the total shares of
Company Common Stock issued in the Conversion and the Merger (assuming
no fractional shares, no exercise of dissenters' rights and no
exercise of outstanding stock options to purchase RM Bank Common
Stock).
(2) The Exchange Ratio was determined by dividing the number of Exchange
Shares by the 206,000 outstanding RM Public Bank Shares. In the event
outstanding stock options to purchase RM Bank Common Stock are
exercised between the date of this Prospectus and consummation of the
Conversion and the Merger, the Exchange Ratio will be adjusted so that
the RM Public Stockholders receive in the aggregate the same
percentage of the shares of Company Common Stock issued in the
Conversion and the Merger as the percentage of RM Bank Common Stock
owned by them in the aggregate immediately prior to consummation of
the Conversion and the Merger, before giving effect to (i) the payment
of cash in lieu of issuing fractional Exchange Shares, (ii) any shares
of Conversion Stock purchased by the RM Public Stockholders in the
Offering, and (iii) any exercise of dissenters' rights. See "Pro
Forma Unaudited Financial Information" and "The Offerings - Stock
Pricing, Exchange Ratio and Number of Shares to be Issued."
(3) If any outstanding stock options to purchase RM Bank Common Stock
remain outstanding immediately prior to consummation of the Conversion
and the Merger, they will be converted into options to purchase shares
of Company Common Stock,
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with the number of shares subject to the option and the exercise price
per share to be adjusted based upon the Exchange Ratio so that the
aggregate exercise price remains unchanged, and with the duration of
the option remaining unchanged. As of the date of this Prospectus,
there were options to purchase 40,000 shares of RM Bank Common Stock
outstanding, and the Merger Agreement prohibits the grant of any
additional stock options prior to the consummation of the Conversion.
(4) Consists of 3,280,000 currently outstanding shares of Company Common
Stock, warrants to purchase 300,000 shares of Company Common Stock and
stock options to purchase 236,750 shares of Company Common Stock.
It is possible that less than 4,138,143 shares of Conversion Stock or
more than 5,780,263 shares of Conversion Stock may be issued in the
Conversion and the Merger if the Parties having a right to terminate the
Merger Agreement in such event elect to waive their right to do so. None
of the Parties have determined under what circumstances, if any, they would
waive their rights, and there can be no assurance that the respective
Parties would waive their rights. However, in the event that the number of
shares of Conversion Stock required to be issued in the Conversion and the
Merger are outside the above range, it is anticipated that the Parties
having a right to terminate would consider all relevant factors in
determining whether or not to waive such right, including but not limited
to how far above or below the above range they are and then existing
financial and market conditions.
The following table sets forth the number of shares of Conversion
Stock that would be issued at the minimum, midpoint, maximum and 15% above
the maximum of the Estimated Price Range at illustrative prices per share
for the Company Common Stock. The Actual Purchase Price may be more or
less than the per share prices shown in the table.
Actual
Purchase $23,800,000 $28,000,000 $32,200,000 $37,030,000
Price Minimum Midpoint Midpoint 15% above Maximum
- --------- ----------- ----------- ----------- -----------------
$5.00 4,760,000 5,600,000 6,440,000(2) 7,406,000(2)
$5.25 4,533,333 5,333,333 6,133,333(2) 7,053,333(2)
$5.50 4,327,273 5,090,909 5,854,545(2) 6,732,727(2)
$5.75 4,139,130 4,869,565 5,600,000 6,440,000(2)
$6.00 3,966,666(1) 4,666,666 5,366,666 6,171,666(2)
$6.25 3,808,000(1) 4,480,000 5,152,000 5,924,800(2)
$6.50 3,661,538(1) 4,307,692 4,953,846 5,696,923
$6.75 3,525,926(1) 4,148,148 4,770,370 5,485,926
(Footnotes on following page)
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- -------------------------
(1) The Mutual Holding Company and Roxborough-Manayunk have a right to
terminate the Merger Agreement if less than 4,138,143 shares of
Conversion Stock are issued, based upon the number of shares of
Company Common Stock currently outstanding on a fully diluted basis.
(2) The Company and Progress have a right to terminate the Merger
Agreement if more than 5,780,263 shares of Conversion Stock are
issued, based upon the number of shares of Company Common Stock
currently outstanding on a fully diluted basis.
Subject to approval of the OTS, the Estimated Price Range may be
increased or decreased to reflect market and economic conditions prior to
the completion of the Offerings, and under such circumstances the Parties
may increase or decrease the number of shares of Conversion Stock. No
resolicitation of subscribers will be made and subscribers will not be
permitted to modify or cancel their subscriptions unless (i) the gross
proceeds from the sale of the Conversion Stock are less than the minimum or
more than 15% above the maximum of the current Estimated Price Range or
(ii) the Offerings are extended beyond _______ __, 1995.
Purchase Limitations
With the exception of the ESOP, which intends to purchase up to an
aggregate of 8% of the amount of Conversion Stock to be issued in the
Offerings, the maximum amount of Conversion Stock which may be purchased by
any individual, corporation, partnership, trust or other entity ("Person")
(or Persons through a single account) in any priority category in the
Subscription Offering, in the Community Offering or in the Syndicated
Community Offering shall not exceed 3% of the Conversion Stock issued (when
combined with any Exchange Shares received by such Person). The maximum
amount of Conversion Stock which may be subscribed for or purchased in all
categories in the Conversion and the Merger (i.e., the Offerings on a
combined basis) by any Person, together with any associate or group of
Persons acting in concert, shall not exceed 5% of the Conversion Stock
issued (when combined with any Exchange Shares received), except for the
amount purchased by the ESOP. At any time during the Offerings, and
without further approval by the Members or the Eligible Stockholders, the
Parties may in their sole discretion decrease the 3% purchase limitation
noted above to as low as 1% of the Conversion Stock issued in the
Conversion and the Merger or increase such limitation to up to 5% of the
Conversion Stock issued in the Conversion and the Merger. Under certain
circumstances, certain subscribers may be resolicited in the event of such
an increase. The minimum purchase is $150. See "The Offerings -
Limitations on Conversion Stock Purchases." In the event of an
oversubscription, shares will be allocated in accordance with the Plan of
Conversion, as described under "The Offerings - Subscription Offering" and
"- Community Offering." Because the purchase limitations contained in the
Plan of Conversion include Exchange Shares to be issued to RM Public
Stockholders for their RM Public Bank Shares, certain
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holders of RM Public Bank Shares may be limited in their ability to
purchase Conversion Stock in the Offerings. See "Risk Factors - Possible
Dilution to RM Public Stockholders as a Result of Purchase Limitations."
Based on the 3% purchase limitation, order forms may be submitted for
a maximum of $966,000, which amount will be reduced if the amount of
Conversion Stock sold is less than the maximum of the Estimated Price
Range. An individual Eligible Account Holder, Supplemental Eligible
Account Holder, Other Member or Eligible Stockholder may not purchase
individually in the Subscription Offering the overall maximum purchase
limit of 5% of the Conversion Stock but may make such purchase, together
with associates of and persons acting in concert with such persons, by also
purchasing in other available categories, subject to availability of shares
and the maximum overall purchase limit for purchases in the Offerings,
including Exchange Shares received by RM Public Stockholders for RM Public
Bank Shares. The 5% purchase limitation is $1,610,000 at the maximum of
the Estimated Price Range.
Benefits of the Conversion and the Merger to Directors and Officers
ESOP. The ESOP intends to purchase up to 8% of the Conversion Stock
to be issued in the Offerings ($2,576,000 of Conversion Stock at the
maximum of the Estimated Price Range). These shares will be allocated over
a period of ten years as the Company's loan to the ESOP is repaid, with the
allocations to be made to executive officers and other eligible employees
in proportion to their compensation. All executive officers of the Company
and Progress Bank will be eligible to participate in the ESOP. See
"Management of the Company and Progress Bank Following the Conversion and
the Merger - Benefits - Employee Stock Ownership Plan." See also "Risk
Factors - Anti-takeover Provisions." In the event that the maximum of the
Estimated Price Range is increased above $32.2 million, the ESOP will have
a first priority right to purchase the amount in excess of $32.2 million,
up to an aggregate of 8% of the total Conversion Stock issued. See "Risk
Factors - Possible Dilutive Effect of Issuance of Additional Shares."
1995 Stock Option Plan. Following consummation of the Conversion and
the Merger, the Company intends to adopt a 1995 Stock Option Plan for the
benefit of the directors, officers and employees of the Company and
Progress Bank (the "1995 Stock Option Plan"), pursuant to which the Company
intends to reserve a number of shares of Company Common Stock equal to an
aggregate of 10% of the Conversion Stock issued in the Offerings (560,000
shares at the maximum of the Estimated Price Range, assuming an Actual
Purchase Price of $5.75) for issuance pursuant to stock options and stock
appreciation rights. Pursuant to the Merger Agreement, 72% of the shares
available under the 1995 Stock Option Plan will be granted to current
directors and executive officers of Roxborough-Manayunk. The remaining
shares available under the 1995 Stock Option Plan shall be available for
grants to all employees, officers and directors of the Company (including
current directors, officers and employees of the Company and Progress).
The 1995 Stock Option and grants pursuant thereto are subject to the
receipt of stockholder
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<PAGE>
approval, which is expected to be sought at the first annual meeting of
stockholders of the Company following the Conversion and the Merger, which
is expected to be held in April 1996. See "Management of the Company and
Progress Bank Following the Conversion and the Merger - Benefits - 1995
Stock Option Plan."
1995 Recognition Plan. Following consummation of the Conversion and
the Merger, the Company intends to adopt a 1995 Recognition Plan for the
benefit of certain officers and directors of the Company and Progress Bank
(the "1995 Recognition Plan" or the "1995 MRP"). It is expected that the
1995 Recognition Plan will be submitted to stockholders for approval at the
same time as the 1995 Stock Option Plan. Upon the receipt of such
approval, the 1995 Recognition Plan is expected to purchase a number of
shares of Company Common stock either from the Company or in the open
market equal to an aggregate of 4% of the Conversion Stock issued in the
Offerings ($1,288,000 at the maximum of the Estimated Price Range).
Pursuant to the Merger Agreement, all of the shares reserved pursuant to
the 1995 Recognition Plan will be awarded to current directors and
executive officers of Roxborough-Manayunk upon receipt of such stockholder
approval. See "Management of the Company and Progress Bank Following the
Conversion and the Merger - Benefits - 1995 Recognition Plan."
For information regarding the management of the Company and Progress
Bank following consummation of the Conversion and the Merger, see "- The
Company and Progress Bank Following the Conversion and the Merger" and
"Management of the Company and Progress Bank Following the Conversion and
the Merger." For information concerning various employee benefit plans
currently being maintained by the Company and Roxborough-Manayunk, certain
of which plans will be continued following consummation of the Conversion
and the Merger, see "Management of the Company" and "Management of
Roxborough-Manayunk."
Use of Proceeds
Net proceeds from the sale of the Conversion Stock are estimated to be
between $22.5 million and $30.7 million, depending on the amount of
Conversion Stock sold in the different offering categories and the expenses
of the Conversion and the Merger. See "Pro Forma Unaudited Financial
Information." The Company plans to contribute to Progress Bank
approximately 90% of the net proceeds from the Offerings in order to
enhance the capital position of Progress Bank and retain the remainder of
the net proceeds. Funds contributed to Progress Bank by the Company will
be used for general business purposes, including to support Progress Bank's
lending and investment activities and thereby enhance Progress Bank's
capabilities to serve the borrowing and other financial needs of the
communities it will serve. Based upon the midpoint of the Estimated Price
Range, Progress Bank will have tangible capital of $62.6 million or 9.70%
of adjusted total assets upon consummation of the Conversion and the
Merger. See "Regulatory Capital." The Company currently intends to use
the net proceeds retained by it to make a loan directly to the ESOP to
enable the ESOP to purchase up to 8% of the Conversion Stock, although the
ESOP may
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obtain all or part of the funds to purchase the stock from an unaffiliated
third party. The amount of the loan is expected to be between $1,904,000
and $2,576,000 at the minimum and maximum of the Estimated Price Range,
respectively. See "Management of the Company and Progress Bank Following
the Conversion and the Merger - Benefits - Employee Stock Ownership Plan."
Subject to applicable limitations and available funds, the Company may
elect in the future to repurchase shares of Company Common Stock. The
proceeds may also be used to support the future expansion of operations 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
acquisitions. See "Use of Proceeds."
Dividend Policy
The Company is currently not paying dividends on the Company Common
Stock. The Company's ability to pay dividends on the Company Common Stock
depends on the use of the net proceeds of the Offerings and the receipt of
dividends from Progress Bank. The Board of Directors of the Company may
consider paying cash dividends on the Company Common Stock commencing in
1996. Dividends, when and if paid, will be subject to determination and
declaration by the Board of Directors in its discretion, which will take
into account the Company's consolidated financial condition and results of
operations, tax considerations, industry standards, economic conditions,
statutory and regulatory restrictions, general economic conditions and
other factors. There can be no assurance that dividends will in fact be
paid on the Company Common Stock or that, if paid, such dividends will not
be reduced or eliminated in future periods. See "Market Price for Company
Common Stock and Dividends."
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 of the Exchange
Act, no Prospectus will be mailed any later than five days prior to the
Expiration Date or hand delivered any later than two days prior to such
date. Execution of the order form will confirm receipt of the Prospectus
in accordance with Rule 15c2-8. Order forms will only be distributed with
a Prospectus. The Parties are not obligated to accept for processing
orders not submitted on original order forms. Order forms unaccompanied by
an executed certification form will not be accepted. Payment by check,
money order, cash or debit authorization to an existing account at either
Roxborough-Manayunk or Progress must accompany the order and certification
forms. No wire transfers will be accepted. The Parties are prohibited
from lending funds to any person or entity for the purpose of purchasing
shares of Conversion Stock in the Offerings. See "The Offerings -
Procedure for Purchasing Shares in the Offerings."
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Restrictions on Transfer of Subscription Rights and Shares
Prior to the completion of the Conversion and the Merger, no person
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.
Each person exercising subscription rights will be required to certify that
a purchase of Conversion Stock is solely for the purchaser's own account
and that there is no agreement or understanding regarding the sale or
transfer of such shares. The 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. See "The Offerings - Restrictions on Transfer of
Subscription Rights and Shares."
Following the Conversion and the Merger, there generally will be no
restrictions on the transfer or sale of shares by purchasers other than
affiliates of the Company and Roxborough-Manayunk. See "The Conversion and
the Merger - Certain Restrictions on Purchase or Transfer of Shares After
the Conversion and the Merger" and "- Resale Considerations with Respect to
Company Common Stock."
Dissenters' Rights of Appraisal
Holders of RM Bank Common Stock are entitled to appraisal rights under
Section 552.14 of the OTS regulations as a result of the merger of the
Mutual Holding Company with and into Roxborough-Manayunk and the merger of
Progress with and into Roxborough-Manayunk, with Roxborough-Manayunk to be
the surviving entity in both mergers. Any such stockholder who wishes to
exercise such appraisal rights should review carefully the discussion of
such rights in Roxborough-Manayunk's proxy statement, including Appendix A
thereto, because failure to timely and properly comply with the procedures
specified will result in the loss of appraisal rights under Section 552.14.
See "The Conversion and the Merger - Dissenters' Rights of Appraisal."
Risk Factors
See "Risk Factors" for a discussion of certain factors that should be
considered by prospective investors, including but not limited to risks
relating to the effects of changes in interest rates; the historical
financial condition and results of operations of the Company; the increased
emphasis on commercial business, residential construction, commercial real
estate and consumer lending; expenses of the Conversion and the Merger; the
effects of certain provisions in the Company's Certificate of Incorporation
and Bylaws and certain provisions in Delaware law which may be deemed to
have an anti-takeover effect; the risk of dilution; risks relating to the
recapitalization of SAIF and the effect of a reduction in Bank Insurance
Fund ("BIF") premiums; and the possible adverse tax consequences of the
distribution of subscription rights.
-22-
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF THE COMPANY
(Dollars in Thousands, Except Per Share Data)
The selected consolidated financial and other data set forth below should
be read in conjunction with, and is qualified in its entirety by, the more
detailed information, including the Company's Consolidated Financial Statements
and related Notes, appearing elsewhere herein.
<TABLE><CAPTION>
March 31, December 31,
--------------------------------------------------------
1995 1994 1993 1992 1991 1990
-----------
<S> <C> <C> <C> <C> <C> <C>
Financial Condition Data:
Total assets $346,958 $348,189 $333,209 $291,542 $312,622 $324,708
Loans, net 210,147 205,772 158,268 153,734 193,789 277,490
Loans held for sale(1) 727 351 16,744 2,761 -- --
Investment securities:
Held to maturity 13,022 12,866 4,632 5,260 2,212 1,694
Available for sale(1) 3,810 4,627 -- -- -- --
Mortgage-backed securities:
Held to maturity 90,601 93,673 117,054 60,939 47,875 315
Available for sale(1) 9,145 9,103 8,893 25,072 -- --
Deposits 277,849 283,958 273,583 245,015 265,197 292,478
Borrowings 47,821 47,052 40,536 36,071 38,585 12,500
Stockholders' equity 13,729 13,021 14,787 6,877 5,599 15,844
Book value per share(2) 4.19 3.98 4.52 6.81 5.54 15.69
<CAPTION>
Three Months
Ended
March 31, Year Ended December 31,
---------------- ------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Data:
Interest income $6,498 $5,078 $22,830 $ 20,824 $ 21,979 $ 27,122 $ 34,834
Interest expense 3,654 2,831 12,505 11,465 13,737 18,011 21,775
----- ----- ------- ------- ------- ------- -------
Net interest income 2,844 2,247 10,325 9,359 8,242 9,112 13,059
Provision for loan losses 100 50 521 368 275 10,144 4,696
----- ----- ------- ------- ------- ------- -------
Net interest income
(loss) after provision 2,744 2,197 9,804 8,991 7,967 (1,032) 8,363
for loan losses
Other income 402 374 1,545 2,226 5,617 1,851 1,518
Other expense 2,768 2,526 12,065 11,568 12,232 12,887 13,625
----- ----- ------- ------- ------- ------- -------
Income (loss) before
income taxes 378 45 (716) (351) 1,352 (12,068) (3,744)
Income tax expense (benefit) -- -- -- (1,034) 74 (1,823) (755)
------ ------ ------- -------- -------- -------- --------
Net income (loss) $ 378 $ 45 $ (716) $ 683 $ 1,278 $(10,245) $ (2,989)
===== ===== ===== ======= ======= ======== ========
Net income (loss) per share $ .12 $ .01 $ (.22) $ .29 $ 1.27 $ (10.14) $ (2.96)
===== ===== ===== ======= ======= ======== ========
Cash dividends per share $ -- $ -- $ -- $ -- $ -- $ -- $ .12
===== ===== ===== ======= ======= ======== ========
Other Data(3):
Return (loss) on average
assets .44% .01% (.21)% .21% .42% (3.31)% (.92)%
Return (loss) on average
equity 11.42 .31 (5.24) 6.25 20.93 (101.81) (16.60)
Average equity to average
assets 3.86 4.44 4.01 3.42 1.99 3.24 5.52
Dividend payout ratio -- -- -- -- -- -- (.04)
Net interest margin(4) 3.49 2.97 3.23 3.25 3.13 3.31 4.30
Interest rate spread(4) 3.21 2.84 3.04 3.26 3.47 3.44 3.97
Non-performing loans as a
percent of total
loans at end of period(5) 2.03 3.38 2.19 3.42 4.37 7.03 4.85
Non-performing
assets as a percent of total
assets at end of period(5) 2.53 4.12 2.61 5.29 11.95 16.13 9.00
Allowance for loan losses
as a percent of non-
performing loans at
end of period 37.38 34.64 33.00 34.92 38.83 39.14 30.19
Allowance for loan
losses as a percent of
total loans at end of
period .76 1.17 .72 1.19 1.70 2.75 1.46
Net charge-offs as a
percent of average loans -- .02 .60 .64 1.69 3.51 .65
Full service banking offices 8 8 8 8 7 8 8
</TABLE>
(Footnotes on following page)
-23-
<PAGE>
- --------------------------
(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 Company Common Stock issued and outstanding.
(3) With the exception of end of period ratios, all ratios are based on
average daily balances during the indicated periods and are annualized
where appropriate.
(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-earning 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.
-24-
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF
ROXBOROUGH-MANAYUNK
(Dollars in Thousands, Except Per Share Data)
The selected consolidated financial and other data set forth below should
be read in conjunction with, and is qualified in its entirety by, the more
detailed information, including Roxborough-Manayunk's Consolidated Financial
Statements and related Notes, appearing elsewhere herein.
<TABLE><CAPTION>
March 31, December 31,
-------------------------------------------------------------
1995 1994 1993 1992 1991 1990
-------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Financial Condition Data:
Total assets $272,728 $273,571 $277,304 $251,995 $225,182 $214,470
Loans receivable, net 95,175 95,524 98,622 77,787 83,876 90,814
Loans held for sale(1) 1,305 1,199 -- -- -- --
Investment securities:
Held to maturity 49,503 49,325 29,137 27,351 36,066 29,881
Available for sale(1) 770 755 750 -- -- --
Mortgage-backed securities:
Held to maturity -- -- -- 114,519 76,075 43,182
Available for sale(1) 76,377 98,476 108,532 -- -- --
Deposits 239,039 241,230 244,306 228,961 205,260 196,393
Borrowings 7,884 7,884 7,884 -- -- --
Stockholders' equity 22,981 20,477 21,217 18,349 15,117 13,688
Book value per share(2) 14.18 12.68 13.14 -- -- --
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
------------------- -----------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
------- ------- ------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Operations Data:
Interest income $ 4,935 $ 4,237 $18,096 $18,067 $18,557 $19,681 $20,563
Interest expense 2,490 2,130 8,791 9,087 10,483 13,222 14,432
------ ------ ------ ------ ------ ------ ------
Net interest income 2,445 2,107 9,305 8,980 8,074 6,459 6,131
Provision for loan losses 15 15 60 94 60 61 82
------ ------ ------- ------- ------- ------ ------
Net interest income after
provision for loan losses 2,430 2,092 9,245 8,886 8,014 6,398 6,049
Other income 123 127 504 1,230 699 2,133 425
Other expense 1,744 1,702 6,654 6,406 6,100 5,883 5,588
------ ------ ------ ------ ------ ------ ------
Income before income taxes
and change in accounting
method 809 517 3,095 3,710 2,613 2,648 886
Income tax expense 293 208 1,190 1,189 841 1,218 445
------ ------ ------ ----- ------ ------- ------
Income before changes in
accounting method 516 309 1,905 2,521 1,772 1,430 441
Cumulative effect on prior
years of change in
accounting for income tax -- -- -- 407 -- -- --
------- ------- ------- ------ ------- ------- -------
Net income $ 516 $ 309 $ 1,905 $ 2,928 $ 1,772 $ 1,430 $ 441
====== ====== ====== ====== ====== ====== =======
Net income per share $ .32 $ .19 $ 1.18 $ 1.81 $ -- $ -- $ --
====== ====== ======= ======= ====== ====== =======
Cash dividends per share $ .20 $ .20 $ .80 $ .70 $ -- $ -- $ --
====== ====== ======= ======= ======= ====== =======
</TABLE>
-25-
<PAGE>
<TABLE><CAPTION>
Three Months Ended
March 31, Year Ended December 31,
------------------- ----------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Other Data(3):
Return on average assets .76% .44% .69% 1.11% .75% .64% .20%
Return on average equity 9.25 5.60 9.02 14.99 9.95 7.90 2.60
Average equity to average
assets 8.15 7.92 7.62 7.40 7.52 8.16 7.79
Net interest margin(4) 3.65 3.80 3.84 3.34 3.55 3.05 2.94
Interest rate spread(4) 3.39 3.63 3.65 3.16 3.32 2.72 2.58
Non-performing loans as a
percent of total loans at
end of period(5) .65 .98 .64 1.11 .86 .93 1.44
Non-performing assets as a
percent of total assets at
end of period(5) .45 .80 .49 .88 .75 .83 1.05
Allowance for loan losses as a
percent of non-performing
loans at end of period 34.00 23.80 31.20 18.40 20.40 21.00 16.80
Allowance for loan losses as a
percent of total loans at end
of period .43 .49 .43 .46 .50 .47 .40
Net charge-offs as a percent
of average loans .02 -- .10 .04 .09 .03 --
Full service banking
offices 8 8 8 8 8 8 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 RM 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 and are
annualized where appropriate.
(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-earning assets.
(5) Non-performing loans consist on 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.
-26-
<PAGE>
SELECTED PRO FORMA UNAUDITED CONSOLIDATED FINANCIAL DATA
OF THE COMPANY
(Dollars in Thousands, Except Per Share Data)
The following presents certain pro forma unaudited consolidated
financial data with respect to the Company and its subsidiaries. The
financial information for each period presented below gives effect to the
consummation of the Conversion and the Merger, including the sale of
Conversion Stock in the Offerings and the issuance of Exchange Shares.
This pro forma financial information assumes that these transactions
occurred at the beginning of each of the periods presented. It assumes
that 4,869,565 shares of Conversion Stock are sold in the Offerings at a
price of $5.75 per share, resulting in gross proceeds of $28.0 million (the
midpoint of the Estimated Price Range), and that 709,041 Exchange Shares
are issued. For additional assumptions used in calculating the pro forma
data, see "Pro Forma Unaudited Financial Information."
In accordance with generally accepted accounting principles ("GAAP"),
the Conversion and the Merger will be accounted for using the pooling-of-
interests method. Under the pooling-of-interests method of accounting, the
recorded assets and liabilities of the Parties will be carried forward at
their recorded amounts, and the results of operations of the combined
Parties will include the results of operations of the Company and
Roxborough-Manayunk for the entire year in which the Conversion and the
Merger occur and, as restated, for prior periods. Such accounting
treatment requires satisfaction of certain conditions, including that
"affiliates" of the Parties may not dispose of shares of Company Common
Stock prior to the publication of financial results covering at least 30
days of post-closing combined operations of the Parties. See "Pro Forma
Unaudited Financial Information" and "Use of Proceeds."
The following unaudited selected pro forma consolidated financial data
should be read in conjunction with the consolidated financial statements
and related notes included in this Prospectus.
At March 31, At December 31,
----------------------------
1995 1994 1993 1992
Financial Condition:
Total assets $645,024 $647,097 $636,100 $566,852
Loans receivable, net 305,322 301,296 256,890 231,521
Securities held to
maturity 150,407 155,614 150,823 208,069
Securities available
for sale 90,102 112,961 118,175 25,073
Deposits 516,888 525,189 517,889 473,976
Borrowings 58,455 54,686 48,420 36,071
Total stockholders'
equity 62,297 59,085 61,591 48,546
Book value per
share-primary 7.04 6.67 7.80 NM
-27-
<PAGE>
<TABLE><CAPTION>
At or For the
Three Months At or For the
Ended March 31, Year Ended December 31,
--------------- --------------------------
1995 1994 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Results of Operations(1):
Net interest income $5,665 $4,612 $21,304 $19,172 $17,149
Provision for loan losses 115 65 581 462 335
Net interest income after provision
for loan losses 5,550 4,547 20,723 18,710 16,814
Total non-interest income 525 500 2,049 3,456 6,316
Total non-interest expense 4,624 4,339 19,167 18,422 18,780
Income before income taxes and
cumulative effect 1,451 708 3,605 3,744 4,350
Net income 901 424 2,211 6,111 3,281
Net income per share .11 .05 .26 .81 NM
Selected Ratios:
Performance ratios(2):
Return on average assets .56% .27% .34% 1.00% .58%
Return on average equity 5.88 2.72 3.66 10.90 6.95
Equity to assets (period end) 9.66 9.76 9.13 9.68 8.56
Asset quality ratios (period end):
Allowance for loan losses to
total loans .65 .92 .63 .92 1.28
Non-performing assets as a %
of total assets(3) 1.55 2.50 1.61 3.16 6.48
Allowance for loan losses to
non-performing loans(3) 37.32 31.82 33.08 30.86 35.85
</TABLE>
- ---------------------
(1) Does not reflect any cost savings or other benefits of the Conversion
and the Merger, which have not been quantified to date.
(2) These ratios are based on average daily balances during the indicated
periods and are annualized where appropriate.
(3) 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.
-28-
<PAGE>
RISK FACTORS
The purchase of Company Common Stock in the Offerings involves certain
investment risks. In determining whether or not to make an investment in
the Company Common Stock, prospective investors should carefully consider
the matters set forth below, as well as the other information contained
herein.
Potential Effects of Changes in Interest Rates and the Current Interest
Rate Environment
The operations of the Company and Roxborough-Manayunk are
substantially dependent on their respective net interest income, which
consists of the difference between the interest income earned on their
interest-earning assets and the interest expense paid on their interest-
bearing liabilities. Like most financial institutions, the Company's and
Roxborough-Manayunk's earnings are affected by changes in market interest
rates, which increased from early 1994 to early 1995, and other economic
factors beyond their control. As a result of borrowers refinancing higher
rate mortgage loans in 1993 and the rise in short-term interest rates from
early 1994 to early 1995, the Company's interest rate spread decreased from
3.47% for 1992 to 3.26% for 1993 and 3.04% for 1994. Roxborough-Manayunk's
interest rate spread increased from 3.32% for 1992 to 3.37% for 1993 and
decreased to 3.27% for 1994. For the three months ended March 31, 1995,
the Company's and Roxborough-Manayunk's interest rate spreads amounted to
3.21% and 3.44%, respectively. Further increases in short-term interest
rates could adversely affect the Company's and Roxborough-Manayunk's
interest rate spreads and net interest income in future periods. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of the Company" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations of Roxborough-Manayunk."
In addition to affecting interest income and expense, changes in
interest rates also can affect the market value of the Company's and
Roxborough-Manayunk's interest-earning assets, which are comprised of fixed
and adjustable-rate instruments. Generally, the market value of fixed-rate
instruments fluctuates inversely with changes in interest rates. At
March 31, 1995, the Company and Roxborough-Manayunk had $13.0 million and
$49.5 million of investment securities and $90.6 million and $0 of
mortgage-backed securities, respectively, which were classified as held to
maturity in accordance with the terms of Statement of Financial Accounting
Standards No. 115 ("SFAS No. 115"). Such designation effectively restricts
the Company's and Roxborough-Manayunk's ability to sell such assets in
order to meet their liquidity needs or in response to increases in interest
rates. Generally, the reclassification and sale of any of such assets
could result in the remainder of the Company's and Roxborough-Manayunk's
portfolio of investment and mortgage-backed securities classified as held
to maturity being reclassified as available for sale. However, SFAS No.
115 permits an institution to reclassify securities deemed held to maturity
as available for sale under certain circumstances in connection with a
major business combination. Consequently, in connection with the
Conversion and the Merger, the Company may consider reclassifying a portion
of its investment and mortgage-backed
-29-
<PAGE>
securities portfolio from held to maturity to available for sale in
accordance with the Company's policies regarding interest rate risk and
credit risk. Pursuant to SFAS No. 115, securities classified as available
for sale must be reported at fair value, with unrealized gains or losses
being reported as a separate component of stockholders' equity. The
Company's investment and mortgage-backed securities (including securities
classified as available for sale) had an aggregate carrying value and
market value of $116.6 million and $112.1 million, respectively, at March
31, 1995, while Roxborough-Manayunk's investment and mortgage-backed
securities (including securities classified as available for sale) had an
aggregate carrying value and market value of $126.7 million and $126.0
million, respectively, as of such date. At March 31, 1995, the Company and
Roxborough-Manayunk had $727,000 and $1.3 million, respectively, of loans
classified as held for sale.
The OTS has implemented an interest rate risk component into its risk-
based capital rules, which is designed to calculate on a quarterly basis
the extent to which the value of an institution's assets and liabilities
would change if interest rates increase or decrease. If the net portfolio
value of an institution would decline by more than 2% of the estimated
market value of the institution's assets in the event of a 200 basis point
increase or decrease in interest rates, then the institution is deemed to
be subject to a greater than "normal" interest rate risk and must deduct
from its capital 50% of the amount by which the decline in net portfolio
value exceeds 2% of the estimated market value of the institution's assets,
effective no earlier than June 30, 1995. As of March 31, 1995, if interest
rates increased by 200 basis points, Progress' net portfolio value would
decrease by 2.93% of the estimated market value of Progress' assets, as
calculated by the OTS, which would result in a $1.6 million capital
deduction if such deduction was currently required. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
the Company - Asset and Liability Management."
Changes in interest rates also can affect the average life of loans
and mortgage-related securities. Decreases in interest rates in recent
periods have resulted in increased prepayments of loans and mortgage-backed
securities, as borrowers refinanced to reduce borrowing costs. Under these
circumstances, the Company and Roxborough-Manayunk are subject to
reinvestment risk to the extent that they are not able to reinvest such
prepayments at rates which are comparable to the rates on the maturing
loans or securities.
A significant increase in the level of interest rates may also have an
adverse effect on the ability of certain of the Company's and Roxborough-
Manayunk's borrowers with adjustable-rate loans to repay their loans.
Historical Financial Condition and Results of Operations
The Company has recognized operating losses in recent years due, to a
large extent, to the prior economic recession and the resulting decline in
real estate values in the Company's market area. These conditions had a
material adverse effect on the quality of the Company's loan portfolio and
contributed in 1990 and 1991 to substantial increases in
-30-
<PAGE>
the Company's non-performing assets, which consist of non-accrual loans and
accruing loans 90 days or more overdue (collectively "non-performing
loans"), as well as real estate acquired by the Company through foreclosure
proceedings and real estate acquired through acceptance of a deed in lieu
of foreclosure (collectively "REO"). The Company's non-performing assets
increased from $17.5 million or 5.2% of total assets at December 31, 1989
to $50.4 million or 16.1% of total assets at December 31, 1991. In 1991,
the Company changed its senior management and began the process of
improving the credit quality of the Company's assets through the early
identification of potential problem assets and the administration,
rehabilitation or liquidation of the Company's non-performing assets. As a
result of management's efforts, the Company's non-performing assets have
since declined and totalled $8.8 million or 2.5% of total assets at March
31, 1995.
Roxborough-Manayunk has historically maintained a relatively low level
of non-performing assets. At March 31, 1995 and December 31, 1994 and
1993, Roxborough-Manayunk's non-performing assets totalled $1.2 million,
$1.3 million and $2.4 million or 0.5%, 0.5% and 0.9% of total assets at
such dates, respectively.
At March 31, 1995, the Company's allowance for loan losses amounted to
$1.6 million or 0.8% and 37.4% of total loans and total non-performing
loans, respectively, and the net carrying value of the Company's REO
amounted to $4.5 million at such date. The $4.5 million of REO at March
31, 1995 included a $3.4 million property which the Company has entered
into an agreement to sell for $3.2 million. Although there can be no
assurances, such sale is expected to be consummated in November 1995. For
additional information, see "Business of the Company - Asset Quality - Non-
Performing Assets." At March 31, 1995, Roxborough-Manayunk's allowance for
loan losses amounted to $416,000 or 0.4% and 37.1% of total loans and total
non-performing loans, respectively, and the net carrying value of
Roxborough-Manayunk's REO amounted to $103,000 as of such date. Following
consummation of the Conversion and the Merger, future additions to the
Company's allowance for loan losses or reductions in carrying values of REO
could become necessary in the event of a deterioration in the real estate
market and economy in the Company's primary market area, future increases
in non-performing assets or for other reasons, which would adversely affect
the Company's results of operations. In addition, various regulatory
agencies, as an integral part of their examination process, periodically
review the Company's allowance for loan losses and the carrying value of
its REO. Such agencies may require the Company to make additions to the
allowance for loan losses and adjustments to the carrying values of REO
based on their judgments about information available to them at the time of
their examination.
Increased Emphasis on Commercial Business, Residential Construction,
Commercial Real Estate and Consumer Lending
At March 31, 1995, the Company's commercial business loans,
residential construction loans, commercial real estate loans (including
multi-family residential loans) and consumer loans amounted to $12.2
million or 5.7%, $4.9 million or 2.3%, $75.4 million
-31-
<PAGE>
or 35.5% and $19.5 million or 9.2% of the Company's total loan portfolio
(including loans classified as held for sale), respectively. Similarly, at
March 31, 1995, Roxborough-Manayunk's commercial business loans,
residential construction loans, commercial real estate loans (including
multi-family residential loans) and consumer loans amounted to $2.8 million
or 2.8%, $995,000 or 1.0%, $14.9 million or 15.1% and $5.1 million or 5.1%
of Roxborough-Manayunk's total loan portfolio (including loans classified
as held for sale), respectively.
The Company intends to increase its emphasis on commercial business,
residential construction, commercial real estate (primarily multi-family
residential) and consumer lending following consummation of the Conversion
and the Merger, utilizing the lending staff and procedures currently
employed by the Company. Commercial business and commercial real estate
lending entails different and significant risks when compared to single-
family residential lending because such loans often involve large loan
balances to single borrowers and because the payment experience on such
loans is typically dependent on the successful operation of the project or
the borrower's business. Commercial real estate lending can also be
significantly affected by supply and demand conditions in the local market
for apartments, offices, warehouses or other commercial space.
Construction financing is generally considered to involve a higher degree
of risk of loss than long-term financing on improved, owner-occupied real
estate. Risk of loss on a construction loan is dependent largely upon the
accuracy of the initial estimate of the property's value at completion of
construction or development and the estimated cost (including interest) of
construction. During the construction phase, a number of factors could
result in delays and cost overruns. If the estimate of value proves to be
inaccurate, the Company may be confronted, at or prior to the maturity of
the loan, with a project, when completed, having a value which is
insufficient to assure full repayment. Finally, consumer lending is also
generally considered to involve additional credit risk than traditional
mortgage lending because of the type and nature of the collateral and, in
certain cases, the absence of collateral. For additional information, see
"Business of the Company" and "Business of Roxborough-Manayunk."
Effect of the Conversion and the Merger
The Company will be required to recognize certain expenses which are
directly related to the merger of Progress and Roxborough-Manayunk. These
expenses, in addition to expenses attributable to the Offerings, include
legal, accounting and other miscellaneous expenses.
Furthermore, the combination of Progress and Roxborough-Manayunk, as
with any merger, will involve various inherent uncertainties. For example,
upon completion of the Conversion and the Merger, Progress Bank will be
required to integrate the personnel, facilities and various other aspects
of the businesses of Progress and Roxborough-Manayunk. Management of
Progress and Roxborough-Manayunk currently estimate that it will take
approximately one to two years to substantially complete the operational
integration of the
-32-
<PAGE>
two institutions and anticipates that a successful integration will result
in certain economies of scale and operating efficiencies. Although there
can be no assurance that such integration can be successfully completed
within the contemplated time period or that any economies of scale or
operating efficiencies will be realized upon its completion, management of
Progress and Roxborough-Manayunk believe that Progress Bank can become a
better capitalized and more profitable institution than either of its
predecessors upon completion of the consolidation process. In addition,
there can be no assurance that the various operating activities of Progress
and Roxborough-Manayunk will be continued or perform on a consolidated
basis as they did separately.
Regulation
The Company, as a savings and loan holding company, and Progress and
Roxborough-Manayunk, as federally chartered savings banks, are subject to
extensive governmental supervision and regulation, which is intended
primarily for the protection of depositors. In addition, the Company,
Progress and Roxborough-Manayunk are subject to changes in federal and
state law, as well as changes in regulations, governmental policies and
accounting principles. The effects of any such potential changes cannot be
accurately predicted at this time but could adversely affect the business
and operations of the Company and Progress Bank.
Recapitalization of SAIF and Effect of Reduction in BIF Premiums
Deposits of Progress and Roxborough-Manayunk are presently insured by
the SAIF. The Resolution Trust Corporation ("RTC") Completion Act (the
"RTC Completion Act") authorized $8.0 billion in funding for the SAIF.
However, such funds only become available to the SAIF if the Chairman of
the FDIC certifies that the funds are needed to pay for losses of the SAIF;
SAIF members are unable to pay additional premiums to cover such losses
without an adverse effect on such institutions; and the premium increase
could reasonably be expected to result in greater losses to the government.
The funds are authorized through fiscal year 1998, or until the SAIF's
reserve ratio equals 1.25%, whichever occurs first, and the funds may only
be used to pay for losses at failed thrifts. Under the RTC Completion Act,
SAIF members, such as Progress and Roxborough-Manayunk, could be required
to pay higher deposit insurance premiums in the future.
By contrast, financial institutions which are members of the BIF,
because it has higher reserves and is expected to be responsible for fewer
troubled institutions, are likely to experience lower deposit insurance
premiums in the future. The FDIC has proposed that the premium schedule
for BIF members be revised to provide a range of .04% to .31% of deposits,
so that well-capitalized and healthy BIF members would pay the lowest
premiums. The proposal is based on the FDIC's expectation that the BIF
will reach the required reserve ratio in mid-1995 as a result of the
decrease in bank failures in the past few years. The lower premiums for
BIF members are expected to take effect in the third quarter of 1995.
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<PAGE>
The disparity in deposit insurance premiums between SAIF members and
BIF members is exacerbated by the statutory requirement that both the SAIF
and BIF funds be recapitalized to a 1.25% of insured reserve deposits
ratio. While the BIF is expected to reach the required reserve ratio in
1995, the SAIF is not expected to reach such target until 2002. As a
result of this disparity, SAIF members could be placed at a material,
competitive disadvantage to BIF members with respect to pricing of loans
and deposits and the ability to achieve lower operating costs. In
addition, a significant increase in SAIF insurance premiums would likely
have an adverse effect on the operating expenses and results of operation
of Progress Bank. See "Regulation - Savings Bank Regulation - Insurance of
Accounts."
Dividends
The Company suspended dividend payments on the Company Common Stock
after the second quarter of 1990 and has not paid any dividends since such
date. The Board of Directors of the Company may consider paying cash
dividends on the Company Common Stock commencing in 1996, although no
decision has been made as to the amount of such dividends, if any.
Dividends, when and if paid, will be subject to determination and
declaration by the Board of Directors in its discretion, which will take
into account the Company's consolidated financial condition and results of
operations, tax considerations, industry standards, economic conditions,
statutory and regulatory restrictions, general economic conditions and
other factors. There can be no assurance that dividends will in fact be
paid on the Company Common Stock or that, if paid, such dividends will not
be reduced or eliminated in future periods. The Company's ability to pay
dividends on the Company Common Stock depends on the use of the net
proceeds of the Offerings and the receipt of dividends from Progress Bank.
For a discussion of the requirements and limitations relating to the
ability of Progress Bank to pay dividends to the Company in the future, see
"Market Price for Company Common Stock and Dividends" and "Regulation -
Savings Bank Regulation - Restrictions on Capital Distributions."
Limitation of Tax Benefits
The Conversion and the Merger are expected to result in an "ownership
change" of the Company for federal income tax purposes. As a result, an
annual limitation will be imposed on the Company's ability to utilize its
pre-combination net operating loss carryforwards to offset future taxable
income and on its ability to deduct "Built-in-Losses" of the Company, as
defined in Section 382 of the Internal Revenue Code of 1986, as amended.
While management believes that the amount of losses which have not yet been
recognized by the Company and its subsidiaries is less than the applicable
amounts beyond which such limitations would apply to the deduction of such
losses in the event of an "ownership change," no assurance can be given
that such limitations will not apply. For further information, see
"Taxation - Federal Taxation."
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<PAGE>
Possible Dilutive Effect of Issuance of Additional Shares
Various possible issuances of Company Common Stock could dilute the
interests of prospective and existing stockholders of the Company following
consummation of the Conversion and the Merger, as noted below.
The number of shares to be sold in the Conversion and the Merger may
be increased as a result of an increase in the Estimated Price Range of up
to 15% to reflect changes in market and financial conditions prior to the
completion of the Offerings or to fill the order of the ESOP. In the event
that the Estimated Price Range is so increased, or in the event that the
market price for the Company Common Stock declines from recent levels, the
Company may be required to issue up to 5,780,263 shares of Conversion Stock
under the Merger Agreement. The Company and Progress will have a right to
terminate the Merger Agreement if a greater number of shares of Conversion
Stock is required to be issued. See "The Conversion and the Merger -
Conditions to the Merger" and "The Offerings - Stock Pricing, Exchange
Ratio and Number of Shares to be Issued." An increase in the number of
shares will decrease net income per share and stockholders' equity per
share on a pro forma basis and will increase the Company's consolidated
stockholders' equity and net income. See "Capitalization" and "Pro Forma
Unaudited Financial Information."
The ESOP intends to purchase up to 8% of the Conversion Stock to be
issued in the Offerings. In the event that the maximum of the Estimated
Price Range is increased above $32.2 million, the ESOP will have a first
priority right to purchase the amount in excess of $32.2 million, up to an
aggregate of 8% of the total Conversion Stock issued. See "Management of
the Company and Progress Bank Following the Conversion and the Merger -
Benefits - Employee Stock Ownership Plan" and "The Offerings - Subscription
Offering - Priority 2: ESOP."
Following consummation of the Conversion and the Merger and the
receipt of stockholder approval, the 1995 Recognition Plan intends to
acquire an amount of Company Common Stock equal to 4% of the shares of
Conversion Stock issued in the Offerings. Such shares of Company Common
Stock may be acquired in the open market with funds provided by the
Company, if permissible, or from authorized but unissued shares of Company
Common Stock. In the event that additional shares of Company Common Stock
are issued to the 1995 Recognition Plan, stockholders would experience
dilution of their ownership interests and stockholders' equity per share
and net income per share would decrease as a result of an increase in the
number of outstanding shares of Company Common Stock. See "Pro Forma
Unaudited Financial Information" and "Management of the Company and
Progress Bank Following the Conversion and the Merger - Benefits - 1995
Recognition Plan."
Following consummation of the Conversion and the Merger and the
receipt of stockholder approval, the Company will adopt the 1995 Stock
Option Plan and will reserve for future issuance pursuant to such plan a
number of authorized shares of Company
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<PAGE>
Common Stock equal to an aggregate of 10% of the Conversion Stock issued in
the Offerings (560,000 shares, based on the maximum of the Estimated Price
Range and an assumed Actual Purchase Price of $5.75). See "Pro Forma
Unaudited Financial Information" and "Management of the Company and
Progress Bank Following the Conversion and the Merger - Benefits - 1995
Stock Option Plan."
The Company also has adopted and maintains the Key Employee Stock
Compensation Program, the 1993 Stock Incentive Plan and the 1993 Directors'
Stock Option Plan, and has reserved for issuance pursuant to such plans
95,955 shares, 176,488 shares and 50,000 shares of Company Common Stock,
respectively, and in connection therewith options with respect to 95,955
shares, 132,500 shares and 39,000 shares had been granted as of March 31,
1995, respectively. Similarly, Roxborough-Manayunk also has adopted and
maintains the 1992 Stock Option Plan and the 1994 Stock Option Plan and has
reserved for issuance pursuant to such plans 20,000 shares and 20,000
shares of RM Bank Common Stock, respectively, and in connection therewith
options with respect to all of such shares had been granted as of March 31,
1995, respectively. Upon consummation of the Conversion and the Merger,
the foregoing plans shall be continued and, in the case of Roxborough-
Manayunk's existing plans, Company Common Stock will be issued in lieu of
RM Bank Common Stock (in accordance with the Exchange Ratio) pursuant to
the terms of such plans and the Merger Agreement. See "Management of the
Company" and "Management of Roxborough-Manayunk."
Possible Dilution to RM Public Stockholders as a Result of Purchase
Limitations
The OTS has required that the purchase limitations contained in the
Plan of Conversion include Exchange Shares to be issued to RM Public
Stockholders for their RM Public Bank Shares. As a result, certain holders
of RM Public Bank Shares may be limited in their ability to purchase
Conversion Stock in the Offerings, as the amount of Exchange Shares
received by such RM Public Stockholders will reduce the amount of
Conversion Stock that they would otherwise have been able to purchase in
the Offerings. See "The Offerings - Limitations on Conversion Stock
Purchases."
Anti-takeover Provisions
Certain provisions of the Company's Certificate of Incorporation and
Bylaws and the Delaware General Corporation Law ("DGCL"), as well as a
shareholder rights plan adopted by the Company, could have the effect of
discouraging non-negotiated takeover attempts which certain stockholders
might deem to be in their interest and making it more difficult for
stockholders of the Company to remove members of its Board of Directors and
management. In addition, various federal laws and regulations could affect
the ability of a person, firm or entity to acquire the Company or shares of
its Common Stock. See "Regulation," "Restrictions on Acquisition of the
Company and Progress Bank" and "Description of Capital Stock of the
Company."
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<PAGE>
Directors and executive officers of the Company, Progress and
Roxborough-Manayunk expect to hold 10.4% of the shares of Company Common
Stock outstanding upon consummation of the Conversion and the Merger
(excluding outstanding stock options), based upon the midpoint of the
Estimated Price Range. See "The Offerings - Beneficial Ownership and
Proposed Purchases by Directors and Executive Officers." Executive
officers of the Company and Progress Bank, as well as other eligible
employees of the Company and Progress Bank, also will hold shares of
Company Common Stock which are allocated to the accounts established for
them pursuant to the ESOP, which intends to purchase up to 8% of the
Conversion Stock to be issued in the Offerings. Under the terms of the
ESOP, shares of Company Common Stock which have not yet been allocated to
the accounts of employee participants in the ESOP will be voted by the
trustees of the ESOP in the same ratio on any matter as to those allocated
shares for which instructions are given to the trustees. In addition, and
subject to stockholder approval following the consummation of the
Conversion and the Merger, the Company expects to acquire Company Common
Stock on behalf of the 1995 Recognition Plan, a non-tax qualified
restricted stock plan, in an amount equal to 4% of the Conversion Stock
issued in the Offerings. Under the terms of the 1995 Recognition Plan,
current directors and executive officers of Roxborough-Manayunk will be
allocated shares of Company Common Stock over which they will have voting
power and the trustees of such plan similarly will be authorized to vote
unallocated shares in the same ratio on any matter as to those allocated
shares for which instructions are given to the trustees. Subject to
stockholder approval, the Company also intends to reserve for future
issuance pursuant to the 1995 Stock Option Plan a number of authorized
shares of Company Common Stock equal to an aggregate of 10% of the
Conversion Stock issued in the Offerings. See "Management of the Company
and Progress Bank Following the Conversion and the Merger - Benefits."
Possible Adverse Income Tax Consequences of the Distribution of
Subscription Rights
The Parties have received an opinion of RP Financial that subscription
rights have no value. However, this opinion is not binding on the Internal
Revenue Service ("IRS"). If the subscription rights are deemed to have an
ascertainable value, receipt of such rights likely would be taxable only to
persons who exercise the subscription rights (either as capital gain or
ordinary income) in an amount equal to such value. Whether subscription
rights are considered to have ascertainable value is an inherently factual
determination. See "The Conversion and the Merger - Effects of the
Conversion and the Merger" and "- Tax Aspects."
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<PAGE>
MARKET PRICE FOR COMPANY COMMON STOCK AND DIVIDENDS
Market Price for Company Common Stock
The Company Common Stock is traded in the over-the-counter market on
the Nasdaq National Market under the symbol "PFNC." The following table
sets forth the high and low closing sales prices of the Common Stock as
reported by the Nasdaq National Market during the periods indicated.
Closing Sales Price
-------------------
High Low
------- ------
1993:
First Quarter $7.25 $3.00
Second Quarter 7.50 3.50
Third Quarter 5.50 3.50
Fourth Quarter 5.25 4.25
1994:
First Quarter 6.25 4.50
Second Quarter 5.625 4.25
Third Quarter 5.50 4.25
Fourth Quarter 5.50 3.50
1995:
First Quarter 5.00 4.25
Second Quarter
(through June
23, 1995) 6.25 4.50
On August __, 1995, the closing sale price of a share of Company
Common Stock on the Nasdaq National Market was $_______, and the 20 trading
day average for the Company Common Stock was $______ per share. As of June
23, 1995, there were 3,280,000 shares of Company Common Stock outstanding,
which were held by approximately 1,100 holders of record. The number of
holders of record does not reflect the number of persons or entities who or
which hold their stock in nominee or "street" name through various
brokerage firms or other entities. Although the Company Common Stock is
traded on the Nasdaq National Market, historically the Company Common Stock
has not been actively traded.
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<PAGE>
As of June 23, 1995, there were 1,621,000 shares of RM Bank Common
Stock outstanding, 1,415,000 of which were held by the Mutual Holding
Company. As of such date, there were approximately 33 holders of the RM
Public Bank Shares. The RM Bank Common Stock is not listed on any exchange
nor is there an active trading market for such shares.
Dividends
The Company has not paid dividends on the Company Common Stock since
the second quarter of 1990. Roxborough-Manayunk has paid dividends on the
RM Public Bank Shares since it was organized in 1992 and during the three
months ended March 31, 1995 and the years ended December 31, 1994 and 1993,
such dividends amounted to $41,000, $160,000 and $140,000, respectively.
The Company's ability to pay dividends on the Company Common Stock depends
on the use of the net proceeds of the Offerings and the receipt of
dividends from Progress Bank. The Board of Directors of the Company may
consider paying cash dividends on the Company Common Stock commencing in
1996, although no decision has been made as to the amount of such
dividends, if any. Dividends, when and if paid, will be subject to
determination and declaration by the Board of Directors in its discretion,
which will take into account the Company's consolidated financial condition
and results of operations, tax considerations, industry standards, economic
conditions, statutory and regulatory restrictions, general economic
conditions and other factors. There can be no assurance that dividends
will in fact be paid on the Company Common Stock or that, if paid, such
dividends will not be reduced or eliminated in future periods. See
"Regulation - Savings Bank Regulation - Restrictions on Capital
Distributions."
USE OF PROCEEDS
Although the actual net proceeds from the sale of the Conversion Stock
cannot be determined until the Conversion and the Merger are completed, it
is presently anticipated that the net proceeds from the sale of the
Conversion Stock will be between $22.5 million and $30.7 million ($35.4
million assuming an increase in the Estimated Price Range by 15%). See
"Pro Forma Unaudited Financial Information" and "The Offerings - Stock
Pricing, Exchange Ratio and Number of Shares to be Issued" as to the
assumptions used to arrive at such amounts.
The Company will contribute to Progress Bank approximately 90% of the
net proceeds of the Offerings, and the Company will retain approximately
10% of the net proceeds. The portion of the net proceeds contributed by
the Company to Progress Bank will be added to Progress Bank's general funds
to be used for general corporate purposes, including increased lending
activities and purchases of investment and mortgage-backed securities.
Upon consummation of the Conversion and the Merger, the tangible capital
ratio of Progress Bank is estimated to be 9.70% (based upon the midpoint of
the Estimated Price Range). As a result, Progress Bank will be a
well-capitalized institution under OTS
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<PAGE>
regulations. After the Conversion and the Merger, Progress Bank intends to
emphasize capital strength and growth in assets and earnings.
The Company currently intends to use the net proceeds retained by it
to make a loan directly to the ESOP to enable the ESOP to purchase up to 8%
of the Conversion Stock, although the ESOP may obtain all or part of the
loan from an unaffiliated third party. Based upon the minimum and maximum
of the Estimated Price Range, respectively, the loan to the ESOP would be
$1,904,000 and $2,576,000, respectively. See "Management of the Company
and Progress Bank Following the Conversion and the Merger - Benefits -
Employee Stock Ownership Plan." The remaining net proceeds retained by the
Company initially may be used to invest in U.S. Government and federal
agency securities of various maturities, deposits of Progress Bank, or a
combination thereof. The portion of the net proceeds retained by the
Company may ultimately be used to support the lending activities of
Progress Bank, to support the future expansion of operations through
establishment of additional branch offices or other customer facilities,
acquisitions of other financial institutions, expansion into other lending
markets or diversification into other banking related businesses (although
no such acquisitions are specifically being considered at this time), and
for other business and investment purposes, including the payment of
regular cash dividends and possible repurchases of the Company Common
Stock. Management of the Company may consider expanding or diversifying,
should such opportunities become available. The Company does not have any
specific plans, arrangements or understandings regarding any acquisitions
or diversification of activities at this time.
Following the six-month anniversary of the completion of the
Conversion and the Merger (if permitted by the OTS), and based upon then
existing facts and circumstances, the Company's Board of Directors may
determine to repurchase some shares of Company Common Stock, subject to any
applicable statutory and regulatory requirements and the requirements to
utilize the pooling-of-interests method of accounting for the Conversion
and the Merger. Such facts and circumstances may include but not be
limited to (i) market and economic factors such as the price at which the
stock is trading in the market, the volume of trading, the attractiveness
of other investment alternatives in terms of the rate of return and risk
involved in the investment, the ability to increase the book value and/or
earnings per share of the remaining outstanding shares, and an improvement
in the Company's return on equity; (ii) the avoidance of dilution to
stockholders by not having to issue additional shares to cover the exercise
of stock options or to fund employee stock benefit plans; and (iii) any
other circumstances in which repurchases would be in the best interests of
the Company and its stockholders. Any stock repurchases will be subject to
the determination of the Company's Board of Directors that Progress Bank
will be capitalized in excess of all applicable regulatory requirements
after any such repurchases. The payment of dividends or repurchase of
stock, however, would be prohibited if the net worth of Progress Bank would
be reduced below the amount required for the liquidation account. As of
the date of this Prospectus, the initial balance of the liquidation account
would be approximately $[20.0] million. See "The Conversion and the Merger
- - Liquidation Rights" and "The
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<PAGE>
Conversion and the Merger - Certain Restrictions on Purchase or Transfer of
Shares After the Conversion and the Merger."
Following completion of the Conversion and the Merger, the Company
will continue to be a unitary savings and loan holding company which, under
existing laws, would generally not be restricted as to the types of
business activities in which it may engage, provided that Progress Bank
continues to be a qualified thrift lender ("QTL"). See "Regulation - The
Company" for a description of certain regulations applicable to the
Company.
The net proceeds may vary because the total expenses of the Conversion
and the Merger may be more or less than those estimated. The net proceeds
will also vary if the number of shares to be issued in the Offerings is
adjusted to reflect a change in the estimated pro forma market value of the
Mutual Holding Company and Roxborough-Manayunk. Payments for shares made
through withdrawals from existing deposit accounts at Progress or
Roxborough-Manayunk will not result in the receipt of new funds for
investment but will result in a reduction of the interest expense and
liabilities of Progress Bank as funds are transferred from interest-bearing
certificates or other deposit accounts.
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<PAGE>
CAPITALIZATION
The following table presents the historical consolidated
capitalization of the Company and Roxborough-Manayunk at March 31, 1995,
and the pro forma consolidated capitalization of the Company after giving
effect to the Conversion and the Merger, based upon the sale of the number
of shares of Conversion Stock at the per share prices shown below and the
other assumptions set forth under "Pro Forma Unaudited Financial
Information."
<TABLE><CAPTION>
The Company - Pro Forma
5,696,923
4,139,130 4,869,565 5,600,000 Shares
Shares Shares Shares Sold at
Sold at Sold at Sold at $6.50
Roxborough- $5.75 $5.75 $5.75 Per Share
The Company Manayunk - Combined Per Share Per Share Per Share (15% above
-Historical Historical Historical (Minimum of (Midpoint of (Maximum of Maximum of
Capitalization Capitalization Capitalization Range) Range) Range) Range)(1)
-------------- -------------- -------------- ----------- ------------ ----------- --------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Deposits(2) $277,849 $239,039 $516,888 $ 516,888 $516,888 $516,888 $516,888
FHLB advances 47,821 7,884 55,705 55,705 55,705 55,705 55,705
Subordinated debt 3,000 -- 2,750(8) 2,750 2,750 2,750 2,750
ESOP debt -- 84 84 84 84 84 84
-------- ------- ------- ------- ------- ------- -------
Total deposits and
borrowings $328,670 $247,007 $575,427 $ 575,427 $575,427 $575,427 $575,427
======= ======= ======= ======= ======= ======= =======
Stockholders' equity:
Preferred Stock(3) $ -- $ -- $ -- $ -- $ -- $ -- $ --
Common Stock(4) 3,275 1,621 3,481(9) 8,017 8,854 9,690 9,801
Additional paid-in
capital(4) 15,706 16,997 17,569(9) 35,505 38,773 42,042 46,652
Retained earnings
(deficit)(5) (4,531) 5,008 19,151(10) 19,151 19,151 19,151 19,151
Unrealized loss on
securities available
for sale (721) (525) (1,001) (1,001) (1,001) (1,001) (1,001)
Less:
Common Stock acquired
by the ESOP(6) -- (84) (84) (1,988) (2,324) (2,660) (3,046)
Common Stock held by
and to be acquired by
Recognition Plans(7) -- (36) (36) (988) (1,156) (1,324) (1,517)
------- ------- ------- ------- ------- ------- -------
Total stockholders' equity $ 13,729 $ 22,981 $ 39,080 $ 58,696 $ 62,297 $ 65,898 $ 70,040
======= ======= ======= ======= ======= ======= =======
</TABLE>
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<PAGE>
- -------------------
(1) As adjusted to give effect to an increase in the number of shares
which could occur due to an increase in the Estimated Price Range of
up to 15% to reflect changes in market and financial conditions prior
to the completion of the Conversion and the Merger 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) Upon consummation of the Conversion and the Merger, the Company will
have 3,000,000 shares of authorized preferred stock, $.01 par value
per share.
(4) Reflects the net proceeds from the sale of Conversion Stock and
assumes (i) that the 206,000 RM Public Bank Shares currently
outstanding are converted into 602,685, 709,041, 815,397 and 829,510
Exchange Shares at the minimum, midpoint, maximum and 15% above the
maximum of the Estimated Price Range, respectively, and (ii) that no
fractional Exchange Shares will be issued by the Company. Upon
consummation of the Conversion and the Merger, the Company will have
15,000,000 shares of authorized common stock, $1.00 par value per
share. No effect has been given to the issuance of additional shares
of Company Common Stock pursuant to the Company's existing stock
options, outstanding warrants or the proposed 1995 Stock Option Plan.
The Company intends to adopt the 1995 Stock Option Plan and to submit
such plan to stockholders no earlier than the first annual meeting of
stockholders following the Conversion and the Merger, which is
expected to be held in April 1996. If the plan is approved by
stockholders, an amount equal to 10% of the shares of Conversion Stock
will be reserved for issuance under such plan. See "Pro Forma
Unaudited Financial Information," "Management of the Company and
Progress Bank Following the Conversion and the Merger - Benefits -
1995 Stock Option Plan" and "Description of Capital Stock of the
Company - Warrants to Purchase Company Common Stock."
(5) The retained earnings of Progress Bank will be substantially
restricted after the Conversion and the Merger. See "The Conversion
and the Merger - Liquidation Rights."
(6) Assumes that 8% of the Conversion Stock will be purchased by the ESOP.
The Conversion Stock acquired by the ESOP is reflected as a reduction
of stockholders' equity. Assumes the funds used to acquire the ESOP
shares will be borrowed from the Company. See Note 1 to the table set
forth under "Pro Forma Unaudited Financial Information" and
"Management of the Company and Progress Bank Following the Conversion
and the Merger - Benefits - Employee Stock Ownership Plan."
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<PAGE>
(7) Gives effect to the 1995 Recognition Plan which is expected to be
adopted by the Company following the Conversion and the Merger and
presented to stockholders for approval no earlier than the first
annual meeting of stockholders following the Conversion and the
Merger, which is expected to be held in April 1996. No shares will be
purchased by the 1995 Recognition Plan in the Conversion and the
Merger, and such plan cannot purchase any shares until stockholder
approval has been obtained. If the 1995 Recognition Plan is approved
by stockholders of the Company, the plan intends to acquire an amount
of Company Common Stock equal to 4% of the shares of Conversion Stock
issued in the Conversion and the Merger, or 165,565, 194,782, 224,000
and 227,876 shares at the minimum, midpoint, maximum and 15% above the
maximum of the Estimated Price Range (based upon the assumptions set
forth herein). In the event that Progress Bank has less than 10%
tangible capital at such time, the 1995 Recognition Plan would be
limited to 3% of the shares of Conversion Stock issued in the
Conversion and the Merger. The table assumes that stockholder
approval has been obtained and that such shares are purchased in the
open market at the per share price shown for each column. The Company
Common Stock so acquired by the 1995 Recognition Plan is reflected as
a reduction in stockholders' equity. If the shares are purchased at
prices higher or lower than the per share prices shown, such purchases
would have a greater or lesser impact, respectively, on stockholders'
equity. If the 1995 Recognition Plan purchases authorized but
unissued shares from the Company, such issuance would dilute the
voting interests of existing stockholders. See "Pro Forma Unaudited
Financial Information" and "Management of the Company and Progress
Bank Following the Conversion and the Merger - Benefits - 1995
Recognition Plan."
(8) Assumes that the $250,000 of the Company's subordinated debt held by
Roxborough-Manayunk will be cancelled upon consummation of the
Conversion and the Merger.
(9) Reflects a reclassification of $1,415,000 of RM Bank Common Stock and
$15,134,430 of Roxborough-Manayunk's additional paid-in capital to
retained earnings. Such amounts had previously been reclassified from
retained earnings to RM Bank Common Stock and additional paid-in
capital in connection with the MHC Reorganization on December 31,
1992.
(10) The amount of retained earnings for the combined Parties includes the
$98,500 to be acquired by Roxborough-Manayunk upon the merger of the
Mutual Holding Company into Roxborough-Manayunk and reflects the
ability of the combined Parties to utilize the Company's net operating
losses to offset the net income of Roxborough-Manayunk, as shown in a
$2,272,000 restatement of the deferred tax asset valuation allowance
of the combined Parties. See "Pro Forma Unaudited Financial
Information."
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<PAGE>
REGULATORY CAPITAL
At March 31, 1995, Progress and Roxborough-Manayunk each exceeded all
of the regulatory capital requirements applicable to it. The table on the
following page sets forth the historical regulatory capital of Progress and
Roxborough-Manayunk at March 31, 1995 and the pro forma regulatory capital
of Progress Bank after giving effect to the Conversion and the Merger,
based upon the minimum, midpoint, maximum and 15% above the maximum of the
Estimated Price Range, respectively. The pro forma regulatory capital
amounts reflect the receipt by Progress Bank of 90% of the net proceeds of
the Offerings, minus the amounts to be loaned to the ESOP (and repaid by
Progress Bank) and contributed to the 1995 MRP. The pro forma risk-based
capital amounts assume the investment of the net proceeds received by
Progress Bank in assets which have a risk-weight of 50% under applicable
regulations, as if such net proceeds had been received and so applied at
March 31, 1995.
-45-
<PAGE>
<TABLE><CAPTION>
Roxborough-
Progress Manayunk Combined
Historical at Historical at Historical at
March 31, 1995 March 31, 1995 March 31, 1995(2)
------------------ -------------- -----------------
Percent of Percent of Percent of
Amount Assets(1) Amount Assets(1) Amount Assets(1)
------ --------- ------ --------- ------ --------- -
<S> <C> <C> <C> <C> <C> <C>
Tangible capital:
Actual $23,218 8.51% $42,019 6.75% $59,388 9.26%
Requirement 4,094 1.50 9,333 1.50 9,622 1.50
------ ----- ------ ----- ------ ----
Excess $19,124 7.01% $32,686 5.25% $49,766 7.76%
====== ===== ====== ===== ====== ====
Core capital:
Actual $23,506 8.61% $42,307 6.80% $59,676 9.30%
Requirement(3) 8,189 3.00 18,665 3.00 19,243 3.00
------ ---- ------ ---- ------ ----
Excess $15,317 5.61% $23,642 3.80% $40,433 6.30%
====== ==== ====== ==== ====== ====
Risk-based
capital:
Actual $23,922 29.81% $44,334 16.76% $61,703 22.51%
Requirement(3) 6,419 8.00 21,160 8.00 21,930 8.00
------ ----- ------ ----- ------ ----
Excess $17,503 21.81% $23,174 8.76% $39,773 14.51%
====== ==== ====== ==== ====== ====
<CAPTION>
Pro Forma for Progress Bank at March 31, 1995 Based on
---------------------------------- ------------------------------------
$23,800,000 $28,000,000 $32,200,000 $37,030,000
Minimum Midpoint Maximum 15% above Maximum
--------------- --------------- --------------- -----------------
Percent of Percent of Percent of Percent of
Amount Assets(1) Amount Assets(1) Amount Assets(1) Amount Assets(1)
------ --------- ------ -------- ------ --------- ------ ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tangible capital:
Actual $62,578 9.70% $16,431 4.74% $65,769 10.14% $69,438 10.64%
Requirement 9,674 1.50 5,203 1.50 9,727 1.50 9,788 1.50
------- ----- ------ ----- ------ ---- ------ ----
Excess $52,904 8.20% $11,228 3.24% $56,042 8.64% $59,650 9.14%
======= ==== ====== ===== ====== ==== ====== ====
Core capital:
Actual $62,866 9.75% $16,431 4.74% $66,057 10.19% $69,726 10.68%
Requirement(3) 19,349 3.00 10,405 3.00 19,455 3.00 19,576 3.00
------ ---- ------ ---- ------ ---- ------ ----
Excess $43,517 6.75% $ 6,026 1.74% $46,602 7.19% $50,150 7.68%
====== ==== ====== ==== ====== ==== ====== ====
Risk-based
capital:
Actual $64,893 23.52% $18,042 9.92% $68,084 24.52% $71,753 25.65%
Requirement(3) 22,071 8.00 14,551 8.00 22,213 8.00 22,375 8.00
------ ---- ------ ---- ------- ---- ------ -----
Excess $42,822 15.52% $ 3,491 1.92% $45,871 16.52% $49,378 17.65%
====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
________________________________
(1) Tangible and core capital levels are shown as a percentage of total
adjusted assets; and risk-based capital levels are shown as a percentage of
risk-weighted assets.
(2) Includes the receipt by Roxborough-Manayunk of the $98,500 held by the
Mutual Holding Company and reflects the ability of the combined Parties to
utilize the Company's net operating losses to offset the net income of
Roxborough-Manayunk, as shown in a $2,272,000 pro forma adjustment
to cumulative effect of change in accounting principle in 1993. See "Pro
Forma Unaudited Financial Information."
(3) Does not reflect recent amendments to the risk-based 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 Bank Regulation
- Regulatory Capital Requirements" and "- Prompt Corrective Action."
-46-
<PAGE>
PRO FORMA UNAUDITED FINANCIAL INFORMATION
The following Pro Forma Unaudited Consolidated Statement of Financial
Condition at March 31, 1995 and the Pro Forma Unaudited Consolidated
Statements of Income for the three months ended March 31, 1995 and 1994 and
for each of the years ended December 31, 1994, 1993 and 1992 give effect to
the proposed Conversion and the Merger based on the assumptions set forth
herein. The pro forma unaudited financial statements are based on the
audited consolidated financial statements of the Company and of Roxborough-
Manayunk for the years ended December 31, 1994, 1993 and 1992 and the
unaudited consolidated financial statements for the three months ended
March 31, 1995 and 1994. The pro forma unaudited financial statements give
effect to the Conversion and the Merger using the pooling-of-interests
method of accounting.
The pro forma adjustments in the tables assume the sale of 4,869,565
shares of Conversion Stock in the Offerings at a price of $5.75 per share,
which is the midpoint of the Estimated Price Range. The net proceeds of
$26.6 million are based upon the following assumptions: (i) no fees will
be paid to Sandler O'Neill on shares purchased by the ESOP or by officers,
directors and employees of any of the Parties and members of their
immediate families, which purchases are estimated to aggregate $4,240,000
at the midpoint; (ii) for assisting in marketing the Conversion Stock,
Sandler O'Neill will receive a fee equal to (a) 2.0% of the aggregate
Actual Purchase Price of all shares of Conversion Stock sold in the
Subscription Offering and to persons or entities who are referred by the
directors or executive officers of the Company and Roxborough-Manayunk in
the Community Offering, which purchases are estimated to aggregate
$14,000,000 at the midpoint, and (b) 3.0% of the aggregate Actual Purchase
Price of all shares of Conversion Stock otherwise sold in the Community
Offering, which purchases are estimated to aggregate $9,760,000 at the
midpoint, in each case except as set forth in clause (i) above; and (iii)
the expenses of the Conversion and the Merger, excluding the marketing fees
paid to Sandler O'Neill, will be approximately $850,000. The actual amount
of Conversion Stock sold may be more or less than the midpoint of the
Estimated Price Range, and the number of shares sold and the Actual
Purchase Price may be more or less than the assumptions set forth above.
For the effects of such possible changes, see " - Additional Pro Forma
Data." In addition, the expenses of the Conversion and the Merger may vary
from those estimated, and the fees paid to Sandler O'Neill will vary from
the amounts estimated if the amount of Conversion Stock sold in the
different categories varies from the amounts assumed above or if a
Syndicated Community Offering becomes necessary.
Pro forma net income and stockholders' equity have been calculated for
the three months ended March 31, 1995 and 1994 and the years ended December
31, 1994, 1993 and 1992 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 6.47%,
4.44%, 7.21%, 3.59% and 3.59%, respectively, which represent the yields on
one-year U.S. Government securities at March 31, 1995 and 1994 and December
31, 1994, 1993 and 1992, respectively. The effect of withdrawals from
deposit accounts at
-47-
<PAGE>
either Roxborough-Manayunk or Progress for the purchase of Conversion Stock
in the Offerings has not been reflected. A combined effective federal and
state income tax rate of 40% has been assumed for the periods, resulting in
after-tax yields of 3.88%, 2.66%, 4.33%, 2.15% and 2.15% for the three
months ended March 31, 1995 and 1994 and the years ended December 31, 1994,
1993 and 1992, respectively. Historical and pro forma per share amounts
have been calculated by dividing historical and pro forma amounts by the
indicated number of shares of Company Common Stock. 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 10% of the net Conversion proceeds.
The pro forma unaudited statements are provided for informational
purposes only. The pro forma financial information presented is not
necessarily indicative of the actual results that would have been achieved
had the Conversion and the Merger been consummated on March 31, 1995 or at
the beginning of the periods presented, and is not indicative of future
results. The pro forma unaudited financial statements should be read in
conjunction with the consolidated financial statements and the notes
thereto of the Company and of Roxborough-Manayunk contained elsewhere in
this Prospectus.
The stockholders' equity represents the book value of the common
stockholders' ownership of the Company and of Roxborough-Manayunk computed
in accordance with GAAP. This amount is not intended to represent fair
market value nor does it represent amounts, if any, that would be available
for distribution to stockholders in the event of liquidation. The book
value for the Company and Roxborough-Manayunk on a historical and pro forma
basis has not been changed to reflect any difference between the carrying
value of investments or loans held to maturity and their market value.
THE UNAUDITED PRO FORMA NET INCOME AND COMMON STOCKHOLDERS' EQUITY
DERIVED FROM THE ABOVE ASSUMPTIONS ARE QUALIFIED BY THE STATEMENTS SET
FORTH UNDER THIS CAPTION AND SHOULD NOT BE CONSIDERED INDICATIVE OF THE
MARKET VALUE OF THE COMPANY COMMON STOCK OR THE ACTUAL RESULTS OF
OPERATIONS OF THE COMPANY OR ROXBOROUGH-MANAYUNK FOR ANY PERIOD. SUCH PRO
FORMA DATA MAY BE MATERIALLY AFFECTED BY THE ACTUAL GROSS PROCEEDS FROM THE
SALE OF CONVERSION STOCK IN THE CONVERSION AND THE MERGER AND THE ACTUAL
EXPENSES INCURRED IN CONNECTION WITH THE CONVERSION AND THE MERGER. SEE
"USE OF PROCEEDS."
-48-
<PAGE>
Pro Forma Unaudited Consolidated Statement of Financial Condition
March 31, 1995
(Dollars in thousands, except per share data)
Roxborough Pro Forma Pro Forma
The Company -Manayunk Adjustments Consolidated
Assets
- ------
Cash on hand and in banks $ 5,333 $ 1,402 $ 98(1) $ 6,833
Interest-bearing deposits 185 39,441 23,217(2) 62,843
------- ------- ------ -------
Cash and cash equivalents 5,518 40,843 23,315 69,676
Securities available for sale 12,955 77,147 -- 90,102
Securities held to maturity 101,154 49,503 (250)(3) 150,407
Loans receivable, net 210,147 95,175 -- 305,322
Loans available for sale 727 1,305 -- 2,032
Real estate owned 4,454 95 -- 4,549
Premises and equipment 1,918 2,121 -- 4,039
FHLB stock, at cost 2,469 1,686 -- 4,155
Accrued interest receivable 2,159 2,292 -- 4,451
Other assets 5,457 2,562 2,272(4) 10,291
-------- -------- ------- --------
Total assets $346,958 $272,729 $25,337 $645,024
======= ======= ====== =======
Liabilities and Stockholders'
- -----------------------------
Equity
- ------
Liabilities:
Deposits $277,849 $239,039 $ -- $516,888
FHLB advances 47,821 7,884 -- 55,705
Subordinated debt 3,000 -- (250)(3) 2,750
ESOP debt -- 84 -- 84
Advances from borrowers for
insurance and taxes 2,355 1,295 -- 3,650
Accrued interest payable 825 117 -- 942
Other liabilities 1,379 1,329 -- 2,708
-------- -------- -------- --------
Total liabilities 333,229 249,748 (250) 582,727
------- ------- ------- -------
Stockholders' equity:
Common Stock 3,275 1,621 3,958(5) 8,854
Additional paid-in capital 15,706 16,997 6,070(5) 38,773
Retained earnings (deficit),
partially restricted (4,531) 5,008 18,674(4)(5) 19,151
ESOP shares -- (84) (2,240)(5) (2,324)
Management Recognition Plan
shares -- (36) (1,120)(5) (1,156)
Unrealized loss on securities
available for sale (721) (525) 245(4) (1,001)
------- ------- ------- -------
Total stockholders' equity 13,729 22,981 25,587 62,297
------- ------- ------ -------
Total liabilities and
stockholders' equity $346,958 $272,729 $25,337 $645,024
======= ======= ====== =======
Book value per common share
(period end)(6) $ 4.19 $ 14.18(7) $ 7.04
======== ======== ========
(Footnotes on following page)
-49-
<PAGE>
- --------------------------
(1) Reflects $98,500 of cash assets to be acquired by Roxborough-Manayunk
upon the merger of the Mutual Holding Company into Roxborough-
Manayunk.
(2) Reflects gross proceeds of $28,000,000 from the sale of Conversion
Stock, minus (i) estimated expenses of the Conversion and the Merger
equal to $1,423,000, (ii) the purchase of $2,240,000 of Conversion
Stock by the ESOP funded internally by the Company, and (iii) the
proposed purchase of $1,120,000 of Company Common Stock by the 1995
MRP funded internally by the Company.
(3) Reflects the cancellation of $250,000 of the Company's subordinated
debt held by Roxborough-Manayunk upon consummation of the Conversion
and the Merger.
(4) Reflects the restatement of the deferred tax asset valuation allowance
of the combined Parties in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No.
109"). The determination of the restatement adjustment was based upon
the estimated amount of deferred tax assets that would be realized
using the "more likely than not" realization criteria contained in
SFAS No. 109, which was based upon management's estimate of future
taxable income of the combined Parties subsequent to the combination
date, which is higher than management's estimate of the future taxable
income for the Company on its own. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations of the
Company - Results of Operations - Income Taxes."
(5) Reflects the adjustments set forth in Notes (1) and (2) above, plus
the reclassification of $1,415,000 of RM Bank Common Stock and
$15,134,430 of Roxborough-Manayunk's additional paid-in capital to
retained earnings. Such amounts had previously been reclassified from
retained earnings to RM Bank Common Stock and additional paid-in
capital in connection with the MHC Reorganization on December 31,
1992.
(6) Based on shares issued and outstanding for the Company, Roxborough-
Manayunk and Pro Forma Consolidated of 3,275,000, 1,621,000 and
8,853,606, respectively.
(7) Assuming a 3.44:1 Exchange Ratio based upon the sale of 4,869,565
shares of Conversion Stock, the adjusted number of shares of RM Bank
Common Stock outstanding would be 5,578,606 at March 31, 1995, and the
adjusted book value per share of RM Bank Common Stock would be $4.12
at March 31, 1995.
-50-
<PAGE>
Pro Forma Unaudited Consolidated Statements of Income
(Dollars in thousands, except per share data)
Three Months ended March 31, 1995
--------------------------------------------------
The Roxborough Pro Forma Pro Forma
Company - Manayunk Adjustments Consolidated
--------- ------------ ------------ -------------
Total interest income $ 6,498 $ 4,935 $ 376(1)$ 11,809
Total interest expense 3,654 2,490 -- 6,144
--------- --------- ----------- -----------
Net interest income before
provision for loan losses 2,844 2,445 376 5,665
Provision for loan losses 100 15 -- 115
--------- --------- ----------- -----------
Net interest income after
provision for loan losses 2,744 2,430 376 5,550
Total non-interest income 402 123 -- 525
Total non-interest expense 2,768 1,744 112(2) 4,624
--------- --------- --------- -----------
Income before income taxes 378 809 264 1,451
Income taxes -- 293 257(3) 550
----------- --------- --------- -----------
Net income $ 378 $ 516 $ 7 $ 901
========= ========= ========== ===========
Earnings per share $ .12 $ .32 $ .11
========== ========== ===========
Weighted average number of
shares outstanding 3,275,000 1,621,000 3,577,780 8,473,780(4)
Three Months ended March 31, 1994
--------------------------------------------------
The Roxborough- Pro Forma Pro Forma
Company Manayunk Adjustments Consolidated
--------- ------------ ------------ -------------
Total interest income $ 5,078 $ 4,237 $ 258(1) $ 9,573
Total interest expense 2,831 2,130 -- 4,961
--------- --------- --------- ---------
Net interest income before
provision for loan losses 2,247 2,107 258 4,612
Provision for loan losses 50 15 -- 65
--------- --------- --------- ---------
Net interest income after
provision for loan losses 2,197 2,092 258 4,547
Total non-interest income 374 126 -- 500
Total non-interest expense 2,526 1,701 112(2) 4,339
--------- --------- --------- ---------
Income before income taxes 45 517 146 708
Income taxes -- 208 76(3) 284
---------- --------- --------- ---------
Net income $ 45 $ 309 $ 70 $ 424
========= ========= ========= =========
Earnings per share $ .01 $ .19 $ .05
========= ========= =========
Weighted average number of
shares outstanding 3,275,000 1,615,000 3,577,780 8,473,780(4)
-51-
<PAGE>
<TABLE><CAPTION>
Year ended December 31, 1994
----------------------------------------------------------
The Roxborough- Pro Forma Pro Forma
Company Manayunk Adjustments Consolidated
--------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
Total interest income $ 22,830 $ 18,096 $ 1,674(1) $ 42,600
Total interest expense 12,505 8,791 -- 21,296
---------- --------- ---------- ----------
Net interest income before
provision for loan losses 10,325 9,305 1,674 21,304
Provision for loan losses 521 60 -- 581
---------- --------- ---------- ----------
Net interest income after
provision for loan losses 9,804 9,245 1,674 20,723
Total non-interest income 1,545 504 -- 2,049
Total non-interest expense 12,065 6,654 448(2) 19,167
---------- --------- --------- ----------
Income (loss) before
income taxes (716) 3,095 1,226 3,605
Income taxes -- 1,190 204(3) 1,394
----------- --------- --------- ----------
Net income (loss) $ (716) $ 1,905 $ 1,022 $ 2,211
========== ========= ========= ==========
Earnings per share $ (.22) $ 1.18 $ .26
=========== ========== ===========
Weighted average number of
shares outstanding 3,275,000 1,615,000 3,612,997 8,502,997(4)
<CAPTION>
Year ended December 31, 1993
The Roxborough- Pro Forma Pro Forma
Company Manayunk Adjustments Consolidated
<S> <C> <C> <C> <C>
Total interest income $ 20,824 $ 18,067 $ 833(1) $ 39,724
Total interest expense 11,465 9,087 -- 20,552
-------- --------- ---------- ----------
Net interest income before
provision for loan losses 9,359 8,980 833 19,172
Provision for loan losses 368 94 -- 462
-------- --------- ---------- ----------
Net interest income after
provision for loan losses 8,991 8,886 833 18,710
Total non-interest income 2,226 1,230 -- 3,456
Total non-interest expense 11,568 6,406 448(2) 18,422
-------- --------- --------- ----------
Income (loss) before income
taxes and cumulative effect of
change in accounting principle (351) 3,710 385 3,744
Income taxes (benefit) (1,034) 1,189 1,048(3) 1,203
-------- --------- --------- ----------
Income (loss) before cumulative
effect of change in accounting
principle 683 2,521 (663) 2,541
Cumulative effect of change in
accounting principle -- 407 3,163(5) 3,570
----------- --------- --------- ----------
Net income $ 683 $ 2,928 $ 2,500 $ 6,111
========= ========= ========= ==========
Earnings per share:
Income before cumulative
effect of change in
accounting principle $ .29 $ 1.56 $ .34
Cumulative effect of change in
accounting principle -- .25 .47
----------- --------- ----------
Net income $ .29 $ 1.81 $ .81
========== ========== ===========
Weighted average number of
shares outstanding 2,319,360 1,615,000 3,612,997 7,547,357(4)
</TABLE>
-52-
<PAGE>
Pro Forma Unaudited Consolidated Statements of Income
(Dollars in thousands, except per share data)
<TABLE><CAPTION>
Year ended December 31, 1992
-----------------------------------------------------
The Roxborough- Pro Forma Pro Forma
Company Manayunk Adjustments Consolidated
<S> <C> <C> <C> <C>
Total interest income $ 21,979 $18,557 $833(1) $41,369
Total interest expense 13,737 10,483 -- 24,220
--------- ------ ----- ------
Net interest income before
provision for loan losses 8,242 8,074 833 17,149
Provision for loan losses 275 60 -- 335
--------- ------ ----- ------
Net interest income after
provision for loan losses 7,967 8,014 833 16,814
Total non-interest income 5,617 699 -- 6,316
Total non-interest expense 12,232 6,100 448(2) 18,780
--------- ------ --- ------
Income before income taxes 1,352 2,613 385 4,350
Income taxes 74 841 154(3) 1,069
--------- ------ --- ------
Net income $ 1,278 $ 1,772 $231 $3,281
========= ====== === ======
Earnings per share $ 1.27 N/A NM(6)
==========
Weighted average number of shares
outstanding 1,010,112 N/A NM(6)
</TABLE>
- ---------------------
(1) The increase in total interest income reflects reinvestment income on
$23,217,000 of net cash proceeds from the sale of Conversion Stock.
(2) Reflects 10-year straight line amortization of the ESOP loan, with
annual amortization of $224,000, and five-year straight line
amortization of the shares to be purchased by the 1995 MRP, with
annual pre-tax expense of $224,000.
(3) Reflects an assumed effective tax rate of 40% for combined federal and
state taxes on both (i) the pro forma income before income taxes, and
(ii) for all periods other than 1992, the Company's historical income
before income taxes. For the three months ended March 31, 1995 and
1994 and the years ended December 31, 1994 and 1993, the adjustments
based on pro forma income were $106,000, $58,000, $490,000 and
$154,000, respectively, and the adjustments based on the Company's
historical income were $151,000, $18,000, $(286,000) and $894,000,
respectively.
(4) Weighted average number of shares outstanding for the Pro Forma
Consolidated column reflects adoption of SOP 93-6.
(5) Reflects the restatement of the deferred tax asset valuation allowance
of the combined Parties in accordance with SFAS No. 109. The
adjustment restates the
-53-
<PAGE>
cumulative effect of the adoption of SFAS No. 109 effective January 1,
1993 and was based on the estimated amount of deferred tax assets that
would be realized using the "more likely than not" realization
criteria contained in SFAS No. 109. Such estimate was determined
based upon management's estimate of future taxable income of the
combined Parties subsequent to the combination date, which is higher
than management's estimate of the future taxable income for the
Company on its own. The impact of the restatement adjustment is to
record deferred tax assets of $3,163,000 upon the adoption of SFAS No.
109 effective January 1, 1993 and to eliminate the $1,034,000
reduction of the deferred tax asset valuation allowance which the
Company had recorded in the fourth quarter of 1993. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations of the Company - Results of Operations - Income Taxes."
(6) Pro forma earnings per share are considered not meaningful, as the RM
Bank Common Stock was first issued on December 31, 1992.
Additional Pro Forma Data
The following tables provide pro forma data with respect to the
Company's stockholders' equity and net income based upon the minimum,
midpoint, maximum and 15% above the maximum of the Estimated Price Range.
The actual net proceeds from the sale of the Conversion Stock cannot be
determined until the Offerings are completed. However, net proceeds are
currently estimated to be between $22.5 million and $30.7 million (or $35.4
million in the event the Estimated Price Range is increased by 15%) based
upon the following assumptions: (i) no fees will be paid to Sandler
O'Neill on shares purchased by the ESOP, which purchases are estimated to
aggregate 8% of the shares of Conversion Stock sold; (ii) no fees will be
paid to Sandler O'Neill on shares purchased by officers, directors and
employees of any of the Parties and members of their immediate families,
which purchases are estimated to aggregate $2.0 million; (iii) for
assisting in marketing the Conversion Stock, Sandler O'Neill will receive a
fee equal to (a) 2.0% of the aggregate Actual Purchase Price of all shares
of Conversion Stock sold in the Subscription Offering and to persons or
entities who are referred by the directors or executive officers of the
Company and Roxborough-Manayunk in the Community Offering, which purchases
are estimated to aggregate 50% of the shares of Conversion Stock sold, and
(b) 3.0% of the aggregate Actual Purchase Price of all shares of Conversion
Stock otherwise sold in the Community Offering, which purchases are
estimated to aggregate the remaining shares of Conversion Stock sold, in
each case except as set forth in clauses (i) and (ii) above; and (iv) the
expenses of the Conversion and the Merger, excluding the marketing fees
paid to Sandler O'Neill, will be approximately $850,000. The actual
expenses of the Conversion and the Merger may vary from those estimated,
and the fees paid to Sandler O'Neill will vary from the amounts estimated
if the amount of Conversion Stock sold in the different categories varies
from the amounts assumed above or if a Syndicated Community Offering
becomes necessary.
Pro forma net income and stockholders' equity have been calculated in
the same manner and based upon the same assumptions as set forth with
respect to the foregoing pro forma tables.
-54-
<PAGE>
<TABLE><CAPTION>
At or For the Three Months Ended March 31, 1995
------------------------------------------------
5,696,923
4,139,130 4,869,565 5,600,000 Shares Sold
Shares Sold Shares Sold Shares Sold at $6.50
at $5.75 at $5.75 at $5.75 Per Share
Per Share Per Share Per Share (15% above
(Minimum (Midpoint (Maximum Maximum
of Range) of Range) of Range) of Range)(9)
---------- ---------- ---------- -----------
(Dollars in Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Gross proceeds $ 23,800 $ 28,000 $ 32,200 $ 37,030
Less expenses 1,328 1,423 1,518 1,627
------------- ---------- ----------- ----------
Estimated net proceeds 22,472 26,577 30,682 35,403
Less: Common Stock acquired by
ESOP (1,904) (2,240) (2,576) (2,962)
Common Stock to be acquired by
1995 MRP (952) (1,120) (1,288) (1,481)
------------ ---------- ---------- ----------
Estimated adjusted net proceeds(1) $ 19,616 $ 23,217 $ 26,818 $ 30,960
=========== ========== ========== ==========
Net income:
Historical combined $ 743 $ 743 $ 743 $ 743
Pro forma adjustments:
Income on adjusted net proceeds(1) 191 226 261 301
ESOP(2) (29) (34) (39) (44)
1995 MRP(3) (29) (34) (39) (44)
------------- ----------- ----------- ------------
Pro forma $ 876 $ 901 $ 926 $ 956
============ =========== ========== ===========
Net income per share(4):
Historical combined $ .10 $ .09 $ .08 $ .08
Pro forma adjustments:
Income on adjusted net proceeds(1) .01 .02 .02 .02
ESOP(2) .00 .00 .00 .00
1995 MRP(3) .00 .00 .00 .00
------------ ----------- ----------- -----------
Pro forma(5) $ .11 $ .11 $ .10 $ .10
============ =========== =========== ===========
Pro forma price to earnings
(P/E ratio)(4) 13.07x 13.07x 14.38x 16.25x
========== ========== ========== ==========
Number of shares used in net income per
share calculations(4) 7,693,963 8,473,780 9,253,597 9,357,073
Stockholders' equity:
Historical combined(6) $ 39,080 $ 39,080 $ 39,080 $ 39,080
Estimated net proceeds 22,472 26,577 30,682 35,403
Less: Common Stock acquired
by ESOP(2) (1,904) (2,240) (2,576) (2,962)
Common Stock to be acquired
by 1995 MRP(3) (952) (1,120) (1,288) (1,481)
----------- ---------- ---------- ----------
Pro forma stockholders' equity(7) $ 58,696 $ 62,297 $ 65,898 $ 70,039
========== ========== ========== ==========
Stockholders' equity per share(8):
Historical combined $ 4.87 $ 4.41 $ 4.03 $ 3.99
Estimated net proceeds 2.81 3.00 3.17 3.61
Less: Common Stock acquired
by ESOP(2) (.24) (.25) (.27) (.30)
Common Stock to be acquired
by 1995 MRP(3) (.12) (.13) (.13) (.15)
----------- ---------- ----------- -----------
Pro forma stockholders' equity
per share(3)(5)(7) $ 7.32 $ 7.03 $ 6.80 $ 7.15
=========== ========= ========== ==========
Pro forma price to book ratio(8) 78.6% 81.8% 84.6% 90.9%
=========== ========= ========== ==========
Number of shares used in book value per
share calculations(8) 8,016,815 8,853,606 9,690,397 9,801,433
</TABLE>
(Footnotes on second following page)
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<PAGE>
<TABLE><CAPTION>
At of for the Year Ended December 31, 1994
-------------------------------------------------
5,696,923
4,139,130 4,869,565 5,600,000 Shares Sold
Shares Sold Shares Sold Shares Sold at $6.50
at $5.75 at $5.75 at $5.75 Per Share
Per Share Per Share Per Share (15% above
(Minimum (Midpoint (Maximum Maximum
of Range) of Range) of Range) of Range)(9)
----------- ----------- ----------- ------------
(Dollars in Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Gross proceeds $ 23,800 $ 28,000 $ 32,200 $ 37,030
Less expenses 1,328 1,423 1,518 1,627
-------- -------- -------- --------
Estimated net proceeds 22,472 26,577 30,682 35,403
Less: Common Stock acquired by
ESOP (1,904) (2,240) (2,576) (2,962)
Common Stock to be acquired by
1995 MRP (952) (1,120) (1,288) (1,481)
-------- -------- -------- --------
Estimated adjusted net proceeds(1) $ 19,616 $ 23,217 $ 26,818 $ 30,960
========= ======== ========= ========
Net income:
Historical combined $ 1,475 $ 1,475 $ 1,475 $ 1,475
Pro forma adjustments:
Income on adjusted net proceeds(1) 849 1,004 1,161 1,341
ESOP(2) (114) (134) (155) (178)
1995 MRP(3) (114) (134) (155) (178)
-------- -------- -------- --------
Pro forma $ 2,096 $ 2,211 $ 2,326 $ 2,460
======== ======== ======== ========
Net income per share(4):
Historical combined $ .19 $ .17 $ .16 $ .16
Pro forma adjustments:
Income on adjusted net proceeds(1) .10 .13 .13 .14
ESOP(2) (.01) (.02) (.02) (.02)
1995 MRP(3) (.01) (.02) (.02) (.02)
------- --------- --------- ---------
Pro forma(5) $ .27 $ .26 $ .25 $ .26
========= ======== ========= ========
Pro forma price to earnings
(P/E ratio)(4) 21.30x 22.12x 23.00x 25.00x
======== ======== ======== ========
Number of shares used in net income per
share calculations(4) 7,718,798 8,502,997 9,287,197 9,391,255
Stockholders' equity:
Historical combined(6) $ 35,868 $ 35,868 $ 35,868 $ 35,868
Estimated net proceeds 22,472 26,577 30,682 35,403
Less: Common Stock acquired
by ESOP(2) (1,904) (2,240) (2,576) (2,962)
Common Stock to be acquired
by 1995 MRP(3) (952) (1,120) (1,288) (1,481)
-------- -------- -------- --------
Pro forma stockholders' equity(7) $ 55,484 $ 59,085 $ 62,686 $ 66,827
========= ========= ========= =========
Stockholders' equity per share(8):
Historical combined $ 4.47 $ 4.05 $ 3.70 $ 3.66
Estimated net proceeds 2.81 3.00 3.17 3.61
Less: Common Stock acquired
by ESOP(2) (.24) (.25) (.27) (.30)
Common Stock to be acquired
by 1995 MRP(3) (.12) (.13) (.13) (.15)
-------- -------- -------- --------
Pro forma stockholders' equity
per share(3)(5)(7) $ 6.92 $ 6.67 $ 6.47 $ 6.82
======== ======== ======== ========
Pro forma price to book ratio(8) 83.1% 86.2% 88.9% 95.3%
======== ======== ======== ========
Number of shares used in book value per
share calculations(8) 8,016,815 8,853,606 9,690,397 9,801,433
(Footnotes on following page)
</TABLE>
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<PAGE>
____________________
(1) Estimated adjusted net proceeds consist of the estimated net proceeds,
minus (i) the proceeds attributable to the purchase by the ESOP and
(ii) the value of the shares to be purchased by the 1995 Recognition
Plan, subject to stockholder approval, after the Conversion and the
Merger based upon the purchase price per share shown for each column.
(2) It is assumed that 8% of the shares of Conversion Stock sold 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 Company. Progress Bank intends to make
quarterly contributions to the ESOP over a ten-year period in an
amount at least equal to the principal and interest repayment of the
debt. The pro forma net income assumes (i) that the ESOP expense for
each respective period is equivalent to the principal payment for the
respective period and was made at the end of each respective period;
(ii) that 8,278, 9,739, 11,200 and 11,393 shares were committed to be
released with respect to the quarter ended March 31, 1995 and 33,113,
38,956, 44,800 and 45,575 shares were committed to be released with
respect to the year ended December 31, 1994, in each case at the
minimum, midpoint, maximum and 15% above the maximum of the Estimated
Price Range, respectively; (iii) in accordance with SOP 93-6 entitled
"Employers' Accounting for Employee Stock Ownership Plans," only the
ESOP shares committed to be released during the respective period were
considered outstanding for purposes of the net income per share
calculations; and (iv) the effective tax rate was 40% for each period.
See "Regulation - Recent Accounting Pronouncements" and "Management of
the Company and Progress Bank Following the Conversion and the
Merger - Benefits - Employee Stock Ownership Plan."
(3) The adjustment is based upon the assumed purchases by the 1995
Recognition Plan of 165,565, 194,782, 224,000 and 227,876 shares at
the minimum, midpoint, maximum and 15% above the maximum of the
Estimated Price Range, assuming that: (i) stockholder approval of the
1995 Recognition Plan has been received; (ii) the shares were acquired
by the 1995 Recognition Plan at the beginning of the period presented
in open market purchases at the purchase price per share shown for
each column; (iii) the amortized expense for the quarter ended March
31, 1995 and the year ended December 31, 1994 was 5% and 20%,
respectively, of the amount contributed; and (iv) the effective tax
rate applicable to such employee compensation expense was 40%. If the
1995 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 2.2%, (ii) the
pro forma net income per share for the three months ended March 31,
1995 would be $.11, $.11, $.10 and $.10, and pro forma stockholders'
equity per share at March 31, 1995 would be $7.29, $7.00, $6.77 and
$7.13, in each case at the minimum, midpoint, maximum and 15% above
the maximum of the Estimated Price Range, respectively, and (iii) the
pro
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<PAGE>
forma net income per share for the year ended December 31, 1994 would
be $.27, $.26, $.25 and $.26, and pro forma stockholders' equity per
share at December 31, 1994 would be $6.89, $6.65, $6.45 and $6.81, in
each case at the minimum, midpoint, maximum and 15% above the maximum
of the Estimated Price Range, respectively. See "Management of the
Company and Progress Bank Following the Conversion and the Merger -
Benefits - 1995 Recognition Plan."
(4) Net income per share computations are determined by taking the number
of shares of Conversion Stock assumed to be sold in the Offerings and,
in accordance with SOP 93-6, subtracting the ESOP shares which have
not been committed for release during the respective period. See Note
2 above. The number of shares of Company Common Stock currently
outstanding and 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.
(5) No effect has been given to the issuance of additional shares of
Company Common Stock pursuant to the 1995 Stock Option Plan, which is
expected to be adopted by the Company following the Conversion and the
Merger and presented to stockholders for approval no earlier than the
Company's first annual meeting of stockholders following the
Conversion and the Merger, which is expected to be held in April 1996.
If the 1995 Stock Option Plan is approved by stockholders, 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 1995 Stock Option Plan. The issuance of authorized
but previously unissued shares of Company Common Stock pursuant to the
exercise of options under such plan would dilute existing
stockholders' interests. Assuming stockholder approval of the 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 1995 Recognition Plan purchases shares in the
open market at such purchase price per share, (i) pro forma net income
per share for the three months ended March 31, 1995 would be $.11,
$.10, $.10 and $.10, and pro forma stockholders' equity per share at
March 31, 1995 would be $7.24, $6.97, $6.74 and $7.11, in each case at
the minimum, midpoint, maximum and 15% above the maximum of the
Estimated Price Range, respectively, and (ii) pro forma net income per
share for the year ended December 31, 1994 would be $.27, $.26, $.25
and $.26, and pro forma stockholders' equity per share at December 31,
1994 would be $6.86, $6.62, $6.43 and $6.80, in each case at the
minimum, midpoint, maximum and 15% above the maximum of the Estimated
Price Range, respectively.
(6) Includes $98,500 to be acquired by Roxborough-Manayunk upon the merger
of the Mutual Holding Company into Roxborough-Manayunk and the
$2,272,000 restatement of the deferred tax asset valuation allowance
in accordance with SFAS No. 109.
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<PAGE>
(7) The retained earnings of Progress Bank will be substantially
restricted after the Conversion and the Merger. See "The Conversion
and the Merger - Liquidation Rights."
(8) Stockholders' equity per share calculations are based upon the sum of
(i) the number of shares of Conversion Stock assumed to be sold in the
Offerings, (ii) Exchange Shares equal to 602,685, 709,041, 815,397 and
829,510 at the minimum, midpoint, maximum and 15% above the maximum of
the Estimated Price Range, respectively, and (iii) the 3,275,000
shares of Company Common Stock outstanding at March 31, 1995. 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.
(9) As adjusted to give effect to an increase in the number of shares
which could occur due to an increase in the Estimated Price Range of
up to 15% to reflect changes in market and financial conditions prior
to completion of the Conversion and the Merger or to fill the order of
the ESOP. The assumed Actual Purchase Price was increased to $6.50
per share so that the number of shares shown would not give rise to a
right of termination under the Merger Agreement. See "The Offerings -
Stock Pricing, Exchange Ratio and Number of Shares to be Issued."
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE COMPANY
General
The operating results of the Company depend primarily upon its net
interest income, which is determined by the difference between interest and
dividend income on interest-earning assets, principally loans, mortgage-
backed securities and investment securities, and interest expense on
interest-bearing liabilities, which principally consist of deposits and
borrowings. The Company's net income also is affected by its provision for
loan losses, as well as the level of its other income, including deposit
service fees, mortgage origination and servicing income, gains from sales
of securities, mortgage banking activities and the sale of properties and
other miscellaneous income, and its other expenses, such as salaries and
employee benefits, occupancy expense, data processing, federal deposit
insurance, provisions for real estate owned and miscellaneous other
expenses, and income tax expense.
The Company incurred operating losses during the past two fiscal years
due, to a large extent, to charge-offs and other costs associated with the
administration of the Company's non-performing assets. Between 1991 and
1994, a primary focus of the Company was to improve the credit quality of
the Company's assets through the early identification of potential problem
assets and the administration, rehabilitation or liquidation of the
Company's non-performing assets. As a result of management's efforts in
this regard, the Company's non-performing assets have been significantly
reduced.
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<PAGE>
As the Company's asset quality has improved, the Company has begun to
focus on building its core banking operations similar to those of a
commercial bank by increasing its emphasis on commercial business,
residential construction, commercial real estate (primarily multi-family
residential) and consumer lending. In addition, the Company has continued
to emphasize the origination of single-family residential loans, primarily
for resale in the secondary market. In recent years, the Company has begun
to increase its loan servicing portfolio through loan originations and
sales as well as through purchases of mortgage servicing rights. As a
result of the Conversion and the Merger, the Company's consolidated
financial condition and capital resources will be significantly enhanced
and the Company will be in a position to increase its emphasis on the lines
of business set forth above as well as other traditional banking activities
and services. For additional information, see "Summary - The Company and
Progress Bank Following the Conversion and the Merger."
In general, savings institutions are vulnerable to an increase in
interest rates to the extent that interest-bearing liabilities mature or
reprice more rapidly than interest-earning assets. The lending activities
of savings institutions, including Progress, have historically emphasized
the origination of long-term loans secured by single-family residences, and
the primary source of funds of such institutions has been deposits, which
largely mature or are subject to repricing within a short period of time.
This factor has historically caused the income earned by Progress on its
loan portfolio to adjust more slowly to changes in interest rates than its
cost of funds. While having liabilities that reprice more frequently than
assets is generally beneficial to net interest income in times of declining
interest rates, such an asset/liability mismatch is generally detrimental
during periods of rising interest rates. To reduce the effect of adverse
changes in interest rates on its operations, the Company has implemented
the asset and liability management policies described below.
Asset/Liability and Interest Rate Risk Management
The major objectives of the Company's asset and liability management
are to manage the Company's exposure to changes in the interest rate
environment, ensure adequate liquidity and funding, preserve and build
capital and to maximize net interest income. The Company manages these
objectives through its Asset/Liability Committee, which meets weekly to set
loan and deposit prices and develop strategies that enhance the future
level of net interest income, liquidity and capital. The Company's
Asset/Liability Committee utilizes cash flow forecasts, considers current
economic conditions and anticipates the direction of interest rates, while
managing the Company's risk to such changes.
The Company attempts to manage its interest rate risk primarily by
selling substantially all of its newly originated long-term, fixed-rate
mortgage loans in the secondary market and retaining for its portfolio on a
select basis primarily adjustable-rate single-family residential loans. In
addition, the Company also emphasizes the origination of commercial
business loans, residential construction loans, commercial real estate
loans (primarily multi-family residential loans) and consumer loans, which
generally have higher yields and shorter terms to maturity than traditional
single-family residential loans. However, these types of
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<PAGE>
loans generally involve a higher degree of credit
risk than single-family residential mortgage loans. See "Risk Factors -
Increased Emphasis on Commercial Business, Residential Construction,
Commercial Real Estate and Consumer Lending."
Finally, the Company has also elected to offer moderately competitive
rates and may experience some attrition in deposits in order to manage
interest rate expense more effectively. The Company has generally not
engaged in sporadic increases or decreases in interest rates paid or
offered the highest rates available in its deposit market except upon
specific occasions when market conditions have created opportunities to
attract longer-term deposits. This policy has assisted the Company in
controlling its cost of funds.
Management presently monitors and evaluates the potential impact of
interest rate changes upon Progress' market value of portfolio equity and
the volatility of net interest income on a quarterly basis, in an attempt
to ensure that interest rate risk is maintained within limits established
by the Board of Directors. As discussed under "Regulation - Savings Bank
Regulation - Regulatory Capital Requirements," the OTS adopted a final rule
in August 1993 incorporating an interest rate risk capital component into
the risk-based capital rules. Under the rule, an institution with a
greater than "normal" level of interest rate risk will be subject to a
deduction of its interest rate component from total capital for purposes of
calculating the risk-based capital requirement. An institution with a
greater than "normal" interest rate risk is defined as an institution that
would suffer a loss of net portfolio value ("NPV") exceeding 2.0% of the
estimated market value of its assets in the event of a 200 basis point
increase or decrease in interest rates. NPV is the difference between
incoming and outgoing discounted cash flows from assets, liabilities, and
off-balance sheet contracts. A resulting change in NPV of more than 2% of
the estimated market value of an institution's assets will require the
institution to deduct from its capital 50% of that excess change. The rule
provides that the OTS will calculate the interest rate risk component
quarterly for each institution. The effective date of the rule has been
postponed indefinitely by the OTS. Because a 200 basis point increase in
interest rates would have decreased Progress' NPV by 2.93% as of March 31,
1995, Progress would have been subject to a capital deduction of $1.6
million as of March 31, 1995 if such regulation had been effective for the
purposes of capital compliance as of such date. See "Regulation - Savings
Bank Regulation - Regulatory Capital Requirements." The following table
presents Progress' NPV as of March 31, 1995, as calculated by the OTS,
based on information provided to the OTS by Progress.
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<PAGE>
<TABLE><CAPTION>
Change in Change in
Interest Rates Net Portfolio Value NPV as % of NPV as % of
in Basis Points ----------------------------- Portfolio Value Portfolio Value
(Rate Shock) Amount $ Change % Change of Assets of Assets
--------------- ------ --------- -------- -------------- ---------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
400 $ (472) $(21,521) (102)% (0.15)% (6.16)%
300 5,002 (16,047) (76) 1.52 (4.50)
200 10,800 (10,249) (49) 3.21 (2.81)
100 16,313 (4,736) (23) 4.75 (1.27)
Static 21,049 -- -- 6.02 --
(100) 24,235 3,186 15 6.83 0.81
(200) 25,501 4,452 21 7.13 1.11
(300) 26,035 4,987 24 7.23 1.21
(400) 27,079 6,030 29 7.45 1.44
</TABLE>
The following table sets forth the interest rate risk capital
component that would be applicable for Progress at March 31, 1995 if the
OTS' interest rate risk regulation was in effect as of such date. See
"Regulation - Savings Bank Regulation - Regulatory Capital Requirements."
At March 31, 1995
-----------------
RISK MEASURES:
200 Basis Point Rate Shock
Pre-Shock NPV Ratio: NPV as %
of Present Value of Assets 6.02%
Exposure Measure: Post-Shock
NPV Ratio 3.21%
Sensitivity Measure: Change in
NPV Ratio (2.81)%
CALCULATION OF CAPITAL COMPONENT:
Change in NPV as % of Present
Value of Assets (2.93)%
Interest Rate Risk Capital Component $1,627
Computations of prospective effects of hypothetical interest rate
changes are based on numerous assumptions, including relative levels of
market interest rates, loan prepayments, and deposit run-offs, and should
not be relied upon as indicative of actual results. Furthermore, the
computations do not include any actions Progress may undertake in response
to changes in interest rates, but are based on a fixed portfolio of assets,
liabilities and off-balance sheet items.
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<PAGE>
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. The
interest rates on certain types of assets and liabilities may fluctuate in
advance of changes in market interest rates, while interest rates on other
types may lag behind changes in market rates. Additionally, certain
assets, such as adjustable-rate loans, have features which restrict changes
in interest rates on a short-term basis and over the life of the asset.
Furthermore, in the event of a change in interest rates, prepayment and
early withdrawal levels would likely deviate significantly from those
assumed in the tables. Finally, the ability of many borrowers to service
their adjustable-rate loans may decrease in the event of an interest rate
increase.
Changes in Financial Condition
General. At March 31, 1995, the Company's assets totalled $347.0
million, as compared to $348.2 million and $333.2 million at December 31,
1994 and 1993, respectively. Total assets decreased slightly by $1.2
million or 0.3% from December 31, 1994 to March 31, 1995, and increased by
$15.0 million or 4.5% from December 31, 1993 to December 31, 1994. The
decrease in assets during the three months ended March 31, 1995 reflected
the outflow of deposits. Although the Company has been competitive in the
types of accounts and in interest rates it has offered on its deposit
products, it has not sought to match the highest rates paid by competing
institutions or by alternative investment products. Consequently, with the
increase in rates paid on alternative investment products, the Company has
experienced some disintermediation of deposits into such competing
investments. The increase in assets during 1994 reflected the Company's
commitment to increase its single-family residential loan portfolio during
the year.
Cash and Deposits. Cash and interest-bearing deposits in other
financial institutions decreased by $126,000 or 40.5% and increased by
$232,000 or 293.7% during the three months ended March 31, 1995 and the
year ended December 31, 1994, respectively. At March 31, 1995, the Company
also had $5.3 million of non-interest-bearing deposits in other financial
institutions, compared with $7.8 million and $4.1 million at December 31,
1994 and 1993, respectively.
Investment Securities. As a matter of policy, the Company generally
emphasizes lending activities (including investing in mortgage-backed
securities) in order to enhance the weighted average yield on its interest-
earning assets and, thus, its results of operations. Investment securities
(including investment securities classified as available for sale), which
consist primarily of U.S. Government agency obligations, decreased by
$661,000 or 3.8% during the three months ended March 31, 1995, due
primarily to the sale of $965,000 of U.S. Government agency securities
during the period. During 1994, investment securities (including
investment securities classified as available for sale) increased by $12.9
million or 277.7% due primarily to the purchase of $20.2 million of U.S.
Government agency securities during the year. At March 31, 1995, the
Company had classified a total of $3.8
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<PAGE>
million of investment securities as available for sale (which reflected
$220,000 of unrealized losses as of such date).
Mortgage-Backed Securities. Mortgage-backed securities (including
mortgage-backed securities classified as available for sale), which consist
primarily of securities which are insured or guaranteed by the Federal Home
Loan Mortgage Corporation ("FHLMC"), the Federal National Mortgage
Association ("FNMA") or the Government National Mortgage Association
("GNMA"), decreased by $3.0 million or 2.9% during the three months ended
March 31, 1995, and by $23.2 million or 18.4% during the year ended
December 31, 1994. The decrease during the three months ended March 31,
1995 reflected primarily the $3.0 million of principal repayments received
during the period. The decrease during 1994 was primarily due to sales of
$19.6 million and $27.2 million of principal repayments received during the
year, which were partially offset by purchases of $26.6 million. At March
31, 1995, the Company had classified a total of $9.1 million of mortgage-
backed securities as available for sale (which reflected $501,000 of
unrealized losses as of such date).
Loans. Net loans (including loans classified as held for sale)
amounted to $210.9 million, $206.1 million and $175.0 million at March 31,
1995 and December 31, 1994 and 1993, respectively. Net loans (including
loans classified as held for sale) increased by $4.8 million or 2.3% during
the three months ended March 31, 1995 and by $31.1 million or 17.8% during
the year ended December 31, 1994 as a result of total loan originations and
purchases exceeding the aggregate of loan principal reductions and total
loans sold. For information concerning the composition of the Company's
loan portfolio, see "Business of the Company - Lending Activities - Loan
Portfolio Composition."
Allowance for Loan Losses. At March 31, 1995, the Company's allowance
for loan losses totalled $1.6 million, which represented a $109,000
increase over the level maintained at December 31, 1994 and a $502,000
decrease from the level maintained at December 31, 1993. At March 31,
1995, the Company's allowance represented approximately 0.76% of the gross
loan portfolio (including loans classified as held for sale). At that
date, the ratio of total non-performing loans to total loans (including
loans classified as held for sale) amounted to 2.03%, as compared to 2.19%
at December 31, 1994 and 3.38% at December 31, 1993. Although management
of the Company believes that its allowance for loan losses at March 31,
1995 was adequate based on facts and circumstances available to it, there
can be no assurances that additions to such allowance will not be necessary
in future periods, which could adversely affect the Company's results of
operations.
Deposits. Deposits totalled $277.8 million at March 31, 1995, as
compared to $284.0 million at December 31, 1994 and $273.6 million at
December 31, 1993. The $6.2 million or 2.2% decline in deposits during the
three months ended March 31, 1995 was due to decreases in money market
deposit accounts as well as NOW and Super NOW accounts (which reflected
fluctuations in period-end balances and not a decline in core balances),
while the $10.4 million or 3.8% increase during the year ended December 31,
1994 was due
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<PAGE>
primarily to growth in NOW and Super NOW accounts and, to a lesser extent,
time deposits of $100,000 or more.
Borrowings. Advances from the FHLB of Pittsburgh, the Company's
largest source of borrowings, amounted to $47.8 million at March 31, 1995,
as compared to $44.1 million and $40.5 million at December 31, 1994 and
1993, respectively. The weighted average rate on FHLB advances was 6.41%
at March 31, 1995, as compared to 6.35% and 4.45% at December 31, 1994 and
1993, respectively.
In June 1994, the Company completed a private placement offering
whereby the Company issued 12 units, each of which consisted of (i)
subordinated debentures with a principal amount of $250,000 and a coupon
rate of 8.25%, which mature in 2004, and (ii) warrants to purchase 25,000
shares of Company Common Stock. Consequently, at March 31, 1995 and
December 31, 1994, the Company had a total of $3.0 million of subordinated
debt outstanding. At March 31, 1995, Roxborough-Manayunk held $250,000 of
such subordinated debt and warrants to purchase 25,000 shares of Company
Common Stock at an exercise price of $6.00 per share. In connection with
the Conversion and the Merger, Roxborough-Manayunk's subordinated debt and
warrants will either be sold to an unaffiliated third party or cancelled
upon consummation of the Conversion and the Merger.
Stockholders' Equity. Total stockholders' equity decreased from $14.8
million at December 31, 1993 to $13.0 million at December 31, 1994 and
increased to $13.7 million at March 31, 1995. The $1.8 million or 11.9%
decrease in stockholders' equity from 1993 to 1994 reflected the $716,000
net loss recognized during the year as well as the $1.1 million unrealized
loss on securities classified as available for sale which was deducted from
stockholders' equity at December 31, 1994. The $708,000 or 5.4% increase
in stockholders' equity during the three months ended March 31, 1995 was
due to the $378,000 of net income recognized during the period as well as
the decrease in the unrealized loss on securities classified as available
for sale from $1.1 million at December 31, 1994 to $721,000 at March 31,
1995.
Results of Operations
General. The Company reported net income (loss) of $378,000 and
$45,000 for the three months ended March 31, 1995 and 1994, respectively,
and $(716,000), $683,000 and $1.3 million for the years ended December 31,
1994, 1993 and 1992, respectively. Net income during the three months
ended March 31, 1995 increased by $333,000 from the $45,000 in net income
recognized during the three months ended March 31, 1994. This increase in
net income resulted from a $597,000 increase in net interest income and, to
a lesser extent, a $28,000 increase in total other income, which were
partially offset by a $50,000 increase in the provision for loan losses and
a $242,000 increase in total other expense. During the year ended December
31, 1994, the Company recognized a net loss of $716,000, as compared to net
income of $683,000 during the year ended December 31, 1993. The $1.4
million or 204.8% decrease in net income during 1994 was due to a $153,000
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increase in the provision for loan losses, a $681,000 decline in total
other income, a $497,000 increase in total other expense and a $1.0 million
reduction in income tax benefit, which were partially offset by a $966,000
increase in net interest income. Net income for the year ended December
31, 1993 decreased by $595,000 or 46.6% from the year ended December 31,
1992 due to a $93,000 increase in the provision for loan losses and a $3.4
million decrease in total other income, which were partially offset by a
$1.1 million increase in net interest income, a $664,000 decrease in total
other expense and a $1.0 million income tax benefit recognized during 1993
(as compared to $74,000 in income tax expense which was recognized in
1992).
Net Interest Income. Net interest income is determined by the
Company's interest rate spread (i.e., the difference between the yields
earned on its interest-earning assets and the rates paid on its interest-
bearing liabilities) and the relative amounts of interest-earning assets
and interest-bearing liabilities.
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<PAGE>
The following table sets forth, for the periods indicated, information
regarding (i) the total dollar amount of interest income from interest-earning
assets and the resultant average yields; (ii) the total dollar amount of
interest expense on interest-bearing liabilities and the resultant average cost;
(iii) net interest income; (iv) average interest rate spread; and (v) net
interest margin. Information is based on average daily balances during the
indicated periods. For purposes of this table, non-accrual loans have been
included in the appropriate average balance loan category, but accrued interest
on non-accrual loans has not been included for purposes of determining interest
income.
<TABLE><CAPTION>
Three Months Ended March 31,
1995 1994
Average Yield/ Average Yield/
Balance Interest Rate(1)(2) Balance Interest Rate(1)
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Mortgage loans(3) $178,705 $ 3,812 8.65% $148,151 $ 2,914 7.98%
Mortgage-backed securities(3) 101,454 1,654 6.61 125,459 1,546 5.00
Other loans 31,710 736 9.41 24,806 519 8.49
Investment securities and other
interest-earning assets(3) 18,490 296 6.49 8,320 99 4.83
------- ----- ------- ------
Total interest-earning assets 330,359 $6,498 7.98% 306,736 $ 5,078 6.72%
===== ==== ====== ====
Non-interest-earning assets 17,201 24,931
------- -------
Total assets $347,560 $331,667
======= =======
Interest-bearing liabilities:
Deposits:
NOW and Super NOW $ 24,870 $ 161 2.63% $ 19,723 $ 110 2.26%
Money market accounts 34,960 255 2.96 44,781 292 2.64
Passbook and statement savings 27,603 200 2.94 26,313 192 2.96
Time deposits 173,023 2,223 5.21 166,619 1,806 4.40
------- ----- ------- -----
Total deposits 260,456 2,839 4.42 257,436 2,400 3.78
Advances from the FHLB 47,506 749 6.39 38,752 431 4.51
Subordinated debt 3,000 66 8.92 -- -- --
------- ----- -------- ------
Total interest-bearing liabilities 310,962 $3,654 4.77% 296,188 $2,831 3.88%
===== ==== ===== ====
Non-interest-bearing liabilities 23,177 20,765
------- -------
Total liabilities 334,139 316,953
Stockholders' equity 13,421 14,714
------- -------
Total liabilities and stockholders'
equity $347,560 $331,667
======= =======
Net interest income; average
interest rate spread(4) $2,844 3.21% $2,247 2.84%
===== ==== ===== ====
Net interest margin(4) 3.49% 2.97%
==== ====
Average interest-earning assets to
average interest-bearing liabilities 106.24% 103.56%
====== ======
<CAPTION>
Year Ended December 31,
1994 1993 1992
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate(2) Balance Interest Rate(2) Balance Interest Rate(2)
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Mortgage loans(3) $161,339 $12,692 7.87% $140,984 $11,914 8.45% $148,734 $13,956 9.38%
Mortgage-backed securities(3) 113,819 6,617 5.81 115,876 6,343 5.47 75,034 4,853 6.47
Other loans 27,713 2,492 8.99 25,435 2,209 8.68 31,961 2,729 8.54
Investment securities and other
interest-earning assets(3) 16,939 1,029 6.07 6,090 358 5.88 7,348 441 6.00
------ ----- ------- ------ ------- ------
Total interest-earning assets 319,810 $22,830 7.14% 288,385 $20,824 7.22% 263,077 $21,979 8.35%
====== ==== ====== ==== ====== ====
Non-interest-earning assets 20,304 30,889 43,957
------ ------- -------
Total assets $340,114 $319,274 $307,034
======= ======= =======
Interest-bearing liabilities:
Deposits:
NOW and Super NOW $21,932 $ 532 2.43% $ 17,488 $ 418 2.39% $ 15,677 $ 531 3.39%
Money market accounts 41,428 1,138 2.75 42,128 1,187 2.82 41,440 1,529 3.69
Passbook and statement savings 27,808 820 2.95 21,212 623 2.94 16,592 579 3.49
Time deposits 168,250 7,678 4.56 159,973 7,148 4.47 166,556 9,077 5.45
------- ------ ------- ----- ------- ------
Total deposits 259,418 10,168 3.92 240,801 9,376 3.89 240,265 11,716 4.88
Advances from the FHLB 44,007 2,202 5.00 48,702 2,089 4.29 41,502 2,021 4.87
Subordinated debt 1,508 135 8.95 -- -- -- -- -- --
------- ------ -------- ------ -------- ------
Total interest-bearing liabilities 304,933 $12,505 4.10% 289,503 $11,465 3.96% 281,767 $13,737 4.88%
====== ==== ====== ==== ====== ====
Non-interest-bearing liabilities 21,528 18,841 19,162
------ ------ -------
Total liabilities 326,461 308,344 300,929
Stockholders' equity 13,653 10,930 6,105
------- ------- -------
Total liabilities and stockholders'
equity $340,114 $319,274 $307,034
======= ======= =======
Net interest income; average
interest rate spread(4) $10,325 3.04% $9,359 3.26% $ 8,242 3.47%
====== ==== ===== ==== ====== ====
Net interest margin(4) 3.23% 3.25% 3.13%
==== ==== ====
Average interest-earning assets to
average interest-bearing liabilities 104.88% 99.61% 93.37%
====== ===== =====
</TABLE>
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<PAGE>
- --------------------
(1) At March 31, 1995, the weighted average yields earned and rates paid
were as follows: mortgage loans, 8.26%; mortgage-backed securities,
7.43%; other loans, 9.39%; investment securities and other interest-
earning assets, 6.41%; total interest-earning assets, 8.02%; total
deposits, 4.51%; advances from the FHLB, 6.41%; subordinated debt,
8.25%, total interest-bearing liabilities, 4.84%; and interest rate
spread, 3.18%.
(2) As adjusted for fees treated as adjustments to loan yields and
annualized for the three months ended March 31, 1995 and 1994.
(3) Includes mortgage loans classified as held for sale and mortgage-
backed and investment securities classified as available for sale.
(4) Interest rate spread represents the difference between the average
yield on interest-earning assets and the average cost of interest-
bearing liabilities, and net interest margin represents net interest
income divided by average interest-earning assets.
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<PAGE>
The following table describes the extent to which changes in interest rates
and changes in volume of interest-related assets and liabilities have affected
the Company's interest income and expense during 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
(change in volume multiplied by prior period rate), (ii) changes in rate (change
in rate multiplied by prior period volume), and (iii) total change in rate and
volume. The combined effect of changes in both rate and volume has been
allocated proportionately to the change due to rate and the change due to
volume.
<TABLE><CAPTION>
Three Months Ended
March 31, Year Ended December 31,
1995 vs. 1994 1994 vs. 1993
Increase (Decrease) Total Increase (Decrease) Total
Due To Increase Due To Increase
Volume Rate (Decrease) Volume Rate (Decrease)
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Mortgage loans $637 $261 $ 898 $1,639 $(861) $778
Mortgage-backed securities (331) 439 108 (114) 388 274
Other loans 156 61 217 203 80 283
Investment securities and other
interest-earning assets 154 43 197 659 12 671
--- --- ----- ----- ---- -----
Total interest-earning assets 616 804 1,420 2,387 (381) 2,006
--- --- ----- ----- ---- -----
Interest-bearing liabilities:
Deposits 44 395 439 729 63 792
Advances from the FHLB 112 206 318 (213) 326 113
Subordinated debt 66 -- 66 135 -- 135
--- ---- ----- ----- ----- -----
Total interest-bearing liabilities 222 601 823 651 389 1,040
--- --- ----- ----- ---- -----
Increase (decrease) in net interest income $394 $203 $ 597 $1,736 $(770) $ 966
=== === ===== ===== ==== =====
<CAPTION>
Year Ended December 31,
1993 vs. 1992
Increase (Decrease) Total
Due To Increase
Volume Rate (Decrease)
(Dollars in Thousands)
<S> <C> <C> <C>
Interest-earning assets:
Mortgage loans $(702) $(1,340) $(2,042)
Mortgage-backed securities 2,325 (835) 1,490
Other loans (566) 46 (520)
Investment securities and other
interest-earning assets (74) (9) (83)
---- ------ ------
Total interest-earning assets 983 (2,138) (1,155)
---- ------ ------
Interest-bearing liabilities:
Deposits 26 (2,366) (2,340)
Advances from the FHLB 326 (258) 68
Subordinated debt -- -- --
----- ------- -------
Total interest-bearing liabilities 352 (2,624) (2,272)
---- ------ ------
Increase (decrease) in net interest income $ 631 $ 486 $(1,117)
==== ====== ======
</TABLE>
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<PAGE>
The Company's net interest income totalled $2.8 million and $2.2
million during the three months ended March 31, 1995 and 1994,
respectively, and $10.3 million, $9.4 million and $8.2 million during the
years ended December 31, 1994, 1993 and 1992, respectively. The $597,000
or 26.6% increase in net interest income during the three months ended
March 31, 1995 was due primarily to a $23.6 million or 7.7% increase in the
average balance of total interest-earning assets (which was partially
offset by a $14.8 million or 5.0% increase in the average balance of total
interest-bearing liabilities) together with an increase in the Company's
interest rate spread of 37 basis points (100 basis points equals 1%). The
$966,000 or 10.3% increase in net interest income during 1994 was due
primarily to a $31.4 million or 10.9% increase in the average balance of
total interest-earning assets (which was partially offset by a $15.4
million or 5.3% increase in the average balance of total interest-bearing
liabilities), which more than offset a decline in the Company's interest
rate spread of 22 basis points. The $1.1 million or 13.6% increase in net
interest income during 1993 was primarily the result of a $25.3 million or
9.6% increase in the average balance of total interest-earning assets
(which was partially offset by a $7.7 million or 2.7% increase in the
average balance of total interest-bearing liabilities), which more than
offset a decline in the Company's interest rate spread of 21 basis points.
Interest Income. Total interest income amounted to $6.5 million for
the three months ended March 31, 1995, as compared to $5.1 million for the
same period in the prior year. The $1.4 million or 28.0% increase in total
interest income was due primarily to a $1.1 million or 32.5% increase in
interest earned on loans, which resulted from a $30.6 million and $6.9
million increase in the average balance of mortgage loans and other loans
outstanding and an increase in the average yields earned thereon of 67 and
92 basis points, respectively. Interest income on mortgage-backed
securities increased by $108,000 or 7.0% during the three months ended
March 31, 1995 due to an increase in the average yield earned thereon of
161 basis points, which was partially offset by a $24.0 million decrease in
the average balance outstanding. Interest income on investment securities
and other interest-earning assets (consisting primarily of U.S. Government
agency securities, FHLB stock and interest-bearing deposits in other
financial institutions) increased by $197,000 or 199.0% during the three
months ended March 31, 1995 due to a $10.2 million increase in the average
balance of such investments outstanding and an increase in the average
yield earned thereon of 166 basis points. The increase in average yields
reflected the general increase in market rates of interest during the
period.
Total interest income amounted to $22.8 million in 1994, as compared
to $20.8 million in 1993. The $2.0 million or 9.6% increase in total
interest income in 1994 was due primarily to a $1.1 million or 7.5%
increase in interest earned on loans, which resulted primarily from a $20.4
million and $2.3 million increase in the average balance of mortgage loans
and other loans, respectively, and which more than offset a decline in the
average rate earned on mortgage loans of 58 basis points. The increase in
the average balance of mortgage loans reflects the high level of
refinancings which occurred earlier in the year and the decrease in
mortgage banking activities. The decrease in the average yield earned on
mortgage loans reflects the above-mentioned refinancing activity as well as
an increase in
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<PAGE>
consumer preference for lower-yielding adjustable-rate loans as market
rates of interest began to increase during 1994. Interest income on
mortgage-backed securities increased by $274,000 or 4.3% during 1994 due to
an increase in the average yield earned thereon of 34 basis points, which
was partially offset by a $2.1 million decline in the average balance
outstanding. Interest income on investment securities and other interest-
earning assets increased by $671,000 or 187.4% during 1994 due to a $10.8
million increase in the average balance outstanding together with an
increase in the average yield earned thereon of 19 basis points.
Total interest income amounted to $20.8 million in 1993, as compared
to $22.0 million in 1992. The $1.2 million or 5.3% decline in total
interest income during 1993 was due primarily to a $2.6 million or 15.4%
decrease in interest earned on loans, which resulted primarily from a $7.8
million and $6.5 million decrease in the average balance of mortgage loans
and other loans, respectively, outstanding and a decline in the average
yield earned on mortgage loans of 93 basis points. The decrease in the
average balance of mortgage loans reflected the increase in refinancing
activity during 1993 and the reinvestment of such funds into mortgage
banking activities and mortgage-backed securities. The decrease in the
average yield reflected the continued decline in market rates of interest
during 1993. Interest income on mortgage-backed securities increased by
$1.5 million or 30.7% during 1993 due to a $40.8 million increase in the
average balance outstanding, which was partially offset by a decline in the
average yield earned thereon of 100 basis points. The Company's increased
investment in agency-guaranteed mortgage-backed securities reflected
management's intent to improve asset quality and diversify the Company's
earning assets. Interest income on investment securities and other
interest-earning assets declined by $83,000 or 18.8% during 1993 due to a
$1.3 million decrease in the average balance outstanding and a decline in
the average yield earned thereon of 12 basis points.
Interest Expense. Total interest expense amounted to $3.7 million
during the three months ended March 31, 1995, as compared to $2.8 million
for the same period in the prior year. The $823,000 or 29.1% increase in
total interest expense during the three months ended March 31, 1995 was due
primarily to a $439,000 or 18.3% increase in interest expense on deposits,
which was the result of an increase in the average rate paid thereon of 64
basis points and a $3.0 million increase in the average balance of deposits
outstanding. Interest expense on FHLB advances increased by $318,000 or
73.8% during the three months ended March 31, 1995 due to a $8.8 million
increase in the average balance of FHLB advances and an increase in the
average rate paid on FHLB advances of 188 basis points. The increase in
the average balance of FHLB advances reflected the Company's increased use
of such funds to meet its loan demand. Interest expense on subordinated
debt increased by $66,000 during the three months ended March 31, 1995 due
to the issuance of $3.0 million of subordinated debentures in June 1994.
Total interest expense amounted to $12.5 million in 1994, as compared
to $11.5 million in 1993. The $1.0 million or 9.1% increase in total
interest expense in 1994 was due primarily to a $792,000 or 8.4% increase
in interest expense on deposits, which was the
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<PAGE>
result of a $18.6 million increase in the average balance of deposits
outstanding and, to a lesser extent, an increase in the weighted average
rate paid thereon of 3 basis points. Interest expense on FHLB advances
increased by $113,000 or 5.4% during 1994 reflecting an increase in the
average rate paid thereon of 71 basis points, which was partially offset by
a $4.7 million decrease in the average balance outstanding. The increase
in the average rates paid on deposits and FHLB advances reflected the
increase in market rates of interest during 1994. Interest expense on
subordinated debt amounted to $135,000 in 1994 as a result of the issuance
of $3.0 million of subordinated debentures in June 1994.
Total interest expense amounted to $11.5 million in 1993, as compared
to $13.7 million in 1992. The $2.3 million or 16.5% decrease in total
interest expense during 1993 was due primarily to a $2.3 million or 20.0%
decrease in interest expense on deposits, which was primarily the result of
a decline in the average rate paid on deposits of 99 basis points.
Interest expense on FHLB advances increased by $68,000 or 3.4% during 1993
primarily due to a $7.2 million increase in the average balance of FHLB
advances, which was partially offset by a decline in the average rate paid
thereon of 58 basis points. The decrease in the average rates paid on
deposits and FHLB advances reflected the decline in market rates of
interest during 1993. The increase in the average balance of FHLB advances
was due to management's decision to fund asset growth with lower cost
borrowings from the FHLB of Pittsburgh.
Provision for Loan Losses. The provision for loan losses represents
the charge against earnings that is required to fund the allowance for loan
losses. The level of the allowance for loan losses is determined by
management of the Company based upon their evaluation of the known as well
as the inherent risks within the Company's loan portfolio. Management's
periodic evaluation is based upon an examination of the portfolio, past
loss experience, current economic conditions, the results of the most
recent regulatory examinations and other relevant factors. See "Business
of the Company - Lending Activities - Asset Quality - Allowance for Loan
Losses."
During the three months ended March 31, 1995 and 1994, provisions for
loan losses amounted to $100,000 and $50,000, respectively, and during the
years ended December 31, 1994, 1993 and 1992, the provisions for loan
losses amounted to $521,000, $368,000 and $275,000, respectively. The
level of the provision for loan losses during the periods presented was
necessary in order to maintain the allowance for loan losses at an adequate
level after it was reduced by net charge-offs (recoveries) of $(9,000),
$33,000, $1.1 million, $1.1 million and $3.1 million during such respective
periods. The ratio of the allowance for loan losses to total non-
performing loans was 37.4% at March 31, 1995, 34.7% at March 31, 1994,
33.0% at December 31, 1994, 34.9% at December 31, 1993 and 38.8% at
December 31, 1992. In addition, the ratio of the allowance for loan losses
to total loans was 0.76% at March 31, 1995, 1.17% at March 31, 1994, 0.72%
at December 31, 1994, 1.19% at December 31, 1993 and 1.70% at December 31,
1992. The Company's allowance for loan losses declined from $2.7 million
at December 31, 1992 to $1.6 million at March 31, 1995. The decrease in
the allowance for loan losses over such period reflected the Company's
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<PAGE>
increased focus, beginning in 1992, on secured residential and consumer
lending (i.e., home equity loans) and the decline in total non-performing
loans, loan delinquencies and net change-offs since December 31, 1992. See
"Business of the Company - Lending Activities - Asset Quality - Allowance
for Loan Losses."
Although management utilizes its best judgment in providing for
losses, there can be no assurance that the Company will not have to
increase its provisions for loan losses in the future as a result of future
increases in non-performing loans or for other reasons. Any such increase
could adversely affect the Company's results of operations. In addition,
various regulatory agencies, as an integral part of their examination
process, periodically review the Company's allowance for loan losses and
the carrying value of its other non-performing assets. Such agencies may
require the Company to recognize additions to its allowance for losses on
loans and allowance for losses on REO based on their judgments about
information available to them at the time of their examination.
Other Income. The following table sets forth information regarding
other income for the periods shown.
Three Months
Ended
March 31, Year Ended December 31,
------------ ----------------------
1995 1994 1994 1993 1992
---- ---- ---- ---- ----
(In Thousands)
Mortgage origination and
servicing $207 $222 $ 713 $ 488 $ 264
Service charges on
deposits 231 192 831 750 702
Gain (loss) from sales of
securities (35) (70) (322) 215 1,197
Gain (loss) from mortgage
banking activities (1) (126) (176) 606 1,428
Income (loss) on
properties sold, net (24) (37) (62) 102 1,218
Income from affiliates
and joint ventures -- -- -- -- 447
Other 24 193 561 65 361
--- --- ----- ----- -----
Total other income $402 $374 $1,545 $2,226 $5,617
=== === ===== ===== =====
Total other income amounted to $402,000 for the three months ended
March 31, 1995, as compared to $374,000 for the same period in the prior
year. The $28,000 or 7.5% increase reflected the decline in losses from
sales of securities, mortgage banking activities and sales of properties.
Mortgage origination and servicing income decreased slightly by $15,000 or
6.8% as a result of lower mortgage lending activity (which was due
primarily to the increase in market rates of interest during the period).
Service charges on deposits increased by $39,000 or 20.3% due to higher
volumes of account transactions. Losses from mortgage banking activities
and from sales of securities declined from $126,000 and $70,000 for the
three months ended March 31, 1994 to $1,000 and $35,000 for the three
months ended March 31, 1995, respectively. The Company continues to sell
investment and mortgage-backed securities from its available for sale
portfolio in accordance with its asset/liability strategy or in response to
changes in interest rates, prepayment rates, the need to increase Progress'
regulatory capital or similar factors. The ability to recognize gains from
mortgage banking activities and sales of securities is dependent on market
and economic conditions and, accordingly, there can be no assurance of
gains in future periods
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<PAGE>
or that there will not be significant inter-period variation in the results
of such activities. Losses on properties sold declined from $37,000 at
March 31, 1994 to $24,000 at March 31, 1995 due to declining sales of REO
properties. Other miscellaneous income decreased by $169,000 or 87.6% due
primarily to lower fee income generated by the Company's subsidiary,
Progress Realty Advisors, Inc. ("PRA") and its related limited partnership.
See "Business of the Company - Subsidiaries."
Total other income amounted to $1.5 million for the year ended
December 31, 1994, as compared to $2.2 million for the year ended December
31, 1993. The $681,000 or 30.6% decrease reflected the losses recognized
from sales of securities, mortgage banking activities and sales of
properties during 1994. Mortgage origination and servicing income
increased by $225,000 or 46.1% due to a $55.2 million increase in the
Company's loan servicing portfolio from $185.6 million at December 31, 1993
to $240.8 million at December 31, 1994. The increase in the Company's loan
servicing portfolio reflects the Company's strategy since the last half of
1991 to securitize and sell in the secondary market substantially all
conforming fixed-rate single-family residential mortgage loans originated
by Progress. During 1994, the Company securitized and sold in the
secondary market $34.0 million of single-family residential mortgage loans.
Service charges on deposits increased by $81,000 or 10.8% due to higher
fees for various services and an increased volume of account transactions.
Losses from sales of securities amounted to $322,000 during 1994, as
compared to gains of $215,000 during 1993. The losses recognized during
1994 reflected the general decline in market values during the year as a
result of the increase in market rates of interest. Losses from mortgage
banking activities amounted to $176,000 during 1994, as compared to
$606,000 of gains recognized during 1993. Once again, the losses
recognized during 1994 reflected the increase in market rates of interest
during the year. Losses on properties sold amounted to $62,000 during
1994, as compared to gains of $102,000 during 1993. The losses recognized
during 1994 were the result of the Company's disposition of certain REO
properties. Other miscellaneous income increased significantly by $496,000
due primarily to real estate advisory fees earned by the Company's
subsidiary, PRA.
Total other income amounted to $2.2 million for the year ended
December 31, 1993, as compared to $5.6 million for the year ended December
31, 1992. The $3.4 million or 60.4% decrease reflected the decline in
gains from sale of securities, mortgage banking activities and properties
sold during 1993. Mortgage origination and servicing income increased by
$224,000 or 84.8% due to a $123.2 million increase in the Company's loan
servicing portfolio from $62.4 million at December 31, 1992 to $185.6
million at December 31, 1993. During 1993, the Company securitized and
sold $64.5 million of single-family residential mortgage loans and in
December 1993, the Company purchased the rights to service an additional
$57.6 million of single-family residential mortgage loans. Gains from
sales of securities declined substantially by $982,000 or 82.0% due to
unfavorable market conditions during 1993 and, to a lesser extent, a $23.2
million decline in the amount of securities sold during 1993, as compared
to 1992. Gains from mortgage banking activities declined by $822,000 or
57.6% in 1993 as a result of market conditions. Income on properties sold
declined by $1.1 million or 91.6% during 1993 due to nonrecurring gains
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<PAGE>
recognized in 1992 with respect to three of the Company's residential
construction projects. These projects were substantially completed in 1993
and no additional gains were recognized. Income from affiliates and joint
ventures declined by $447,000 during 1993. The income recognized in 1992
reflected the Company's portion of the equity earnings of Cardinal
Financial Company ("Cardinal"), a mortgage banking company in which the
Company previously owned a 50% interest. The Company sold its interest in
Cardinal to the other principals in the partnership in December 1992 in
order to focus on residential mortgage lending through its own mortgage
banking operations. Other miscellaneous income decreased by $296,000 or
82.0% during 1993 due primarily to a nonrecurring gain on a former
construction loan participation buyout.
Other Expense. The following table set forth certain information
regarding other expense for the periods shown.
<TABLE><CAPTION>
Three Months Ended
March 31, Year Ended December 31,
--------------------- ------------------------------------
1995 1994 1994 1993 1992
--------- --------- ---------- -------- ---------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Salaries and employee benefits $1,200 $1,047 $ 4,363 $ 3,693 $ 3,742
Occupancy 325 333 1,292 1,177 1,134
Data processing 191 187 816 795 769
Furniture, fixtures and equipment 127 108 498 426 478
Insurance premiums 258 261 1,054 1,005 784
Provision for REO, net 75 -- 1,576 1,734 2,835
Loan and REO expenses, net 43 110 296 594 380
Professional services 274 218 809 888 1,223
Marketing 53 58 352 319 217
Other 222 204 1,009 937 670
----- ----- ------ ----- ------
Total other expense $2,768 $2,526 $12,065 $11,568 $12,232
===== ===== ====== ====== ======
</TABLE>
Total other expense amounted to $2.8 million during the three months
ended March 31, 1995, as compared to $2.5 million for the same period in
the prior year. The $242,000 or 9.6% increase was primarily due to a
$153,000 or 14.6% increase in salaries and employee benefits as a result of
staffing additions to support the Company's lending initiatives.
Furniture, fixtures and equipment expense increased by $19,000 or 17.6% due
primarily to higher systems maintenance costs. The $75,000 provision for
REO recognized during the three months ended March 31, 1995 reflected
write-downs on two of the Company's residential development projects. Loan
and REO expenses decreased by $67,000 or 60.9% due primarily to the decline
in the Company's non-performing assets. Professional services expense,
which consist primarily of legal, accounting, tax and supervisory
examination fees, increased by $56,000 or 25.7% due primarily to an
increase in legal expenses. Marketing expense decreased by $5,000 or 8.6%
due primarily to fewer deposit and loan promotions. Other miscellaneous
expenses, which includes telephone, printing, postage and stationery
expenses, increased by $18,000 or 8.8% during the period.
Total other expense amounted to $12.1 million for the year ended
December 31, 1994, as compared to $11.6 million for the year ended December
31, 1993. The $497,000
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<PAGE>
or 4.3% increase was primarily due to a $670,000 or 18.1% increase in
salaries and employee benefits primarily as a result of staffing additions
to support the Company's lending initiatives. Occupancy expense increased
by $115,000 or 9.8% primarily due to the Company's acquisition of its
Rosemont branch office in July 1993. Furniture, fixtures and equipment
expense increased by $72,000 or 16.9%, $46,000 of which related to an
increase in maintenance and processing charges for the Company's new loan
origination and servicing systems. Insurance premiums increased by $49,000
or 4.9% due to an increase in the total amount of deposits outstanding.
The Company's provision for REO amounted to $1.6 million during 1994, a
decrease of $158,000 or 9.1% from the $1.7 million recognized during 1993.
During 1994, the provision for REO included a $1.1 million write-down with
respect to the Company's largest REO property, a medical office building
located in the Bronx, New York. See "Business of the Company - Asset
Quality - Non-Performing Assets." Loan and REO expenses decreased by
$298,000 or 50.2% primarily due to $6.2 million of sales of REO in 1994.
Professional services expense decreased by $79,000 or 8.9% due primarily to
a reduction in legal expenses associated with workout efforts as the level
of the Company's non-performing assets continued to decline. Marketing
expense increased by $33,000 or 10.3% primarily due to increased deposit
and loan promotions during 1994. Other miscellaneous expenses increased by
$72,000 or 7.7% due primarily to increased employee training and education
expenses and other general and administrative costs.
Total other expense amounted to $11.6 million for the year ended
December 31, 1993, as compared to $12.2 million for the year ended December
31, 1992. The $664,000 or 5.4% decrease was due primarily to a $1.1
million or 38.8% decline in the Company's provision for REO. During 1993,
the provision for REO included a $870,000 write-down with respect to the
Company's largest REO property, which is discussed above. Salaries and
employee benefits decreased by $49,000 or 1.3% due primarily to an increase
in the amount of compensation costs related to loan origination activities
that were deferred in accordance with SFAS No. 91. Furniture, fixtures and
equipment expense decreased by $52,000 or 10.9%, $39,000 of which reflected
a decrease in depreciation expense with respect to fully depreciated
assets. Insurance premiums increased by $221,000 or 28.2% as a result of
the FDIC's adoption of a regulation for assessing federal deposit insurance
premiums based on the riskiness of the activities conducted by an
individual institution as well as its regulatory capital levels and other
supervisory concerns. See "Regulation - Savings Bank Regulation -Insurance
of Accounts." Loan and REO expenses increased by $214,000 or 56.3% due
primarily to expensed capital expenditures which were necessary to obtain a
certificate of occupancy for the Company's largest REO property.
Professional services expense decreased by $335,000 or 27.4% due primarily
to a reduction in legal expenses associated with workout efforts as the
level of the Company's non-performing assets continued to decline.
Marketing expense increased by $102,000 or 47.0% due primarily to the costs
of advertising relating to the opening of the Rosemont branch office,
market research, new brochures produced to promote retail products and
radio advertising. Other miscellaneous expenses increased by $267,000 or
39.9% due primarily to increased printing, employee travel/entertainment
and education expenses and other general and administrative costs.
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<PAGE>
Income Taxes. The Company recorded no income tax expense for the
three months ended March 31, 1995 and 1994 and the year ended December 31,
1994. During the year ended December 31, 1993 and 1992, the Company
recognized $1.0 million of income tax benefit and $74,000 of income tax
expense, respectively.
The Company adopted SFAS No. 109 on a prospective basis during the
three months ended March 31, 1993. Under SFAS No. 109, deferred income
taxes are recognized in full, subject to a valuation allowance, for the
future tax consequences attributable to the differences between financial
statement carrying amounts of existing assets and liabilities using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. At March
31, 1995, the Company had a valuation allowance of $2.3 million against net
deferred tax assets of $3.6 million. The amount of the valuation allowance
was determined based on management's estimate of deferred tax assets that
will be realized using the "more likely than not" realization criteria
contained in SFAS No. 109 in consideration of management's projections of
future taxable income. This valuation allowance is expected to be
recovered upon consummation of the Conversion and the Merger. See "Pro
Forma Unaudited Financial Information."
The Company's 1993 income tax benefit of $1.0 million represents a
reduction in the deferred tax asset valuation allowance in the fourth
quarter of 1993. Such reduction in the valuation allowance was based upon
the termination of a capital plan by the OTS and all related operating
restrictions based on Progress being in full capital compliance, the
successful $7.2 million rights offering after which Progress achieved full
regulatory capital compliance, the continued reduction of non-performing
assets throughout 1993, and the continued improvement in core operating
earnings. The amount of the reduction was determined based on management's
estimate of deferred tax assets that would be realized using the "more
likely than not" realization criteria contained in SFAS No. 109 in
consideration of management's projections of future taxable income.
At March 31, 1995, the Company had a net operating loss carryforward
for federal income tax purposes of approximately $7.1 million, $866,000 of
which expires in 2006, $4.5 million of which expires in 2007, $654,000 of
which expires in 2008 and $1.0 million of which expires in 2009. The
Conversion and the Merger will result in the issuance of more than 50% of
the Company Common Stock outstanding upon consummation of such
transactions, which will cause an "ownership change" of the Company
pursuant to Section 382 of the Internal Revenue Code of 1986, as amended.
As a result, the net operating loss carryforwards of the Company will be
subject to an annual limitation based on the value of the Company
immediately preceding the "ownership change" and the federal long-term tax
exempt rate in effect on that date. For additional information, see
"Taxation."
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<PAGE>
Liquidity and Commitments
Liquidity refers to the Company's ability to generate sufficient cash
to meet the funding needs of current loan demand, savings deposit
withdrawals and to pay operating expenses. The Company generally has no
significant source of income other than dividends from Progress and its
other subsidiaries and any fees paid by Progress and its other subsidiaries
to the Company. In April 1995, Progress began paying a $25,000 monthly
management fee to the Company in order to compensate the Company for
certain operating expenses. Such operating expenses consist primarily of
accounting, tax, legal, transfer agent and other stockholder related
expenses of the Company.
Progress is required under applicable federal regulations to maintain
specified levels of "liquid" investments in qualifying types of United
States Treasury, federal agency and other investments having maturities of
five years or less. Regulations currently in effect require Progress to
maintain liquid assets of not less than 5% of its net withdrawable accounts
plus short-term borrowings, of which short-term liquid assets must consist
of not less than 1%. These levels are changed from time to time by the OTS
to reflect economic conditions. Progress' regulatory liquidity ratio at
March 31, 1995 was approximately 5.92%.
Progress monitors its liquidity in accordance with guidelines
established by Progress and applicable regulatory requirements. The
Company's need for liquidity is affected by loan demand and net changes in
retail deposit levels. The Company can minimize the cash required during
the times of heavy loan demand by modifying its credit policies or reducing
its marketing efforts. Liquidity demand caused by net reductions in retail
deposits are usually caused by factors over which the Company has limited
control. The Company derives its liquidity from both its assets and
liabilities. Liquidity is derived from assets by receipt of interest and
principal payments and prepayments, by the ability to sell assets at market
prices and by utilizing unpledged assets as collateral for borrowings.
Liquidity is derived from liabilities by maintaining a variety of funding
sources, including retail deposits and advances from the FHLB of
Pittsburgh.
The Company's primary sources of funds have historically consisted of
deposits, amortization and prepayments of outstanding loans, borrowings
from the FHLB of Pittsburgh and sales of investment securities, loans and
mortgage-backed securities. During 1994, the Company obtained additional
funds through a private placement of $3.0 million of subordinated
debentures, of which $2.4 million was contributed to Progress. During the
three months ended March 31, 1995 and the years ended December 31, 1994,
1993 and 1992, the Company used its capital resources primarily to meet its
ongoing commitments to fund maturing savings certificates and deposit
withdrawals, fund existing and continuing loan commitments and maintain its
liquidity.
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<PAGE>
For the three months ended March 31, 1995, cash was provided by
operating activities and used in investment and financing activities.
Operating activities provided $444,000 of cash, primarily due to net income
of $378,000. Investment activities used $664,000 in cash as net
originations of loans and purchases of investment securities exceeded
repayments of mortgage-backed securities and sales of investment
securities. In addition, financing activities used $2.3 million in cash
due to a decrease in deposits which more than offset a higher level of
borrowings.
For the year ended December 31, 1994, cash was provided by operating
activities as sales of loans and securitizations exceeded loan originations
and purchases of loans held for sale. Cash was used in the Company's
investment activities during 1994 as purchases of mortgage-backed
securities, purchases of investment securities and originations of loans
classified as held for investment exceeded repayments on mortgage-backed
securities, maturities of investment securities, proceeds from loan
repayments and net proceeds from sales of REO. The Company's financing
activities in 1994 partially offset the cash outflows from investment
activities as cash was provided from the issuance of subordinated debt,
increased FHLB borrowings and increased levels of deposits.
For the year ended December 31, 1993, cash was used in operating
activities as loans originated and mortgage-backed securities purchased
exceeded sales of both securitized loans and mortgage-backed securities
available for sale. Cash was also used in the Company's investment
activities as purchases of mortgage-backed securities classified as held to
maturity, purchases of investment securities and originations of loans
classified as held for investment exceeded repayments on mortgage-backed
securities, maturities of investment securities, proceeds from loan
repayments and net proceeds from sales of REO. The Company's financing
activities partially offset the cash outflows as cash was provided from the
issuance of common stock, increased FHLB borrowings and increased levels of
deposits.
At March 31, 1995, the total of approved loan commitments amounted to
$11.6 million, and the Company had $17.9 million of undisbursed loan funds.
At March 31, 1995, FHLB advances which were scheduled to mature during the
12 months ended March 31, 1996 totalled $29.8 million. At March 31, 1995,
the total amount of time deposits which were scheduled to mature during the
12 months ended March 31, 1996 totalled $111.0 million, a substantial
portion of which management believes, on the basis of prior experience,
will remain in Progress.
At March 31, 1995, Progress had commitments under standby letters of
credit and commercial and consumer unused lines of credit of approximately
$657,000 and $10.0 million, respectively. Progress can fund these
commitments, if required, from the sources outlined above.
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<PAGE>
BUSINESS OF THE COMPANY
Lending Activities
General. The Company incurred operating losses during the past two
fiscal years due, to a large extent, to the costs associated with the
administration of the Company's non-performing assets. Between 1991 and
1994, a primary focus of the Company was to improve the credit quality of
the Company's assets through the early identification of potential problem
assets and the administration, rehabilitation or liquidation of the
Company's non-performing assets. As a result of management's efforts in
this regard, the Company's non-performing assets have been significantly
reduced.
As the Company's asset quality has improved, the Company has begun to
increase its focus on building its core banking operations by increasing
its emphasis on commercial business, residential construction, commercial
real estate (primarily multi-family residential) and consumer lending. In
addition, the Company has continued to emphasize the origination of single-
family residential loans, primarily for resale in the secondary market. In
recent years, the Company has begun to increase its loan servicing
portfolio through loan originations and sales as well as through purchases
of mortgage servicing rights. As a result of the Conversion and the
Merger, the Company's consolidated financial condition and capital
resources will be significantly enhanced and the Company will be in a
position to increase its emphasis on the lines of business set forth above
as well as other traditional banking activities and services. For
additional information, see "Summary - The Company and Progress Bank
Following the Conversion and the Merger."
At March 31, 1995, the Company's net loan portfolio (including loans
classified as held for sale) totalled $210.9 million, representing
approximately 60.8% of its $347.0 million of total assets at that date.
The principal categories of loans in the Company's portfolio are
residential real estate loans, which are secured by single-family (one-to-
four units) residences; commercial real estate loans, which are secured by
multi-family (over five units) residential and commercial real estate;
loans for the construction of single-family properties, including land
loans; commercial business loans; and consumer loans. Substantially all of
the Company's residential mortgage loan portfolio consists of conventional
mortgage loans, which are loans that are neither insured by the Federal
Housing Administration ("FHA") nor partially guaranteed by the Department
of Veterans Affairs. In September 1994, Progress was approved as an FHA
lender and began originating FHA loans, primarily for resale in the
secondary market.
As a federally chartered savings institution, Progress has general
authority to originate and purchase loans secured by real estate located
throughout the United States. Notwithstanding this nationwide lending
authority, substantially all of the mortgage loans in the Company's loan
portfolio are secured by properties located in southeastern Pennsylvania,
as only approximately $25.6 million of mortgage loans, including
approximately $13.3 million of single-family residential loans, were
secured by properties
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located outside of southeastern Pennsylvania at March 31, 1995. In
addition, substantially all of the Company's non-mortgage loan portfolio
consists of loans made to residents of and businesses located in
southeastern Pennsylvania.
Federal regulations permit Progress to invest without limitation in
residential mortgage loans and up to four times its capital in loans
secured by non-residential or commercial real estate. Progress is also
permitted to invest in secured and unsecured consumer loans in an amount
not exceeding 35% of Progress' total assets; however, such 35% limit may be
exceeded for certain types of consumer loans, such as home equity, property
improvement and education loans. In addition, Progress is permitted to
invest up to 10% of its total assets in secured (by other than real estate)
and unsecured loans for commercial, corporate, business or agricultural
purposes.
A savings institution generally may not make loans to one borrower and
related entities in an amount which exceeds 15% of its unimpaired capital
and surplus, although loans in an amount equal to an additional 10% of
unimpaired capital and surplus may be made to a borrower if the loans are
fully secured by readily marketable securities. See "Regulation - Savings
Bank Regulation - General." At March 31, 1995, Progress' limit on loans-
to-one borrower was $2.7 million and, as of such date, Progress had three
borrowers with loans aggregating $10.9 million which exceeded Progress'
loans-to-one borrower limitation. Of these loans, $10.7 million consisted
of commercial real estate loans. Although divestiture of the loans which
exceeded Progress' loans-to-one borrower limitation at March 31, 1995 is
not required because such loans were in compliance with applicable
limitations at the time of origination, additional loans to such borrowers
and their related entities will not be permitted until the aggregate
balance of loans outstanding to any such borrower is reduced below the
applicable loans-to-one borrower limitation as a result of principal
repayments or the sale of loan participations. Following completion of the
Conversion and the Merger, Progress Bank's loans-to-one borrower limitation
will substantially exceed Progress' current limitation and the foregoing
restrictions will no longer continue to apply.
At March 31, 1995, Progress' five largest loans-to-one borrower and
their related entities amounted to $5.1 million, $3.0 million, $2.9
million, $2.6 million and $2.4 million. The $2.6 million loan was fully
repaid in April 1995 and, in connection therewith, the Company charged off
$200,000 of the loan balance. See "- Commercial Real Estate Loans." With
the exception of the $2.9 million loan, all of such loans were performing
in accordance with their terms at March 31, 1995. The $2.9 million loan,
which was over 120 days delinquent as of March 31, 1995, was originated in
1987 for the construction of a three-story restaurant and catering facility
located in Voorhees, New Jersey. The loan converted to a permanent loan
and matured on September 30, 1992. In May 1995, in accordance with an
order of the bankruptcy court, the Company restructured the loan for a
three-year term at a premium to the Company's designated prime lending
rate, the borrower paid in advance seven months of debt service payments
(five of which are being held in escrow), and, as a result, the loan has
been returned to accruing status.
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Loan Portfolio Composition. The following table sets forth
information concerning the Company's loan portfolio by type of loan at the
dates indicated.
<TABLE><CAPTION>
December 31,
March 31, 1995 1994 1993 1992
% of % of % of % of
Amount Loans Amount Loans Amount Loans Amount Loans
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate loans:
Single-family residential(1) $100,551 47.32% $ 99,917 48.12% $ 80,196 45.26% $ 54,560 34.27%
Commercial real estate(2) 75,393 35.48 71,273 34.33 68,530 38.69 70,646 44.38
Construction(3) 4,866 2.29 5,379 2.59 3,922 2.22 6,038 3.79
------- ------- ------- ----- ------- ----- ------- -----
Total real estate loans 180,810 85.09 176,569 85.04 152,648 86.17 131,244 82.44
------- ------ ------- ----- ------- ----- ------- -----
Commercial business loans 12,183 5.73 12,005 5.78 9,250 5.22 12,025 7.56
------- ------ ------- ----- ------- ----- ------- -----
Consumer loans:
Home equity and lines of credit 18,134 8.54 17,927 8.64 13,940 7.87 13,922 8.74
Other(4) 1,358 .64 1,124 .54 1,317 .74 2,006 1.26
------- ------ ------ ----- ------ ----- ------- -----
Total consumer loans 19,492 9.18 19,051 9.18 15,257 8.61 15,928 10.00
------- ------ ------ ----- ------ ----- ------ -----
Total loans(5) 212,485 100.00% 207,625 100.00% 177,155 100.00% 159,197 100.00%
====== ====== ====== ======
Allowance for loan losses (1,611) (1,502) (2,113) (2,703)
------- ------- ------- -------
Net loans $210,874 $206,123 $175,042 $156,494
======= ======= ======= =======
<CAPTION>
December 31,
1991 1990
% of % of
Amount Loans Amount Loans
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Real estate loans:
Single-family residential(1) $ 64,089 32.16% $ 83,225 29.55%
Commercial real estate(2) 73,229 36.75 89,369 31.74
Construction(3) 24,386 12.24 59,674 21.19
------- ----- ------- -----
Total real estate loans 161,704 81.15 232,268 82.48
------- ----- ------- -----
Commercial business loans 21,309 10.69 29,914 10.62
------- ----- ------- -----
Consumer loans:
Home equity and lines of credit 12,533 6.29 13,446 4.77
Other(4) 3,726 1.87 5,985 2.13
------- ----- ------- -----
Total consumer loans 16,259 8.16 19,431 6.90
------- ----- ------- -----
Total loans(5) 199,272 100.00% 281,613 100.00%
====== ======
Allowance for loan losses (5,483) (4,123)
------- --------
Net loans $193,789 $277,490
======= =======
</TABLE>
___________________________
(1) Includes loans classified as held for sale, which amounted to $727,000
at March 31, 1995.
(2) Includes multi-family residential loans (primarily apartment
buildings), which amounted to $15.3 million at March 31, 1995.
(3) At March 31, 1995, all of such loans were for the construction of
residential property, which included $552,000 of land loans.
(4) Consists primarily of credit card receivables, automobile loans and
loans secured by deposit accounts.
(5) Net of unearned discounts and deferred loan fees.
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The size of the Company's loan portfolio has begun to grow again in
recent years after being significantly reduced during 1991 and 1992, due to
reduced loan demand in the Company's primary market area and certain
regulatory restrictions in effect from June 1991 to June 1993 (which were
imposed as a result of Progress' prior regulatory capital deficiencies).
Total loans (including loans classified as held for sale) increased by an
aggregate of $53.3 million or 33.5% from December 31, 1992 to March 31,
1995. During this period, single-family residential real estate loans
increased by $46.0 million or 84.3%. In addition, from October 1991 until
June 30, 1994, the Company converted $149.8 million of conforming, fixed-
rate single-family residential loans into mortgage-backed securities, which
were then sold to the Federal Home Loan Mortgage Corporation ("FHLMC").
Total commercial real estate loans increased by $4.7 million or 6.7% from
December 31, 1992 to March 31, 1995, due primarily to improved loan demand
in Progress' primary market area. Although total construction loans
declined $1.2 million or 19.4% during such period, they have grown $944,000
or 24.1% since December 31, 1993 due to improved economic conditions in the
local housing market. Total commercial business loans increased slightly
by $158,000 or 1.3% from December 31, 1992 to March 31, 1995, again
indicating improved economic conditions in the local economy. In addition,
total consumer loans increased $3.6 million or 22.4% from December 31, 1992
to March 31, 1995 resulting from an increased emphasis by Progress on
secured consumer lending, particularly home equity loans and secured lines
of credit, as well as the initiation of a credit card program in December
1994.
The following table sets forth scheduled contractual amortization of
loans in the Company's total loan portfolio (including loans classified as
held for sale) at March 31, 1995. Loans having no stated schedule of
repayments and no stated maturity are reported as due in one year or less.
The following table also sets forth the dollar amount of loans which are
scheduled to mature after one year which have fixed or adjustable interest
rates.
<TABLE><CAPTION>
Real Estate Real Estate Commercial
Mortgage Construction Business Consumer Total
----------- ------------ ---------- -------- -------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Amounts due:
One year or less $ 20,312 $3,355 $ 4,952 $ 260 $ 28,879
After one year through five years 34,598 1,511 4,662 5,646 46,417
Beyond five years 121,034 -- 2,569 13,586 137,189
------- ------ ------ ------ -------
Total(1) $175,944 $4,866 $12,183 $19,492 $212,485
======= ===== ====== ====== =======
Interest rate terms on
amounts due after one year:
Fixed $ 81,205 $ 685 $ 1,372 $12,937 $ 96,199
======= ===== ====== ====== =======
Adjustable $ 74,427 $ 826 $ 5,859 $ 6,295 $ 87,407
======= ===== ====== ====== =======
</TABLE>
- -------------------
(1) Net of unearned discounts and deferred loan fees.
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Scheduled contractual principal repayments do not reflect the actual
maturities of loans. The average maturity of loans is substantially less
than their average contractual terms because of prepayments and, in the
case of conventional mortgage loans, due-on-sale clauses, which generally
give the Company the right to declare a loan immediately due and payable in
the event, among other things, that the borrower sells the real property
subject to the mortgage and the loan is not repaid. The average life of
mortgage loans tends to increase when current mortgage loan rates are
substantially higher than rates on existing mortgage loans and, conversely,
decrease when rates on existing mortgages are substantially lower than
current mortgage loan rates (due to refinancings of adjustable-rate and
fixed-rate loans at lower rates). Under the latter circumstances, the
weighted average yield on loans decreases as higher yielding loans are paid
or refinanced at lower rates.
Origination, Purchase and Sale of Loans. Applications for all types
of loans are taken at all of Progress' offices. Residential mortgage loan
applications are generally attributable to referrals from real estate
brokers and builders, existing customers and walk-in customers. Commercial
real estate applications are obtained primarily from previous borrowers,
direct contacts with the Company and referrals. Commercial business loan
applications are primarily obtained through existing customers, walk-in
customers and solicitation by the Company. Consumer loans are primarily
obtained through existing and walk-in customers who have been made aware of
the Company's programs by advertising and other means.
Applications for owner occupied residential mortgage loans also are
obtained through several field loan originators who solicit and refer
residential mortgage loan applications to the Company. These
representatives are compensated in part on a commission basis and provide
convenient origination services during banking and nonbanking hours. Loans
may be approved by various lending officers of the Company within
designated limits, which are established and modified from time to time to
reflect expertise and experience. All loans in excess of an individual's
designated limits are referred to an officer with the requisite authority.
Furthermore, all unsecured loans in excess of $250,000 and all loans
(except for secured loans up to $1.0 million approved by the President of
the Company) in excess of $500,000 require approval by the Board of
Directors' Loan Committee. In addition, all loans in excess of $250,000
committed or approved by Progress are reported to the Board of Directors of
Progress on a monthly basis. The Company believes that its centralized
approach to approving loan applications allows it to approve applications
on a timely basis and adhere to the Company's loan underwriting policies.
The Company's residential loans are generally made on terms and
conditions and with documentation which permit the sale to the FHLMC, the
FNMA, the GMNA and other institutional investors in the secondary market.
Since 1987, the Company has occasionally sold participations in mortgage
loans to other financial institutions. A portion of such loan sales in
recent years have consisted of sales of participation interests in large
residential construction loans on a non-recourse basis in order to reduce
the Company's potential credit risk and loss exposure.
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<PAGE>
In addition, from November 1991 through May 1994, the Company
substantially increased its mortgage banking activities whereby the Company
securitized and sold to the FHLMC on a non-recourse basis substantially all
newly originated, fixed-rate residential mortgage loans which conformed to
federal agency standards for secondary market resale. In addition, since
May 1994, the Company has been selling to FNMA and approximately five
private investors in the secondary market substantially all conforming
single-family residential mortgage loans originated by the Company
(including both fixed and adjustable-rate loans). The Company intends to
continue to originate conforming single-family residential mortgage loans
with the intention of securitizing and selling the same to the FHLMC or
selling the loans directly to the FNMA or private investors in the
secondary mortgage market. The Company will also retain for its portfolio
on a select basis certain adjustable-rate or short-term single-family
residential loans which conform with the Company's asset/liability policy.
With respect to its loan sales, the Company generally retains
responsibility for collecting and remitting loan payments, inspecting the
properties, making certain insurance and tax payments on behalf of
borrowers and otherwise servicing the loans it sells, and receives a fee
for performing these services. For a further discussion of the Company's
loan servicing activities, see"- Loan Fee Income." Sales of loans and
participation interests in loans also provide funds for additional lending
and other purposes. At March 31, 1995, the Company was servicing $272.6
million of loans for others ($226.7 million of single-family residential
loans and $45.9 million of commercial real estate loans).
At March 31, 1995, loans purchased from and serviced by others
totalled $1.1 million. Approximately $971,000 of such loans consisted of
commercial real estate loans secured by properties located in southeastern
Pennsylvania.
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<PAGE>
The following table shows total loans originated, purchased, sold and
repaid during the periods indicated.
<TABLE><CAPTION>
Three Months Ended
March 31, Year Ended December 31,
------------------ -----------------------------
1995 1994 1994 1993 1992
---- ----- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C> <C>
Loan originations:
Single-family residential $ 4,177 $20,915 $56,210 $123,129 $59,096
Commercial real estate(1) 6,742 5,245 20,335 13,416 8,377
Construction 3,772 1,144 7,833 8,595 8,303
Commercial business 2,028 4,709 18,168 4,285 17,293
Consumer 2,457 1,767 8,943 6,294 9,106
------ ------ ------- ------- -------
Total loans originated 19,176 33,780 111,489 155,719 102,175
Purchases -- 9,106 10,827 11,175 8,894
------- ------ ------- ------- -------
Total loans originated and
purchased 19,176 42,886 122,316 166,894 111,069
------ ------ ------- ------- -------
Sales and loan principal
reductions:
Loans sold(2) 632 28,079 34,026 81,917 62,140
Loan principal reductions 13,666 9,912 55,760 58,808 85,599
------ ------ ------- ------- -------
Total loans sold and
principal reductions 14,298 37,991 89,786 140,725 147,739
------ ------ ------ ------- -------
Decrease due to other items, net (18) (220) (2,061) (8,211) (3,405)
------ ------ ------- ------- -------
Net increase (decrease) in total
loan portfolio(3) $ 4,860 $ 4,675 $ 30,469 $ 17,958 $(40,075)
====== ====== ======= ======= =======
</TABLE>
______________________
(1) Included $0, $910,000, $6.3 million, $1.7 million and $2.9 million of
multi-family residential loans during the three months ended March 31,
1995 and 1994 and the years ended December 31, 1994, 1993 and 1992,
respectively.
(2) For the three months ended March 31, 1994 and the years ended December
31, 1994, 1993 and 1992, $21.0 million, $25.0 million, $64.5 million
and $50.2 million of loans, respectively, were converted into
mortgage-backed securities and subsequently sold to the FHLMC with
servicing retained. No loans were converted into mortgage-backed
securities and subsequently sold during the three months ended March
31, 1995.
(3) Net of unearned discounts and deferred loan fees and gross of
allowance for loan losses.
Real Estate Lending Standards. All financial institutions are
required to maintain comprehensive written real estate lending policies
that are consistent with safe and sound banking practices. These lending
policies must reflect consideration of the Interagency
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Guidelines for Real Estate Lending Policies adopted by the federal banking
agencies, including the OTS, in December 1992 ("Guidelines"), including
loan-to-value ("LTV") limits, loan administration procedures, underwriting
standards, portfolio diversification standards, and documentation, approval
and reporting requirements. These policies must also be appropriate to the
size of the institution and the nature and scope of its operations, and
must be reviewed and approved by the institution's board of directors at
least annually. The Guidelines set forth uniform regulations prescribing
standards for real estate lending. Real estate lending is defined as
extensions of credit secured by liens on interests in real estate or made
for the purpose of financing the construction of a building or other
improvements to real estate, regardless of whether a lien has been taken on
the property.
Single-Family Residential Real Estate Loans. Historically, savings
institutions have concentrated their lending activities on the origination
of loans secured primarily by first mortgage liens on existing single-
family residences. At March 31, 1995, $100.6 million or 47.3% of the
Company's total loan portfolio (including loans classified as held for
sale) consisted of single-family residential real estate loans.
In recent years, the Company has been emphasizing for its portfolio
single-family residential mortgage loans which provide for periodic
adjustments to the interest rate. The loans emphasized by the Company have
15 to 30-year terms and an interest rate which adjusts either every one
year or three years in accordance with an index which is based on treasury
securities issued by the United States Government. There is a cap on the
amount of any increase or decrease in the interest rate per year, and
various caps, depending on when the loan was originated, on the amount
which the interest rate can increase or decrease over the life of the loan.
The Company has not engaged in the practice of using a cap on the payments
that could allow the loan balance to increase rather than decrease,
resulting in negative amortization. Approximately 43.8%, 42.0%, 19.8% and
38.5% of the permanent single-family residential loans in the Company's
loan portfolio at March 31, 1995 and December 31, 1994, 1993 and 1992,
respectively, had adjustable interest rates.
The demand for adjustable-rate loans in the Company's primary market
area has been a function of several factors, including the level of
interest rates, the expectations of changes in the level of interest rates
and the difference between the interest rates and loan fees offered for
fixed-rate loans and adjustable-rate loans. The relative amount of fixed-
rate and adjustable-rate residential loans that can be originated at any
time is largely determined by the demand for each in a competitive
environment.
Adjustable-rate loans decrease the risks associated with changes in
interest rates but involve other risks, primarily because as interest rates
rise, the payment by the borrower rises to the extent permitted by the
terms of the loan, thereby increasing the potential for default. At the
same time, the marketability of the underlying property may be adversely
affected by higher interest rates. The Company believes that these risks,
which have not had a material adverse effect on the Company to date,
generally are less than the risks associated with holding fixed-rate loans
in an increasing interest rate environment.
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The Company continues to originate long-term, fixed-rate loans in
order to provide a full range of products to its customers, but generally
only under terms, conditions and documentation which permit the sale
thereof in the secondary market. At March 31, 1995, approximately $56.5
million or 56.2% of the permanent single-family residential loans in the
Company's loan portfolio consisted of loans which provide for fixed rates
of interest. Although these loans provide for repayment of principal over
a fixed period of up to 30 years, it is the Company's experience that such
loans remain outstanding for a substantially shorter period of time. From
November 1991 to May 1994, substantially all conforming, fixed-rate single-
family residential loans originated by the Company were converted into
mortgage-backed securities and sold in the secondary market as market
conditions permitted. In addition, since May 1994, substantially all
conforming single-family residential loans (including both fixed and
adjustable-rate loans) have been sold directly to the FNMA or private
investors in the secondary market, with servicing retained.
The Company intends to continue its emphasis on the origination of
single-family residential real estate loans, primarily for resale in the
secondary market. During the three months ended March 31, 1995, the
Company originated $4.2 million of single-family residential real estate
loans, $632,000 of which were sold to the FNMA or private investors in the
secondary market. During the year ended December 31, 1994, the Company
originated $56.2 million of single-family residential real estate loans,
$25.0 million of which were securitized and sold to the FHLMC and $9.0
million of which were sold directly to the FNMA or private investors in the
secondary market. During the year ended December 31, 1993, the Company
originated $123.1 million of single-family residential real estate loans,
$64.5 million of which were securitized and sold to the FHLMC. The sale of
conforming, single-family residential loans provides a relatively stable
source of fee income (consisting of loan origination and loan servicing
fees) and enhances the Company's core banking operations.
The Company's mortgage banking operations involve a certain degree of
interest rate risk. In the event interest rates increase between the time
the loans are originated or various purchase commitments are obtained and
the time the loans are sold, the Company may be unable to sell such loans
without incurring losses. The Company attempts to address such interest
rate risk by periodically entering into forward commitments with either the
FHLMC, the FNMA or the private investors, as applicable. However,
management is currently authorized to retain up to $10.0 million of loans
without hedging the interest rate risk through forward commitments. During
the three months ended March 31, 1995 and 1994 and the year ended December
31, 1994, the Company recognized losses of $1,000, $126,000 and $176,000,
respectively, with respect to its mortgage banking operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of the Company."
The Company is permitted to lend up to 100% of the appraised value of
the real property securing a residential loan (referred to as the loan-to-
value ratio); however, if the amount of a residential loan originated or
refinanced exceeds 90% of the appraised value,
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the Company is required by federal regulations to obtain private mortgage
insurance on the portion of the principal amount that exceeds 80% of the
appraised value of the security property. Pursuant to underwriting
guidelines adopted by the Board of Directors, the Company will lend up to
95% of the appraised value of the property securing a single-family
residential loan, and generally requires borrowers to obtain private
mortgage insurance on the portion of the principal amount of the loan that
exceeds 80% of the appraised value of the security property.
The Company generally requires title insurance insuring the priority
of its mortgage lien, as well as fire and extended coverage casualty
insurance in order to protect the properties securing its residential and
other mortgage loans. Borrowers may be required to advance funds, with
each monthly payment of principal and interest, to a loan escrow account
from which the Company makes disbursements for items such as real estate
taxes, hazard insurance premiums and mortgage insurance premiums as they
become due. The properties securing all of the Company's mortgage loans
are appraised by independent appraisers approved by the Board of Directors.
Commercial Real Estate Loans. The Company has also originated
mortgage loans secured by multi-family residential and commercial real
estate. At March 31, 1995, $75.4 million or 35.5% of the Company's total
loan portfolio (including loans classified as held for sale) consisted of
such loans.
Commercial real estate loans originated by the Company are primarily
secured by office buildings, retail stores, warehouses and general purpose
industrial space. Commercial real estate loans also include multi-family
residential loans, substantially all of which are secured by apartment
buildings. At March 31, 1995, $15.3 million or 20.3% of the Company's
total commercial real estate loans were comprised of multi-family
residential loans.
Although terms vary, commercial real estate loans secured by existing
properties generally have maturities of seven years or less and interest
rates which adjust in accordance with a designated prime lending rate or,
to a lesser extent, adjust every one, three or five years in accordance
with a designated index.
At March 31, 1995, the Company's commercial real estate loan portfolio
consisted of approximately 164 loans with an average principal balance of
$461,000. At March 31, 1995, the Company's five largest commercial real
estate loans had principal balances of $2.9 million, $2.7 million, $2.6
million, $2.4 million and $2.3 million, respectively. Except for the $2.9
million loan referenced above (which was restructured and returned to
accruing status in May 1995 and is discussed under "- General"), at March
31, 1995, all of such loans were performing in accordance with their
respective terms.
The $2.6 million loan referenced above was granted in September 1993
for a term of ten years in order to facilitate the sale of a former REO
property (a storage facility). In
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April 1995, the loan was fully repaid. As a result of the borrower
repaying the loan, the Company will recognize a $200,000 charge-off during
the second quarter of 1995.
The Company intends to increase its origination of commercial real
estate loans, primarily multi-family residential loans secured by apartment
buildings located in its primary market area. In addition, upon
consummation of the Conversion and the Merger, the Company may originate
larger commercial real estate loans on a case-by-case basis. See
"Summary - The Company and Progress Bank Following the Conversion and the
Merger."
Commercial real estate lending is generally considered to involve a
higher degree of risk than single-family residential lending. Such lending
typically involves large loan balances concentrated in a single borrower or
groups of related borrowers. In addition, the payment experience on loans
secured by income-producing properties is typically dependent on the
successful operation of the related real estate project and thus may be
subject to a greater extent to adverse conditions in the real estate market
or in the economy generally. The Company generally attempts to offset the
risks associated with commercial real estate lending by, among other
things, lending primarily in its market area, periodically inspecting each
property, using conservative loan-to-value ratios in the underwriting
process and obtaining financial statements and rent rolls from all
commercial and multi-family borrowers on at least an annual basis.
At March 31, 1995, approximately 83.7% of the Company's commercial
real estate loan portfolio was secured by properties located within its
primary market area. Loan-to-value ratios on the Company's commercial real
estate loans generally are limited to 80% or lower (but may be higher in
the case of sales of REO). In addition, as part of the criteria for
underwriting permanent commercial real estate loans, the Company generally
imposes a debt coverage ratio (the ratio of net cash from operations before
payment of debt service to debt service) of at least 100% to 120%. It is
also the Company's general policy to obtain personal guarantees of its
commercial real estate loans from the principals of the borrower.
Construction Loans. The Company has also offered both residential
construction loans and, to a lesser extent, commercial construction loans.
At March 31, 1995, construction loans amounted to $4.9 million or 2.3% of
the Company's total loan portfolio (including loans classified as held for
sale), all of which consisted of loans for the construction of residential
property (including $552,000 of land loans).
Construction loans, including land loans, generally have maturities of
12 to 24 months (up to three years in the case of land loans). Interest
rates on construction loans generally adjust in accordance with a
designated index. Advances are generally made to cover actual construction
costs, and generally include a reserve for paying the stated interest due
on the loan. Loan proceeds are disbursed as inspections of construction
progress warrants and as pre-construction sale and leasing requirements
generally imposed by the Company are met.
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The Company intends to increase its involvement in residential
construction lending within its primary market area. Such loans generally
offer higher yields and afford the Company the opportunity to increase the
interest rate sensitivity of its loan portfolio. Construction financing is
generally considered to involve a higher degree of risk of loss than long-
term financing on improved, owner-occupied real estate. Risk of loss on a
construction loan is dependent in large part upon the accuracy of the
initial estimate of the property's value at completion of construction or
development, the estimated cost (including interest) of construction and
the financial strength of the borrower. During the construction phase, a
number of factors could result in delays and cost overruns. If the
estimate of construction costs proves to be inaccurate, the Company may be
required to advance funds beyond the amount originally committed to permit
completion of the development. If the estimate of value proves to be
inaccurate, the Company may be confronted, at or prior to the maturity of
the loan, with a project having a value which is insufficient to assure
full repayment, in which case the Company would have to rely upon the
borrower's financial ability.
The Company generally attempts to address the additional risks
associated with construction lending by, among other things, lending
primarily in its market area, periodically inspecting each property during
the construction period, using conservative loan-to-value ratios in the
underwriting process and generally requiring personal guarantees. At March
31, 1995, all of the Company's construction loans were secured by
properties located within the Company's primary market area. In addition,
residential construction loans are generally made for 80% or less of the
appraised value of the property upon completion (75% in the case of land
loans). Moreover, the Company generally does not originate loans for the
construction of speculative (or unsold) residential properties. Prior to
making a commitment to fund a construction loan, the Company requires both
an appraisal of the property by independent appraisers approved by the
Board of Directors and a study of the feasibility of the proposed project.
Commercial Business Loans. The Company also originates secured or
unsecured loans for commercial, corporate, business and agricultural
purposes, which include the issuance of letters of credit. At March 31,
1995, $12.2 million or 5.7% of the Company's total loan portfolio
(including loans classified as held for sale) consisted of commercial
business loans.
The Company's commercial business loans consist primarily of loans
secured by various equipment, machinery and other corporate assets.
Commercial business loans also are made to provide working capital to
businesses in the form of lines of credit which may be secured by inventory
or other assets or unsecured, as well as for various other miscellaneous
purposes.
The Company intends to increase its involvement in commercial business
lending within its primary market area. Such loans generally offer higher
yields and afford the Company the opportunity to increase the interest rate
sensitivity of its loan portfolio. Commercial business loans are generally
provided to small and medium-sized businesses
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which are located in the Company's primary market area. Commercial
business loans generally have terms of five years or less and interest
rates which adjust in accordance with a designated prime lending rate. The
Company generally obtains personal guarantees of its commercial business
loans from the principals of the borrower.
At March 31, 1995, commitments under unused lines and standby and
commercial letters of credit amount to $4.6 million.
Consumer Loans. Subject to restrictions contained in applicable
federal laws and regulations, the Company is authorized to make loans for a
wide variety of personal or consumer purposes. At March 31, 1995, $19.5
million or 9.2% of the Company's total loan portfolio (including loans
classified as held for sale) consisted of consumer loans.
The Company has been emphasizing a variety of consumer loans in recent
years in order to provide a full range of financial services to its
customers and because such loans generally have shorter terms and higher
interest rates than mortgage loans. The consumer loans offered by the
Company include home equity loans and lines of credit, deposit account
secured loans and loans that are secured by personal property, including
automobiles.
Home equity loans are originated by the Company for up to 80% of the
appraised value, less the amount of any existing prior liens on the
property. The Company also offers home equity lines of credit in amounts
up to 80% of the appraised value, less the amount of any existing prior
liens. Home equity loans have a maximum term of 15 years, and the interest
rate is dependent upon the term of the loan. The Company secures the loan
with a mortgage on the property (generally a second mortgage) and will
originate the loan even if another institution holds the first mortgage.
At March 31, 1995, home equity loans and lines of credit totalled $18.1
million.
The Company currently offers loans secured by deposit accounts, which
amounted to $244,000 at March 31, 1995. Such loans are originated for up
to 90.0% of the account balance, with a hold placed on the account
restricting the withdrawal of the account balance. At March 31, 1995,
Progress' loan portfolio also included $378,000 of automobile loans. Prior
to 1990, the Company originated automobile loans indirectly through a
network of new and used automobile dealers located in the Company's market
area in southeastern Pennsylvania. Although the Company continues to offer
automobile loans, it stopped originating third party dealer loans in 1990.
Beginning in December 1994, Progress began issuing credit cards in its
name. At March 31, 1995, total credit card receivables amounted to
$368,000.
Consumer loans generally have shorter terms and higher interest rates
than mortgage loans but generally involve more credit risk than mortgage
loans because of the type and nature of the collateral and, in certain
cases, the absence of collateral. In addition, consumer lending
collections are dependent on the borrower's continuing financial stability,
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and thus are more likely to be adversely effected by job loss, divorce,
illness and personal bankruptcy. In most cases, any repossessed collateral
for a defaulted consumer loan will not provide an adequate source of
repayment of the outstanding loan balance. The Company believes that the
generally higher yields earned on consumer loans compensate for the
increased credit risk associated with such loans and that consumer loans
are important to its efforts to increase rate sensitivity, shorten the
average maturity of its loan portfolio and provide a full range of services
to its customers.
Loan Fee Income. In addition to interest earned on loans, the Company
receives income through servicing of loans, unamortized loan fees in
connection with loan sales and fees in connection with loan modifications,
late payments, prepayments and for miscellaneous services related to its
loans. Income from these activities varies from period to period with the
volume and type of loans made and competitive conditions.
Progress services residential real estate loans for the FNMA, FHLMC
and other private mortgage investors. Loan servicing includes collecting
and remitting loan payments, accounting for principal and interest, making
advances to cover delinquent payments, making inspections as required of
mortgaged premises, contacting delinquent mortgagors, supervising
foreclosures and property dispositions in the event of unremedied defaults
and generally administering the loans. Funds that have been escrowed by
borrowers for the payment of mortgage related expenses, such as property
taxes and hazard and mortgage insurance premiums, are maintained in non-
interest-bearing accounts at Progress. At March 31, 1995, Progress had
$3.1 million deposited in such escrow accounts.
Progress receives fees for servicing mortgage loans, which generally
range from .25% to .50% per annum on the declining principal balance of
fixed-rate mortgage loans and from .375% to .50% per annum on the declining
principal balance of adjustable-rate mortgage loans. Such fees serve to
compensate Progress for the costs of performing the servicing function.
Other sources of loan servicing revenues include late charges and other
ancillary fees. For the three months ended March 31, 1995 and the years
ended December 31, 1994, 1993 and 1992, Progress earned $139,000, $426,000,
$174,000 and $27,000, respectively, in conjunction with its' loan
servicing. Servicing fees are collected by Progress out of the monthly
mortgage payments made by borrowers.
Progress' servicing portfolio is subject to reduction by normal
amortization, by prepayment or by foreclosure of outstanding loans. At
March 31, 1995 and December 31, 1994, 1993 and 1992, Progress had an
aggregate loan servicing portfolio of $485.1 million, $448.5 million,
$326.8 million and $221.6 million, respectively. Of these amounts at such
respective dates, Progress serviced loans for others aggregating $272.6
million, $240.8 million, $185.6 million and $62.4 million.
During 1993 and 1995, in order to increase the size of its loan
servicing portfolio, Progress purchased bulk packages of mortgage servicing
rights ("PMSRs") from other financial institutions. The PMSRs purchased by
Progress permitted it to more efficiently
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utilize its servicing capacity and provided Progress with a return that is
competitive with servicing on loans that are originated and retained, but
without the costs associated with loan originations. The PMSRs were
primarily with respect to conventional loans secured by real property
located in Pennsylvania and New Jersey. At March 31, 1995, the Company's
PMSRs amounted to $1.7 million. Progress continues to evaluate and
occasionally bids on bulk packages of PMSRs based upon the returns offered
by such packages.
In its lending, the Company often charges loan origination fees which
are calculated as a percentage of the amount borrowed. The Company
generally charges a borrower on a single-family home loan a loan
origination fee of up to 3% of the principal amount of the loan with the
actual amount being dependent upon, among other things, the interest rate
and market conditions at the time the loan application is taken. These
fees are in addition to appraisal and other fees paid by the borrower to
the Company at the time of the application. Loan origination fees
generally are also obtained in connection with commercial real estate
loans, construction loans and commercial business loans but generally are
not obtained in connection with consumer loans.
The Company defers loan origination fees and related direct loan
origination costs and recognizes these net fees over the life of the loan
as an adjustment to yield. The Company uses prepayment estimates in the
application of the interest method of its loan fee amortization, since the
Company holds a large number of similar loans which exhibit probable
prepayment histories. The Company recalculates its effective yield to
reflect actual payments to date and anticipated future payments.
Asset Quality
Delinquent Loans. When a borrower fails to make a required payment on
a loan, the Company attempts to cure the deficiency by contacting the
borrower and seeking payment. Contacts are generally made on the 30th day
after a payment is due. In most cases, deficiencies are cured promptly.
If a delinquency extends beyond 60 days, the loan and payment history is
carefully reviewed, additional notices are sent to the borrower and efforts
are made to collect the loan. While the Company generally prefers to work
with borrowers to resolve such problems, when the account becomes 60 to 90
days delinquent, the Company does institute foreclosure or other
proceedings, as necessary, to minimize any potential loss.
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The following table sets forth information concerning the principal
balances and percent of the total loan portfolio represented by delinquent
loans at the dates indicated.
<TABLE><CAPTION>
March 31, December 31,
1995 1994 1993 1992
Amount Percent Amount Percent Amount Percent Amount Percent
(Dollars in Thousands)
Delinquencies:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
30-59 days $ 869 0.41% $ 719 0.35% $1,579 0.89% $4,915 3.09%
60-89 days 354 0.17 282 0.14 332 0.19 4,944 3.11
90 or more days(1) 4,310 2.03 4,551 2.19 6,051 3.42 6,962 4.36
----- ---- ----- ---- ----- ---- ------ -----
Total $5,533 2.61% $5,552 2.68% $7,962 4.50% $16,821 10.57%
===== ==== ===== ==== ===== ==== ====== =====
</TABLE>
_______________________
(1) Includes $57,000, $182,000, $308,000 and $423,000 of loans that were
accruing interest at March 31, 1995 and December 31, 1994, 1993 and
1992, respectively.
Non-Performing Assets. Non-performing assets, consisting of non-
accrual loans, accruing loans 90 days or more past due and REO, increased
dramatically in 1990 and 1991, and reached $50.4 million at December 31,
1991. Such increases were to a great extent the result of a deterioration
in the economy, which led to decreases in the market values of real estate
securing the Company's loans. Non-performing assets have been reduced to
$8.8 million at March 31, 1995, as compared to $9.1 million at December 31,
1994, $17.6 million at December 31, 1993 and $34.8 million at December 31,
1992. The Company's future results of operations will continue to be
affected by its ability to reduce its non-performing assets without
incurring additional material losses.
All classified loans are reviewed on a regular basis and are placed on
non-accrual status when, in the opinion of management, the collection of
additional interest is deemed insufficient to warrant further accrual. The
accrual of interest on commercial and mortgage loans is generally
discontinued when such loans become 90 days past due and when, in
management's judgment, it is determined that a reasonable doubt exists as
to their collectibility. The accrual of interest is also discontinued on
residential and consumer loans when such loans become 90 days past due,
except for those loans in the process of collection which are secured by
real estate with a loan to value ratio of less than 80% where the accrual
of interest ceases at 180 days. Consumer loans generally are charged-off
when the loan becomes over 120 days delinquent, unless such loans are
secured by real estate and meet the above-mentioned criteria. When a loan
is placed on non-accrual status, interest accruals cease and uncollected
accrued interest is reversed and charged against current income.
Additional interest income on such loans is recognized only when received.
A loan
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remains on non-accrual status until the factors which indicate doubtful
collectibility no longer exist, the loan is liquidated or when the loan is
determined to be uncollectible and is charged-off against the allowance for
loan losses.
Real estate acquired by the Company as a result of foreclosure or by
deed-in-lieu of foreclosure is classified as REO until sold. Pursuant to a
statement of position ("SOP 92-3") issued by the American Institute of
Certified Public Accountants in April 1992, which provides guidance on
determining the balance sheet treatment of foreclosed assets in annual
financial statements for periods ending on or after December 15, 1992,
there is a rebuttable presumption that foreclosed assets are held for sale
and such assets are recommended to be carried at the lower of fair value
minus estimated costs to sell the property, or cost (generally the balance
of the loan on the property at the date of acquisition). After the date of
acquisition, all costs incurred in maintaining the property are expensed
and costs incurred for the improvement or development of such property are
capitalized up to the extent of their fair value. The Company's accounting
for its REO complies with the guidance set forth in SOP 92-3. See Note 1
of the Company's Notes to Consolidated Financial Statements.
The following table sets forth information regarding non-performing
assets held by the Company at the dates indicated.
March 31, December 31,
1995 1994 1993 1992 1991 1990
(Dollars in Thousands)
Loans accounted for on a
non-accrual basis(1) $4,253 $ 4,369 $5,743 $6,539 $12,774 $11,079
Accruing loans 90 days or
more past due 57 182 308 423 1,234 2,580
----- ----- ----- ------ ------ ------
Total non-performing loans 4,310 4,551 6,051 6,962 14,008 13,659
REO, net of related
reserves(2) 4,454(3) 4,534 11,577 27,867 36,419 15,580
----- ----- ------ ------ ------ ------
Total non-performing assets $8,764 $9,085 $17,628 $34,829 $50,427 $29,239
===== ===== ====== ====== ====== ======
Non-performing loans as a
percentage of total loans 2.03% 2.19% 3.42% 4.37% 7.03% 4.85%
==== ==== ==== ===== ===== =====
Non-performing assets
as a percentage of total
assets 2.53% 2.61% 5.29% 11.95% 16.13% 9.00%
==== ==== ==== ===== ===== =====
__________________________
(1) Includes $77,000, $326,000, $747,000, $2.3 million and $946,000 of
loans which were considered troubled debt restructurings as of March
31, 1995 and December 31, 1994, 1993, 1992, 1991, and 1990,
respectively.
(2) Includes real estate acquired by foreclosure and by deed in lieu of
foreclosure. Prior to 1993, also includes loans deemed in-substance
foreclosure.
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(3) Includes a $3.4 million property which the Company entered into an
agreement to sell in June 1995 for a purchase price of $3.2 million
and which is discussed below.
Gross interest income that would have been recorded during the three
months ended March 31, 1995 and the years ended December 31, 1994, 1993 and
1992 if the Company's non-performing loans at the end of such periods had
been performing in accordance with their terms during such periods was
$116,000, $430,000, $287,000 and $645,000, respectively. The amount of
interest income that was actually recorded during the three months ended
March 31, 1995 and the years ended December 31, 1994, 1993 and 1992 with
respect to such non-performing loans amounted to approximately $95,000,
$23,000, $20,000 and $131,000, respectively.
The $4.3 million of non-accrual loans at March 31, 1995 consisted of
$969,000 of loans secured by single-family residential property, a $2.9
million loan secured by commercial property (which has subsequently been
restructured and returned to accruing status and is discussed under "-
General"), $94,000 of commercial business loans and $309,000 of consumer
loans. The $57,000 of accruing loans 90 days or more past due at March 31,
1995 consisted of three loans secured by single-family residential
property. The $4.5 million of REO at March 31, 1995 primarily consisted of
a medical office building located in the Bronx, New York with an aggregate
carry value of $3.4 million (which is net of $10.1 million of prior charge-
offs and/or write-downs). As of such date, $649,000 of REO consisted of
three residential development projects, with respect to which the Company
is actively engaged in building and/or marketing the properties.
Furthermore, at March 31, 1995, $370,000 of REO consisted of four single-
family residences. With the exception of the medical office building, all
of Progress' REO consisted of properties located within Progress' primary
market area. In June 1995, the Company entered into an agreement to sell
the medical office building for a purchase price of $3.2 million. The
Company intends to finance 85% of the purchase price with a ten-year
nonrecourse loan. The Company expects to charge-off $331,000 with respect
to such sale during the second quarter of 1995. Although such sale is
expected to be consummated by November 1995, no assurance can be made that
the sale will be completed by this date, if at all.
Classified Assets. Federal regulations require that each insured
savings institution classify its assets on a regular basis. In addition,
in connection with examinations of insured institutions, federal examiners
have authority to identify problem assets and, if appropriate, classify
them. There are three classifications for problem assets: "substandard,"
"doubtful" and "loss." Substandard assets have one or more defined
weaknesses and are characterized by the distinct possibility that the
insured institution will sustain some loss if the deficiencies are not
corrected. Doubtful assets have the weaknesses of substandard assets with
the additional characteristic that the weaknesses make collection or
liquidation in full on the basis of currently existing facts, conditions
and values questionable, and there is a high possibility of loss. An asset
classified as loss is considered uncollectible and of such little value
that continuance as an asset of the institution is not warranted. Another
category designated "special mention" also must be established and
maintained for assets which do
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<PAGE>
not currently expose an insured institution to a sufficient degree of risk
to warrant classification as substandard, doubtful or loss. Assets
classified as substandard or doubtful require the institution to establish
general allowances for loan losses. If an asset or portion thereof is
classified as loss, the insured institution must either establish specific
allowances for loan losses in the amount of 100% of the portion of the
asset classified loss, or charge-off such amount. General loss allowances
established to cover losses related to assets classified substandard or
doubtful may be included in determining an institution's regulatory
capital, while specific valuation allowances for loan losses do not qualify
as regulatory capital. Federal examiners may disagree with an insured
institution's classifications and amounts reserved and may require the
establishment of additional reserves.
Exclusive of the $4.5 million of REO, the Company's classified assets
at March 31, 1995 consisted of $2.6 million of assets classified as special
mention and $5.3 million of assets classified as substandard (which
includes the $2.9 million loan which was restructured and returned to
accruing status in May 1995 and is discussed under "- Lending Activities -
General").
Allowance for Loan Losses. An allowance for loan losses is maintained
at a level that management considers adequate to provide for potential
losses based upon an evaluation of known and inherent risks in the loan
portfolio. Allowances for loan losses are based on estimated net
realizable value unless it is probable that loans will be foreclosed, in
which case allowances for loan losses are based on fair value.
Management's periodic evaluation is based upon examination of the
portfolio, past loss experience, current economic conditions, the results
of the most recent regulatory examinations, and other relevant factors.
While management uses the best information available to make such
evaluations, future adjustments to the allowance may be necessary if
economic conditions differ substantially from the assumptions used in
making the evaluations.
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<PAGE>
The following table sets forth information concerning the activity in
the Company's allowance for loan losses during the periods indicated.
<TABLE><CAPTION>
Three Months Ended
March 31, Year Ended December 31,
1995 1994 1994 1993 1992 1991 1990
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Average loans outstanding $210,415 $172,957 $189,053 $166,419 $180,695 $250,127 $288,732
======= ======= ======= ======= ======== ======= =======
Allowance for loan losses
at the beginning of the period $ 1,502 $ 2,113 $ 2,113 $ 2,703 $ 5,483 $ 4,123 $ 1,300
Charge-offs:
Residential real estate -- -- -- 148 86 9 --
Commercial real estate -- 62 1,160 810 1,395 3,339 205
Real estate construction -- -- 50 5 626 2,565 500
Consumer -- 18 20 89 209 414 313
Commercial business -- 15 88 283 814 2,588 912
------ ------- ------- ------- ------- ------- ------
Total loans charged-off -- 95 1,318 1,335 3,130 8,915 1,930
Recoveries:
Residential real estate -- -- -- 42 5 -- --
Commercial real estate 3 -- -- -- -- -- --
Real estate construction -- 60 136 72 4 -- --
Consumer 6 2 14 25 30 38 40
Commercial business -- -- 36 137 36 93 17
------- ------- ------ ------ ------- ------ ------
Total recoveries 9 62 186 276 75 131 57
------ ------ ------ ------ ------- ------ ------
Net charge-offs (recoveries) (9) 33 1,132 1,059 3,055 8,784 1,873
Additions charged to operations 100 50 521 368 275 10,144 4,696
------ ------ ------ ------ ------- ------ -------
Additions acquired(1) -- -- -- 101 -- -- --
------- ------- ------- ------ -------- ------- --------
Allowance for loan losses
at end of year $ 1,611 $ 2,130 $ 1,502 $ 2,113 $ 2,703 $ 5,483 $ 4,123
====== ====== ====== ====== ======= ====== =======
Ratio of net charge-offs (recoveries) to
average loans outstanding -- 0.02% 0.60% 0.64% 1.69% 3.51% 0.65%
======= ===== ===== ===== ===== ===== =====
Ratio of allowance for loan losses to
non-performing loans at end of period 37.38% 34.64% 33.00% 34.92% 38.83% 39.14% 30.19%
====== ===== ===== ===== ===== ===== =====
</TABLE>
- ---------------------------
(1) Acquired in connection with the Rosemont branch purchase which was
consummated on July 1, 1993.
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<PAGE>
The following table sets forth information concerning the allocation
of the Company's allowance for loan losses by loan categories at the dates
indicated.
<TABLE><CAPTION>
March 31, December 31,
1995 1994 1993 1992
---------------- ----------------------------------------------------------------
Percent of Percent of Percent of Percent of
Loans to Loans to Loans to Loans to
Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Residential real estate $ 242 47.32% $ 268 48.12% $ 194 45.26% $ 168 34.27%
Commercial real estate 989 35.48 916 34.33 1,403 38.69 1,908 44.38
Real estate construction -- 2.29 125 2.59 149 2.22 207 3.79
Commercial business 167 5.73 152 5.78 294 5.22 315 7.56
Consumer 106 9.18 41 9.18 73 8.61 105 10.00
----- ------ ----- ------ ----- ------ ----- ------
Total $1,611 100.00% $1,502 100.00% $2,113 100.00% $2,703 100.00%
===== ====== ===== ====== ===== ====== ===== ======
<CAPTION>
December 31,
-----------------------
1991 1990
Percent of Percent of
Loans to Loans to
Amount Total Loans Amount Total Loans
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Residential real estate $ 139 32.16% $ 223 29.55%
Commercial real estate 2,920 36.75 1,013 31.74
Real estate construction 1,784 12.24 2,070 21.19
Commercial business 534 10.69 660 10.62
Consumer 106 8.16 157 6.90
----- ------ ----- ------
$5,483 100.00% $4,123 100.00%
===== ====== ===== ======
</TABLE>
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<PAGE>
Investment Activities
Mortgage-Backed Securities. Since July 1991, the Company has
emphasized the investment in mortgage-backed securities which are insured
or guaranteed by U.S. Government agencies and government sponsored
enterprises and collateralized mortgage obligations ("CMOs"). Mortgage-
backed securities represent a participation interest in a pool of single-
family or multi-family mortgages, the principal and interest payments on
which are passed from the mortgage originators, through intermediaries
(generally U.S. Government agencies and government sponsored enterprises)
that pool and repackage the participation interests in the form of
securities, to investors such as the Company. Such U.S. Government
agencies and government sponsored enterprises, which guarantee the payment
of principal and interest to investors, primarily include the FHLMC, the
FNMA and the GNMA.
Mortgage-backed securities typically are issued with stated principal
amounts, and the securities are backed by pools of mortgages that have
loans with interest rates that are within a range and have varying
maturities. The characteristics of the underlying pool of mortgages, i.e.,
fixed-rate or adjustable-rate, as well as prepayment risk, are passed on to
the certificate holder. The life of a mortgage-backed pass-through
security thus approximates the life of the underlying mortgages.
The Company's mortgage-backed securities include CMOs, which have been
developed in response to investor concerns regarding the uncertainty of
cash flows associated with the prepayment option of the underlying
mortgagor and are typically issued by government agencies, government
sponsored enterprises and special purpose entities, such as trusts,
corporations or partnerships, established by financial institutions or
other similar institutions. A CMO can be collateralized by loans or
securities which are insured or guaranteed by the FNMA, the FHLMC or the
GNMA. In contrast to pass-through mortgage-backed securities, in which
cash flow is received pro rata by all security holders, the cash flow from
the mortgages underlying a CMO is segmented and paid in accordance with a
predetermined priority to investors holding various CMO classes.
Consequently, the maturity of a particular CMO class may be substantially
less than the contractual maturity of the underlying security. By
allocating the principal and interest cash flows from the underlying
collateral among the separate CMO classes, different classes of bonds are
created, each with its own stated maturity, estimated average life, coupon
rate and prepayment characteristics.
At March 31, 1995, $90.6 million or 90.8% of the Company's $99.7
million of mortgage-backed securities were classified as held to maturity.
Mortgage-backed securities classified as held to maturity are carried at
amortized cost and are adjusted for amortization of premiums and accretion
of discounts over the life of the related security pursuant to the level
yield method. In addition, since August 1992, the Company has classified a
portion of its mortgage-backed securities portfolio as available for sale
and has sold certain securities from this portfolio in accordance with the
Company's asset/liability strategy or in
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<PAGE>
response to changes in interest rates, changes in prepayment rates, the
need to increase Progress' regulatory capital or similar factors.
Mortgage-backed securities are classified as available for sale primarily
based on the yield and duration of specific investments. For example, the
Company's fixed-rate balloons and CMOs approximate the duration of the type
of loans Progress originates and therefore, such securities may be sold to
allow for additional loan growth and/or other asset/liability management
strategies. At March 31, 1995, $9.1 million (which reflects $501,000 of
unrealized losses with respect to mortgage-backed securities classified as
available for sale) or 9.2% of the Company's total $99.7 million mortgage-
backed securities portfolio were classified as available for sale.
Mortgage-backed securities that are classified as available for sale are
carried at fair value, with unrealized gains and losses excluded from
earnings, but reported as a separate component of stockholders' equity.
For information concerning the Company's possible reclassification of a
portion of its mortgage-backed securities portfolio from held to maturity
to available for sale, see "Risk Factors - Potential Effects of Changes in
Interest Rates and the Current Interest Rate Environment."
Mortgage-backed securities increase the credit quality of the
Company's assets by virtue of the guarantees that back them, are more
liquid than individual mortgage loans and may be used to collateralize
borrowings or other obligations of the Company. However, although the
Company's mortgage-backed securities portfolio may have a shorter average
term to maturity and greater liquidity than the Company's single-family
residential real estate loans, the Company is subject to reinvestment risk
with respect to such portfolio. Specifically, as the Company's mortgage-
backed securities amortize or prepay, the Company may not be able to
reinvest the proceeds of such repayments and prepayments at a comparable
favorable rate, particularly if the mortgage-backed securities were
acquired in a higher interest rate environment. In addition, mortgage-
backed securities classified as available for sale are carried at fair
value which could result in unrealized losses being deducted from
stockholders' equity due to fluctuations in the market values of such
securities. Accordingly, the Company's portfolio of mortgage-backed
securities classified as available for sale may result in increased
volatility with respect to the Company's financial condition. The Company
attempts to address such risks by actively managing its portfolio in
relation to changes in interest rates and the Company's liquidity needs.
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<PAGE>
The following table sets forth the activity in the Company's
mortgage-backed securities portfolio during the periods indicated.
<TABLE><CAPTION>
At or For the Three
Months Ended March 31, At or For the Year Ended December 31,
1995 1994 1994 1993 1992
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Mortgage-backed securities
at beginning of period $102,776 $125,947 $125,947 $ 86,011 $ 47,875
Purchases (1) -- 19,319 26,555 125,332 116,737
Conversion of existing loans
to mortgage-backed securities -- 20,970 24,979 64,530 50,195
Sales of loans converted to
securities -- (20,970) (24,979) (64,530) (50,195)
Sales from portfolio -- (14,777) (19,833) (35,739) (57,818)
Repayments (3,042) (13,534) (27,299) (46,912) (19,594)
Premium amortization (137) (1,226) (2,001) (2,806) (1,050)
Other 1 1 55 61 (139)
Change in unrealized loss on
securities available for sale 148 (254) (648) -- --
------ ------- ------- ------- ------
Mortgage-backed securities
at end of period(2) $99,746 $115,476 $102,776 $125,947 $86,011(2)
====== ======= ======= ======= ======
Weighted average coupon
at end of period 7.44% 7.34% 7.38% 7.64% 7.84%
==== ==== ==== ==== ====
</TABLE>
___________________________
(1) Includes applicable premiums and discounts.
(2) Includes $9.1 million, $14.3 million, $9.1 million, $8.9 million and
$25.1 million of mortgage-backed securities classified as available
for sale (at fair value at March 31, 1995 and 1994 and December 31,
1994; at lower of aggregate cost or fair value at December 31, 1993
and 1992) at March 31, 1995 and 1994 and December 31, 1994, 1993 and
1992, respectively.
At March 31, 1995, the Company's mortgage-backed securities classified
as held to maturity had an amortized cost and approximate fair value of
$90.6 million and $86.7
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<PAGE>
million, respectively. Of the $90.6 million portfolio, $24.4 million was
scheduled to mature in five years or less, $3.9 million was scheduled to
mature in five to ten years, $22.7 million was scheduled to mature in ten
to 15 years and $39.6 million was scheduled to mature after 15 years. Due
to repayments of the underlying loans, the actual maturities of mortgage-
backed securities generally are substantially less than the scheduled
maturities. At March 31, 1995, the Company's mortgage-backed securities
classified as held to maturity had a weighted average term to maturity of
5.6 years.
Of the Company's total investment in mortgage-backed securities at
March 31, 1995 (including mortgage-backed securities classified as
available for sale), $28.9 million consisted of GNMA certificates, $22.0
million consisted of FNMA certificates, $44.1 million consisted of FHLMC
certificates and $4.7 million consisted of agency guaranteed CMOs. At
March 31, 1995, $76.6 million of the Company's mortgage-backed securities
carried fixed rates while $23.1 million carried adjustable rates.
Investment Securities. Federally chartered savings institutions have
authority to invest in various types of liquid assets, including United
States Treasury obligations, securities of various Federal agencies and of
state and municipal governments, certificates of deposit at federally
insured banks and savings institutions, certain bankers' acceptances and
Federal funds. Subject to various restrictions, federally chartered
savings institutions may also invest a portion of their assets in
commercial paper, corporate debt securities and mutual funds, the assets of
which conform to the investments that federally chartered savings
institutions are otherwise authorized to make directly.
The Company's investment securities portfolio is currently managed by
the President and Chief Executive Officer and the Vice President of Finance
of the Company in accordance with a comprehensive investment policy which
addresses strategies, types and levels of allowable investments and which
is reviewed and approved by the Board of Directors on an annual basis. The
management of the investment securities portfolio is set in accordance with
strategies developed by the Company's Asset/Liability Committee. These
strategies currently emphasize lending activities (including investing in
mortgage-backed securities) in order to increase the weighted average yield
on the Company's interest-earning assets. The Company's investment
securities are carried in accordance with generally accepted accounting
principles. See Note 1 to the Company's Notes to Consolidated Financial
Statements.
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<PAGE>
The following table set forth the carrying value of the Company's
investment securities at the dates indicated.
March 31, December 31,
1995 1994 1993 1992
(Dollars in Thousands)
U.S. Government agency obligations $14,333 $15,161 $2,000 $2,000
FHLB of Pittsburgh stock 2,469 2,302 2,632 3,260
Equity investments 30 30 -- --
------ ------ ------ ------
Total investment securities $16,832(1)(2) $17,493 $4,632 $5,260
====== ====== ===== =====
- ------------------------
(1) At March 31, 1995, the fair value of the Company's investment
securities amounted to $16.3 million.
(2) Includes $3.8 million of investment securities classified as available
for sale (which reflects $220,000 of unrealized losses with respect to
such securities).
The following table set the maturities and weighted average yields of
the Company's investment securities at March 31, 1995. FHLB of Pittsburgh
stock and equity investments have no stated maturity and are not reflected
in the following table.
<TABLE><CAPTION>
Less Than One to Five to More Than
One Year Five Years Ten Years Ten Years Total
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government
agency obligations $ -- --% $4,780 5.62% $7,553 6.65% $2,000 7.00% $14,333 6.36%
==== === ===== ==== ===== ==== ===== ==== ====== ====
</TABLE>
Sources of Funds
General. Deposits are the primary source of the Company's funds for
lending and other investment purposes. In addition to deposits, the
Company derives funds from loan principal repayments and borrowings,
including advances from the FHLB of Pittsburgh. Loan repayments are a
relatively stable source of funds, while deposits inflows and outflows 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 may also
be used on a longer term basis for general business purposes, including
asset/liability management.
Deposits. Deposits obtained through offices of the Company have
traditionally been the principal source of the Company's funds for use in
lending and for other general business purposes. The Company's current
deposit products include passbook savings
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<PAGE>
accounts, NOW and Super NOW accounts, personal and commercial demand
deposit accounts, money market deposit accounts and time deposits ranging
in terms from one month to five years. Included among these deposit
products are Individual Retirement Account certificates and Keogh
retirement certificates, as well as negotiable rate time deposits with
balances of $100,000 or more ("negotiated-rate jumbo certificates").
The Company's deposits are obtained primarily from residents in its
primary market area. The principal methods used by the Company to attract
deposit accounts include offering a wide variety of services and accounts,
competitive interest rates and convenient office locations and service
hours. The Company utilizes traditional marketing methods to attract new
customers and savings deposits, including print media advertising and
direct mailings. The Company does not advertise for deposits outside of
its local market area or utilize the services of deposit brokers, and
management believes that an insignificant number of deposit accounts were
held by non-residents of Pennsylvania at March 31, 1995. The Company has a
drive-up banking facility at one of its offices and has installed ATMs at
all of its offices. The Company participates in the ATM network known as
Money Access Service.
The following table sets forth the average balances and weighted
average rates paid with respect to the Company's deposits for the periods
indicated.
<TABLE><CAPTION>
Year Ended December 31,
Three Months Ended
March 31, 1995 1994 1993 1992
Amount Rate Amount Rate Amount Rate Amount Rate
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-bearings deposits:
NOW and Super NOW $ 24,870 2.63% $ 21,932 2.43% $17,488 2.39% $ 15,677 3.39%
Money market accounts 34,960 2.96 41,428 2.75 42,128 2.82 41,440 3.69
Passbook and statement
savings 27,603 2.94 27,808 2.95 21,212 2.94 16,592 3.49
Time deposits 173,023 5.21 168,250 4.56 159,973 4.47 166,556 5.45
------- ---- ------- ---- ------- ---- ------- ----
Total interest-bearing
deposits 260,456 4.42% 259,418 3.92% 240,801 3.89% 240,265 4.88%
==== ==== ==== ====
Non-interest-bearing
deposits 18,903 16,713 13,778 14,398
------- ------- ------ -------
Total deposits $279,359 $276,131 $254,579 $254,663
======= ======= ======= =======
</TABLE>
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<PAGE>
The following table shows the interest rate and maturity information
for the Company's time deposits at March 31, 1995.
<TABLE><CAPTION>
Maturity Date
One Year Over
Interest Rate or Less 1-2 Years 2-3 Years 3 Years Total
(In Thousands)
<S> <C> <C> <C> <C> <C>
2.00 - 3.99% $ 17,357 $ 504 $ 164 $ 76 $ 18,101
4.00 - 5.99% 71,534 12,978 11,932 5,585 102,029
6.00 - 7.99% 19,929 18,913 7,295 5,632 51,769
8.00 - 9.99% 1,821 11 67 47 1,946
10.00 - 11.99% 42 -- -- 12 54
------- ------- ------- ------ -------
Total $110,683 $32,406 $19,458 $11,352 $173,899
======= ====== ====== ====== =======
</TABLE>
At March 31, 1995, the Company had $11.0 million of certificates of
deposit in amounts of $100,000 or more outstanding which mature as follows:
$5.8 million within three months; $1.8 million over three months through
six months; $2.9 million over six months through 12 months; and $491,000
thereafter.
The ability of the Company to attract and maintain deposits and the
Company's cost of funds on these deposit accounts have been, and will
continue to be, significantly affected by economic and competitive
conditions.
For additional information about the Company's deposits, see Note 8 to
the Company's Notes to Consolidated Financial Statements.
Borrowings. Progress may use advances from the FHLB of Pittsburgh to
supplement its supply of lendable funds, to meet deposit withdrawal
requirements and for other business purposes. Progress is a member of the
FHLB System, which consists of 12 regional FHLBs subject to supervision and
regulation by the Federal Housing Finance Board. The FHLBs provide a
central credit facility primarily for member institutions. Progress, as a
member of the FHLB of Pittsburgh, is required to hold shares of common
stock in that FHLB in an amount at least equal to 1% of the aggregate
principal amount of its unpaid residential mortgage loans, home purchase
contracts, and similar obligations at the beginning of each year, or 5% of
its advances (borrowings) from the FHLB of Pittsburgh, whichever is
greater. Progress had a $2.5 million investment in stock of the FHLB in
Pittsburgh at March 31, 1995, which was in compliance with this
requirement. At March 31, 1995, Progress had $47.8 million of advances
outstanding from the FHLB of Pittsburgh.
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<PAGE>
The following table presents certain information regarding the
Company's FHLB advances at the dates and for the periods indicated.
<TABLE><CAPTION>
At or For the Three Months At or For the
Ended March 31, Year Ended December 31,
--------------- -----------------------
1995 1994 1994 1993 1992
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Average balance outstanding $47,506 $38,752 $44,007 $48,702 $41,502
Maximum amount outstanding at any
month-end during the period 47,821 44,958 57,244 61,067 53,018
Balance outstanding at end of period 47,821 30,541 44,052 40,536 36,071
Average interest rate during the
period 6.39% 4.51% 5.00% 4.29% 4.87%
Average interest rate at end
of period 6.41% 4.85% 6.35% 4.45% 4.75%
</TABLE>
At March 31, 1995, $5.5 million of FHLB advances were scheduled to
mature within one year, $8.0 million were scheduled to mature over one-year
through two years, $5.0 million were scheduled to mature over two years
through three years and $5.0 million were scheduled to mature beyond three
years.
At March 31, 1995, the Company's borrowings also included $3.0 million
of subordinated debentures which were issued by the Company in a private
placement offering which was completed in June 1994. The $3.0 million of
subordinated debentures carry a 8.25% interest rate payable quarterly,
mature in June 2004 and are not redeemable prior to July 1996. Roxborough-
Manayunk currently holds $250,000 of such subordinated debt (together with
25,000 of warrants to purchase Company Common Stock). In connection with
the Conversion and the Merger, Roxborough-Manayunk may either sell such
subordinated debt to an unrelated third party or such subordinated debt may
be cancelled upon consummation of the Conversion and the Merger.
Subsidiaries
At March 31, 1995, the Company maintained three direct subsidiaries,
consisting of Progress, Progress Realty Advisors, Inc. ("PRA") and Progress
Realty Advisors, L.P. ("PRA, L.P."). PRA serves as the general partner and
owns a 2% limited partnership interest in PRA, L.P. (the Company maintains
a 75% limited partnership interest in PRA, L.P.). PRA, L.P., a
Pennsylvania limited partnership which was formed in January 1995, provides
loan sale advisory, commercial mortgage banking and commercial mortgage
brokerage services to both institutional real estate investors and lenders
as well as to real estate owners and developers. At March 31, 1995, the
Company's equity investment in PRA and PRA, L.P. amounted to $3,000 and
$161,000, respectively.
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<PAGE>
In addition to the subsidiaries discussed above, Progress also has
nine direct and/or indirect subsidiary service corporations which are
described below. Federal regulations permit Progress to invest up to 2% of
its assets in capital stock and collateralized and uncollateralized loans
to subsidiary service corporations and an additional 1% of its assets when
the additional funds are utilized for community or inner-city purposes. In
addition, an institution that meets its applicable minimum regulatory
capital requirements may make conforming loans to service corporations in
which the institution owns or holds more than 10% of the capital stock in
an aggregate amount of up to 50% of the institution's regulatory capital.
Savings institutions meeting these requirements also may make, subject to
the loans-to-one borrower limitations, conforming loans to service
corporations in which the institution does not own or hold more than 10% of
the capital stock and to certain other corporations meeting specified
requirements. Federally chartered savings institutions also are authorized
to invest up to 30% of their assets in finance subsidiaries whose sole
purpose is to issue debt or equity securities that Progress is authorized
to issue directly, subject to certain limitations. At March 31, 1995,
Progress was authorized to have a maximum investment of approximately $6.9
million in its subsidiaries, exclusive of the 1% of assets permitted for
community or inner-city purposes. As of such date, Progress' investment in
and loans to its subsidiaries totalled $5.5 million. This amount includes
contributions to service corporations of property acquired through
foreclosure or deed in lieu thereof of $4.5 million. Such amount is not
included in Progress' service corporation investment limitation under OTS
interpretations.
Eagle Service Corporation. Eagle Service Corporation ("Eagle") is a
Pennsylvania corporation which is currently engaged in real estate
development and, through subsidiaries, holds certain investments in real
estate. At March 31, 1995, Eagle had an $8,000 investment in a joint
venture which is developing a 30-unit single-family residential project
located in Worcester, Pennsylvania. As of such date, the joint venture had
sold 24 units and one unit was under agreement for sale. Eagle has a $5.0
million line of credit with Progress which had an outstanding balance of
$3.5 million at March 31, 1995. At March 31, 1995, Progress' equity
investment in Eagle amounted to $3.7 million.
Wholly owned subsidiaries of Eagle at March 31, 1995 consisted of
Pelham Bay Professional Center, Inc. ("Pelham"), PFSB, Inc. ("PFSB") and
Faraway, Inc. ("Faraway"). Pelham is a Pennsylvania corporation which is
engaged in the management of the Company's largest REO property, a medical
office building, which had a net carrying value of $3.4 million at March
31, 1995 and which was sold for $3.2 million in June 1995. PFSB and
Faraway are currently inactive.
Dolphin Service Corporation. Dolphin Service Corporation ("Dolphin")
is a Pennsylvania corporation which is engaged in the management of $1.0
million of real estate which was previously acquired by Progress through
foreclosure and which consisted of various townhouses, single-family houses
and residential units. At March 31, 1995, Progress' investment in Dolphin
amounted to $1.7 million.
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Pilot Financial Corporation. Pilot Financial Corporation ("Pilot") is
a Pennsylvania corporation which was previously engaged in the management
of a 96-unit townhouse community located in Bucks County, Pennsylvania.
The sale and settlement of all 96 units was completed during 1994 and, as a
result, Pilot is currently inactive.
Diversified Investment Services Corporation ("DISC") is Pilot's only
wholly owned subsidiary and is a Pennsylvania corporation. DISC was
previously engaged in the management of one real estate property which was
acquired by Progress through foreclosure and subsequently sold in August
1994. As a result, DISC is currently inactive.
Fox Acquiring, Inc. Fox Acquiring, Inc. ("Fox") is a Pennsylvania
corporation which is currently inactive and which was previously engaged in
the management of various parcels of REO.
Progress' investments in and advances to ventures by Progress' service
corporations are accounted for using the equity method of accounting.
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Office Properties
At March 31, 1995, the Company conducted its business from its
headquarters and main office at the Plymouth Meeting Executive Campus, 600
West Germantown Pike, Plymouth Meeting, Pennsylvania, and eight other
branch offices located in southeastern Pennsylvania.
<TABLE><CAPTION>
Lease Total Net Book
Leased/ Expiration Date Date Office Value at
Description/Address(1) Owned Including Options Acquired Square Ft. Deposits 3/31/95(2)
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Executive Office:
600 W. Germantown Pike
Plymouth Meeting, PA Leased 04/06 -- 23,228 $ -- $ 57
Branch Offices:
Corner Routes 202 & 23
Bridgeport, PA(3) Owned -- 1974 7,919 36,487 654
405 Fayette Street
Conshohocken, PA Leased 01/10(4) -- 2,168 40,414 5
Genuardi Shopping Center
Jeffersonville, PA Leased 03/96 -- 2,700 35,665 37
Valley Forge Shopping Center
King of Prussia, PA Leased 01/99 -- 3,296 37,145 38
Sandy Hill Shopping Center
Norristown, PA Leased 07/98 -- 1,555 34,843 7
Andorra Shopping Center
Philadelphia, PA Leased 09/99 -- 2,000 28,690 --
Plymouth Meeting
Executive Campus
Plymouth Meeting, PA Leased 01/06 -- 4,572 41,382 32
Rosemont
1084 E. Lancaster Avenue
Rosemont, PA Leased 03/32 -- 2,647 23,223 194
</TABLE>
_____________________________
(1) In April 1995, the Company entered into a 20-year lease agreement to
renovate and open a branch office in Paoli, Pennsylvania. The cost of
renovations are estimated to be approximately $225,000. The Company
expects to open its Paoli branch office in August 1995 (which is
leased). In addition, in April and May 1995, the Company opened two
residential loan origination offices (which are leased) in Pottstown
and Lancaster, Pennsylvania.
(2) Includes investment in leasehold improvements (excluding furniture and
equipment).
(3) Also serves as Progress' operations center.
(4) Lease is renewable on an annual basis.
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Legal Proceedings
The Company is involved in routine legal proceedings occurring in the
ordinary course of business which in the aggregate are believed by
management to be immaterial to the financial condition of the Company.
Competition
The Company faces strong competition both in attracting deposits and
making real estate loans. Its most direct competition for deposits has
historically come from other savings institutions, credit unions and
commercial banks located in its primary market area in southeastern
Pennsylvania, including many large financial institutions which have
greater financial and marketing resources available to them. In addition,
during times of high interest rates, the Company has faced additional
significant competition for investors' funds from short-term money market
securities and other corporate and government securities. The ability of
the Company to attract and retain savings deposits depends on its ability
to generally provide a rate of return, liquidity and risk comparable to
that offered by competing investment opportunities.
The Company experiences strong competition for real estate loans
principally from other savings institutions, commercial banks and mortgage
banking companies. The Company competes for loans principally through the
interest rates and loan fees it charges and the efficiency and quality of
services it provides borrowers. Competition may increase as a result of
the continuing reduction of restrictions on the interstate operations of
financial institutions.
Employees
As of March 31, 1995, the Company employed 114 full-time employees and
17 part-time employees.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF ROXBOROUGH-MANAYUNK
General
The Mutual Holding Company was formed in 1992 to acquire and hold a
majority of the issued and outstanding common stock of Roxborough-Manayunk,
currently its primary asset. At present, the Mutual Holding Company owns
approximately 87% of the issued and outstanding common stock of Roxborough-
Manayunk. The only other significant asset of the Mutual Holding Company
is $98,500 in cash and cash equivalents retained from its initial
capitalization upon formation. As such, the Mutual Holding Company's
results of operations are dependent on the financial condition and results
of operation of Roxborough-Manayunk. Roxborough-Manayunk's results of
operations are primarily dependent on its net interest income, which is the
difference between interest income earned on its loan, mortgage-backed
securities and investment portfolios, and its cost of funds, which consists
of interest paid on deposits and borrowings. Net interest income also is
affected by the relative amounts of interest-earning assets and interest-
bearing liabilities. Roxborough-Manayunk's net income also is affected by
the amount of noninterest income, noninterest expense and the provision for
loan losses. Operating results are also affected to a lesser extent by the
type of loans originated (i.e., fixed-rate versus adjustable or short-term)
which in turn affects the rates and fees earned. Roxborough-Manayunk's
operating expenses principally consist of employee compensation, occupancy
expenses, federal insurance premiums, and other general and administrative
expenses. The earnings of Roxborough-Manayunk also are affected
significantly by general economic and competitive conditions, particularly
changes in market interest rates, government policies, and actions of
regulatory authorities.
Management Strategy
Roxborough-Manayunk's lending strategy has historically focused on the
origination of traditional one-to-four family mortgages and, to a much
lesser extent, multi-family residential and commercial real estate loans.
This focus, and relatively conservative underwriting standards, is designed
to reduce the risk of losses on its loan portfolio. This lack of
diversification in its asset structure does, however, increase Roxborough-
Manayunk's portfolio concentration risk by making the value of the
portfolio more susceptible to declines in real estate values in its market
area. The risk has been mitigated to an extent through the origination of
adjustable-rate mortgage loans (when market conditions permit), the
increased purchase of mortgage-backed securities, and the maintenance of a
high percentage of its assets in highly liquid overnight deposits.
Roxborough-Manayunk, like many other thrift institutions, is subject
to interest rate risk as a result of the difference in the maturity on
interest-bearing liabilities and interest-earning assets and the volatility
of interest rates. Most deposit accounts react more quickly to market
interest rate movements than do traditional mortgage loans because of their
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<PAGE>
shorter terms to maturity; therefore, sharp increases in interest rates
will generally adversely affect Roxborough-Manayunk's earnings.
Conversely, this mismatch will generally benefit Roxborough-Manayunk during
periods of declining or stable interest rates. Roxborough-Manayunk's
management strategy has been to maintain a strong capital position through
asset growth at a rate that does not exceed Roxborough-Manayunk's ability
to generate earnings. Historically, Roxborough-Manayunk has limited its
borrowings and has relied primarily upon savings deposits as its primary
source of funds. Roxborough-Manayunk's lending and investment strategy in
recent years has consisted primarily of the following: (1) the origination
of fixed-rate 15- and 30-year mortgages, which are eligible for sale in the
secondary market, primarily for retention in the loan portfolio, (2) the
retention of adjustable-rate, five- and seven-year "balloon" mortgages for
the loan portfolio, (3) the origination on a selective and limited basis of
small commercial real estate loans secured by real estate in the local
market area, (4) since March 1992, the origination of consumer loans which
primarily consist of second mortgages and home equity loans to existing
customers for terms of 5 to 10 years with a maximum loan-to-value ratio of
75%, (5) the purchase of mortgage-backed securities backed by fixed-rate
and adjustable-rate loans (when the amount of savings deposits held by
Roxborough-Manayunk exceeds the amount of funds needed for lending), and
(6) the maintenance of a high percentage of Roxborough-Manayunk's assets in
short-term liquid investments.
Asset/Liability Management
General. Roxborough-Manayunk's earnings depend primarily on its net
interest income. Net interest income is affected by (i) the amount of
interest-earning assets and interest-bearing liabilities, (ii) rates of
interest earned on interest-earning assets and rates paid on
interest-bearing liabilities, and (iii) the difference ("interest rate
spread") between rates of interest earned on interest-earning assets and
rates paid on interest-bearing liabilities. When interest-earning assets
approximate or exceed interest-bearing liabilities, any positive interest
rate spread will generate net interest income.
At March 31, 1994, approximately 79% of Roxborough-Manayunk's real
estate loans were long-term, fixed-rate loans. Therefore, the average
yield on Roxborough-Manayunk's loan portfolio changes relatively slowly and
generally does not keep pace with changes in interest rates on deposit
accounts and borrowings. When interest rates rise, Roxborough-Manayunk's
yield on its loan portfolio generally increases more slowly than the rate
by which its cost of funds increases.
Net Portfolio Value. In prior years, Roxborough-Manayunk has measured
its interest rate sensitivity by computing the "gap" between the assets and
liabilities which were expected to mature or reprice within certain
periods, based on assumptions regarding loan prepayment and deposit decay
rates formerly provided by the OTS. However, the OTS now requires the
computation of the amount by which the institution's net portfolio value,
or "NPV" (consisting of the net present value of an institution's cash
flows from assets, liabilities, and off balance sheet contracts) would
change in the event of a range of assumed
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<PAGE>
changes in market interest rates. The OTS also requires the computation of
estimated changes in net interest income over a four-quarter period. These
computations estimate the effect on an institution's NPV and net interest
income of instantaneous and permanent 1% to 4% increases and decreases in
market interest rates. Through Roxborough-Manayunk's interest rate
sensitive policy, the Board of Directors has established maximum tolerable
decreases in net interest income and in NPV given such instantaneous
changes in interest rates.
In order to encourage institutions to reduce their interest rate risk,
the OTS adopted a final rule in August 1993 incorporating an interest rate
risk ("IRR") component into the risk-based capital rules. The rules
provide that the OTS will calculate the IRR component quarterly for each
institution. The IRR component is a dollar amount that will be deducted
from total capital for the purpose of calculating an institution's risk-
based capital requirement and is measured in terms of the sensitivity of
its NPV to changes in interest rates. An institution's IRR is measured as
the change to its NPV as a result of a hypothetical 200 basis point change
in market interest rates. A resulting change in NPV of more than 2% of the
estimated market value of its assets will require the institution to deduct
from its capital 50% of that excess change. However, the requirement that
institutions deduct the IRR component from capital has been waived until
the OTS finalizes the process under which institutions may appeal such
capital deductions. As provided in the rule, institutions, such as
Roxborough-Manayunk, with less than $300 million in total assets and a
risk-based capital ratio in excess of 12%, are exempt from filing IRR
information with the OTS and are not required to deduct this component from
capital.
The following table presents Roxborough-Manayunk's NPV at March 31,
1995, as calculated by the OTS and based on OTS assumptions utilizing raw
data voluntarily provided to the OTS by Roxborough-Manayunk.
Change in
Interest Rates in Net Portfolio Value NPV as % of Assets
Basis Points
(Rate Shock)(1) Amount $Change %Change NPV Ratio Change
(Dollars in Thousands)
+400 bp $33,106 $(936) (3)% 12.03% -5 bp
+300 bp 33,687 (355) (1) 12.15 +8 bp
+200 bp 34,064 22 0 12.21 +13 bp
+100 bp 34,436 394 1 12.26 +19 bp
0 bp 34,042 -- -- 12.08
-100 bp 32,160 (1,882) (6) 11.42 -65 bp
-200 bp 30,152 (3,890) (11) 10.72 -135 bp
-300 bp 30,395 (3,647) (11) 10.74 -134 bp
-400 bp 30,778 (3,263) (10) 10.79 -129 bp
(Footnotes on following page)
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<PAGE>
- -----------------------
(1) Denotes rate shock used to compute interest rate risk capital
component.
The following table sets forth the interest rate risk capital
component for Roxborough-Manayunk at March 31, 1995 (the most recent date
for which such information is available to Roxborough-Manayunk from the
OTS) given a hypothetical 200 basis point rate change in market interest
rates. See "Regulation - Savings Bank Regulation - Regulatory Capital
Requirements." Based on Roxborough-Manayunk's risk-based capital level and
asset size, it would not be subject to any increased capital requirements
if the regulation were applied to Roxborough-Manayunk.
At
March 31, 1995
RISK MEASURES: --------------
200 Basis Point Rate Shock
Pre-Shock NPV Ratio: NPV
as % of Present Value of 12.08%
Assets
Exposure Measure: Post-
Shock NPV Ratio 10.72%
Sensitivity Measure:
Change in NPV Ratio (135) bp
CALCULATION OF CAPITAL
COMPONENT:
Change in NPV as % of
Present Value of Assets (1.38)%
Interest Rate Risk Capital
Component --
Computations of prospective effects of hypothetical interest rate
changes are based on numerous assumptions, including relative levels of
market interest rates, loan prepayments, and deposit run-offs, and should
not be relied upon as indicative of actual results. Further, the
computations do not include any actions Roxborough-Manayunk may undertake
in response to changes in interest rates, but are based on a fixed
portfolio of assets, liabilities and off balance sheet items.
Certain shortcomings are inherent in the method of analysis presented
in both the computation of NPV and in the analysis presented in prior
tables setting forth the maturing and repricing of interest-earning assets
and interest-bearing liabilities. 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. The
interest rates on certain types of assets and liabilities may fluctuate in
advance of changes in market interest rates, while interest rates on other
types may lag behind changes in market rates.
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<PAGE>
Additionally, certain assets, such as adjustable-rate loans (which
represent approximately 5% of Roxborough-Manayunk's loan portfolio at March
31, 1995) have features which restrict changes in interest rates on a
short-term basis and over the life of the asset. Further, in the event of
a change in interest rates, prepayment and early withdrawal levels would
likely deviate significantly from those assumed in the tables. Finally,
the ability of many borrowers to service their adjustable-rate debt may
decrease in the event of an interest rate increase.
Comparison of Financial Condition at March 31, 1995 and December 31, 1994
and 1995
Assets. Roxborough-Manayunk had total assets at March 31, 1995 and
December 31, 1994 and 1993 of $272.7 million, $273.6 million and $277.3
million, respectively. The $843,000 or .3% decrease at March 31, 1995 is
primarily attributable to a decrease in mortgage-backed securities
available for sale of $22.1 million, a decrease in loans receivable of
$349,000, and a decrease in deferred income taxes of $1.0 million, offset
by an increase in cash and cash equivalents of $21.8 million. The decrease
of $3.7 million or 1.3% during the year ended December 31, 1994, was
primarily due to a net decrease of cash, investments, and mortgage-backed
securities of $2.6 million, a decrease of loans receivable of $1.9 million
and an increase in deferred taxes of $1.4 million.
Cash and Cash Equivalents. Cash and cash equivalents, which include
cash on hand and interest-bearing deposits in other financial institutions,
totaled $40.8 million, $19.1 million and $31.8 million at March 31, 1995
and December 31, 1994 and 1993, respectively. The fluctuation in this
account is due to the sale of investments near the end of fiscal 1993 and
March 31, 1995 and Roxborough-Manayunk not yet having deployed the proceeds
by the end of the fiscal year and quarter, respectively.
Loans Receivable. Loans receivable (including loans classified as
held for sale) remained relatively stable during the periods presented as
Roxborough-Manayunk was able to replace maturing loans with new
originations, supplemented by the purchase of loans.
Allowance for Loan Losses. The allowance for loan losses was
$416,000, $417,000 and $450,000 or 34.1%, 31.1%, and 18.4% of total non-
performing loans at March 31, 1995 and December 31, 1994 and 1993,
respectively.
Investment Securities. Roxborough-Manayunk maintains a portfolio of
investment securities such as U.S. government and agency securities as a
means of implementing its asset and liability policies. Investment
securities are generally held to maturity, however, a small portion of the
investment portfolio is classified as available for sale. At March 31,
1995 and December 31, 1994 and 1993, investment securities (including
investment securities classified as available for sale) totaled $50.3
million, $50.1 million and $29.9 million, respectively. The $20.2 million
or 67.5% increase from fiscal 1993 to fiscal 1994 was due primarily to the
purchase of additional U.S. government agency issues in fiscal 1994.
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<PAGE>
Mortgage-Backed Securities. Roxborough-Manayunk also maintains a
portfolio of mortgage-backed securities guaranteed by GNMA and FNMA or
issued by the FHLMC which are secured by fixed- and adjustable-rate
mortgages. The entire portfolio of mortgage-backed securities is
classified as available for sale and is carried at market value. At March
31, 1995 and December 31, 1994 and 1993, mortgage-backed securities had a
fair market value of $76.4 million, $98.5 million and $108.5 million and
unrealized losses on mortgage-backed securities totaled $791,000 and $3.8
million at March 31, 1995 and December 31, 1994, respectively, and an
unrealized gain of $67,000 at December 31, 1993. For a discussion of the
classification of mortgage-backed securities, see "Business of Roxborough-
Manayunk - Investment Activities - Accounting for Investments and Mortgage-
Backed Securities."
Liabilities. Roxborough-Manayunk's liabilities totaled $249.7
million, $253.1 million and $256.1 million at March 31, 1995 and December
31, 1994 and 1993, respectively. The decrease of $3.4 million or 1.3% at
March 31, 1995 is primarily attributable to a $2.2 million decrease in
deposits and a $1.2 million decrease in advances from borrowers for taxes
and insurance. The decrease of $3.0 million or 1.2% during the year ended
December 31, 1994, was primarily attributable to a $3.1 million or 1.3%
decrease in deposits. Roxborough-Manayunk's deposit base decreased due to
the rapid increase in certificate rates.
Borrowings. Although deposits are the primary source of funds for
Roxborough-Manayunk, it may obtain advances from the FHLB of Pittsburgh.
At March 31, 1995 and at December 31, 1994 and 1993, outstanding advances
totaled $7.9 million and carried a weighted average interest rate of 5.53%.
All of these advances were specifically matched to a specific investment at
a positive interest rate spread.
Stockholders' Equity. Roxborough-Manayunk's stockholders' equity
increased $3.0 million or 12.2% from $20.5 million to $23.0 million at
March 31, 1995 due primarily to a $2.0 million decrease in unrealized
losses on mortgage-backed securities available for sale and a $475,000
increase in retained earnings. Roxborough-Manayunk's stockholders' equity
decreased by $740,000 or 3.5% to $20.5 million for the year ended December
31, 1994, as compared to $21.2 million for the year ended December 31,
1993. This decrease was due mainly to a $2.4 million increase in
unrealized losses on mortgage-backed securities offset somewhat by $1.9
million in net income from operations.
Comparison of Operating Results for the Three Months Ended March 31, 1995
and 1994 and the Years Ended December 31, 1994, 1993 and 1992
General. Net income for the three months ended March 31, 1995 and
1994 totaled $516,000 and $309,000, respectively. Net income for the years
ended December 31, 1994, 1993 and 1992 totaled $1.9 million, $2.9 million
and $1.8 million, respectively.
Net income for the three months ended March 31, 1995 increased
$206,000 or 66.6% primarily due to an increase in income from interest and
dividends on investments.
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The $1.0 million or 34.9% decrease in fiscal 1994 as compared to
fiscal 1993 was primarily due to a decrease in gain on the sale of
mortgage-backed securities of $679,000, and a one-time gain from the
cumulative effect of changing the method of accounting for income taxes of
$407,000 in 1993. The $1.2 million or 65.2% increase in fiscal 1993 as
compared to fiscal 1992 was primarily due to an increase in gain on the
sale of mortgage-backed securities of $566,000, an increase in net interest
income of $906,000 and a one-time gain from the cumulative effect of
changing the method of accounting for income taxes of $407,000, offset by
an increase in operating expenses of $306,000.
Net Interest Income. Net interest income is determined by Roxborough-
Manayunk's interest rate spread (i.e., the difference between the yields on
its interest-earning assets and the rates paid on its interest-bearing
liabilities) and the relative amounts of interest-earning assets and
interest-bearing liabilities.
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<PAGE>
Average Balance Sheet. The following table sets forth certain
information relating to Roxborough-Manayunk'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 difference in the information presented.
<TABLE><CAPTION>
For the Three Months Ended March 31,(7)
1995(1) 1994
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable(2) $ 98,494 $2,201 8.94% $ 98,263 $2,302 9.37%
Mortgage-backed securities 92,056 1,603 6.97 102,836 1,223 4.76
Cash and investment securities(3) 69,980 1,048 6.00 61,993 661 4.26
Other interest-earning assets 4,655 83 7.05 4,520 51 4.54
------- ----- ------- -----
Total interest-earning assets 265,185 $4,935 7.44 267,612 $4,237 6.33
------- -------
===== =====
Non-interest-earning assets 8,235 10,887
------- -------
Total assets $273,420 $278,499
======= =======
Interest-bearing liabilities:
Regular savings $ 39,218 $ 320 3.26% $ 43,395 $ 269 2.48%
Senior Club savings 71,643 721 4.03 83,458 674 3.23
Certificate accounts 101,027 1,141 4.52 92,966 945 4.06
Other deposit accounts(4) 26,858 190 2.83 24,590 124 2.03
------- ----- ------- -----
Total deposits 238,746 2,732 3.97 244,409 2,012 3.29
FHLB borrowings 7,884 109 5.53 7,884 109 5.53
Other liabilities (escrow) 1,876 9 2.00 1,926 9 2.00
------- ----- ------- -----
Total interest-bearing liabilities $248,506 $2,490 4.00 $254,219 $2,130 3.35
======= ===== ======= =====
Non-interest-bearing liabilities 2,609 2,231
------- -------
Total liabilites 251,115 256,450
------- -------
Stockholder's equity 22,305 22,049
------- -------
Total liabilities and stockholders'
equity $273,420 $278,499
======= =======
Net interest income $2,445 $2,107
===== =====
Interest rate spread(5) 3.44% 2.98%
==== ====
Net yield on interest-earning
assets(6) 3.69% 3.15%
==== ====
Ratio of average interest-earning
assets to average interest-bearing
liabilities 106.71% 105.27%
====== ======
</TABLE>
(Footnotes on following page)
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<PAGE>
- ---------------------
(1) At March 31, 1995, the weighted average yields earned and rates paid
were as follows: loans receivable, 8.79%; mortgage-backed securities
6.75%; cash and investment securities, 6.04%; other interest earning
assets, 7.07%; total deposits, 4.12%, advances from the FHLB, 5.53%;
total interest-bearing liabilities, 4.16%; and interest rate spread,
2.91%.
(2) Average balances include non-accrual loans.
(3) Includes interest-bearing deposits in other financial institutions.
(4) Includes NOW and super NOW accounts, money market accounts, and non-
interest deposit accounts.
(5) Interest rate spread represents the difference between the average
yield on interest-earning assets and the average cost of interest-
bearing liabilities.
(6) Net yield on interest-earning assets represents net interest income as
a percentage of average interest-earning assets.
(7) Annualized (where appropriate) for purposes of comparability with
year-end data.
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<PAGE>
Average Balance Sheet (continued)
<TABLE><CAPTION>
Year Ended December 31,
1994 1993 1992
Average Average Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost Balance Interest Yield/Cost
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable(1) $ 97,302 $ 9,042 9.29% $ 85,293 $ 8,745 10.25% $ 82,829 $ 9,188 11.09%
Mortgage-backed securities 98,656 5,327 5.40 120,935 7,065 5.84 93,699 6,627 7.07
Cash and investment securities(2) 67,869 3,499 5.16 43,311 2,036 4.71 47,971 2,605 5.43
Other interest-earning assets 4,553 228 5.01 4,090 221 5.40 3,269 137 4.19
------- ------ ------- ------ ------- ------
Total interest-earning assets 268,380 $18,096 6.74 253,629 $18,067 7.12 227,768 $18,557 8.15
------- ====== ------- ====== ------- ======
Non-interest-earning assets 8,825 10,382 9,217
------- ------- -------
Total assets $227,205 $264,011 $236,985
======= ======= =======
Interest-bearing liabilities:
Regular savings $42,663 $ 1,118 2.62% $ 43,825 $ 1,355 3.05% $ 63,929 $ 2,809 4.39%
Senior club savings 81,101 2,739 3.38 72,991 2,711 3.71 12,466 525 4.21
Certificate accounts 94,719 3,910 4.13 95,756 4,347 4.54 110,040 6,109 5.55
Other deposit accounts(3) 24,997 549 2.20 24,685 592 2.40 28,081 991 3.53
------- ------ ------- ------ ------- ------
Total deposits 243,480 8,316 3.42 237,257 8,985 3.79 214,516 10,434 4.86
FHLB borrowings 7,884 436 5.53 3,257 72 5.53 -- --
Other liabilities (escrow) 1,966 39 2.00 1,474 30 2.00 2,452 49 2.00
------- ----- ------- ------ ------- ------
Total interest-bearing liabilities $253,330 $ 8,791 3.47 $241,988 $ 9,087 3.76 $216,968 $10,483 4.83
======= ====== ======= ====== ======= ======
Non-interest-bearing liabilites 2,749 2,489 2,200
------- ------- -------
Total liabilities 256,079 244,477 219,168
------- ------- -------
Retained earnings 21,126 19,534 17,817
------- ------- -------
Total liabilities and retained
earnings $277,205 $264,011 $236,985
======= ======= =======
Net interest income $ 9,305 $ 8,980 $ 8,074
======= ====== =====
Interest rate spread(4) 3.27% 3.37% 3.32%
==== ==== ====
Net yield on interest-earning
assets(5) 3.47% 3.54% 3.55%
==== ==== ====
Ratio of average interest-earning
assets to average interest-bearing
liabilities 105.95% 104.81% 104.98%
====== ====== ======
</TABLE>
(Footnotes on following page)
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<PAGE>
- ----------------------
(1) Average balances include non-accrual loans.
(2) Includes interest-bearing deposits in other financial institutions.
(3) Includes NOW and super NOW accounts, money market accounts, and non-
interest deposit accounts.
(4) Interest rate spread represents the difference between the average
yield on interest-earning assets and the average cost of interest-
bearing liabilities.
(5) Net yield on interest-earning assets represents net interest income as
a percentage of average interest-earning assets.
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<PAGE>
Rate/Volume Analysis. Changes in net interest income are attributable
to three factors: a change in volume of an interest-earning asset or
interest-bearing liability, a change in rates or a change caused by a
combination of changes in volume and rate. The table below sets forth
certain information regarding changes in interest income and interest
expense of Roxborough-Manayunk for the periods indicated. For each
category of interest-earning asset and interest-bearing liability,
information is provided on changes attributable to (1) changes in volume
(changes in average volume multiplied by old rate); (2) changes in rates
(changes in rate multiplied by old average volume); and (3) changes in
rate-volume (changes in rate multiplied by changes in average volume).
<TABLE><CAPTION>
Three Months Ended March 31, Year Ended December 31,
1995 vs. 1994 1994 vs. 1993
Increase Increase
(Decrease) Due to (Decrease) 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 $ 5 $(106) $ -- $(101) $1,231 $ (819) $ (115) $ 297
Mortgage-backed
securities (128) 569 (60) 381 (1,302) (535) (99) (1,738)
Cash and investment
securities 85 268 34 387 1,155 197 111 1,463
Other interest earning
assets 2 28 1 31 25 (16) (2) (7)
---- ---- --- ---- ------ ------ ----- ------
Total interest-earning
assets (36) 759 (25) 698 1,109 (1,173) 93 29
---- ---- --- ---- ------ ------ ----- -----
Interest expense:
Savings accounts (47) 417 (10) 360 236 (881) (23) (668)
Other liabilities (1) -- -- (1) 110 126 137 373
---- ----- ---- ---- ------ ------ ------ ------
Total interest-bearing
liabilities (48) 417 (10) 359 346 (755) 114 (295)
---- ---- --- ---- ------ ------ ----- -----
Net change in interest income $ (12) $ 342 $(15) $ 339 $ 763 $ (418) $ (21) $ 324
==== ==== === ==== ====== ====== ====== =====
<CAPTION>
1993 vs. 1992
Increase
(Decrease) Due to
Rate/
Volume Rate Volume Net
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Interest income:
Loans receivable $ 273 $ 696 $ (21) $ (444)
Mortgage-backed
securities 1,926 (1,153) (335) 438
Cash and investment
securities (253) (350) 34 (569)
Other interest earning
assets 34 40 10 84
------ ------- ------ -------
Total interest-earning
assets 1,980 (2,159) 312 (491)
------ ------ ----- ------
Interest expense:
Savings accounts 1,106 (2,310) (247) (1,451)
Other liabilities 46 4 4 54
------ ------- ------ -------
Total interest-bearing
liabilities 1,152 (2,306) (241) (1,397)
----- ------ ----- ------
Net change in interest income $ 828 $ 147 $ (69) $ 906
===== ====== ===== ======
</TABLE>
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<PAGE>
Net interest income was $2.4 million and $2.1 million for the three
months ended March 31, 1995 and 1994, respectively, and $9.3 million, $9.0
million and $8.1 million for the years ended December 31, 1994, 1993 and
1992, respectively.
Net interest income increased $338,000 or 16.1% for the three months
ended March 31, 1995. This increase was due primarily to an increase in
interest income of $698,000, partially offset by an increase in interest
expense of $360,000.
The increase of $325,000 or 3.6% for 1994 was due primarily to a
decrease in interest expense of $296,000. During this same period, total
interest income remained essentially unchanged, because the increase in
interest from loans and investments more than offset the decrease in
interest from mortgage-backed securities. Net interest income increased
$906,000 or 11.3% during 1993 primarily as a result of the increase in the
average balance of interest-earning assets of $25.9 million or 11.4% to
$253.6 million for the year ended December 31, 1993 from $227.8 million for
the year ended December 31, 1992 and an increase in the interest rate
spread.
Total Interest Income. Interest income for the three months ended
March 31, 1995 and 1994 totaled $4.9 million and $4.2 million,
respectively. Interest income for the years ended December 31, 1994, 1993
and 1992 totaled $18.1 million, $18.1 million and $18.5 million,
respectively.
Interest income increased $698,000, or 16.5%, for the three months
ended March 31, 1995 as compared to the three months ended March 31, 1994.
This increase was primarily the result of an increase in income from
interest and dividends on investments of $419,000 due to an increase in
market rates of interest and an increase in income from interest on
mortgage-backed securities of $380,000 due to an increase in yield on
adjustable-rate instruments as market rates of interest increased despite a
$10.0 million decrease in the average balance of mortgage-backed securities
as Roxborough-Manayunk sold $20.7 million of mortgage-backed securities as
part of its asset and liability management.
The increase of $29,000 or less than 1% in fiscal 1994 was primarily
the result of a decline in interest income from mortgage-backed securities
of $1.7 million being more than offset by an increase in interest and
dividends on investments of $1.5 million and an increase in interest on
loans of $297,000 primarily as a result of an increase in the average
balance of loans receivable, cash and investment securities coupled with an
increase in the average yield on cash and investment securities, offset
somewhat by decreases in the average balance of mortgage-backed securities
and the average yield on loans receivable. The decrease in interest income
of $490,000, or 2.6% for fiscal 1993 as compared to fiscal 1992 was
primarily the result of a decline in interest income from loans of $443,000
and a decrease in interest and dividends on investments of $485,000,
partially offset by an increase in interest on mortgage-backed securities
of $438,000 due primarily to a $27.2 million or 29.1% increase in the
average balance as Roxborough-Manayunk supplemented its relatively flat
loan demand. Furthermore, the average yield on interest-earning assets
decreased from 8.15%
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<PAGE>
in 1992 to 7.12% in fiscal 1993 due to the maturity of high yielding
investments and the prepayment of loans and mortgage-backed securities and
the reinvesting of those funds into lower yielding investments and loans.
The lower yield on new and adjustable-rate investments was primarily due to
a general decrease in market interest rates for all types of interest-
earning assets during 1993.
Total Interest Expense. Interest expense, which was comprised almost
entirely of interest paid on deposits was $2.5 million and $2.1 million for
the three months ended March 31, 1995 and 1994, respectively; and $8.8
million, $9.1 million and $10.5 million for the years ended December 31,
1994, 1993 and 1992, respectively.
Interest expense increased $360,000 or 17.0% for the three months
ended March 31, 1995 as compared to the same period ended March 31, 1994
due to an increase in the average cost of such deposits from 3.29% to
3.97%. This was partially mitigated by a decrease in the average balance
of deposits of $5.7 million or 2.3% to $238.7 million for the three months
ended March 31, 1995 as compared to $244.4 million for the three months
ended March 31, 1994.
The decrease of $296,000 or 3.2% for fiscal 1994 from fiscal 1993 was
primarily the result of the average cost of deposits decreasing by 28 basis
points as liabilities repriced downward during the first half of fiscal
1994 and the average balance of deposits increasing by $4.3 million or .46%
due to a $6.9 million increase in the average balance of passbook accounts
being partially offset by a $1.0 million decrease in the average balance of
certificate accounts. The decrease of $1.4 million or 13.3% during fiscal
1993 was primarily the result of the average cost of deposits decreasing by
22.2% as liabilities repriced downward during fiscal 1993. This decrease
was offset somewhat by an increase in the average balance of deposits by
$25.0 million or 11.5% due to the popularity of the senior savings account.
Provision for Losses on Loans. Roxborough-Manayunk currently
maintains an allowance for loan losses based upon management's periodic
evaluation of known and inherent risks in the loan portfolio, Roxborough-
Manayunk's past loss experience, adverse situations that may affect the
borrowers' ability to repay loans, estimated value of the underlying
collateral, and current and expected market conditions. See also "Business
of Roxborough-Manayunk - Asset Quality - Allowance for Losses on Loans and
REO."
The provision for losses on loans is the method by which the allowance
for losses is adjusted during the periods. The provision for losses on
loans was $15,000 for each of the three months ended March 31, 1995 and
1994, and $60,000, $94,000 and $60,000 for the years ended December 31,
1994, 1993 and 1992, respectively. The provision for losses on loans of
$15,000 for each of the three months ended March 31, 1995 and 1994 was
primarily because of the increase in the equity loan and lease portfolios.
The amount of accruing loans contractually past due 90 days or more,
however, decreased $836,000 to $1.1 million at March 31, 1995 from $2.0
million at March 31, 1994.
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<PAGE>
The decrease of $34,000 from 1993 to 1994 reflects, among other
things, a decrease in accruing loans contractually past due 90 days or more
to $1.3 million at December 31, 1994 from $2.3 million at December 31, 1993
and management's evaluation of the adequacy of the allowance for loan
losses. The provision for losses on loans increased $34,000 or 56.6% for
1993 from 1992 primarily because of the increase in the equity loan and
lease portfolios. While Roxborough-Manayunk maintains its allowance for
losses at a level which it considers to be adequate to provide for
potential losses, there can be no assurance that further additions will not
be made to the loss allowances and that such losses will not exceed the
estimated amounts.
Other Income. Other income for the three months ended March 31, 1995
and 1994 totaled $123,000 and $127,000, respectively, and $505,000, $1.2
million and $699,000 for the years ended December 31, 1994, 1993 and 1992,
respectively.
Other income decreased slightly for the three months ended March 31,
1995 primarily as a result of a $31,000 loss on the sale of mortgage-backed
securities during the three months ended March 31, 1995, which was only
partially offset by a $10,000 increase in rental income due to an increase
in rents charged on rental properties and a $17,000 increase in
miscellaneous other income.
The decrease for 1994 from 1993 was primarily as a result of a
$679,000 decrease in gain on the sale of mortgage-backed securities due to
no sales of mortgage-backed securities in fiscal 1994. The increase of
$530,000 or 75.9% from 1992 to 1993 was primarily as a result of a $566,000
increase in gain on the sale of mortgage-backed securities.
Other Expenses. Other expenses totaled $1.7 million for both of the
three months ended March 31, 1995 and 1994, and $6.7 million, $6.4 million
and $6.1 million for the years ended December 31, 1994, 1993 and 1992,
respectively.
Other expenses increased by $42,000 or 2.5% for the three months ended
March 31, 1995. This increase was primarily caused by increased salaries
of $41,000 due to normal merit increases and increased pension and profit
sharing expense of $34,000 partially offset by a decrease in office
occupancy expense of $28,000.
The increase of $248,000 or 3.8% for fiscal 1994 from fiscal 1993 was
primarily caused by increased salaries of $195,000, again due to normal
merit pay increases, increased federal deposit insurance premiums of
$123,000, increased office occupancy expenses of $43,000, and increased
advertising expenses of $43,000. These increases were partially offset by
decreased goodwill amortization expenses which related to amortization of
goodwill by the level yield method of $89,000 and decreased pension and
profit-sharing and other employee benefit expenses of $39,000. The
increase of $306,000 or 5.0% in fiscal 1993 from fiscal 1992 was primarily
caused by increased pension and profit sharing contributions of $262,000,
increased other employee benefits of $43,000, increased directors' fees of
$34,000,
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<PAGE>
and increased professional service expenses of $37,000. These increases
were partially offset by decreases in the amortization of goodwill of
$92,000 and depreciation expense of $42,000.
Income Tax Expense. Income tax expense was $293,000 and $208,000 for
the three months ended March 31, 1995 and 1994, respectively, and $1.2
million, $1.2 million and $841,000 for the years ended December 31, 1994,
1993 and 1992, respectively.
Income tax expense increased $86,000 or 41.3% for the three months
ended March 31, 1995. The effective tax rate for the three month period
ended March 31, 1995 was 36.2% as compared to 40.1% for the three months
ended March 31, 1994. The increase in taxes is primarily attributable to
an increase in income before income taxes of $292,000 or 56.4%.
The effective tax rate increased to 38.4% for fiscal 1994 as compared
to 32.0% for fiscal 1993 but the amount of income taxes paid remained
virtually the same due to decrease in pre-tax income during fiscal 1994.
The increase in the effective income tax rate was primarily attributable to
not having an operating loss carryforward of state taxes in 1994. The
increase of $348,000 or 41.3% in fiscal 1993 from fiscal 1992 was caused by
the increase of pre-tax earnings of $1.1 million or 42.0%. This increase
in taxes was offset by the one-time cumulative effect of changing to a
different method of accounting for income taxes of $407,000, which was
caused by the adoption of SFAS 109 as of January 1, 1993. See Note 2 to
the Consolidated Financial Statements of Roxborough-Manayunk.
Liquidity and Capital Resources
Roxborough-Manayunk is required under applicable federal regulations
to maintain specified levels of "liquid" investments in qualifying types of
U.S. Government, federal agency, and other investments having maturities of
five years or less. Current OTS regulations require that a savings
association maintain liquid assets of not less than 5% of its average daily
balance of net withdrawable deposit accounts and borrowings payable in one
year or less, of which short-term liquid assets must consist of not less
than 1%. As of March 31, 1995, Roxborough-Manayunk's liquidity and short-
term liquidity ratios, as measured for regulatory purposes, were 41.3% and
31.2%, respectively. Roxborough-Manayunk adjusts its liquidity as
appropriate to meet its asset/liability objectives. Roxborough-Manayunk
maintains its liquidity significantly in excess of regulatory requirements
due to its level of investment in short-term interest sensitive securities
that are used to offset the liability of the maturities of Roxborough-
Manayunk's certificates of deposit. For a discussion of off balance sheet
items and their potential effect on liquidity and capital, see Notes 13 and
14 to the Consolidated Financial Statements of Roxborough-Manayunk.
Cash flows from operating activities for the periods covered by the
Consolidated Statements of Cash Flows have been primarily related to funds
received from the sale of mortgage-backed securities, principal repayments
on loans and securities, and interest
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<PAGE>
received on loans and investments offset somewhat by interest paid on
deposits and borrowings, cash paid to suppliers, employees, and others, and
the origination of loans. Operating activities provided cash flows of
$680,000, $3.7 million, $1.1 million, and $1.7 million during the three
months ended March 31, 1995 and the years ended December 31, 1994, 1993 and
1992, respectively.
During the three months ended March 31, 1995 and 1994 and the years
ended December 31, 1994, 1993 and 1992, investing activities provided $24.4
million and used $588,000, $13.1 million, $16.5 million and $23.0 million,
respectively, primarily due to the purchase and sale of investment
securities and mortgage-backed securities.
Changes in cash flows from financing activities of the periods covered
by the Consolidated Statements of Cash Flows have primarily been related to
changes in deposits after interest credited. Financing activities used
$3.3 million, $1.1 million and $3.3 million, and provided $22.7 million and
$25.0 million in cash during the three months ended March 31, 1995 and 1994
and the years ended December 31, 1994, 1993 and 1992, respectively. For
1993, $7.9 million of the cash provided from financing activities resulted
from borrowings from the FHLB of Pittsburgh. Furthermore, $1.6 million of
the cash provided from financing activities for 1992 was provided by the
sale of approximately 13% of Roxborough-Manayunk's common stock in
connection with Roxborough-Manayunk's mutual-to-stock conversion and the
formation of the Mutual Holding Company. Financing activities in the
foreseeable future are expected to primarily include changes in deposits
and proceeds from capital stock sales.
Roxborough-Manayunk's primary sources of funds are deposits,
amortization and prepayment of loans and mortgage-backed securities,
maturities of investment securities, and funds provided from operations.
While scheduled loan repayments are a relatively predictable source of
funds, deposit flows and loan and mortgage-backed security prepayments are
significantly influenced by general interest rates, economic conditions,
and competition. In addition, Roxborough-Manayunk invests excess funds in
overnight deposits which provide liquidity to meet lending requirements.
Roxborough-Manayunk's most liquid assets are cash and cash
equivalents, which include highly liquid short-term investments. The level
of these assets is dependent on Roxborough-Manayunk's operating, financing,
and investing activities during any given period. As of March 31, 1995,
cash and cash equivalents totalled $40.8 million.
Roxborough-Manayunk has other sources of liquidity if a need for
additional funds arises. Additional sources of funds include FHLB of
Pittsburgh advances and the ability to borrow against mortgage-backed and
other securities. As of March 31, 1995, Roxborough-Manayunk had $7.9
million in advances from the FHLB of Pittsburgh outstanding, all of which
were matched specifically to specific investments at a positive interest
rate spread.
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Roxborough-Manayunk is required to maintain specified amounts of
capital. The capital standards generally require the maintenance of
regulatory capital sufficient to meet a tangible capital requirement, a
core capital requirement, and a risk-based capital requirement. For more
information on Roxborough-Manayunk's capital requirements and compliance
therewith, see "Regulation - Savings Bank Regulation - Regulatory Capital
Requirements" and Note 9 of the Notes to Consolidated Financial Statements
of Roxborough-Manayunk. For a tabular presentation of this information,
see the historical data contained under "Regulatory Capital."
Impact of New Accounting Standards
For a general discussion of new accounting standards, see
"Regulation - Recent Accounting Pronouncements."
BUSINESS OF ROXBOROUGH-MANAYUNK
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.
Roxborough-Manayunk's main office is located at 6060 Ridge Avenue,
Philadelphia, Pennsylvania 19128, and the telephone number at that office
is (215) 483-2800. Roxborough-Manayunk serves the Pennsylvania counties of
Philadelphia and Delaware through a network of eight offices, providing a
full range of retail banking services, with emphasis on one-to-four family
residential mortgages. At March 31, 1995, Roxborough-Manayunk had total
assets, deposits, and stockholders' equity of approximately $272.7 million,
$239.0 million, and $23.0 million, respectively.
The principal business of Roxborough-Manayunk 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. Roxborough-Manayunk'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.
In July 1982, Roxborough-Manayunk acquired $65 million of assets and
assumed liabilities of Aetna Federal Savings and Loan Association
("Aetna"). The goodwill resulting
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from the excess of the liabilities assumed over the value of the assets
acquired was $8.7 million. Roxborough-Manayunk currently amortizes the
goodwill by the interest method over the average life of the long-term
interest-bearing assets acquired (fifteen years). At March 31, 1995, the
goodwill, which will continue to be amortized through 1997, was $288,325.
Pursuant to the OTS regulatory capital regulations, goodwill must be
deducted from the calculation of tangible capital. See Note 2 of Notes to
Consolidated Financial Statements of Roxborough-Manayunk.
Geographic Lending Area
Although authorized to make real estate loans throughout the United
States, Roxborough-Manayunk's lending area generally includes Philadelphia,
Bucks, Delaware, Chester, and Montgomery Counties, which comprise the
Philadelphia metropolitan area. Roxborough-Manayunk'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.
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 one- to four-family residential
properties.
Loan Portfolio Composition. Roxborough-Manayunk's loan portfolio
composition consists primarily of conventional fixed-rate and adjustable-
rate first mortgage loans secured by one- to four-family residences and, to
a much lesser extent, multi-family residences and commercial real estate.
As of March 31, 1995, Roxborough-Manayunk's total net portfolio of loans,
including loans classified as held for sale (the "loan portfolio"), was
$96.5 million, of which $74.8 million, or 77.5%, was secured by one-to-four
family residential dwellings. At that same date, $9.5 million or 9.8% of
the loan portfolio was secured by commercial real estate and $5.4 million
or 5.6% was secured by multi-family real estate.
Analysis of Loan Portfolio. Set forth below is selected data relating
to the composition of Roxborough-Manayunk's loan portfolio by type of loan
and type of security on the dates indicated.
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<PAGE>
<TABLE><CAPTION>
At March 31, At December 31
1995 1994
Amount Percent Amount Percent
(Dollars in Thousands)
Type of Loan
------------
<S> <C> <C> <C> <C>
Real Estate Loans (1):
Construction $ 995 1.01% $ 910 .92%
One- to four-family 73,458 75.90 74,124 76.18
Multi-family and
commercial real estate 14,887 15.11 14,603 14.77
Home equity 4,595 4.68 4,299 4.36
Loans secured by
commercial equipment
leases 2,802 2.84 3,179 3.22
Consumer loans
Share loans 440 .45 537 .54
Home improvement 22 .01 24 .01
----- ----- ------ -----
Total loans 97,199 100.00% 97,676 100.00%
------ ======= ------ ======
Premiums and (discounts) (22) (60)
Deferred fees (1,243) (1,254)
Loans in process (343) (422)
Allowance for loan losses (416) (417)
------ ---------
Total loans, net $95,175 $ 95,523
====== ========
<CAPTION>
At December 31,
1993 1992 1991 1990
Amount Percent Amount Percent Amount Percent Amount Percent
(Dollars in Thousands)
Type of Loan
------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate Loans (1):
Construction $ 557 .55% $ 520 .64% -- -- $ 245 .26
One- to four-family 80,886 80.09 66,811 82.32 78,340 89.63 85,998 90.46
Multi-family and
commercial real estate 13,900 13.76 10,010 12.33 8,540 9.77 8,269 8.70
Home equity 2,255 2.23 1,211 1.53 -- -- -- --
Loans secured by
commercial equipment
leases 2,829 2.80 2,111 2.60 -- -- -- --
Consumer loans
Share loans 509 52 423 .52 397 45 404 .42
Home improvement 53 .05 77 .06 129 .15 151 .16
-------- ------ ----- ------- ----- ----- ----- -----
Total loans 100,989 100.00% 81,163 100.00% 87,406 100.00% 95,067 100.00%
------- ====== ------ ====== ------ ====== ------ ======
Premiums and (discounts) (209) (1,280) (1,813) (2,422)
Deferred fees (1,381) (1,245) (1,322) (1,358)
Loans in process (327) (466) -- (112)
Allowance for loan losses (450) (385) (395) (361)
--------- --------- ------ ------
Total loans, net $ 98,622 $ 77,787 $83,876 $90,814
======== ======== ====== ======
</TABLE>
- --------------------------------
(1) Does not include $1.3 million and $1.2 million of mortgage loans
classified as held for sale at March 31, 1995 and December 31, 1994,
respectively.
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One- to Four-Family Mortgage Loans. Roxborough-Manayunk 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
March 31, 1995, $74.8 million or 75.9% of the loan portfolio consisted of
one- to four-family residential loans, of which approximately 95.0% were
fixed-rate loans.
The adjustable-rate mortgage loans originated by Roxborough-Manayunk
generally adjust every year based upon selected published indices.
Roxborough-Manayunk 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 Roxborough-Manayunk with the contractual right to deem the loan
immediately due and payable in the event that the borrower transfers
ownership of the property without Roxborough-Manayunk'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. Roxborough-Manayunk's adjustable-rate loan underwriting policy
recognizes these inherent risks and Roxborough-Manayunk reviews a credit
application accordingly. These risks have not had an adverse effect on
Roxborough-Manayunk to date.
Home Equity Loans. Roxborough-Manayunk originates home equity loans
secured by single-family residences. At March 31, 1995, home equity loans
totaled $4.6 million or 4.7% of total loans. These loans are originated as
fixed-rate loans with terms from 3 to 10 years. Roxborough-Manayunk began
offering home equity loans in early 1992. These loans are made only on
owner-occupied, single-family residences. The loans are generally subject
to a 75% combined loan-to-value limitation, including any other outstanding
mortgages or liens. Home equity loans are generally originated for
retention in Roxborough-Manayunk's loan portfolio. Currently, demand has
been strong for seven-year home equity loans.
Multi-Family and Commercial Real Estate Loans. Roxborough-Manayunk
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.
Roxborough-Manayunk 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 March 31, 1995, $5.4 million, or 5.5%,
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of Roxborough-Manayunk'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,
Roxborough-Manayunk evaluates the mortgage primarily on the net operating
income generated by the real estate to support the debt service.
Roxborough-Manayunk 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 Roxborough-Manayunk'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 Roxborough-Manayunk's multi-family lending portfolio has
between 5 and 25 dwelling units with an average loan balance of
approximately $500,000. The largest multi-family loan as of March 31, 1995
had an outstanding balance of $1.9 million and was secured by 45 dwelling
units.
To a lesser degree, Roxborough-Manayunk originates commercial real
estate loans secured by property located within its primary market area.
Roxborough-Manayunk'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 Roxborough-Manayunk's
market area. As of March 31, 1995, Roxborough-Manayunk had 69 loans
secured by commercial real estate, totalling $9.5 million or 9.6% of
Roxborough-Manayunk's total loan portfolio, with an average principal
balance of $138,000. None of the 69 loans had principal balances
outstanding of over $1.5 million as of March 31, 1995. The largest
commercial real estate loan was secured by a shopping center in Montgomery
County, with a balance of $1.5 million on March 31, 1995. 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.
Roxborough-Manayunk 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 March 31, 1995, construction loans totaled
$995,000. Roxborough-Manayunk's construction loan portfolio consists
primarily of residential construction loans with initial terms of 12 to 18
months. Land acquisition and development loans are also made on a very
limited basis. The construction loans made by Roxborough-Manayunk 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 Roxborough-Manayunk at the date of closing.
Loans Secured by Commercial Equipment Leases. In early 1992,
Roxborough-Manayunk began purchasing loans secured by commercial equipment
leases due to their short-term and higher yield. The leases have average
terms to maturity of approximately
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two to five years. At March 31, 1995, Roxborough-Manayunk had $2.8 million
of loans secured by commercial equipment leases. At March 31, 1995,
Roxborough-Manayunk had reserved approximately 2.5% of the balance against
losses on its portfolio of loans secured by commercial equipment leases,
although payments on the lease portfolio were current as of such date.
Although investing in loans secured by commercial leases may help to
reduce Roxborough-Manayunk's vulnerability to rapid increases in interest
rates because of the relatively short term to maturity of such instruments,
there are increased credit risks involved in commercial leasing.
Roxborough-Manayunk attempts to minimize these credit risks by (i)
diversification through investing in different entities; (ii) not
purchasing leases with balloon payments that the lessee may not be able to
meet; (iii) generally purchasing leases with short terms to maturity to
avoid rapid declines in the underlying collateral or in the
creditworthiness of the lessee; (iv) attempting to obtain additional
collateral; and (v) obtaining a third-party guarantee of the obligations
under the lease. Although Roxborough-Manayunk attempts to minimize the
risks involved in investing in commercial leases, there can be no assurance
that Roxborough-Manayunk will not suffer losses in its commercial lease
portfolio.
Consumer Loans. OTS regulations permit Roxborough-Manayunk to make
secured and unsecured consumer loans up to 35% of Roxborough-Manayunk's
assets. The only types of consumer loans originated by Roxborough-Manayunk
are loans secured by savings deposits and second mortgage or home equity
loans, as described above. Consumer loans, excluding home improvement
loans, amounted to $440,000 or less than 1% of Roxborough-Manayunk's loan
portfolio as of March 31, 1995.
Loan Underwriting Risks. While commercial real estate, construction,
commercial business, and consumer loans provide benefits to Roxborough-
Manayunk's asset/liability management program and reduce exposure to
interest rate changes, such loans may entail significant additional credit
and interest rate risks 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.
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Loan Origination and Other Fees. In addition to interest earned on
loans, Roxborough-Manayunk recognizes service charges which consist
primarily of loan application fees, processing fees, and late charges.
Roxborough-Manayunk recognized loan processing fees of $44,000 for the
three months ended March 31, 1995.
Loans-to-One Borrower. Loans-to-one borrower, or group of related
borrowers, by Roxborough-Manayunk 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). Roxborough-Manayunk's
maximum loan-to-one borrower limit was approximately $3.4 million as of
March 31, 1995. The net proceeds of the Offerings to be contributed to
Progress Bank will raise the lending limit of Progress Bank so that it may
originate larger loans.
As of March 31, 1995, Roxborough-Manayunk's five largest lending
relationships ranged from $660,000 to $1.9 million. The largest is the
mortgage loan secured by 45 one- to four-family dwelling units located in
Philadelphia. The remaining four loans are secured by commercial, multi-
family and a primary single family residence located in Roxborough-
Manayunk's primary market area. All five loans were current at March 31,
1995, with the exception of one loan which was brought current in April
1995.
Loan Maturity Schedules. The following table sets forth the maturity
of Roxborough-Manayunk's loan portfolio at March 31, 1995. The table does
not include prepayments or scheduled principal repayments. Prepayments and
scheduled principal repayments on loans totalled $3.0 million, $5.8
million, $20.0 million, $22.7 million and $24.7 million, for the three
months ended March 31, 1995 and 1994 and the fiscal years ended December
31, 1994, 1993 and 1992, respectively. All mortgage loans are shown as
maturing based on contractual maturities.
<TABLE><CAPTION>
One- to Four- Multi-Family and
Family and Home Commercial Consumer
Equity Real Estate Construction and Lease (1) Total
(In Thousands)
<S> <C> <C> <C> <C> <C>
Non-performing $ 1,122 $ -- $ -- $ -- $ 1,122
Amounts Due:
Within 1 year 1,275 1,124 995 441 3,835
After 1 year:
1 to 3 years 1,454 1,522 -- 2,810 5,786
3 to 5 years 2,688 83 -- 13 2,784
5 to 10 years 12,345 2,118 -- -- 14,463
10 to 20 years 43,598 3,567 -- -- 47,165
Over 20 years 16,876 6,473 -- -- 23,349
------ ------ ---- ------ ------
Total due after one year 76,961 13,763 -- 2,823 93,547
------ ------ ---- ------ ------
Total amount due (2) $79,358 $14,887 $995 $ 3,264 $97,199
====== ====== === ====== ======
</TABLE>
(Footnotes on following page)
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- -----------------------------
(1) Includes loans secured by commercial equipment leases.
(2) Gross of allowance for loan loss, deferred loan fees premiums and
loans in process.
The following table sets forth the dollar amount of all loans due
after March 31, 1996, which have fixed interest rates and which have
floating or adjustable interest rates.
Floating or
Fixed Adjustable
Rates Rates Total
------ ---------- ------
(In Thousands)
One- to four-family and home equity $ 72,932 $ 4,030 $ 76,961
Multi-family and commercial real estate 11,780 1,983 13,763
Construction -- -- --
Consumer and lease(1) 2,823 -- 2,823
------ -------- -------
Total $ 87,534 $ 6,013 $ 93,547
======= ======= =======
- ------------------------
(1) Includes loans secured by commercial equipment leases.
Loan Solicitation and Processing. Roxborough-Manayunk's primary
source of mortgage loan applications is referrals from existing or past
customers. Roxborough-Manayunk also solicits loan applications from real
estate brokers, contractors, and call-ins and walk-ins to its offices.
Roxborough-Manayunk 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, Roxborough-Manayunk'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 Roxborough-Manayunk's lending office by Roxborough-Manayunk'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: President,
Executive Vice President, Chief Financial Officer, and Loan Officer,
approve all home equity loans
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up to $100,000. All loans purchased by Roxborough-Manayunk are reviewed 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 Roxborough-Manayunk, and the notice of
requirement of insurance coverage to be maintained to protect Roxborough-
Manayunk's interest. Roxborough-Manayunk 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 Roxborough-Manayunk is making a small second mortgage, and
Roxborough-Manayunk 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 July 1993, Roxborough-Manayunk purchased a $6.5
million package of residential fixed-rate first mortgage loans from a bank
in State College, Pennsylvania. At March 31, 1995, $3.8 million of these
loans were outstanding. In November 1993, Roxborough-Manayunk purchased a
$5.6 million package of residential fixed-rate first mortgage loans from
another Pennsylvania savings bank located in Hazelton, Pennsylvania. At
March 31, 1995, $4.2 million of these loans were outstanding. In December
1993, Roxborough-Manayunk purchased a $2.3 million package of fixed-rate
residential jumbo loans from a bank in Souderton, Pennsylvania. At March
31, 1995, $2.0 million of these loans were outstanding. In July 1993,
Roxborough-Manayunk purchased a $10.7 million package of fixed-rate
residential loans from a savings bank in Wilkes Barre, Pennsylvania. At
March 31, 1995, $6.2 million of such loans were outstanding. In each
transaction, the seller retained the loan servicing. The reasons for these
loan purchases were to increase Roxborough-Manayunk's residential loan
portfolio.
In loan purchase transactions, Roxborough-Manayunk 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.
Roxborough-Manayunk obtains from the seller a duplicate copy of each
original loan file which generally includes an executed loan application,
financial statements, credit report, 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 Roxborough-Manayunk's
primary lending area, a fee appraiser may not be employed to underwrite the
appraisal reports in the loan files. Roxborough-Manayunk 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.
In 1994, Roxborough-Manayunk agreed to act as a correspondent with a
bank in Souderton, Pennsylvania. The bank will originate fixed-rate
residential loans based on
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terms, conditions, fees, and rates posted by Roxborough-Manayunk. All
underwriting will conform to Roxborough-Manayunk's underwriting guidelines.
Roxborough-Manayunk will receive from the bank a completed application to
underwrite and determine whether to issue a loan commitment. Given the
bank's location and its growing real estate market, this correspondent
relationship is providing additional loan product to Roxborough-Manayunk's
portfolio.
Roxborough-Manayunk originates residential first mortgage loans that
conform to the FHLMC and FNMA guidelines. It is Roxborough-Manayunk'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.
Origination and Purchase 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.
<TABLE><CAPTION>
Three Months Ended
March 31, Year Ended December 31,
1995 1994 1994 1993 1992
(In Thousands)
<S> <C> <C> <C> <C> <C>
Total gross loans receivable at beginning of
period $97,676 $100,989 $100,989 $81,163 $87,406
====== ======= ======= ====== ======
Loans originated:
Construction $ 85 $ -- $ 660 $ 1,511 $ 520
One- to four-family and home equity 1,891 1,762 11,378 10,884 11,278
Multi-family and commercial 425 326 2,015 5,473 2,704
Consumer and other(1) 12 36 327 387 321
------ -------- ------- ------- ------
Total loans originated 2,413 2,124 14,380 18,255 14,823
------ -------- ------- ------- ------
Loans purchased:
One- to four- family 231 510 1,860 23,451 441
Multi-family and commercial -- -- -- -- 600
Commercial equipment leases -- -- 1,600 1,651 1,739
------- -------- ------- ------- ------
Total loans purchased 231 510 3,460 25,102 2,780
------ -------- ------- ------- ------
Loans repaid:
Total loans sold -- -- -- -- --
------- --------- -------- -------- -------
Loan principal repayments 2,949 5,894 20,005 22,742 24,091
------ -------- ------- ------- ------
Other debits less credits (172) (640) (1,148) (798) 245
------ -------- ------- ------- ------
Net loan activity $ 477 $ (3,900) $ (3,313) $ 19,826 $(6,243)
====== ======= ======= ======= ======
Total gross loans receivable at
end of period $97,199 $ 97,089 $ 97,676 $100,989 $81,163
====== ======= ======= ======= ======
</TABLE>
- ----------------------------
(1) Includes loans secured by commercial equipment leases.
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Loan Commitments. Roxborough-Manayunk 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. Roxborough-Manayunk 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 Roxborough-Manayunk's commitments to originate loans as of March
31, 1995 was $894,000. See Note 5 of the Notes to Consolidated Financial
Statements of Roxborough-Manayunk.
Loan Servicing and Servicing Fees. Roxborough-Manayunk has retained
servicing on loans it has sold to FHLMC and FNMA. Roxborough-Manayunk also
services all of its own loans. As of March 31, 1995 and December 31, 1994
and 1993, Roxborough-Manayunk serviced loans for others totalling
$3.5 million, $3.7 million and $4.5 million, respectively. Loan servicing
fees have not constituted a material source of income.
Asset Quality
Non-Performing Assets and Asset Classification. Roxborough-Manayunk'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, Roxborough-
Manayunk 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, Roxborough-Manayunk will
initiate foreclosure proceedings. Any property acquired as the result 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 Roxborough-Manayunk.
At March 31, 1995, Roxborough-Manayunk had transferred loans totalling
$95,000 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. Prior
to the adoption of SFAS No. 114, Roxborough-Manayunk recorded loans as in-
substance foreclosed: (1) if the borrower had little or no equity in the
property based upon its current fair value, (2) if repayment could be
expected only to come from operation or sale of the collateral, and/or (3)
if the borrower had effectively abandoned control of the collateral or had
retained control of the collateral but due to his or her financial status,
it is doubtful the borrower would be able to repay the loan in the
foreseeable future.
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. Residential mortgage loans generally are placed on a
non-accrual status when either principal or interest is 90 days or more
past due. 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.
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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 March 31, 1995, Roxborough-Manayunk had approximately $1.5 million
of loans that were more than 60 days delinquent, all of which were secured
by residential properties.
The following table sets forth information with respect to Roxborough-
Manayunk's non-performing assets for the periods indicated. At the dates
indicated, Roxborough-Manayunk had no accruing loans past due 90 days or
more and no restructured loans within the meaning of SFAS No. 15.
<TABLE><CAPTION>
At March 31, At December 31,
1995 1994 1994 1993 1992 1991 1990
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Loans accounted for on an
non-accrual basis:
One- to four-family and home
equity $1,122 $1,699 $1,243 $1,998 $1,180 $1,409 $1,168
Construction -- -- -- -- -- -- 112
Multi-family and commercial -- 239 -- 234 438 -- 547
Consumer -- 20 7 22 34 81 105
------- ----- ------ ----- ----- ----- -----
Total non-accrual loans 1,122 1,958 1,250 2,254 1,652 1,490 1,932
----- ----- ----- ----- ----- ----- -----
Real estate owned 95 272 88 189 238 423 327
------ ------ ------- ------- ------ ------ ------
Total non-performing assets $1,217 $2,230 $1,338 $2,443 $1,890 $1,913 $2,259
===== ===== ===== ===== ===== ===== =====
Total non-accrual and accruing
loans to net loans 1.16% 2.06% 1.29% 2.29% 2.12% 1.78% 2.33%
==== ==== ==== ==== ==== ==== ====
Total non-performing assets to
total assets .45% .80% .49% .88% .75% .85% 1.05%
==== ==== ==== ==== ==== ==== ====
</TABLE>
Management of Roxborough-Manayunk 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 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
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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
classified as in-substance foreclosure or designated as substandard or
doubtful are recorded at fair value. At March 31, 1995, Roxborough-
Manayunk had $1.3 million of classified assets of which $1.3 million were
classified as substandard and $8,000 were classified as loss. Furthermore,
at March 31, 1994 no assets were classified loss and no assets were
designated special mention.
As of March 31, 1995, Roxborough-Manayunk's total classified assets
with balances in excess of $250,000 totalled $439,000, which consisted of
one mortgage loan secured by a residential property. At March 31, 1995,
Roxborough-Manayunk had total non-performing assets in the amount of $1.2
million ($1.1 million of delinquent loans and $95,000 of REO). The $1.1
million of delinquent loans consisted of 28 loans secured by primarily one-
to four-family residential real estate.
Allowance for Losses on Loans and REO. Roxborough-Manayunk'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. Roxborough-
Manayunk established provisions for losses on loans for the three months
ended March 31, 1995 and the years ended December 31, 1994, 1993 and 1992
of $15,000, $60,000, $94,000 and $60,000, respectively. At March 31, 1995,
Roxborough-Manayunk had an allowance for loan losses of $416,000, which
represented .43% of total loans. Roxborough-Manayunk had $8,000 in
allowances for losses on REO at that date, which represents 8.7% of net
real estate owned.
While Roxborough-Manayunk 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
Roxborough-Manayunk's loan portfolio, will not request Roxborough-Manayunk
to significantly increase its allowance for loan losses, or that changes in
the real estate market or local or national economy will not cause
Roxborough-Manayunk to significantly increase its allowance for loans
losses, thereby negatively affecting Roxborough-Manayunk's financial
condition and earnings. During Roxborough-Manayunk's most recent OTS
examination in January 1995, no additional allowance for loan or lease
losses was required.
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In making loans, Roxborough-Manayunk 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 three months ended March 31, 1995 and the year ended
December 31, 1994, Roxborough-Manayunk charged-off, respectively, $16,000
and $93,000 of loans receivable and $0 and $156,000 of REO in connection
with assets classified by Roxborough-Manayunk as loss. It is Roxborough-
Manayunk's policy to review its loan portfolio, in accordance with
regulatory classification procedures, on a quarterly basis. Additionally,
Roxborough-Manayunk 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 1 and 5 of Notes to Consolidated
Financial Statements of Roxborough-Manayunk.
The following table sets forth certain information regarding
Roxborough-Manayunk's allowance for loan losses at the dates indicated.
<TABLE><CAPTION>
At March 31, At December 31,
1995 1994 1993 1992 1991 1990
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Total loans outstanding, net (1) $96,480 $96,722 $98,622 $77,824 $83,876 $90,814
Average loans outstanding, net 98,494 97,302 85,293 82,829 91,421 94,676
Allowance balances (at beginning of period) 417 450 385 395 361 280
Provision:
One- to four-family and home equity 12 49 76 51 52 78
Multi-family and commercial real estate 2 9 14 7 9 4
Consumer and commercial leases (2) 1 2 4 2 -- --
Net charge-offs:
One- to four-family and home equity 16 93 28 70 27 1
Multi-family and commercial real estate -- -- -- -- -- --
Consumer and commercial leases(2) -- -- -- -- -- --
--------- -------- -------- -------- -------- --------
Allowance balance (at end of period) $ 416 $ 417 $ 450 $ 385 $ 395 $ 361
======= ======= ======= ======= ======= =======
Allowance for loan losses as a percent of
total loans outstanding .43% .43% .46% .49% .47% .40%
Net charge-offs as a percent of average
loans outstanding .02% .09% .04% .08% .04% --%
</TABLE>
- -----------------------------
(1) Includes mortgage loans held for sale.
(2) Includes loans secured by commercial equipment leases.
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The following table sets forth certain information regarding the allocation
of the allowance for loan losses by type.
<TABLE><CAPTION>
At March 31, At December 31,
1995 1994 1993 1992
Percent of Percent of Percent of Percent of
Loans to Loans to Loans to Loans to
Total Total Total Total
Amount Loans Amount Loans Amount Loans Amount Loans
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family and home
equity $280 81.55% $262 81.20% $300 82.63% $233 84.46%
Multi-family and
commercial real estate 40 15.15 55 15.02 79 14.01 95 12.33
Consumer and
commercial leases 96 3.30 100 3.78 71 3.36 57 3.21
--- ------ --- ------ --- ------ --- ------
Total allowance $416 100.00% $417 100.00% $450 100.00% $385 100.00%
=== ====== === ====== === ====== === ======
<CAPTION>
At December 31,
1991 1990
Percent of Percent of
Loans to Loans to
Total Total
Amount Loans Amount Loans
<S> <C> <C> <C> <C>
One- to four-family and home
equity $363 91.89% $338 93.63%
Multi-family and
commercial real estate 32 8.11 23 6.37
Consumer and
commercial leases -- -- -- --
---- ------ ---- ------
Total allowance $ 395 100.00% $ 361 100.00%
==== ====== ==== ======
</TABLE>
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The following table sets forth certain information regarding
Roxborough-Manayunk's allowance for REO losses for the periods indicated.
At
March 31, At December 31,
----------- --------------------------
1995 1994 1993 1992
------ ------ ------ -------
(Dollars in Thousands)
Total real estate owned, net $ 95 $ 88 $ 189 $ 238
==== ==== ===== =====
Allowance balance-beginning $ 2 $ 81 $ 52 $ 125
Provision 6 78 42 1
Charge-offs -- 157 13 74
----- ---- ----- -----
Allowance balance-ending $ 8 $ 2 $ 81 $ 52
==== ==== ===== =====
Allowance for losses on
real estate owned to net 8.42% 2.27% 42.86% 21.82%
real estate owned ==== ==== ===== =====
Investment Activities
General. The investment policy of Roxborough-Manayunk, 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 Roxborough-
Manayunk's asset and liability management goals. The investment activities
of Roxborough-Manayunk consist primarily of investments in fixed and
adjustable-rate mortgage-backed securities and U.S. Government agency
bonds. At March 31, 1995, Roxborough-Manayunk had a mortgage-backed
securities portfolio with a market value of $76.4 million, all of which was
held for sale. At March 31, 1995, Roxborough-Manayunk had an investment
securities portfolio of approximately $50.3 million consisting of U.S.
Government treasury and agency securities, FHLMC preferred stock, and FHLB
stock. The market value of such securities at March 31, 1995 was $49.6
million. See Notes 3 and 4 to the Notes to the Consolidated Financial
Statements of Roxborough-Manayunk.
Mortgage-Backed Securities. Roxborough-Manayunk 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
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<PAGE>
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 March 31, 1995, Roxborough-Manayunk's
mortgage-backed securities amounted to $76.4 million, or 28.0% of total
assets, all of which are currently classified as available for sale.
REMICs are typically issued by a special-purpose entity (the
"issuer"), which may be organized in a variety of legal forms, such as a
trust, a corporation, or a partnership. The entity aggregates pools of
pass-through securities, which are used to collateralize the mortgage
related securities. Once combined, the cash flows can be divided into
"tranches" or "classes" of individual securities, thereby creating a more
predictable average life for each security than the underlying pass-through
pools. Accordingly, under this structure, all principal pay-downs from the
various mortgage pools are allocated to particular mortgage-related
classes, which are structured to have priority until they have been paid
off. Thus these securities are intended to address the reinvestment
concerns associated with mortgage related pass-through securities, which
include that (i) the mortgages backing such securities which have higher
rates tend to pay off when interest rates fall, thereby reducing the return
on the securities, and (ii) the expected average life of the mortgages may
vary significantly among the different tranches which could reduce the
average life of the securities.
Some REMIC instruments are most like traditional debt instruments
because they have stated principal amounts and traditionally defined
interest rates and terms. Purchasers of certain other REMIC instruments
are entitled to the excess, if any, of the issuer's cash inflows, including
reinvestment earnings, over the cash outflows for debt service and
administrative expenses. These mortgage related instruments may include
instruments designated as residual interests, and are riskier in that they
could result in the loss of a portion of the original investment. Cash
flows from residual interests are very sensitive to prepayments and, thus,
contain a high degree of interest-rate risk. Residual interests represent
an ownership interest in the underlying collateral, subject to the first
lien of the REMICs investors.
The REMICs held by Roxborough-Manayunk at March 31, 1995 consisted of
floating-rate tranches, with the exception of three fixed-rate securities
in the amount of $5.9 million. The interest rate of all of Roxborough-
Manayunk'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 March 31, 1995, 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 tranches 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 tranches. When the PACs and TACs are repaid in full, all
principal is then used to pay the companion tranches.
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<PAGE>
Investment Securities. Income from investment securities provides a
significant source of income for Roxborough-Manayunk. Roxborough-Manayunk
maintains a portfolio of investment securities such as U.S. government and
agency securities, non-governmental securities, including interest-bearing
deposits, in addition to Roxborough-Manayunk's mortgage-backed securities
portfolio. Roxborough-Manayunk 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 5%, of which at least 1% must be held in the form of
short-term liquid assets such as certificates of deposit, federal funds,
banker's acceptances, discount notes, commercial paper, time deposits and
short-term treasury and agency debt securities, all of which are subject to
certain creditworthiness and ratings criteria. In addition, longer-term
corporate, agency and government debt securities may be held subject to
similar creditworthiness, ratings and maturity criteria. As of March 31,
1995, Roxborough-Manayunk exceeded both the 5% liquidity requirement and
the 1% short-term liquidity requirement with a liquidity ratio of 41.3% and
a short-term liquidity ratio of 31.2%. 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 Roxborough-Manayunk'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 March 31,
1995, Roxborough-Manayunk's investment portfolio (including investment
securities classified as available for sale) (the "investment portfolio")
totalled $50.3 million.
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The following table sets forth the market value or amortized cost (as
applicable) of Roxborough-Manayunk'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.
At
March 31, At December 31,
--------------------------
1995 1994 1993 1992
--------- ------ ------ ------
(In Thousands)
Investment securities:
U.S. Treasury securities $10,108 $10,075 $10,101 $ 9,099
FHLB bonds 21,000 21,000 11,001 13,003
Other agencies(1) 18,145 18,000 8,035 5,000
Mutual funds(2) 525 510 500 --
Subordinated debt(3) 250 250 -- --
FHLMC preferred stock(2) 245 245 250 250
------ ------ ------ ------
Total investment securities 50,273 50,080 29,887 27,352
Interest-bearing deposits 37,442 15,900 29,050 21,822
Federal funds sold 2,000 2,000 2,000 2,000
FHLB of Pittsburgh stock 1,686 1,615 1,844 1,570
------ ------ ------ ------
Total investments $91,401 $69,595 $62,781 $52,744
====== ====== ====== ======
- -----------------------------
(1) Consists of FNMA, FHLMC, SLMA debentures, certificates of deposit and
Israel bond.
(2) Classified as available for sale and carried at approximate market
value. All other investment securities are classified as held to
maturity.
(3) During 1994, Roxborough-Manayunk purchased a $250,000 unit of
subordinated debt in the Company's $3.0 million subordinated debt
offering. The subordinated debt is at an interest rate of 8.25%, is
due in 2004 and each unit also contained 25,000 warrants for purchase
of Company Common Stock. Roxborough waived its investment the policy
requirement that debt have a "AA" or better rating in order to
purchase this subordinated debt.
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The following table sets forth certain information regarding the
carrying values, weighted average yields, and maturities of Roxborough-
Manayunk's investment and mortgage-backed securities portfolio as of March
31, 1995.
<TABLE><CAPTION>
As of March 31, 1995
One Year or Less One to Five Years Five to Ten Years More than Ten Years
Carrying Average Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield Value Yield
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury Securities $5,033 8.50% $ -- --% $ 5,075 7.50% $ -- --%
FHLB Bonds -- -- 13,000 6.00 5,000 6.10 3,000 7.00
Other agencies (1) 145 5.85 13,000 5.11 -- -- 5,000 7.00
Mutual funds (2) 525 6.02 -- -- -- -- -- --
FHLMC preferred stock (2) 245 7.90 -- -- -- -- -- --
Subordinated debt (3) -- -- -- -- 250 8.25 -- --
Mortgage-backed securities (2):
GNMA pass-through -- -- -- -- 976 9.25 13,022 5.56
FNMA pass-through -- -- -- -- 5,349 6.46 11,539 7.32
FHLMC pass-through -- -- 723 8.93 8,698 8.03 22,748 8.27
FNMA REMICs -- -- -- -- -- -- 5,585 5.19
FHLMC REMICs -- -- 2,319 5.80 -- -- 5,994 6.08
------- ------ ------ ---- -------- ----- ------- ----
Total $5,948 8.19% $29,042 5.66% $25,348 7.26% $66,888 6.97%
===== ==== ====== ==== ====== ==== ====== ====
<CAPTION>
As of March 31, 1995
Total Securities
Carrying Average Market
Value Yield Value
<S> <C> <C> <C>
U.S. Treasury Securities $ 10,108 8.00% $ 10,282
FHLB Bonds 21,000 6.17 20,542
Other agencies (1) 18,145 5.64 17,776
Mutual funds (2) 525 6.02 525
FHLMC preferred stock (2) 245 7.90 245
Subordinated debt (3) 250 8.25 250
Mortgage-backed securities (2):
GNMA pass-through 13,999 5.82 13,999
FNMA pass-through 16,672 7.05 16,672
FHLMC pass-through 32,406 8.22 32,406
FNMA REMICs 5,243 5.19 5,243
FHLMC REMICs 8,057 6.00 8,057
-------- ---- --------
Total $126,650 6.80% $126,242
======= ==== =======
</TABLE>
- ----------------------------
(1) Consists of FNMA, FHLMC, and SLMA debentures and Israel Bond.
(2) Classified as available for sale and carried at approximate market
value. All other securities are classified as held to maturity.
(3) In 1994, Roxborough-Manayunk purchased a $250,000 unit of subordinated
debt in the Company's $3.0 million subordinated debt offering. The
subordinated debt is at an interest rate of 8.25%, is due in 2004 and
each unit also contained 25,000 warrants for the purchase of Company
Common Stock.
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<PAGE>
Accounting for Investments and Mortgage-Backed Securities. In May
1993, the FASB issued SFAS No. 115. SFAS 115 requires Roxborough-Manayunk
to classify all of its investments in debt and equity securities
("securities") into three categories. Debt securities which management has
the positive intent and ability to hold until maturity are classified as
held-to-maturity. Securities that are bought and held principally for the
purpose of selling them in the near term are classified as trading
securities. Roxborough-Manayunk does not maintain any trading securities.
All other securities are classified as available-for-sale securities.
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.
Roxborough-Manayunk elected to adopt SFAS No. 115 effective December
31, 1993. The adoption resulted in a $44,000 increase in stockholders'
equity upon the initial application of the new standard. Unrealized
losses, net of taxes, amounting to $525,000 are recorded as a component of
stockholders' equity at March 31, 1995.
Sources of Funds
General. Deposits are the major source of Roxborough-Manayunk's funds
for lending and other investment purposes. In addition to deposits,
Roxborough-Manayunk 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. Roxborough-Manayunk 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
Roxborough-Manayunk and, as of March 31, 1995, such certificates
represented $101.7 million or 42.6% of Roxborough-Manayunk's deposit
accounts. As of March 31, 1995, $19.6 million or 8.2% of Roxborough-
Manayunk's deposit portfolio consisted of one- to six-month fixed-term,
market-rate certificates, and $64.5 million or 27.0% consisted of 13 to 60-
month fixed-term, market-rate certificates. Savings accounts are a primary
source of deposit funds for Roxborough-Manayunk and, as of March 31, 1995,
represented $110.7 million, or 46.3% of the deposit portfolio.
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<PAGE>
Roxborough-Manayunk 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.
Upon consummation of the Conversion and the Merger, Progress Bank
intends to continue to emphasize retail deposits, including checking,
certificates of deposit, savings accounts and IRAs. Roxborough-Manayunk
had no brokered certificates of deposit as of March 31, 1995.
Roxborough-Manayunk 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 Roxborough-Manayunk as of March 31, 1995 were represented
by various types of savings programs described below.
<TABLE><CAPTION>
Balance
Minimum as of Percentage of
Interest Balance March 31, Total
Category Term Rate Amount 1995(1) Deposits
<S> <C> <C> <C> <C> <C>
Regular savings None 3.29% $ 10 $ 40,333 16.87%
Senior club savings None 4.06 500 70,317 29.41
NOW accounts None 2.02 300 12,170 5.09
Super NOW None 2.12 1,000 911 .30
Money market accounts None 4.43 1,000 11,936 4.99
Non-interest deposits None -- 300 1,656 .69
Certificates of Deposit:
Fixed Term, Fixed Rate 1-3 Months 5.53 500 1,197 .50
Fixed Term, Fixed Rate 4-6 Months 3.91 500 18,433 7.71
Fixed Term, Fixed Rate 7-12 Months 4.56 500 17,569 7.35
Fixed Term, Fixed Rate 13-24 Months 5.03 500 20,891 8.74
Fixed Term, Fixed Rate 25-36 Months 4.54 500 21,516 9.00
Fixed Term, Fixed Rate 60 Months 5.80 1,000 22,110 9.24
------- ------
Total deposits 239,039 100.00
Accrued interest on deposits 69 .03
--------- -------
Total $239,108 100.00%
======= ======
</TABLE>
- --------------------------
(1) In Thousands
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<PAGE>
The following table sets forth the time deposits in Roxborough-
Manayunk classified by interest rates as of the dates indicated.
<TABLE><CAPTION>
At
March 31, As of December 31,
1995 1994 1993 1992
(In Thousands)
<S> <C> <C> <C> <C>
Interest Rate:
2.99% or less $ -- $ 1,371 $28,702 $ --
3.00 - 3.99% 33,243 32,165 21,744 35,649
4.00 - 4.99% 13,760 37,460 168 15,610
5.00 - 5.99% 40,023 28,917 43,509 12,794
6.00 - 6.99% 14,690 -- -- 38,625
Accrued interest on
certificate accounts 25 19 22 37
------ -------- ------- --------
Total $101,741 $99,932 $94,145 $102,715
======= ====== ====== =======
</TABLE>
The following table sets forth the amount and maturities of time
deposits at March 31, 1995.
<TABLE><CAPTION>
Amount Due
After
December 31, December 31, December 31, December 31,
Interest Rate 1995 1996 1997 1997 Total
(In Thousands)
<S> <C> <C> <C> <C> <C>
2.99% or less $ -- $ -- $ -- $ -- $ --
3.00 - 3.99% 25,259 7,984 -- -- 33,243
4.00 - 4.99% 12,938 822 -- -- 13,760
5.00 - 5.99% 6,800 18,288 5,688 9,247 40,023
6.00 - 6.99% 465 -- 8,784 5,441 14,690
Accrued interest on
certificate accounts 25 -- -- 25
-------- -------- -------- -------- ---------
Total $45,487 $27,094 $14,472 $14,688 $101,741
====== ====== ====== ====== =======
</TABLE>
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<PAGE>
The following table indicates, at March 31, 1995, the amount of
Roxborough-Manayunk's certificates of deposit of $100,000 or more by time
remaining until maturity.
Certificates
Maturity Period of Deposit
--------------------------- -------------
(In Thousands)
Within three months $ 875
Three through six months 750
Six through twelve months 2,009
Over twelve months 4,714
-----
$8,348
=====
The following table sets forth the savings activities of Roxborough-
Manayunk for the periods indicated:
Three Months Ended
March 31, Year Ended December 31,
------------------- ------------------------
1995 1994 1994 1993 1992
---- ---- ---- ---- ----
(In Thousands)
Deposits $78,330 $68,737 $309,093 $294,955 $288,827
Withdrawals 82,407 70,121 318,822 286,765 273,451
------ ------ ------- ------- -------
Net increase (decrease)
before interest credited (4,077) (1,384) (9,729) (8,190) 15,376
Interest credited 1,885 1,600 6,654 7,154 8,225
------ ------ ------- ------- -------
Net increase (decrease)
in savings deposits $(2,192) $ 216 $ (3,075) $ 15,344 $ 23,601
====== ====== ======= ======= =======
Borrowings
Deposits are the primary source of funds of Roxborough-Manayunk's
lending and investment activities and for its general business purposes.
Roxborough-Manayunk 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 Roxborough-Manayunk's stock
in the FHLB of Pittsburgh and a portion of Roxborough-Manayunk's first
mortgage loans and certain other assets. Roxborough-Manayunk, 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 March 31, 1995, Roxborough-Manayunk had $7.9 million in
advances outstanding from the FHLB of Pittsburgh at fixed rates of
interest, all of which were matched specifically to a specific investment
at a positive interest rate spread. Most of these advances provide for a
prepayment penalty. At March 31, 1995, Roxborough-Manayunk had no other
borrowings. See Note 9 of the Notes to Consolidated Financial Statements
of Roxborough-Manayunk.
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<PAGE>
The following table sets forth certain information as to FHLB advances
at the dates indicated.
As of and For
the Three As of and For the
Months Ended Year Ended December 31,
-----------------------
March 31,
1995 1994 1993 1992
------------ ------ ------ ------
(Dollars in Thousands)
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 $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% --%
Subsidiaries and Joint Venture Activity
Roxborough-Manayunk 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 March 31, 1995, Roxborough-
Manayunk 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 March 31, 1995, the net book value of Roxborough-Manayunk's
investment in stock, unsecured loans, and conforming loans in its service
corporations was $217,000.
Roxborough-Manayunk 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 March 31, 1995, Roxborough-Manayunk had 70 full-time employees
and 13 part-time employees. The employees are not represented by a
collective bargaining unit. Roxborough-Manayunk believes its relationship
with its employees to be satisfactory.
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<PAGE>
Competition
Roxborough-Manayunk 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. Roxborough-Manayunk's competition
for savings deposits and loans historically has come from other thrift
institutions and commercial banks located in Roxborough-Manayunk's market
area. Roxborough-Manayunk 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.
Roxborough-Manayunk's market area generally includes Philadelphia,
Bucks, Delaware, Chester and Montgomery Counties, which comprise the
Philadelphia metropolitan area. Roxborough-Manayunk's primary lending area
consists of the Roxborough, Manayunk and Andorra neighborhoods located in
the far northwest sections of Philadelphia and South Philadelphia.
Roxborough-Manayunk has no significant loan concentrations in any one part
of its primary lending area.
Roxborough-Manayunk competes for loans by charging competitive
interest rates and loan fees, remaining efficient and providing a wide
range of services to its customers. Roxborough-Manayunk 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 Roxborough-Manayunk 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 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, Roxborough-Manayunk, 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.
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<PAGE>
Properties and Equipment
Roxborough-Manayunk's executive offices are located at 6060 Ridge
Avenue in Philadelphia, Pennsylvania. Roxborough-Manayunk conducts its
business through eight offices, all of which are located in the
Philadelphia, Pennsylvania area.
The following table sets forth the location of each of Roxborough-
Manayunk's offices, the year the office was first acquired and the net book
value of each office. Roxborough-Manayunk owns seven of its eight office
locations.
Year
Owned Facility Net Book
or Opened or Value as of
Office Location Leased Acquired March 31, 1995
----------------------- ------ -------- --------------
Main Office
6060 Ridge Avenue
Philadelphia, PA 19128 Owned 1958 $229,565
7568 Ridge Avenue
Philadelphia, PA 19128 Owned 1962 13,055
8345 Ridge Avenue
Philadelphia, PA 19128 Owned 1974 112,562
4370 Main Street
Philadelphia, PA 19127 Leased 1993 72,759(1)
1722 S. Broad Street
Philadelphia, PA 19145 Owned 1982 86,825
Church Lane & Chester
Avenue
Yeadon, PA 19050 Owned 1982 123,731
6503-15 Haverford
Avenue
Philadelphia, PA 19151 Owned 1982 285,079
601 Morgan Avenue
Drexel Hill, PA 19026 Owned 1982 110,312
- ---------------------
(1) Leasehold improvements.
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<PAGE>
Roxborough-Manayunk 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 March 31, 1995 was $50,000. As of March 31, 1995, the net book value of
land, buildings, furniture, and equipment owned by Roxborough-Manayunk,
less accumulated depreciation totalled $2.1 million. See Note 7 of Notes
to Consolidated Financial Statements of Roxborough-Manayunk.
Legal Proceedings
Roxborough-Manayunk 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, Roxborough-Manayunk 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 and regulations
which, together with the descriptions of laws and regulations contained
elsewhere herein, relate to the regulation of the Company, Progress and
Roxborough-Manayunk. The description of these laws and regulations, as
well as descriptions of laws and regulations contained elsewhere herein,
does not purport to be complete and is qualified in its entirety by
reference to applicable laws and regulations.
Regulation of the Company
General. The Company is a registered savings and loan holding company
within the meaning of the Home Owners' Loan Act, as amended ("HOLA"). As
such, the Company is subject to OTS regulations, examinations, supervision
and reporting requirements. As a subsidiary of a savings and loan holding
company, Progress is subject to certain restrictions in its dealings with
the Company and affiliates thereof.
Activities Restrictions. There are generally no restrictions on the
activities of a unitary savings and loan holding company, which is defined
as a company with only one subsidiary savings association. Such financial
institution holding companies are the only such companies which may engage
in any commercial, securities and insurance activities. However,
Congressional legislative proposals, which have been introduced and are
under consideration, would either limit unitary savings and loan holding
companies to the same activity limits as are imposed on other financial
institution holding companies or would permit certain bank holding
companies to engage in commercial activities and expanded securities and
insurance activities. The Company cannot predict if, and in what form,
these proposals might become law. However, the broad latitude to engage in
activities under current law is restricted if the Director of the OTS
determines that there is reasonable cause
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<PAGE>
to believe that the continuation by a savings and loan holding company of
an activity constitutes a serious risk to the financial safety, soundness
or stability of its subsidiary savings association. In such a situation,
the Director may impose such restrictions as deemed necessary to address
such risk, including limiting (i) payment of dividends by the savings
association; (ii) transactions between the savings association and its
affiliates; and (iii) any activities of the savings association that might
create a serious risk that the liabilities of the holding company and its
affiliates may be imposed on the savings association. Notwithstanding the
above rules as to permissible business activities of unitary savings and
loan holding companies, if the savings association subsidiary of such a
holding company fails to meet a qualified thrift lender test ("QTL Test"),
then such unitary holding company also shall become subject to the
activities restrictions applicable to multiple savings and loan holding
companies and, unless the savings association requalifies as a Qualified
Thrift Lender within one year thereafter, shall register as, and become
subject to, the restrictions applicable to a bank holding company. See "-
Savings Bank Regulation - Qualified Thrift Lender Test."
If the Company were to acquire control of another savings association,
other than through merger or other business combination with Progress, the
Company would thereupon become a multiple savings and loan holding company.
The Company's acquisition of Roxborough-Manayunk will not have this effect
because Roxborough-Manayunk will immediately merge with Progress following
such acquisition. Except where such acquisition is pursuant to the
authority to approve emergency thrift acquisitions and where each
subsidiary savings association meets the QTL Test, the activities of the
Company and any of its subsidiaries (other than subsidiary savings
associations) would thereafter be subject to further restrictions. Among
other things, no multiple savings and loan holding company or subsidiary
thereof which is not a savings association shall commence or continue for a
limited period of time after becoming a multiple savings and loan holding
company or subsidiary thereof any business activity, upon prior notice to,
and no objection by the OTS, other than: (i) furnishing or performing
management services for a subsidiary savings association; (ii) conducting
an insurance agency or escrow business; (iii) holding, managing, or
liquidating assets owned by or acquired from a subsidiary savings
association; (iv) holding or managing properties used or occupied by a
subsidiary savings association; (v) acting as trustee under deeds of trust;
(vi) those activities authorized by regulation as of March 5, 1987 to be
engaged in by multiple savings and loan holding companies; or (vii) unless
the Director of the OTS by regulation prohibits or limits such activities
for savings and loan holding companies, those activities authorized by the
Federal Reserve Board as permissible for bank holding companies. Those
activities described in (vii) above also must be approved by the Director
of the OTS prior to being engaged in by a multiple savings and loan holding
company.
Limitations on Transactions with Affiliates. Transactions between
savings associations and any affiliate are governed by Sections 23A and 23B
of the Federal Reserve Act. An affiliate of a savings association is any
company or entity which controls, is controlled by or is under common
control with the savings association. In a holding
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company context, the parent holding company of a savings association (such
as the Company) and any companies which are controlled by such parent
holding company are affiliates of the savings association. Generally,
Sections 23A and 23B (i) limit the extent to which the savings association
or its subsidiaries may engage in "covered transactions" with any one
affiliate to an amount equal to 10% of such association's capital stock and
surplus, and contain an aggregate limit on all such transactions with all
affiliates to an amount equal to 20% of such capital stock and surplus and
(ii) require that all such transactions be on terms substantially the same,
or at least as favorable, to the association or subsidiary as those
provided to a non-affiliate. The term "covered transaction" includes the
making of loans, purchase of assets, issuance of a guarantee and similar
other types of transactions. In addition to the restrictions imposed by
Sections 23A and 23B, no savings association may (i) loan or otherwise
extend credit to an affiliate, except for any affiliate which engages only
in activities which are permissible for bank holding companies, or (ii)
purchase or invest in any stocks, bonds, debentures, notes or similar
obligations of any affiliate, except for affiliates which are subsidiaries
of the savings association.
In addition, Section 22(g) and (h) of the Federal Reserve Act and the
regulations promulgated thereunder place restrictions on loans to executive
officers, directors and principal stockholders of savings associations and
their holding companies. Under Section 22(h), loans to a director, an
executive officer and to a greater than 10% stockholder of a savings
association, and certain affiliated interests of either, may not exceed,
together with all other outstanding loans to such person and affiliated
interests, the association's loans to one borrower limit (generally equal
to 15% of the association's unimpaired capital and surplus). Section 22(h)
also requires that loans to directors, executive officers and greater than
10% stockholders be made on terms substantially the same as offered in
comparable transactions to other persons and also requires prior board
approval for certain loans. Moreover, the aggregate amount of extensions
of credit by a savings association to all insiders cannot exceed the
association's unimpaired capital and surplus. Furthermore, Section 22(g)
places additional restrictions on loans to executive officers.
Restrictions on Acquisitions. Except under limited circumstances,
savings and loan holding companies are prohibited from acquiring, without
prior approval of the Director of the OTS, (i) control of any other savings
association or savings and loan holding company or substantially all the
assets thereof or (ii) more than 5% of the voting shares of a savings
association or holding company thereof which is not a subsidiary. Except
with the prior approval of the Director of the OTS, no director or officer
of a savings and loan holding company or person owning or controlling by
proxy or otherwise more than 25% of such company's stock, also may acquire
control of any savings association, other than a subsidiary savings
association, or of any other savings and loan holding company.
The Director of the OTS may only approve acquisitions resulting in the
formation of a multiple savings and loan holding company which controls
savings associations in more than one state if (i) the multiple savings and
loan holding company involved controls a savings association which operated
a home or branch office located in the state of the
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association to be acquired as of March 5, 1987; (ii) the acquiror is
authorized to acquire control of the savings association pursuant to
the emergency acquisition provisions of the Federal Deposit Insurance
Act ("FDIA"), or (iii) the statutes of the state in which the
association to be acquired is located specifically permit associations to
be acquired by the state-chartered associations or savings and loan holding
companies located in the state where the acquiring entity is located (or by
a holding company that controls such state-chartered savings associations).
Subject to appropriate regulatory approvals, a bank holding company
may acquire control of a savings association. Furthermore, bank holding
companies that control a savings association can merge or consolidate the
assets and liabilities of the savings association with, or transfer assets
and liabilities to, any subsidiary bank which is a member of the BIF with
the approval of the appropriate federal banking agency and the Federal
Reserve Board.
Savings Bank Regulation
Each of Progress and Roxborough-Manayunk is a federally chartered
savings bank, the deposits of which are federally insured and backed by the
full faith and credit of the United States Government. Accordingly,
Progress and Roxborough-Manayunk are subject to broad federal regulation by
the OTS and the FDIC extending to all aspects of their operations.
Progress and Roxborough-Manayunk are members of the FHLB of Pittsburgh and
are subject to certain limited regulation by the Federal Reserve Board.
General. The OTS has extensive authority over the operations of
savings associations. As part of this authority, savings associations are
required to file periodic reports with the OTS and are subject to periodic
examinations by the OTS and the FDIC. The investment and lending authority
of savings associations are prescribed by federal laws and regulations, and
such associations are prohibited from engaging in any activities not
permitted by such laws and associations. Those laws and regulations
generally are applicable to all federally chartered savings associations
and may also apply to state-chartered savings associations. Such
regulation and supervision is primarily intended for the protection of
depositors.
The OTS' enforcement authority over all savings associations and their
holding companies includes, among other things, the ability to assess civil
money penalties, to issue cease and desist or removal orders and to
initiate injunctive actions. In general, these enforcement actions may be
initiated for violations of laws and regulations and unsafe or unsound
practices. Other actions or inactions may provide the basis for
enforcement action, including misleading or untimely reports filed with the
OTS.
Insurance of Accounts. The deposits of both Progress and Roxborough-
Manayunk are insured up to the maximum amount permitted by the SAIF
administered by the FDIC and are backed by the full faith and credit of the
United States Government. As insurer,
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the FDIC is authorized to conduct examinations of, and to require reporting
by, FDIC-insured institutions. It also may prohibit any FDIC-insured
institution from engaging in any activity the FDIC determines by regulation
or order to pose a serious threat to the insurance fund. The FDIC also has
the authority to initiate enforcement actions against savings associations,
after giving the OTS an opportunity to take such action.
The FDIC may terminate the deposit insurance of any insured depository
institution, including Progress and/or Roxborough-Manayunk, if it
determines after a hearing that the institution has engaged or is engaging
in unsafe or unsound practices, is in an unsafe or unsound condition to
continue operations, or has violated any applicable law, regulation, order
or any condition imposed by an agreement with the FDIC. It also may
suspend deposit insurance temporarily during the hearing process for the
permanent termination of insurance, if the institution has no tangible
capital. If insurance of accounts is terminated, the accounts at the
institution at the time of the termination, less subsequent withdrawals,
shall continue to be insured for a period of six months to two years, as
determined by the FDIC. Management of Progress and Roxborough-Manayunk are
aware of no existing circumstances which could result in termination of
deposit insurance at their respective institutions.
The FDIC is authorized to establish separate assessment rates for
deposit insurance for members of the BIF and the SAIF. The FDIC may
increase assessment rates for either fund to restore the fund's ratio of
reserves to insured deposits to its statutorily set target level within a
reasonable time, and may decrease such assessment rates if such target
level has been met. Until the SAIF fund meets is target level, savings
associations may not transfer to the BIF fund. Furthermore, any such
transfers, when permitted, would be subject to exit and entrance fees.
Under current FDIC regulations, institutions are assigned to one of three
capital groups which are based solely on the level of an institution's
capital--"well capitalized," "adequately capitalized," and
"undercapitalized"--which are defined in the same manner as the regulations
establishing the prompt corrective action system under Section 38 of the
Federal Deposit Insurance Act ("FDIA"), as discussed below. These three
groups are then divided into three subgroups which reflect varying levels
of supervisory concern, from those which are considered to be healthy to
those which are considered to be of substantial supervisory concern. The
matrix so created results in nine assessment risk classifications, with
rates ranging from .23% for well capitalized, healthy institutions to .31%
for undercapitalized institutions with substantial supervisory concerns.
The insurance premiums for Progress and Roxborough-Manayunk for the first
semi-annual period in calendar 1995 were .29% and .23%, respectively.
The BIF fund is expected to meet its target reserve level in mid-
1995, but the SAIF is not expected to meet its target reserve level until
at least 2002. The FDIC has proposed reducing deposit insurance
assessments for BIF members, to be effective when the target level is met,
to a new low of $.04 per $100 in deposits to $.31 per $100 of deposits,
with all levels in between being reduced. It also has proposed to maintain
SAIF premiums at $.23 to $.31 per $100 in deposits. If this proposal is
made effective, government officials have
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estimated that BIF members will pay an average assessment of $.045 per $100
of deposits and SAIF members will pay an average assessment of $.25 per
$100 of deposits. Such a disparity could have an adverse effect on
Progress' and Roxborough-Manayunk's operating expenses and results of
operations and would place such institutions at a competitive disadvantage
relative to BIF-insured institutions. See "Risk Factors - Recapitalization
of SAIF and Effect of Reduction in Bank Insurance Fund Premiums."
Regulatory Capital Requirements. Federally insured savings
associations are required to maintain minimum levels of regulatory capital.
The OTS has established capital standards applicable to all savings
associations. These standards generally must be as stringent as the
comparable capital requirements imposed on national banks. The OTS also is
authorized to impose capital requirements in excess of these standards on
individual associations on a case-by-case basis.
OTS capital standards require savings associations to satisfy three
different capital requirements. Under these standards, savings
associations must maintain "tangible" capital equal to at least 1.5% of
adjusted total assets, "core" capital equal to at least 3% of adjusted
total assets and "total" or "risk-based" capital (a combination of core and
"supplementary" capital) equal to at least 8.0% of "risk-weighted" assets.
For purposes of the regulation, core capital is defined as common
stockholders' equity (including retained earnings), noncumulative perpetual
preferred stock and related surplus, minority interests in the equity
accounts of fully consolidated subsidiaries, certain nonwithdrawable
accounts and pledged deposits and "qualifying supervisory goodwill." Core
capital is generally reduced by the amount of a savings association's
intangible assets for which no market exists. Limited exceptions to the
deduction of intangible assets are provided for purchased mortgage
servicing rights and qualifying supervisory goodwill. Tangible capital is
given the same definition as core capital but does not include qualifying
supervisory goodwill and is reduced by the amount of all the savings
association's intangible assets, with only a limited exception for
purchased mortgage servicing rights. Both core and tangible capital are
further reduced by an amount equal to a savings association's debt and
equity investments in subsidiaries engaged in activities not permissible to
national banks (other than subsidiaries engaged in activities undertaken as
agent for customers or in mortgage banking activities and subsidiary
depository institutions or their holding companies).
In determining compliance with the risk-based capital requirement, a
savings association is allowed to include both core capital and
supplementary capital in its total capital, provided that the amount of
supplementary capital included does not exceed the savings association's
core capital. Supplementary capital generally consists of hybrid capital
instruments; perpetual preferred stock which is not eligible to be included
as core capital; subordinated debt and intermediate-term preferred stock;
and general allowances for loan losses up to a maximum of 1.25% of risk-
weighted assets. In determining the required amount of risk-based capital,
total assets, including certain off-balance sheet items, are multiplied by
a risk weight based on the risks inherent in the type of assets. The risk
weights assigned by the OTS for principal categories of assets are (i) 0%
for cash and
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securities issued by the United States Government or unconditionally backed
by the full faith and credit of the United States Government; (ii) 20% for
securities (other than equity securities) issued by United States
Government-sponsored agencies and mortgage-backed securities issued by, or
fully guaranteed as to principal and interest by, the FNMA or the FHLMC,
except for those classes with residual characteristics or stripped
mortgage-related securities; (iii) 50% for prudently underwritten permanent
one- to four-family first lien mortgage loans not more than 90 days
delinquent and having a loan-to-value ratio of not more than 80% at
origination unless insured to such ratio by an insurer approved by the FNMA
or the FHLMC, qualifying residential bridge loans made directly for the
construction of one- to four-family residences and qualifying multi-family
residential loans; and (iv) 100% for all other loans and investments,
including consumer loans, commercial loans, and one- to four-family
residential real estate loans more than 90 days delinquent, and for
repossessed assets.
In August 1993, the OTS adopted a final rule incorporating an
interest-rate risk component into the risk-based capital regulation. Under
the rule, an association with a greater than "normal" level of interest
rate risk will be subject to a deduction of its interest rate risk
component from total capital for purposes of calculating its risk-based
capital. As a result, such an association will be required to maintain
additional capital in order to comply with the risk-based capital
requirement. An association with a greater than "normal" interest rate
risk is defined as an association that would suffer a loss of net portfolio
value exceeding 2.0% of the estimated economic value of its assets in the
event of a 200 basis point increase or decrease (with certain minor
exceptions) in interest rates. The interest rate risk component will be
calculated, on a quarterly basis, as one-half of the difference between an
association's measured interest rate risk and 2.0% multiplied by the
economic value of its assets. The rule also authorizes the Director of the
OTS, or his designee, to waive or defer an association's interest rate risk
component on a case-by-case basis. The final rule was originally effective
as of January 1, 1994, subject however to a two quarter "lag" time between
the reporting date of the data used to calculate an association's interest
rate risk and the effective date of each quarter's interest rate risk
component. However, in October 1994 the Director of the OTS indicated that
it would waive the capital deductions for associations with a greater than
"normal" risk until the OTS publishes an appeals process. The OTS has
recently indicated that no savings association will be required to deduct
capital for interest rate risk until further notice.
At March 31, 1995, Progress had tangible, core, and risk-based capital
of $16.4 million or 4.74% of total adjusted assets, $16.4 million or 4.74%
of total adjusted assets and $18.0 million or 9.92% of total risk-weighted
assets, respectively, and Roxborough-Manayunk had tangible, core, and risk-
based capital of $23.2 million or 8.51% of total adjusted assets, $23.5
million or 8.61% of total adjusted assets, and $23.9 million or 29.8% of
total risk-weighted assets, respectively, which amounts exceeded all
applicable regulatory capital requirements of the OTS. See Note 15 of
Notes to Consolidated Financial Statements of the Company, Note 11 of Notes
to Consolidated Financial Statements of Roxborough-Manayunk, and
"Regulatory Capital."
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The OTS recently revised its policy regarding how savings associations
computed their regulatory capital in accordance with SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." Under
the revised OTS policy, savings associations must value securities
classified as available for sale at amortized cost for regulatory capital
purposes. In computing regulatory capital, savings associations are
required to include any unrealized losses and deduct any unrealized gains,
net of income taxes, on debt securities reported as a separate component of
stockholders' equity for financial reporting purposes.
Any savings association that fails any of the capital requirements is
subject to possible enforcement actions by the OTS or the FDIC. Such
actions could include a capital directive, a cease and desist order, civil
money penalties, the establishment of restrictions on the association's
operations, termination of federal deposit insurance and the appointment of
a conservator or receiver. The OTS' capital regulation provides that such
actions, through enforcement proceedings or otherwise, could require one or
more of a variety of corrective actions.
Safety and Soundness. On November 18, 1993, a joint notice of
proposed rulemaking was issued by the OTS, the FDIC, the OCC and the
Federal Reserve Board (collectively, the "agencies") concerning standards
for safety and soundness required to be prescribed by regulation pursuant
to Section 39 of the FDIA. In general, the standards relate to (1)
operational and managerial matters; (2) asset quality and earnings; and
(3) compensation. The operational and managerial standards cover
(a) internal controls and information systems, (b) internal audit system,
(c) loan documentation, (d) credit underwriting, (e) interest rate risk
exposure, (f) asset growth, and (g) compensation, fees and benefits. Under
the proposed asset quality and earnings standards, Progress and Roxborough-
Manayunk would be required to maintain (1) a maximum ratio of classified
assets (assets classified substandard, doubtful and to the extent that
related losses have not been recognized, assets classified loss) to total
capital of 1.0, and (2) minimum earnings sufficient to absorb losses
without impairing capital. The last ratio concerning market value to book
value was determined by the agencies not to be feasible. Finally, the
proposed compensation standard states that compensation will be considered
excessive if it is unreasonable or disproportionate to the services
actually performed by the individual being compensated. If an insured
depository institution or its holding company fail to meet any of the
standards promulgated by regulation, then such institution or company will
be required to submit a plan within 30 days to the FDIC specifying the
steps it will take to correct the deficiency. In the event that an
institution or company fails to submit or fails in any material respect to
implement a compliance plan within the time allowed by the agency, Section
39 of the FDIA provides that the FDIC must order the institution or company
to correct the deficiency and may (1) restrict asset growth; (2) require
the institution or company to increase its ratio of tangible equity to
assets; (3) restrict the rates of interest that the institution or company
may pay; or (4) take any other action that would better carry out the
purpose of prompt corrective action.
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Prompt Corrective Action. In September 1992, the federal banking
agencies (including the OTS) promulgated substantially similar regulations
which are intended to implement the system of prompt corrective action
established by Section 38 of the FDIA and which became effective December
19, 1992. Under the regulations, a savings association shall be deemed to
be (i) "well capitalized" if it has total risk-based capital of 10.0% or
more, has a Tier I risk-based capital ratio of 6.0% or more, has a Tier I
leverage capital ratio of 5.0% or more and is not subject to any order or
final capital directive to meet and maintain a specific capital level for
any capital measure, (ii) "adequately capitalized" if it has a total risk-
based capital ratio of 8.0% or more, a Tier I risk-based capital ratio of
4.0% or more and a Tier I leverage capital ratio of 4.0% or more (3.0%
under certain circumstances) and does not meet the definition of "well
capitalized," (iii) "undercapitalized" if it has a total risk-based capital
ratio that is less than 8.0%, a Tier I risk-based capital ratio that is
less than 4.0% or a Tier I leverage capital ratio that is less than 4.0%
(3.0% under certain circumstances), (iv) "significantly undercapitalized"
if it has a total risk-based capital ratio that is less than 6.0%, a Tier I
risk-based capital ratio that is less than 3.0% or a Tier I leverage
capital ratio that is less than 3.0%, and (v) "critically undercapitalized"
if it has a ratio of tangible equity to total assets that is equal to or
less than 2.0%. Under certain circumstances, the OTS may reclassify a well
capitalized savings association as adequately capitalized and may require
an adequately capitalized savings association or an undercapitalized
savings association to comply with supervisory actions as if it were in the
next lower category (except that the OTS may not reclassify a significantly
undercapitalized savings association as critically undercapitalized).
Liquidity Requirements. All savings associations 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 associations. At the
present time, the required liquid asset ratio is 5%.
Accounting Requirements. The OTS has adopted the following accounting
regulations and reporting requirements: (i) regulatory reports will
incorporate GAAP when GAAP is used by federal banking agencies; (ii)
savings association transactions, financial condition and regulatory
capital must be reported and disclosed in accordance with OTS regulatory
reporting requirements that will be at least as stringent as for national
banks; and (iii) the Director of the OTS may prescribe regulatory reporting
requirements more stringent than GAAP whenever the Director determines that
such requirements are necessary to ensure the safe and sound reporting and
operation of savings associations.
The OTS has adopted a statement of policy ("Statement") set forth in
Thrift Bulletin 52 concerning (i) procedures to be used in the selection of
a securities dealer, (ii) the need to document and implement prudent
policies and strategies for securities, whether held for investment,
trading or for sale, and to establish systems and internal controls to
ensure that securities activities are consistent with the financial
institution's policies and strategies, (iii)
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securities trading and sales practices that may be unsuitable in connection
with securities held in an investment portfolio, (iv) high-risk mortgage
securities that are not suitable for investment portfolio holdings for
financial institutions, and (v) disproportionately large holdings of long-
term, zero-coupon bonds that may constitute an imprudent investment
practice. The Statement applies to investment securities, high-yield,
corporate debt securities, loans, mortgage-backed securities and derivative
securities, and provides guidance concerning the proper classification of
and accounting for securities held for investment, sale and trading.
Securities held for investment, sale or trading may be differentiated based
upon an institution's desire to earn an interest yield (held for
investment), to realize a holding gain from assets held for indefinite
periods of time (held for sale), or to earn a dealer's spread between the
bid and asked prices (held for trading). Depository institution investment
portfolios are maintained to provide earnings consistent with the safety
factors of quality, maturity, marketability and risk diversification.
Securities that are purchased to accomplish these objectives may be
reported at their amortized cost only when the depository institution has
both the intent and ability to hold the assets for long-term investment
purposes. Securities held for investment purposes may be accounted for at
amortized cost, while securities held for sale and securities held for
trading are to be accounted for at market. The Company believes that its
investment activities have been and will continue to be conducted in
accordance with the requirements of OTS policies and generally accepted
accounting principles.
Qualified Thrift Lender Test. All savings institutions are required
to meet a QTL test set forth in Section 10(m) of the HOLA and regulations
of the OTS thereunder to avoid certain restrictions on their operations. A
savings association that does not meet the QTL test set forth in the HOLA
and implementing regulations must either convert to a bank charter or
comply with the following restrictions on its operations: (i) the
association may not engage in any new activity or make any new investment,
directly or indirectly, unless such activity or investment is permissible
for a national bank; (ii) the branching powers of the association shall be
restricted to those of a national bank; (iii) the association shall not be
eligible to obtain any advances from its FHLB; and (iv) payment of
dividends by the association shall be subject to the rules regarding
payment of dividends by a national bank. Upon the expiration of three
years from the date the association ceases to be a QTL, it must cease any
activity and not retain any investment not permissible for a national bank
and immediately repay any outstanding FHLB advances (subject to safety and
soundness considerations).
Currently, the QTL test requires that 65% of an association's
"portfolio assets" (as defined) consist of certain housing and
consumer-related assets on a monthly average basis in nine out of every 12
months. Assets that qualify without limit for inclusion as part of the 65%
requirement are loans made to purchase, refinance, construct, improve or
repair domestic residential housing and manufactured housing; home equity
loans; mortgage-backed securities (where the mortgages are secured by
domestic residential housing or manufactured housing); stock issued by the
FHLB of Pittsburgh; and direct or indirect obligations of the FDIC. In
addition, the following assets, among others, may be
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included in meeting the test subject to an overall limit of 20% of the
savings association's portfolio assets: 50% of residential mortgage loans
originated and sold within 90 days of origination; 100% of consumer and
educational loans (limited to 10% of total portfolio assets); and stock
issued by the FHLMC or the FNMA. Portfolio assets consist of total assets
minus the sum of (i) goodwill and other intangible assets, (ii) property
used by the savings association to conduct its business, and (iii) liquid
assets up to 20% of the association's total assets. At March 31, 1995, the
qualified thrift investments of Progress and Roxborough-Manayunk were
approximately 78.4% and 71.6% of their respective portfolio assets.
Restrictions on Capital Distributions. OTS regulations govern capital
distributions by savings associations, which include cash dividends, stock
redemptions or repurchases, cash-out mergers, interest payments on certain
convertible debt and other transactions charged to the capital account of a
savings association to make capital distributions. Generally, the
regulation creates a safe harbor for specified levels of capital
distributions from associations meeting at least their minimum capital
requirements, so long as such associations notify the OTS and receive no
objection to the distribution from the OTS. Associations and distributions
that do not qualify for the safe harbor are required to obtain prior OTS
approval before making any capital distributions.
Generally, Tier 1 associations, which are savings associations that
before and after the proposed distribution meet or exceed their fully
phased-in regulatory capital requirements, may make capital distributions
during any calendar year equal to the higher of (i) 100% of net income for
the calendar year-to-date plus 50% of its "surplus capital ratio" at the
beginning of the calendar year or (ii) 75% of net income over the most
recent four-quarter period. The "surplus capital ratio" is defined to mean
the percentage by which the association's ratio of total capital to assets
exceeds the ratio of its fully phased-in capital requirement to assets, and
"fully phased-in capital requirement" is defined to mean an association's
capital requirement under the statutory and regulatory standards, as
modified to reflect any applicable individual minimum capital requirement
imposed upon the association. Failure to meet fully phased-in or minimum
capital requirements will result in further restrictions on capital
distributions, including possible prohibition without explicit OTS
approval. See "- Regulatory Capital Requirements."
Tier 2 institutions, which are institutions that before and after the
proposed distribution meet or exceed their minimum capital requirements,
may make capital distributions up to 75% of their net income over the most
recent four quarter period.
In order to make distributions under these safe harbors, Tier 1 and
Tier 2 associations must submit 30 days written notice to the OTS prior to
making the distribution. The OTS may object to the distribution during
that 30-day period based on safety and soundness concerns. In addition, a
Tier 1 association deemed to be in need of more than normal supervision by
the OTS may be downgraded to a Tier 2 or Tier 3 association as a result of
such a determination.
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Tier 3 institutions, which are institutions that do not meet current
minimum capital requirements, or that have capital in excess of either
their fully phased-in capital requirement or minimum capital requirement
but which have been notified by the OTS that it will be treated as a Tier 3
institution because they are in need of more than normal supervision,
cannot make any capital distribution without obtaining OTS approval prior
to making such distributions.
At March 31, 1995, both Progress and Roxborough-Manayunk were Tier 1
institutions for purposes of this regulation.
On December 5, 1994, the OTS published a notice of proposed rulemaking
to amend its capital distribution regulation. Under the proposal,
associations would be permitted to only make capital distributions that
would not result in their capital being reduced below the level required to
remain "adequately capitalized." An association is adequately capitalized
if it has a total risk-based capital ratio of 8.0% or more, a Tier 1 risk-
based capital ratio of 4.0% or more and a Tier 1 leverage capital ratio of
4.0% or more and does not meet the definition of well capitalized. Because
Progress Bank will be a subsidiary of the Company upon consummation of the
Conversion and the Merger, the proposal would require Progress Bank to
provide notice to the OTS of its intent to make a capital distribution.
Progress and Roxborough-Manayunk do not believe that the proposal will
adversely affect their ability to make capital distributions if it is
adopted substantially as proposed.
Federal Home Loan Bank System. Progress and Roxborough-Manayunk are
both members of the FHLB of Pittsburgh, which is one of 12 regional FHLBs
that administers the home financing credit function of savings associations.
Each FHLB serves as a reserve or central bank for its members within its
assigned region. It is funded primarily from 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. At March 31, 1995,
Progress' and Roxborough-Manayunk's advances from the FHLB of Pittsburgh
amounted to $47.8 million and $7.9 million, respectively.
As members, Progress and Roxborough-Manayunk are required to purchase
and maintain stock in the FHLB of Pittsburgh in an amount equal to at least
1% of their respective aggregate unpaid residential mortgage loans, home
purchase contracts or similar obligations at the beginning of each year.
At March 31, 1995, Progress and Roxborough-Manayunk had $2.5 million and
$1.8 million, respectively, in FHLB stock, which was in compliance with
this requirement.
The FHLBs are required to provide funds for the resolution of troubled
savings associations 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
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dividends paid and could continue to do so in the future. These contributions
also could have an adverse effect on the value of FHLB stock in the future.
Federal Reserve System. The Federal Reserve Board requires all
depository institutions to maintain reserves against their transaction
accounts (primarily NOW and Super NOW checking accounts) and non-personal
time deposits. As of March 31, 1995, no reserves were required to be
maintained on the first $4.2 million of transaction accounts, reserves of
3% were required to be maintained against the next $54.0 million of net
transaction accounts (which is subject to adjustment by the Federal Reserve
Board) and a reserve of 10% (which is subject to adjustment by the Federal
Reserve Board to a level between 8% and 14%) against all remaining net
transaction accounts. The balances maintained to meet the reserve
requirements imposed by the Federal Reserve Board may be used to satisfy
applicable liquidity requirements. Because required reserves must be
maintained in the form of vault cash or a noninterest-bearing account at a
Federal Reserve Bank, however, the effect of this reserve requirement is to
reduce an institution's earning assets.
Branching by Federal Associations. Effective May 11, 1992, the OTS
amended its "Policy Statement on Branching by Federal Savings Associations"
to permit interstate branching to the full extent permitted by statute
(which is essentially unlimited). Prior policy permitted interstate
branching for federal thrifts only to the extent allowed for state-
chartered associations in the states where the association's home office is
located and where the branch is sought. Prior policy also permitted
healthy out-of-state federal associations to branch into another state,
regardless of the law in that state, provided the branch office was the
result of a purchase of an association that is in danger of default.
Generally, federal law prohibits federal thrifts from establishing,
retaining or operating a branch outside the state in which the federal
association has its home office unless the association meets the IRS's
domestic building and loan test (generally, 60% of a thrift's assets must
be housing related) ("IRS Test"). The IRS Test requirement does not apply
if: (i) the branch(es) result(s) from an emergency acquisition of a
troubled thrift (however, if the troubled savings association is acquired
by a bank holding company, does not have its home office in the state of
the bank holding company bank subsidiary and does not qualify under the IRS
Test, its branching is limited to the branching laws for state-chartered
banks in the state where the savings association is located) (ii) the law
of the state where the branch would be located would permit the branch to
be established if the federal association were chartered by the state in
which its home office is located; or (iii) the branch was operated lawfully
as a branch under state law prior to the association's conversion to a
federal charter.
In addition, the OTS will evaluate a branching applicant's record of
compliance with the Community Reinvestment Act of 1977, as amended ("CRA").
An unsatisfactory CRA record may be the basis for denial of a branching
application.
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Recent Accounting Pronouncements
In December 1990, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 106,
"Employers' Accounting for Post-Retirement Benefits Other Than Pensions."
SFAS No. 106 requires that certain post-retirement benefits provided to
former employees, their beneficiaries, and covered dependents be recognized
over those employees' service period. Post-retirement benefits include
health care, life insurance and other welfare benefits. Adoption of SFAS
No. 106 was required for fiscal years beginning after December 15, 1992.
Neither the Company, Progress nor Roxborough-Manayunk provide any post-
retirement benefits; therefore, the adoption of SFAS No. 106 had no effect
on their respective results of operations.
In December 1991, the FASB issued SFAS No. 107, "Disclosures About
Fair Value of Financial Instruments." SFAS No. 107 requires all entities
to disclose, in financial statements or the notes thereto, the fair value
of financial instruments, both assets and liabilities recognized and not
recognized in the statement of financial condition, for which it is
practicable to estimate fair value. SFAS No. 107 is effective for
financial statements issued for years ending after December 15, 1992.
Substantially all of the assets and liabilities of the Company and
Roxborough-Manayunk are financial instruments and, as a result, SFAS No.
107 requires the fair value of such assets and liabilities to be disclosed.
Because such assets and liabilities are monetary in nature, their fair
values may fluctuate significantly over time.
In November 1992, the FASB issued SFAS No. 112, "Employers' Accounting
for Post-Employment Benefits." SFAS No. 112 requires accrual of the
expected cost of providing post-employment benefits to an employee and
employee's beneficiaries and covered dependents during the years that the
employee renders the necessary services. Such benefits include salary
continuation, supplemental unemployment benefits, severance benefits, job
training and counseling, and continuation of health care benefits. SFAS
No. 112 is effective for fiscal years beginning after December 15, 1993.
Neither the Company, Progress nor Roxborough-Manayunk provide any of the
benefits covered by SFAS No. 112.
In May 1993, the FASB issued SFAS No. 114, "Accounting by Creditors
for Impairment of a Loan." SFAS No. 114 is effective for years beginning
after December 15, 1994. The Statement establishes accounting measurement,
recognition and reporting standards for impaired loans. SFAS No. 114
provides that a loan is impaired when, based on current information and
events, it is probable that the creditor will be unable to collect all
amounts due according to the contractual terms (both principal and
interest). SFAS No. 114 requires that when a loan is impaired, impairment
should be measured based on the present value of the expected cash flows,
discounted at the loan's effective interest rate. If the loan is
collateral dependent, as a practical expedient, impairment can be based on
a loan's observable market price or the fair value of the collateral. The
value of the loan is adjusted through a valuation allowance created through
a charge against income. Residential mortgages, consumer installment
obligations and credit cards are excluded.
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Loans that were treated as in-substance foreclosures under previous accounting
pronouncements are considered to be impaired loans and remain in the loan
portfolio under SFAS No. 114. SFAS No. 114 was amended in October 1994 by SFAS
No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition
and Disclosures." SFAS No. 118 amended SFAS No. 114 primarily to remove its
income recognition requirements and add some disclosure requirements. The
Company does not believe that adoption of SFAS No. 114, as amended by SFAS
No. 118, will be material to its financial condition or results of
operations.
Also in May 1993, the FASB issued SFAS No. 115, which requires debt
and equity securities to be classified in one of three categories and to be
accounted for as follows: debt securities which the company has the
positive intent and ability to hold to maturity are classified as
"securities held to maturity" and reported at amortized cost; debt and
equity securities that are bought and held principally for the purpose of
selling them in the near term are classified as "trading securities" and
reported at fair value with unrealized gains and losses included in
earnings; and debt and equity securities not classified as either held-to
maturity or trading securities are classified as "securities available for
sale" and reported at fair value with unrealized gains and losses excluded
from earnings, but reported as a separate component of shareholders'
equity. The Company adopted SFAS No. 115 in the first quarter of 1994.
The cumulative effect of the Company adopting SFAS No. 115 on January 1,
1994 resulted in a $61,000 reduction in the Company's stockholders' equity
for unrealized losses on mortgage-backed and investment securities
classified as available for sale of $46,000 and $15,000, respectively. As
of March 31, 1995, the Company's stockholders' equity was reduced by
approximately $721,000 for unrealized losses on mortgage-backed securities
and investment securities classified as available for sale of $9.1 million
and $3.8 million, respectively. Roxborough-Manayunk adopted SFAS No. 115
effective December 31, 1993. As of March 31, 1995, Roxborough-Manayunk's
stockholders' equity was reduced by approximately $44,000 for unrealized
losses on investment securities classified as available for sale of
$770,000.
In November 1993, the American Institute of Certified Public
Accountants ("AICPA") issued Statement of Position 93-6 entitled
"Employers' Accounting for Employee Stock Ownership Plans" ("SOP 93-6").
SOP 93-6 requires an employer to record compensation expense in an amount
equal to the fair value of shares committed to be released to employees
from an employee stock ownership plan instead of an amount equal to the
cost basis of such shares. If the shares of Company Common Stock
appreciate in value over time, SOP 93-6 will result in increased
compensation expense with respect to the ESOP as compared with prior
guidance which required the recognition of compensation expense based on
the cost of shares acquired by the ESOP. It is impossible to determine at
this time the extent of such impact on future net income. See "Pro Forma
Unaudited Financial Information."
In October 1994, the FASB issued SFAS No. 119, "Disclosure About
Derivative Financial Instruments and Fair Value of Financial Instruments,"
which is effective for years
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ending after December 15, 1994. SFAS No. 119
expands the disclosure requirements for derivative financial instruments,
which are defined to include futures, forwards, swaps or options contracts
or other instruments with similar characteristics. It excludes all such
instruments whose financial effects are recorded on the balance sheet.
SFAS No. 119 also makes certain modifications to SFAS No. 107. At March
31, 1995, neither the Company nor Roxborough-Manayunk had any financial
instruments which would require additional disclosure under SFAS No. 119.
In May 1995, the FASB issued SFAS No. 122, "Accounting for Mortgage
Servicing Rights and Excess Servicing Receivables and for Securitization of
Mortgage Loans." SFAS No. 122, which is effective for years beginning
after December 15, 1995, will require Progress, which services mortgage
loans for others in return for servicing fees, to recognize these servicing
rights as assets, regardless of how such assets were acquired.
Additionally, the Company would be required to assess the fair value of
these assets at each reporting date to determine any potential impairment.
Management of the Company has not completed an analysis of the effects this
pronouncement would have on its results of operations or financial
position.
TAXATION
Federal Taxation. The Company and its subsidiaries on the one hand,
and Roxborough-Manayunk and its subsidiaries on the other hand, are subject
to those rules of federal income taxation generally applicable to
corporations under the Code. The Company and its subsidiaries on the one
hand, and Roxborough-Manayunk and its subsidiaries on the other hand, as
members of an affiliated group of corporations within the meaning of
Section 1504 of the Code, file consolidated federal income tax returns,
which have the effect of eliminating or deferring the tax consequences of
inter-company distributions, including dividends, in the computation of
consolidated taxable income.
In addition to regular corporate income tax, corporations are subject
to an alternative minimum tax which generally is equal to 20% of
alternative minimum taxable income (taxable income, increased by tax
preference items and adjustments to certain regular tax items). The
preference items which are generally applicable include an amount equal to
75% of the amount by which a financial institution's adjusted current
earnings (generally alternative minimum taxable income computed without
regard to this preference and prior to reduction for net operating losses)
exceeds its alternative minimum taxable income without regard to this
preference. Alternative minimum tax paid can be credited against regular
tax due in later years.
At March 31, 1995, the Company had a net operating loss carryforward
for federal tax purposes of approximately $7.1 million, $866,000 of which
expires in 2006, $4.5 million of which expires in 2007, $654,000 of which
expires in 2008 and $1.0 million of which expires in 2009. In addition,
the Company had an allowance for loan losses of approximately $1.6
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million. The majority of the allowance for loan losses is anticipated to
give rise to deductible losses in the current and future years. In
addition, approximately $2.7 million of losses on loans and other assets
have been recognized in prior years for financial accounting purposes, and
it is anticipated that such losses will be recognized in future years for
tax purposes. Losses which the Company has not yet recognized for tax
purposes that may be utilized to offset taxable income in the current, or a
past or future year are sometimes referred to as "Built-in Losses."
If an "ownership change," discussed below, occurs with respect to the
Company, the Company may be limited in its ability to use its net operating
loss carryforward. In addition, if the Built-in Losses of the Company
(netted against gains which it has not yet recognized for tax purposes,
together, the "Net Unrealized Built-In Losses" of the Company) exceed
certain threshold amounts, the Company may be limited in its ability to use
its Built-in Losses to offset otherwise taxable income in the current or a
future year. Accordingly, two factors are involved in evaluating whether
the ability of the Company to deduct its Built-in Losses will be limited in
the current, or a past or future year. The first factor is whether the
Company has undergone an "ownership change," as defined. The second factor
is whether the Net Unrealized Built-In Losses of the Company exceed the
applicable threshold limitations, discussed below, at the time such an
"ownership change" occurs.
The determination whether an "ownership change" has occurred is made
by (i) determining, in the case of any 5% stockholder, the increase, if
any, in the percentage ownership of such 5% stockholder at the end of any
three-year testing period relative to such stockholder's lowest percentage
ownership at any time during such testing period, and expressing such
increase in terms of percentage points (for example, a stockholder whose
percentage ownership increased from 2% to 9% during the testing period will
be considered to have had an increase of 7 percentage points), and (ii)
aggregating such percentage point increases for all 5% stockholders during
the applicable testing period. For purposes of the preceding sentence, any
direct or indirect holder, taking into account certain attribution rules,
of 5% or more of the Company's stock is a 5% stockholder, and all holders
of less that 5% collectively are generally treated as a single 5%
stockholder. An "ownership change" will occur as of the end of any three-
year testing period if the aggregate percentage point increases for all 5%
stockholders for such testing period exceeds 50 percentage points.
The Conversion and the Merger will result in the issuance of between
602,540 and 841,644 Exchange Shares and 4,138,143 and 5,780,263 shares of
Conversion Stock for a total of 4,740,683 to 6,621,907 shares of Company
Common Stock, in each case assuming that the number of shares issued does
not give rise to a right by any of the Parties to terminate the Merger
Agreement. At March 31, 1995, the Company had 3,275,000 shares of Company
Common Stock outstanding. Consequently, management believes that the
Conversion and the Merger will result in an "ownership change" of the
Company being deemed to have occurred.
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Section 382 of the Code provides that, if the amount of Net Unrealized
Built-in Losses of a corporation, which generally are the cumulative amount
by which its tax basis in its assets exceeds the fair market value of such
assets, is greater than the lesser of: (i) 15 percent of the fair market
value of the corporation's assets or (ii) $10 million, then the
corporation's Net Unrealized Built-In Losses will be subject to limitation
under Section 382 of the Code if the corporation were to experience an
"ownership change," as defined.
Management of the Company believes, based upon a review of its
consolidated assets and liabilities undertaken in connection with the
Conversion and the Reorganization, that, its unrealized built-in gains
(generally, the amount by which the fair market value of certain assets of
the Company exceed the tax basis of such assets), when netted against its
unrealized built-in losses (including the reserve for loan losses), would
result in an amount of Net Unrealized Built-In Losses that would be less
than the applicable threshold amounts set forth above. Accordingly,
management believes that, due to the "ownership change" which will occur
as a result of the Conversion and the Merger, the Company would be
considered to have no Net Unrealized Built-In Losses as of the date of such
"ownership change" and that it would continue to be able to utilize its
Built-in Losses without limitation. No assurance can be given that the IRS
would concur with the Company's review of its assets and liabilities and
its conclusion that no limitation would apply to the deduction of Built-in
Losses by the Company.
Due to the "ownership change" with respect to the Company which will
occur as a result of the Conversion and the Merger, an annual limitation
(the "Section 382 Limitation") will be imposed pursuant to Section 382 of
the Code on the rate at which net operating loss carryforwards could be
deducted against taxable income. In addition, if the Net Unrealized Built-
In Losses of the Company were deemed to exceed the above threshold amounts,
the Company would be limited to the Section 382 Limitation in the rate at
which it could deduct its Built-in Losses as they are recognized. The
Section 382 Limitation is computed by multiplying the aggregate fair market
value of the Company Common Stock immediately prior to the "ownership
change" by the then-applicable interest rate published by the IRS for this
purpose. Based upon the market value of the outstanding Company Common
Stock on March 31, 1995, Section 382 would limit the Company's ability to
utilize in any one year more than $1.1 million of its net operating loss
carryforward and its as yet unrecognized Built-in Losses. The limitation
on the use of Built-in Losses would apply only with respect to Built-in
Losses recognized in the five year period beginning on the date of the
"ownership change." Further, the legislative history regarding Section 382
of the Code provides that Built-In Losses may only be carried forward, and
may not be carried back.
State Taxation. The Company and its non-thrift Pennsylvania
subsidiaries are subject to the Pennsylvania Corporate Net Income Tax and
Capital Stock and Franchise Tax. The Corporate Net Income Tax rate is
currently 10.99% 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
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average net income and net worth. The usage of net operating loss
carryforwards has been suspended for years 1991 through 1994.
Progress and Roxborough-Manayunk are taxed under the Pennsylvania
Mutual Thrift Institutions Tax Act (enacted on December 13, 1988 and
amended in July 1989) (the "MTIT"), as amended to include thrift
institutions having capital stock. Pursuant to the MTIT, both Progress'
and Roxborough-Manayunk's tax rate is 11.5%. The MTIT exempts Progress and
Roxborough-Manayunk from all other taxes imposed by the Commonwealth of
Pennsylvania for state income tax purposes and from all local taxation
imposed by political subdivisions, except taxes on real estate and real
estate transfers and the Philadelphia Business Privilege Tax. The MTIT is
a tax upon net earnings, determined in accordance with GAAP with certain
adjustments. The MTIT, in computing GAAP income, allows for the deduction
of interest earned on state and Federal securities, while disallowing a
percentage of a thrift's interest expense deduction in the proportion of
those securities to the overall investment portfolio. Net operating
losses, if any, thereafter can be carried forward three years for MTIT
purposes.
MANAGEMENT OF THE COMPANY
Board of Directors
The Certificate of Incorporation of the Company provides that the
Board of Directors shall consist of no fewer than seven nor more than
twenty-one members, the exact number to be fixed from time to time by
resolution of the Board of Directors, and shall be divided into three
classes as nearly equal in number as possible. The members of each class
are to be elected for a term of three years and until their successors are
elected and qualified. One class of directors is to be elected annually
except, in the event of a change in the number of or composition of the
Board of Directors, directors may be elected to more than one class in
order to more nearly achieve equality in the classes. By affirmative vote
of a majority of the Board of Directors, a resolution was adopted which
presently fixes the number of members of the Board at nine.
The following table sets forth certain information regarding each
director of the Company, including information regarding their age and the
number and percent of shares of Company Common Stock beneficially owned by
such persons as of ______ __, 1995. No director is related to any other
director or executive officer of the Company or Progress by blood, marriage
or adoption, and there were no arrangements or understandings between a
director and any other person pursuant to which such person was elected as
a director.
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Year of Amount and Percentage of
Director Expiration Shares Beneficially
Name Age(1) Since of Term Owned as of , 1995
------------------------ ------ -------- ---------- ------------------------
Amount Percentage
------ ----------
John E. F. Corson 54 1991 1996 6,750(2) * %
William O. Daggett, Jr. 55 1990 1998 61,980(3) 1.9
Donald F. U. Goebert 58 1987 1996 140,516(4) 4.3
Joseph R. Klinger 52 1992 1998 8,250(2) *
Paul M. LaNoce 35 1991 1996 15,250(2) *
A. John May, III 39 1993 1997 7,943(5) *
William L. Mueller 43 1990 1998 65,476(6) 2.0
Charles J. Tornetta 64 1991 1997 22,908(7) *
W. Kirk Wycoff 37 1991 1997 153,155(8) 4.5
___________________
* Represents less than 1% of the issued and outstanding Company Common
Stock.
(1) As of March 31, 1995.
(2) Includes 5,250 shares subject to stock options which are exercisable
within 60 days of ____________, 1995.
(3) Includes 47,230 shares owned by companies of which Mr. Daggett is a
director, officer and 10% stockholder and 5,250 shares subject to
stock options, which are exercisable within 60 days of
_________________, 1995.
(4) Includes 135,266 shares owned by companies of which Mr. Goebert is a
director, officer and 10% stockholder and 5,250 shares subject to
stock options which are exercisable within 60 days of
___________________, 1995.
(5) Includes 250 shares subject to stock options which are exercisable
within 60 days of ___________, 1995.
(6) Includes 15,114 shares held jointly by Mr. Mueller with or for the
benefit of certain family members and 5,250 shares subject to stock
options which are exercisable within 60 days of ____________, 1995.
(7) Includes 5,250 shares subject to stock options which are exercisable
within 60 days of _______, 1995.
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(8) Includes 7,000 shares which are held jointly by Mr. Wycoff with or for
the benefit of certain family members and 100,000 shares subject to
stock options which are exercisable within 60 days of ________, 1995.
The principal occupation of each director of the Company for the last
five years is set forth below.
John E. F. Corson. Mr. Corson is a consultant and serves as President
of Corson Investments, a group of family-owned holding companies located in
Plymouth Meeting, Pennsylvania.
William O. Daggett, Jr. Mr. Daggett is the Managing Partner of
Kistler-Tiffany Companies, a firm engaged in financial and estate planning
and employee benefits and located in Wayne, Pennsylvania. Mr. Daggett also
is the owner and President of Benefit Designs Inc., the President of Group
Marketing Services, Inc. and the Vice President of Group Brokerage
Associates, Inc.
Donald F. U. Goebert. Mr. Goebert has served as the Chairman of the
Board of Adage, Inc., a wireless communications firm located in West
Chester, Pennsylvania, since 1968.
Joseph R. Klinger. Mr. Klinger has been a principal of KMR
Management, Inc., a management consultant company located in Glenside,
Pennsylvania, since March 1991. Mr. Klinger previously served as President
and Chief Executive Officer of Liberty Savings Bank, Philadelphia,
Pennsylvania, from April 1990 until January 1991, and as Executive Vice
President of Meritor Savings Bank, Philadelphia, Pennsylvania, from April
1981 until April 1990.
Paul M. LaNoce. Mr. LaNoce serves as President of DAR Industrial
Products Inc., an industrial manufacturer located in Philadelphia,
Pennsylvania.
A. John May, III. Mr. May has served as an attorney in the law firm
of Pepper, Hamilton & Scheetz, located in Philadelphia, Pennsylvania, since
1981 and has been a partner in the firm since 1989.
William L. Mueller. Mr. Mueller has been employed as an attorney with
the law firm of Clark, Ladner, Fortenbaugh & Young, located in Haddonfield,
New Jersey, since November 1987.
Charles J. Tornetta. Mr. Tornetta is the President of Tornetta Realty
Corporation, a real estate brokerage company located in Norristown,
Pennsylvania, and is a principal stockholder and President of Commonwealth
Insurance Agency, Inc., located in Norristown, Pennsylvania.
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W. Kirk Wycoff. Mr. Wycoff has served as the President and Chief
Executive Officer of the Company and Progress since July 1991. Mr. Wycoff
was formerly the President and Chief Executive Officer of Crusader Savings
Bank, Rosemont, Pennsylvania, from January 1990 until June 1991.
Executive Compensation
The following table sets forth a summary of certain information
concerning the compensation awarded to or paid by the Company to the
following executive officers of the Company for services rendered in all
capacities during the last three fiscal years. No other executive officer
of the Company received compensation in excess of $100,000 during the last
fiscal year.
<TABLE><CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
Other Awards Payouts All Other
Name and Base Annual Compensation
Principal Position Year Salary Bonus Compensation(4) Options(5) LTIP (7)
Payouts(6)
<S> <C> <C> <C> <C> <C> <C> <C>
W. Kirk Wycoff 1994 $226,042(2,3) $20,000 -- -- N/A $5,014
President and Chief 1993 190,465 18,500 -- 70,000 N/A 4,439
Executive Officer 1992 184,685 -- -- 75,000 N/A 1,387
Gerald P. Plush(1) 1994 $105,659(2) $10,000 -- -- N/A $1,921
Senior Vice President 1993 95,759 10,000 -- 35,000 N/A 1,445
and Chief Financial 1992 93,894 -- -- 5,000 N/A 720
Officer
</TABLE>
_______________________
(1) Mr. Plush resigned effective as of February 24, 1995.
(2) Includes amounts deferred pursuant to the Company's 401(k) Profit
Sharing Plan, which generally allows employees to defer up to 12% of
their compensation, subject to applicable limitations set forth in the
Code.
(3) Includes directors fees of $6,100 and $2,850 paid to Mr. Wycoff in
1994 and 1993, respectively.
(4) Does not include amounts attributable to miscellaneous benefits
received by the named executive officer. In the opinion of management
of the Company, the costs to the Company of providing such benefits to
any individual executive officer during the year ended December 31,
1994 did not exceed the lesser of $50,000 or 10% of the total of
annual salary and bonus reported for the individual.
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(5) Represents options granted pursuant to the Company's Key Employee
Stock Compensation Program.
(6) The Company did not have a long term incentive program as of December
31, 1994.
(7) Consists solely of employer contributions made by the Company pursuant
to the 401(k) profit sharing plan. The Company maintains an Employee
Stock Ownership Plan ("ESOP") and contributed to such plan during
1994. Mr. Wycoff had vested account balances of $836 and Mr. Plush
had vested account balances of $311 for the year.
Stock Options
The following table sets forth certain information concerning
exercises of stock options by the named executive officers during the year
ended December 31, 1994 and options held at December 31, 1994.
<TABLE><CAPTION>
Aggregate Option Exercises in Last Fiscal Year and Year End Option Values
Number of Unexercised Value of Unexercised
Shares Options at Year End Options at Year End (1)
Acquired on Value
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
W. Kirk Wycoff -- -- 97,500 47,500 $185,625 $110,625
Gerald P. Plush -- -- 31,250(2) 8,750(2) 35,938(2) 6,563(2)
</TABLE>
_____________________
(1) Based on a per share market price of $4.25 at December 31, 1994.
(2) In May 1995, Mr. Plush exercised options to purchase 5,000 shares at
an exercise price of $1.00 per share, and Mr. Plush's remaining
exercisable options were cancelled in exchange for $2.00 per share
pursuant to an agreement with the Company.
Compensation of Directors
The Board of the Company meets quarterly and the Board of Progress
meets monthly. Since July 1993, cash compensation has been paid to
directors for attendance at regularly scheduled and special Board meetings.
Each director receives a fee of $200 for attendance at each regular or
special Board meeting. In July 1994, this fee was increased to $350 for
each meeting attended. In addition, each director who attends a committee
meeting also receives $150 per meeting attended. Effective January 1,
1995, director fees are no longer paid to Mr. Wycoff.
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1993 Directors' Stock Option Plan
The Company has adopted the 1993 Directors' Stock Option Plan (the
"Directors' Plan") which provides for the grant of compensatory stock
options to non-employee directors of the Company and Progress. Pursuant to
the Directors' Plan, in June 1993 each director of the Company or Progress
who was not an employee of the Company or any subsidiary was granted a
compensatory stock option to purchase 5,000 shares of Company Common Stock,
at an exercise price of $3.50 per share and an option to purchase 250
shares on December 31, 1993 at $4.63 per share and will also be granted an
option to purchase 250 shares on December 31 of each year thereafter until
December 31, 1997. Accordingly, 250 options were granted to each director
on December 31, 1994 at $4.25 per share. The exercise price with respect
to future grants will be equal to the fair market value of a share of
Company Common Stock on the date of grant. Options granted pursuant to the
Directors' Plan are vested and exercisable six months from the date of
grant.
Benefits
General. The Company intends to adopt certain stock benefits plans in
connection with the Conversion and the Merger. See "Management of the
Company and Progress Bank Following the Conversion and the Merger."
Moreover, existing stock benefit plans of the Company will be continued by
the Company upon consummation of the Conversion and the Merger.
Current Stock Plans of the Company. The Company has adopted and
maintains an Employee Stock Ownership Plan, the Key Employee Stock
Compensation Program, the 1993 Stock Incentive Plan and the 1993 Directors'
Stock Option Plan (together, the "Plans"). Under the ESOP, shares of
Company Common Stock are allocated to eligible employees of the Company and
Progress. During the year ended December 31, 1994, 6,437 shares of Company
Common Stock were allocated under the ESOP and all of the shares held by
the ESOP were allocated to the Company's and Progress' employees as of
December 31, 1994. Under the Key Employee Stock Compensation Plan, 95,955
shares of Company Common Stock were reserved for issuance of stock options
to officers and key employees and as of March 31, 1995, no shares were
available for future grants. The 1993 Stock Incentive Plan provides for
the grant of stock options to officers and employees of the Company. Under
this plan, 176,488 shares of Company Common Stock were reserved for
issuance and as of March 31, 1995, 43,988 shares were available for future
grants. The 1993 Directors' Stock Option Plan provides for the grant of
stock options to non-employee directors of the Company. See "Management of
the Company - Compensation of Directors - 1993 Directors' Stock Option
Plan." The Company will continue the Plans upon consummation of the
Conversion and the Merger.
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Employment and Severance Agreements
The Company and Progress (collectively the "Employers") have entered
into an employment agreement with W. Kirk Wycoff. The Employers have
agreed to employ Mr. Wycoff for a term of three years in his current
positions as President and Chief Executive Officer at a minimum annual base
salary of $235,420 plus bonuses as determined by the Board of Directors.
The term of the employment agreement shall be extended each year for a
successive additional one-year period so that the remaining term is three
years unless the Employers or Mr. Wycoff elects, not less than 90 days
prior to the annual anniversary date, not to extend the employment term.
The employment agreement provides that in the event the Company
acquires or merges with another financial institution during the term of
the agreement so that the Company's total assets exceed $500 million, Mr.
Wycoff's base salary will be adjusted, as determined by the Board of
Directors, to an amount equal to not less than 90% and not more than 110%
of the median base salary for the prior year for chief executive officers
of thrift institutions with total assets ranging between $500 million and
$1.0 billion.
The employment agreement is terminable with or without cause by the
Employers or Mr. Wycoff. Mr. Wycoff shall have no right to compensation or
other benefits pursuant to the employment agreement for any period after
voluntary termination or termination by the Employers for cause,
disability, retirement or death, provided, however, that if the employment
agreement is terminated by the Employers other than for cause, disability,
retirement or death or by Mr. Wycoff following a change in control of the
Company, as defined, Mr. Wycoff will be entitled to a cash severance amount
equal to the greater of the amount of compensation remaining to be paid
under the agreement or Mr. Wycoff's annual compensation.
A change in control is generally defined in the employment agreement
to mean a change in control of a nature that would be required to be
reported in response to Item 6(e) of the SEC proxy rules, provided that a
change of control have be deemed to have occurred if (i) the acquisition by
any person of 25% or more of the Company's outstanding voting securities,
or (ii) during any two-year period a change in a majority of the directors
of the Company has occurred without the approval of at least two-thirds of
the persons who were directors of the Company at the beginning of such
period.
The employment agreement provides that in the event that any of the
payments to be made thereunder or otherwise upon termination of employment
are deemed to constitute "excess parachute payments" within the meaning of
Section 280G of the Code, then such payments and benefits received
thereunder shall be reduced, by the amount, if any, which is the minimum
necessary to result in no portion of the payments and benefits being non-
deductible by the Employers for federal income tax purposes. Excess
parachute payments generally are payments in excess of three times the base
amount, which is defined to mean the recipient's average annual
compensation from the employer includable in the recipient's
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gross income during the most recent five taxable years ending before the
date on which a change in control of the employer occurred. Recipients of
excess parachute payments are subject to a 20% excise tax on the amount by
which such payments exceed the base amount, in addition to regular income
taxes, and payments in excess of the base amount are not deductible by the
employer as compensation expense for federal income tax purposes. Assuming
Mr. Wycoff's current annual compensation, the maximum amount of severance
payable under the agreement would be $706,260.
The Employers have also entered into severance agreements with Eric J.
Morgan and two other officers of the Company and Progress in order to
assist the Employers in maintaining a stable and competent management base.
The agreements provide for a two-year term from January 1, 1995, and
subject to satisfactory reviews by the Board of Directors, extend on each
anniversary date for an additional year so that the remaining term will be
two years. The agreements provide for severance payments if the officers
are terminated upon a "change in control" of the Company in an amount equal
to the officer's annual compensation, currently ranging from $86,250 to
$90,200 for the three officers.
Certain Transactions
Charles J. Tornetta and John E. F. Corson, directors of the Company
and Progress, were limited partners in a partnership which beneficially
owned a 49% interest in the building in which the Company and Progress
maintains its executive offices in Plymouth Meeting, Pennsylvania. The
Company and Progress paid approximately $214,507 in rental fees during 1994
to the management company which handles the property on behalf of the
limited partnership of which Mr. Tornetta and Mr. Corson were partners.
The lease was negotiated and signed prior to either director being elected
to the Board. As of December 31, 1994, Messrs. Tornetta and Corson no
longer owned an interest in the building.
William L. Mueller, a director of the Company and Progress, is a
managing partner of the law firm Clark, Ladner, Fortenbaugh & Young, which
received legal fees from Progress during the year ended December 31, 1994.
A. John May, III, a director of the Company and Progress, is a partner
of the law firm Pepper, Hamilton & Scheetz, which received legal fees from
Progress during the year ended December 31, 1994.
Indebtedness of Management
Progress offers certain loans to its directors, officers and
employees. It is the belief of management that these loans do not involve
more than the normal risk of collectibility. Except for previously waiving
in most cases loan origination fees and interest rate discounts available
to officers, directors and employees during their employment or association
with Progress, these loans are made on substantially the same terms as
those prevailing at the
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time for comparable transactions with non-affiliated persons. Effective
January 1, 1990, executive officers and directors of Progress received no
discount from the market interest rate for loans made by Progress. For
other officers and employees, the policy of discounting loans to employees
was discontinued in February 1992. However, Progress continues in most
cases to waive a portion of the applicable loan origination fees for loans
to non-executive officers and employees. As of December 31, 1994, three
loans totalling $227,736 (or 1.75% of the Company's total stockholders'
equity) were outstanding to the directors and executive officers of the
Company and Progress as a group.
Beneficial Ownership of Common Stock
The following table sets forth the amount of Company Common Stock held
by the only person or entity known to the Company to be the beneficial
owner of more than 5% of the outstanding Company Common Stock as of
____________________, 1995 and the amount of Company Common Stock held by
all directors and executive officers of the Company as a group as of such
date.
Amount of
Company
Common Stock Percent of
Name and Address of Beneficially Owned as Company
Beneficial Owner of , 1995 Common Stock
-------------------- --------------------- -------------
SOP Partners, L.P.(1) 200,000 6.10%
Two World Trade Center
104th Floor
New York, New York 10048
Directors and executive
officers of the Company
as a group (nine persons) 482,228 14.10
_______________________
(1) SOP Partners, L.P. is an affiliate of Sandler O'Neill who has been
retained as a consultant and advisor in connection with the Offerings,
to assist in soliciting subscriptions in the Offerings and as a
conversion agent to provide recordkeeping services and solicit proxies
in connection with the Conversion and the Merger. See "The
Offerings - Subscription Offering," "- Community Offering," "-
Syndicated Community Offering" and "- Marketing Arrangements."
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MANAGEMENT OF THE MUTUAL HOLDING COMPANY
The Board of Directors of the Mutual Holding Company is composed of
six members who are elected for three years, approximately one-third of
whom are elected annually in accordance with the Mutual Holding Company's
Bylaws. The members of the board of directors are John F. McGill and Jerry
A. Naessens who have terms expiring in 1998, Francis E. McGill, III and Add
B. Anderson who have terms expiring in 1997, and John F. McGill, Jr. and
Joseph P. Healy who have terms expiring in 1996. The individuals listed
below hold offices in the Mutual Holding Company opposite their names. For
additional information concerning the business experience and compensation
of directors and executive officers, see "Management of Roxborough-Manayunk
- - Directors and Executive Officers."
Name of Individual Age(1) Positions with the Mutual Holding Company
------------------ ------ -----------------------------------------
John F. McGill 57 President, Chairman of the Board and Chief
Executive Officer
John F. McGill, Jr. 33 Executive Vice President and Secretary
Jerry A. Naessens 59 Treasurer and Chief Financial Officer
- -------------------------
(1) As of March 31, 1995.
MANAGEMENT OF ROXBOROUGH-MANAYUNK
Directors and Executive Officers
The Board of Directors of Roxborough-Manayunk is presently composed of
eight members who are elected for terms of three years, approximately
one-third of whom are elected annually in accordance with the Bylaws of
Roxborough-Manayunk. The executive officers of Roxborough-Manayunk are
elected annually by the Board of Directors and serve at the Board's
discretion.
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The following table sets forth information, with respect to the
directors and executive officers of Roxborough-Manayunk.
<TABLE><CAPTION>
Current Term
Expires with RM Bank Common Stock Beneficially
Director Roxborough- Owned as of March 31, 1995
Name Age(1) Position Since Manayunk Amount Percent(2) Percent(3)
DIRECTORS
<S> <C> <C> <C> <C> <C> <C> <C>
John F. McGill(4) 57 President, Chairman of the 1967 1998 6,700(5)(6) 14.92 2.21%
Board and Chief Executive
Officer
Pietro M. Jacovini, Jr. 79 Vice Chairman of the Board 1982 1998 11,300(5)(6) 4.59 *
Robert E. Domanski, M.D. 46 Director 1991 1998 6,300(5)(6) 2.56 *
William A. Lamb, Sr. 58 Director 1994 1997 6,300(5)(6) 2.56 *
Francis E. McGill, III(4) 34 Director 1991 1997 4,800(5)(6) 1.95 *
Add B. Anderson, Jr. 67 Director 1973 1997 15,800(5)(6) 6.42 *
John F. McGill, Jr.(4) 33 Executive Vice President, 1991 1996 14,720(5)(6) 5.98 *
Secretary and Director
Joseph P. Healy 67 Director 1989 1996 21,300(5)(6) * *
DIRECTOR EMERITUS
Anthony P. Stefanowicz 89 Director Emeritus -- -- -- -- --
OTHER EXECUTIVE OFFICER
Jerry A. Naessens 59 Treasurer and Chief -- -- 20,680(5)(6) 6.15 *
Financial Officer
Directors and executive
officers as a group (10
persons) 113,600(5)(6) 46.18 6.84
</TABLE>
- ----------------------
* Less than 1.0%.
(1) As of March 31, 1995.
(2) As a percentage of the shares issued to persons other than the Mutual
Holding Company. At March 31, 1995, there were 206,000 shares issued
to persons other than the Mutual Holding Company and 33,334 shares
subject to options exercisable within 60 days of , 1995.
-------
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<PAGE>
(3) As a percentage of the total amount of shares issued by Roxborough-
Manayunk including shares issued to the Mutual Holding Company. At
March 31, 1995, there were 1,621,000 shares issued and 40,000 shares
subject to options exercisable within 60 days of , 1995.
-------
(4) John F. McGill is the father of John F. McGill, Jr. and uncle of
Francis E. McGill, III.
(5) Includes fully vested shares of RM Bank Common Stock awarded under the
1994 and 1992 Management Stock Bonus Plans. See "- 1992 Management
Stock Bonus Plan" and "-1994 Management Stock Bonus Plan."
(6) Includes shares of RM Bank Common Stock subject to stock options which
are exercisable within 60 days of __________, 1995.
The principal occupation during the past five years of each director
and executive officer of Roxborough-Manayunk is set forth below. All
directors and executive officers have held their present positions for five
years unless otherwise stated.
John F. McGill, has been President and Chief Executive Officer of
Roxborough-Manayunk since 1980 and Chairman of the Board since 1989, and
has been a director of Roxborough-Manayunk for over 25 years. He has
served in various officer capacities with Roxborough-Manayunk since 1972.
Mr. McGill is also a 50% partner in Francis E. McGill, Realtor, a real
estate and insurance firm. He is a member of the Board of Roxborough
Memorial Hospital.
John F. McGill, Jr. has been Executive Vice President in charge of
operations, lending and portfolio management of Roxborough-Manayunk since
March 1991. He has served Roxborough-Manayunk in various officer positions
since 1984 and has been a director since 1991.
Pietro M. Jacovini, Jr. has been a board member and has served as
President of Roxborough-Manayunk's Aetna Federal Division 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.
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. He is also a 25% partner in Francis E. McGill, Realtor, a
real estate and insurance firm in Philadelphia. He is a member of the
Board of Trustees of Roxborough Memorial Hospital.
Add B. Anderson, Jr. is President and a 50% partner in Eastern
Continuous Forms, Inc., a manufacturer of business forms in Blue Bell,
Pennsylvania. He has been a director of Roxborough-Manayunk for 22 years.
He serves as a member of the Board of Trustees
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<PAGE>
of Roxborough Memorial Hospital and is a member of the board of trustees of
Hahnemann University.
Joseph P. Healy serves as Chairman of the Board of Trustees of
Roxborough Memorial Hospital. He was a partner in Deloitte and Touche from
1965 to 1989, and prior to that time was employed by Deloitte and Touche in
various positions, including staff accountant and manager, commencing in
1948.
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.
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.
Jerry A. Naessens has been employed by Roxborough-Manayunk as
Treasurer and Chief Financial Officer since 1991. Mr. Naessens was a
partner in Deloitte and Touche from 1980 to 1991.
Meetings and Committees of the Board of Directors
The business of Roxborough-Manayunk's Board of Directors is conducted
through meetings of the Board of Directors and its committees. During the
year ended December 31, 1994, the Board of Directors held 12 regular
meetings and four special meetings. During the year ended December 31,
1994, no director attended fewer than 75% of the total meetings of the
Board of Directors of Roxborough-Manayunk and committees on which such
director served.
The Executive Committee of the Board of Directors consists of members
John F. McGill, Joseph P. Healy and Francis E. McGill, III and four other
directors who rotate quarterly. The Committee meets 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, 1994.
The Compensation Committee of Roxborough-Manayunk consists of
Directors John F. McGill, Joseph P. Healy and Robert E. Domanski. The
committee meets annually to review the performance of Roxborough-Manayunk's
officers and employees, and to determine compensation programs and
adjustments. The Compensation Committee met one time during fiscal 1994 to
consider compensation.
The Audit Committee of Roxborough-Manayunk consists of the entire
Board of Directors. In its capacity as the Audit Committee, the Board is
responsible for developing
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<PAGE>
Roxborough-Manayunk's audit program and monitoring it. This committee
meets with Roxborough-Manayunk's outside auditors to discuss the results of
the annual audit and any related matters. The members of the committee
also receive and review all the reports and findings and other information
presented to them by Roxborough-Manayunk's officers regarding financial
reporting policies and practices. The Board of Directors met two times in
1994 in its capacity as an Audit Committee.
Roxborough-Manayunk's Nominating Committee consists of John F. McGill,
Joseph P. Healy and John F. McGill, Jr. The Committee met one time during
1994.
Executive Compensation
Summary Compensation Table. The following table sets forth for the
year ended December 31, 1994, certain information as to the compensation
received by the Chief Executive Officer and each executive officer of
Roxborough-Manayunk listed above who received total cash compensation in
excess of $100,000 and by all executive officers of Roxborough-Manayunk as
a group for services in all capacities to Roxborough-Manayunk.
<TABLE><CAPTION>
Annual Compensation Long Term Compensation
Securities
Restricted Underlying All Other
Name and Fiscal Other Annual Stock Options/ LTIP Compensation
Principal Position Year Salary(1) Bonus Compensation(2) Awards($)(3) SARs(#)(3) Payouts ($)(4) ($)(5)(6)(7)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John F. McGill 1994 225,000 11,250 -- 23,250 5,000 23,250(5) 72,438
President and Chief 1993 205,000 10,250 -- 6,000 -- 6,000(5) 74,248
Executive Officer 1992 185,000 9,250 -- -- 10,000 -- 21,482
John F. McGill, Jr. 1994 133,000 6,650 -- 20,850 5,000 20,850(5) 21,507
Executive Vice 1993 121,000 6,050 -- 3,600 -- 3,600(5) 20,285
President 1992 110,000 5,500 -- -- 6,000 -- 13,175
Jerry A. Naessens 1994 121,000 6,050 -- 16,200 4,000 16,200(5) 43,865
Treasurer and Chief 1993 110,000 5,500 -- 2,400 -- 2,400(5) 38,501
Financial Officer 1992 100,000 5,000 -- -- 4,000 --(5) 11,973
</TABLE>
- ---------------------------
(1) Includes salary and directors' fees.
(2) Does not include the value of certain other benefits, which do not
exceed the lesser of $50,000 or 10% of the total salary and bonus of
the individual.
(3) Includes awards of stock options and restricted stock under the 1992
and 1994 Stock Option Plans and the 1992 and 1994 Management Stock
Bonus Plans.
(4) Includes dollar value of all payouts pursuant to long-term incentive
plans.
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<PAGE>
(5) Includes allocations of shares of RM Bank Common Stock under
Roxborough-Manayunk's ESOP as of March 31, 1995.
(6) Includes accruals under supplemental retirement plans of $77,778.
(7) Includes Roxborough-Manayunk contributions to its tax-qualified
profit-sharing plan.
Option/Sar grants in last fiscal year(1)
<TABLE><CAPTION>
Potential Realizable Value
at Assumed Annual Rates
of Stock Price
Appreciation for Option
Individual Grants Term
------------------------------------------------------------------------------------
Percent of Total
Number of Options/SARs
Securities Granted to Exercise of
underlying Employees in Base Price
option/SARs Last Fiscal Year (Sh/price Expiration
Name Granted (#) 1995 per share) Date 5%($) 10%($)
- ---- ---------- ---------------- ---------- ---------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
John F. McGill
President and Chief
Executive Officer 5,000 35.7 $11.50 11/04 $53,280 $114,441
John F. McGill, Jr.
Executive Vice
President 5,000 35.7 $11.50 11/04 53,280 114,441
Jerry A. Naessens
Treasurer and Chief
Executive Officer 4,000 26.7 $11.50 11/04 42,640 91,560
</TABLE>
- ------------------------
(1) Options to purchase RM Bank Common Stock were granted pursuant to the
1994 Stock Option Plan in November 1994 subject to stockholder
approval received at a meeting held in April 1995. No options were
exercised in the three months ended March 31, 1995 or the year ended
December 31, 1994.
(2) Based on the book value of RM Bank Common Stock at December 31, 1994
($12.68 per share).
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<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END
OPTION/SAR VALUES(1)
<TABLE><CAPTION>
Number of Securities Value of
Underlying Unexercised in-the-
Unexercised Money Options/SARs
Options/SARs at at December 31,
Shares December 31, 1994 1994 ($)
Acquired on Value (#) Exercisable/ Exercisable/
Name Exercise (#) Realized($) Unexercisable Unexercisable (2)
<S> <C> <C> <C> <C>
John F. McGill
President and CEO -- -- 11,700/3,300 $31,356
John F. McGill, Jr.
Executive Vice
President -- -- 9,020/1,980 24,174
Jerry A. Naessens
Treasurer and Chief
Financial Officer -- -- 6,680/1,320 15,222
</TABLE>
- -------------------------
(1) Options to purchase RM Bank Common Stock were granted pursuant to the
1994 Stock Option Plan in November 1994 subject to stockholder
approval received at a meeting held in April 1995. No options were
exercised in the three months ended March 31, 1995 or the year ended
December 31, 1994.
(2) Based on the book value of RM Bank Common Stock at December 31, 1994
($12.68 per share).
Directors' Compensation
Non-officer members of Board of Directors of Roxborough-Manayunk
received fees of $800 per month during 1994. Members of the Board's
Executive, Budget, Audit and Advisory Committees who are not officers were
paid $800 for each meeting attended during 1994. Roxborough-Manayunk paid
a total of $126,800 in directors' and committee fees for the year ended
December 31, 1994. For information concerning other benefits received by
directors during 1994, see "Benefits - 1994 Management Stock Bonus Plan."
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<PAGE>
Benefits
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 and dental insurance are 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 have no
benefits.
Pension Plan. Roxborough-Manayunk sponsors a defined benefit pension
plan (the "Pension Plan"). All full-time employees and part-time employees
of Roxborough-Manayunk 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 of 65 is attained. The Pension
Plan is intended to comply with ERISA.
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.
Effective January 1, 1994, the maximum level of compensation subject to
pension benefits is $150,000 per year, as adjusted. Benefits under the
Pension Plan are subject to offset for Social Security benefits.
Years of Benefit Service
---------------------------------------------------
15 20 25 30 35
-------- ------- -------- -------- ---------
$ 20,000 $ 1,928 $ 2,571 $ 3,214 $ 3,857 $ 4,499
40,000 4,867 6,489 8,111 9,734 11,356
60,000 8,352 11,136 13,920 16,704 19,488
80,000 11,952 15,936 19,920 23,904 27,888
100,000 15,552 20,736 25,920 31,104 36,288
125,000 20,052 26,736 33,420 40,104 46,788
150,000 24,552 32,736 40,920 49,104 57,288
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 1.2% of Final Average Compensation ("FAC") times
years of service, but not in excess of 48%, less 1.25% of the Primary
Social Security Benefit times years of service, but not in excess of 50%.
A participant who is vested in the Pension Plan may elect an early
retirement at age 55 with 20 years of service, and may elect to receive a
reduced monthly
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<PAGE>
benefit. The Pension Plan also provides for payments in the event of
disability or death. At December 31, 1994, John F. McGill, John F. McGill,
Jr., and Jerry Naessens had 22, 10, and 3 years of credited service under
the Pension Plan. Total pension expense for 1994, 1993, and 1992 amounted
to $73,399, $73,304, and $47,133, respectively.
Supplemental Retirement Agreements. In November 1993, Roxborough-
Manayunk entered into non-tax qualified retirement and death benefit
agreements with John F. McGill, President and Chief Executive Officer and
Jerry Naessens, Treasurer and Chief Financial Officer. In recognition of
the services provided by these officers to Roxborough-Manayunk, the
retirement agreements provide that upon retirement at age 65 or thereafter,
Messrs. McGill and Naessens (or, in the event of death, their spouses)
shall receive monthly retirement benefits of $8,333 and $2,917,
respectively. If either officer becomes permanently and totally disabled
prior to age 65, the employee will receive the monthly supplemental
retirement benefits upon reaching age 65. The retirement agreements
provide that the officer's spouse shall receive a pro-rated monthly death
benefit if the officer dies while employed by Roxborough-Manayunk and prior
to age 65, based on the officer's age at the time of death. This pro-rated
benefit for Mr. McGill ranges from $4,166 to $7,916, for ages 55 to 64, and
for Mr. Naessens ranges from $1,375 to $2,558, for ages 58 to 64. The
retirement agreements provide that Roxborough-Manayunk may purchase a
policy or policies of life insurance on the life of these officers, for
which Roxborough-Manayunk 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, Roxborough-Manayunk
entered into separate employment agreements with John F. McGill, Sr.,
President and Chief Executive Officer of Roxborough-Manayunk, and Jerry A.
Naessens, Treasurer and Chief Financial Officer of Roxborough-Manayunk.
The employment agreements are for terms of three years. The agreements may
be terminable by Roxborough-Manayunk for "just cause" as defined in the
employment agreements. If Roxborough-Manayunk terminates either of the two
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 Roxborough-Manayunk, the employee will be paid a lump sum amount
equal to 2.99 times the employee's five year average of cash compensation.
If such payments were to be made under the employment agreements as of
December 31, 1994, such payments would equal $747,500 to Mr. McGill and
$403,650 to Mr. Naessens. The aggregate payments that would be made
pursuant to the employment agreements would be an expense to Roxborough-
Manayunk, thereby reducing net income and Roxborough-Manayunk'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 either employee 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
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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 programs in effect for Roxborough-
Manayunk employees.
Profit Sharing Plan. Roxborough-Manayunk sponsors a tax-qualified
defined contribution profit sharing plan ("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 Roxborough-Manayunk's
retained earnings, profits, regulatory capital and employee performance.
Such discretionary contributions shall not exceed 7.5% of Roxborough-
Manayunk'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.
Total contributions to the Plan for all employees for the fiscal year ended
December 31, 1994 were $274,670.
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 expected that the Plan
will be terminated upon consummation of the Conversion and the Merger.
1992 Stock Option Plan. In connection with the reorganization of
Roxborough-Manayunk into the mutual holding company form of organization
("MHC Reorganization"), Roxborough-Manayunk's Board of Directors adopted
the Roxborough-Manayunk Federal Savings Bank 1992 Stock Option Plan (the
"1992 Option Plan"). Pursuant to the 1992 Option Plan, a number of shares
equal to 10% of the RM Bank Common Stock issued to individuals other than
the Mutual Holding Company (i.e., 20,000 shares based on the sale of
200,000 shares) were reserved for issuance by Roxborough-Manayunk upon
exercise of stock options granted to officers and directors of Roxborough-
Manayunk. 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 to purchase 10,000,
6,000, and 4,000 shares of RM Bank Common Stock were granted to John F.
McGill, John F. McGill, Jr., and Jerry A. Naessens, respectively.
The 1992 Option Plan was ratified by Roxborough-Manayunk's
stockholders at Roxborough Manayunk's first annual meeting of Stockholders
on April 14, 1993. Upon the completion of the Conversion and the Merger,
outstanding options under the 1992 Stock Option Plan will become
outstanding options on the same terms and conditions with respect to shares
of the Company.
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1994 Stock Option Plan. The Board of Directors of Roxborough-Manayunk
adopted the 1994 Stock Option Plan, which was ratified by Roxborough-
Manayunk's stockholders on April 19, 1995 at Roxborough-Manayunk's 1995
annual meeting of stockholders. Pursuant to the 1994 Stock Option Plan,
20,000 shares of RM Bank Common Stock are reserved for issuance by
Roxborough-Manayunk upon exercise of stock options to be granted to
officers, directors and employees of Roxborough-Manayunk from time to time.
As of March 31, 1995, 20,000 options had been granted. Option granted
under the 1994 Option Plan were 100% exercisable as of the date of grant at
a purchase price 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 RM Bank 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. Upon the completion of the Conversion and the
Merger, outstanding options under the 1994 Stock Option Plan will become
outstanding options on the same terms and conditions with respect to shares
of the Company.
Employee Stock Ownership Plan. Roxborough-Manayunk has established an
employee stock ownership plan (the "ESOP") for the exclusive benefit of
participating employees, which was implemented upon the completion of the
MHC Reorganization. Participating employees are employees who have
completed one year of service with Roxborough-Manayunk or its subsidiaries.
The ESOP is funded by contributions made by Roxborough-Manayunk in
cash or in RM Bank Common Stock. Benefits may be paid either in shares of
RM Bank Common Stock or in cash. The ESOP borrowed funds from an
unaffiliated third party lender sufficient to purchase 14,000 shares of RM
Bank Common Stock. This loan is secured by the shares purchased and the
earnings from the ESOP assets. The shares purchased by the ESOP are held
in a suspense account for allocation among participants as the loan is
repaid. Roxborough-Manayunk contributes approximately $35,000 annually to
the ESOP to meet principal and interest obligations under the ESOP loan.
The loan balance is expected to be repaid immediately prior to consummation
of the Conversion and the Merger. At such time, the remaining unallocated
shares will be allocated to the participants and the ESOP will be
terminated.
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
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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. Years of employment prior to the adoption of the
ESOP shall count toward vesting. 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.
The Board of Directors has appointed a committee (the "ESOP
Committee") to administer the ESOP (the "ESOP Trustees"). Directors John
F. McGill, Joseph P. Healy and John F. McGill, Jr. serve as the members of
the ESOP Committee and as the ESOP Trustees. The Board of Directors 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.
1992 Management Stock Bonus Plan. In connection with the MHC
Reorganization, Roxborough-Manayunk adopted a Management Stock Bonus Plan
and Trust Agreement (the "1992 MSBP"), the objective of which is to enable
Roxborough-Manayunk to retain personnel of experience and ability in key
positions of responsibility. The 1992 MSBP was ratified by Roxborough-
Manayunk's stockholders at Roxborough-Manayunk's first annual meeting of
stockholders held on April 14, 1993. John F. McGill, John F. McGill, Jr.
and Jerry A. Naessens were awarded 3,000, 1,800, and 1,200 shares,
respectively. The Board of Directors can terminate the 1992 MSBP at any
time, and if it does so, any shares not allocated will revert to
Roxborough-Manayunk.
Roxborough-Manayunk contributed sufficient funds to the 1992 MSBP
Trust so that the 1992 MSBP Trust could purchase 3% of RM Bank Common Stock
offered to persons other than the Mutual Holding Company in the MHC
Reorganization (i.e., 6,000 shares). Restricted RM Bank Common Stock
issued under the 1992 MSBP will be exchanged for restricted shares of
Company Common Stock as a result of the Conversion and the Merger. It is
expected that the 1992 MSBP will be terminated upon consummation of the
Conversion and the Merger.
1994 Management Stock Bonus Plan. Roxborough-Manayunk adopted the
1994 Management Stock Bonus Plan (the "1994 MSBP") as of November 19, 1994.
Roxborough-Manayunk contributed sufficient funds to enable the 1994 MSBP to
purchase 6,000 shares of RM Bank Common Stock all of which have been
awarded. Roxborough-Manayunk'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 RM Bank 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.
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The Board of Directors can terminate the 1994 MSBP at any time, and if
it does so, any shares not allocated will revert to Roxborough-Manayunk.
Awards under the 1994 MSBP were granted at no cost to the recipients and
were made in recognition of prior and expected future services to
Roxborough-Manayunk of its directors and employees responsible for
implementation of the policies adopted by the Board of Directors, the
profitable operation of Roxborough-Manayunk, and as a means of providing a
further retention incentive and direct link between compensation and the
profitability of Roxborough-Manayunk. Such shares were immediately vested
and non-forfeitable. Restricted RM Bank Common Stock issued under the 1994
MSBP will be exchanged for restricted shares of Company Common Stock as a
result of the Conversion and the Merger. It is expected that the 1994 MSBP
will be terminated upon consummation of the Conversion and the Merger.
Transactions with Roxborough-Manayunk
John F. McGill, President, Chairman of the Board and Chief Executive
Officer of Roxborough-Manayunk is a 50% partner, and Director Francis
E. McGill, III is a 25% partner, in Francis E. McGill, Realtor, a real
estate and insurance firm in Philadelphia, Pennsylvania. During the year
ended December 31, 1994, Francis E. McGill, Realtor received fees totaling
$71,858 from buyers or sellers of real estate where Roxborough-Manayunk
financed the purchase of the real estate. These fees included insurance
commissions, real estate brokerage commissions and conveyancing fees.
Roxborough-Manayunk 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
Savings Bank properties, and the like. Total premiums for the year ended
December 31, 1994 were $180,603.
During the year ended December 31, 1994, Roxborough-Manayunk also paid
servicing commissions to the office of Francis E. McGill, Realtor, for
rental collections made through that firm on properties owned by
Roxborough-Manayunk. The total servicing commissions paid for the year
were $7,137.
Francis E. McGill, III is also the sole proprietor of McGill and
McGill, a law firm in Philadelphia, Pennsylvania, which during the year
ended December 31, 1994 received $85,257 in fees from Roxborough-Manayunk
for legal fees.
Roxborough-Manayunk 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.
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MANAGEMENT OF THE COMPANY AND PROGRESS BANK
FOLLOWING THE CONVERSION AND THE MERGER
General
Upon consummation of the Conversion and the Merger, the Board of
Directors of the Company will consist of 12 members, six of whom shall have
been designated from the current Board of Directors of Roxborough-Manayunk
and six of whom shall have been designated from the current Board of
Directors of the Company, and the Board of Directors of Progress Bank will
consist of 16 members, eight of whom shall have been designated from the
current Board of Directors of Roxborough-Manayunk and eight of whom shall
have been designated from the current Board of Directors of Progress. The
directors of both the Company and Progress Bank shall be divided into three
classes with three-year terms which shall expire on a staggered basis.
Roxborough-Manayunk and the Company (or Progress, as the case may be) shall
each designate an equal number of persons to serve in each of the three
classes, to the extent possible.
Upon consummation of the Conversion and the Merger, John F. McGill
shall serve as Chairman of the Board of Directors of both the Company and
Progress Bank and W. Kirk Wycoff shall serve as President and Chief
Executive Officer of both the Company and Progress Bank. Upon consummation
of the Conversion and the Merger, John F. McGill, Jr. shall serve as
Executive Vice President of the Company and Progress Bank, Jerry A.
Naessens shall serve as Chief Financial Officer and Treasurer of the
Company and Progress Bank and Eric J. Morgan shall serve as Senior Vice
President and Secretary of the Company and Progress Bank.
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The following table sets forth the names of the persons who will be
the directors and executive officers of the Company as of the Closing Date.
Name Position
- ---- --------
John F. McGill(1)(3) Chairman of the Board
W. Kirk Wycoff(2)(3) President, Chief Executive Officer and Director
John F. McGill, Jr.(1)(3) Executive Vice President and Director
Jerry A. Naessens(1)(3) Chief Financial Officer, Treasurer and Director
Eric J. Morgan(4) Senior Vice President and Secretary
Add B. Anderson, Jr., Esq.(1) Director
William O. Daggett, Jr.(2)(3) Director
Joseph P. Healy(1) Director
Paul M. LaNoce(2) Director
A. John May, III(2) Director
Francis E. McGill, III, Esq.(1) Director
William L. Mueller, Esq.(2)(3) Director
Charles J. Tornetta(2) Director
_____________________
(1) For a description of the business experience of such persons, see
"Management of Roxborough-Manayunk."
(2) For a description of the business experience of such persons, see
"Management of the Company."
(3) Member of the Nominating Committee.
(4) Mr. Morgan has served as Senior Vice President of Credit Policy,
Administration and Finance for Progress since June 1993. Prior to
joining Progress, Mr. Morgan served as President of Crusader Savings
Bank, Rosemont, Pennsylvania, and prior thereto was employed by
Industrial Valley Bank and Girard Bank.
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The following table sets forth the names of the persons who will be
the directors and executive officers of Progress Bank as of the Closing
Date.
<TABLE><CAPTION>
Name Position
- ---- --------
<S> <C>
John F. McGill(1)(3) Chairman of the Board
W. Kirk Wycoff(2)(3) President, Chief Executive Officer and Director
John F. McGill, Jr.(1) Executive Vice President and Director
Jerry A. Naessens(1) Chief Financial Officer and Treasurer
Eric J. Morgan(2) Senior Vice President and Secretary
Add B. Anderson, Jr., Esq.(1) Director
John E.F. Corson(2) Director
William O. Daggett, Jr.(2)(3) Director
Robert E. Domanski, M.D.(1) Director
Donald F.U. Gilbert(2) Director
Joseph P. Healy(1) Director
Pietro M. Jacovini, Jr.(1) Director
Joseph R. Klinger(2) Director
William A. Lamb, Sr.(1)(3) Director
Paul M. LaNoce(2) Director
Francis E. McGill, III, Esq.(1)(3) Director
William L. Mueller, Esq.(2)(3) Director
Charles J. Tornetta(2) Director
</TABLE>
_____________________
(1) For a description of the business experience of such persons, see
"Management of Roxborough-Manayunk."
(2) For a description of the business experience of such persons, see
"Management of the Company" or the table above setting forth the
persons who will be the directors and executive officers of the
Company.
(3) Member of the Nominating Committee.
Subject to the continuing discretion and judgment of the Board of
Directors of Progress Bank following the Closing Date, Progress Bank shall
offer to employ all of the employees of Roxborough-Manayunk, Progress and
their subsidiaries who are in the employ of such companies at the Closing
Date. Each person employed by Roxborough-Manayunk, Progress and their
subsidiaries prior to the Closing Date who becomes an employee of Progress
Bank or a subsidiary thereof following the Closing Date (each a "Continued
Employee") shall be entitled, as an employee of Progress Bank or a
subsidiary thereof, to
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participate in such employee benefit plans as may be in effect generally
for employees of Progress Bank and subsidiaries thereof from time to time.
Continued Employees will be eligible to participate on the same basis as
similarly situated employees of Progress Bank or its subsidiaries.
Employees of Roxborough-Manayunk and Progress shall receive credit for
their years of service with Roxborough-Manayunk and Progress for purposes
of determining eligibility and vesting, but not benefit accrual, in all
employee benefit plans of the Company and its subsidiaries.
Benefits
The Company intends to adopt certain stock benefits plans in
connection with the Conversion and the Merger. Moreover, certain existing
stock benefit plans of the Company and Roxborough-Manayunk will be
continued by the Company upon consummation of the Conversion and the
Merger. See "Management of the Company - Benefits" and "Management of
Roxborough-Manayunk - Benefits."
1995 Stock Option Plan. Following the Conversion and the Merger, the
Board of Directors of the Company intends to adopt the 1995 Stock Option
Plan. The Company intends to submit the 1995 Stock Option Plan for
approval to stockholders at the first annual meeting of stockholders
following the Conversion and the Merger, which is expected to be held in
April 1996. No options shall be awarded under the 1995 Stock Option Plan
unless stockholder approval is obtained and the 1995 Stock Option Plan is
approved by the OTS.
The 1995 Stock Option Plan is designed to attract and retain qualified
personnel in key positions, provide officers and key employees with a
proprietary interest in the Company as an incentive to contribute to the
success of the Company and reward key employees for outstanding performance
and the attainment of targeted goals. The 1995 Stock Option Plan also is
designed to retain qualified directors for the Company. The 1995 Stock
Option Plan will provide for the grant of incentive stock options intended
to comply with the requirements of Section 422 of the Code ("incentive
stock options"), non-incentive or compensatory stock options and stock
appreciation rights (collectively "Awards"). Awards will be available for
grant to directors and key employees of the Company and any subsidiaries,
except that directors will only be eligible to receive non-incentive stock
options pursuant to a formula contained in the plan. If stockholder
approval is obtained, it is expected that options to acquire shares of
Company Common Stock will be awarded to key employees of the Company and
Progress Bank and directors of the Company with an exercise price equal to
the fair market value of the Company Common Stock on the date of the grant.
The 1995 Stock Option Plan will be administered and interpreted by a
committee of the Board of Directors ("Committee") which is "disinterested"
within the meaning of Rule 16b-3 under the Exchange Act. Unless sooner
terminated, the 1995 Stock Option Plan will be in effect for a period of
ten years from the adoption by the Board of Directors.
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Under the 1995 Stock Option Plan, the Committee will determine which
officers and key employees will be granted options, whether such options
will be incentive or compensatory options, the number of shares subject to
each option, the exercise price of each compensatory option, whether such
options may be exercised by delivering other shares of Company Common Stock
and when such options become exercisable. The per share exercise price of
an incentive stock option shall at least equal the fair market value of a
share of Company Common Stock on the date the option is granted, and the
per share exercise price of a compensatory stock option shall at least
equal the greater of par value or 100% of fair market value of a share of
Company Common Stock on the date the option is granted.
Stock options shall become vested and exercisable in the manner
specified by the Committee, provided that options shall not vest over a
period less than five years commencing at least one year from the date of
grant. Each stock option or portion thereof shall be exercisable at any
time on or after it vests and is exercisable until ten years after its date
of grant or three months after the date on which the optionee's employment
terminates, unless extended by the Committee to a period not to exceed five
years from such termination. However, failure to exercise incentive stock
options within three months after the date on which the optionee's
employment terminates may result in adverse tax consequences to the
optionee. Stock options are non-transferable except by will or the laws of
descent and distribution.
Under the 1995 Stock Option Plan, the Committee will be authorized to
grant rights to optionees ("stock appreciation rights") under which an
optionee may surrender any exercisable incentive stock option or
compensatory stock option or part thereof in return for payment by the
Company to the optionee of cash or Company Common Stock in an amount equal
to the excess of the fair market value of the shares of Company Common
Stock subject to option at the time over the option price of such shares,
or a combination of cash and Company Common Stock. Stock appreciation
rights may be granted concurrently with the stock options to which they
relate or at any time thereafter which is prior to the exercise or
expiration of such options.
Although no specific award determinations have been made, upon receipt
of stockholder approval of the 1995 Stock Option Plan, the Company
anticipates granting stock options for shares of Company Common Stock to
executive officers and other key personnel of Progress Bank. Under OTS
regulations, no individual may receive more than 25% of the shares which
may be issued pursuant to a stock plan, and no outside director may receive
more than 5% of the shares to be awarded under any plan or 30% by all
outside directors in the aggregate, unless the Regional Director of the OTS
permits otherwise. The Merger Agreement provides that 72% of the shares
under the 1995 Stock Option Plan will be granted to current directors and
executive officers of Roxborough-Manayunk. The remaining shares under the
1995 Stock Option Plan shall be available for grant to all employees,
officers and directors of the Company (including current directors,
officers and employees of the Company and Progress).
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Pursuant to the 1995 Stock Option Plan, compensatory stock options
will be granted to outside directors of the Company pursuant to a formula
which complies with Rule 16b-3 under the Exchange Act and which will
provide for the grant of a specified number of shares upon approval of the
1995 Stock Option Plan by stockholders and a specified number of shares
annually thereafter. An option granted to directors will be exercisable
until ten years after its date of grant. However, if an optionee dies
while serving as a non-employee director or within three years following
the termination of the optionee's service as a non-employee director as a
result of retirement or resignation without having fully exercised his
options, the optionee's executors, administrators, legatees or distributes
of his estate shall have the right to exercise such options during the
twelve-month period following such death, provided no option will be
exercisable more than ten years from the date it was granted.
The Company intends to reserve for future issuance pursuant to the
1995 Stock Option Plan a number of authorized shares of Company Common
Stock equal to 10% of the Conversion Stock issued in the Offerings (560,000
shares at the maximum of the Estimated Price Range, assuming an Actual
Purchase Price of $5.75). In the event of a stock split, reverse stock
split or stock dividend, the number of shares of Company Common Stock under
the 1995 Stock Option Plan, the number of shares to which any Award relates
and the exercise price per share under any option or stock appreciation
right shall be adjusted to reflect such increase or decrease in the total
number of shares of the Company Common Stock outstanding.
Under current provisions of the Code, the federal income tax treatment
of incentive stock options and compensatory stock options is different. As
to incentive stock options, an optionee who meets certain holding period
requirements will not recognize income at the time the option is granted or
at the time the option is exercised, and a federal income tax deduction
generally will not be available to the Company at any time as a result of
such grant or exercise. With respect to compensatory stock options, the
difference between the fair market value on the date of exercise and the
option exercise price generally will be treated as income upon exercise,
and the Company will be entitled to a deduction in the amount of income so
recognized by the optionee. Upon the exercise of a stock appreciation
right, the holder will realize income for federal income tax purposes equal
to the amount received by him, whether in cash, shares of stock or both,
and the Company will be entitled to a deduction for federal income tax
purposes in the same amount.
1995 Recognition Plan. Following the Conversion and the Merger, the
Board of Directors of the Company intends to adopt the 1995 Recognition
Plan ("1995 Recognition Plan") for officers, directors and employees. The
objective of the 1995 Recognition Plan is to enable the Company to provide
a proprietary interest in the Company as an incentive to contribute to its
success.
The Company intends to seek stockholder approval of the 1995
Recognition Plan at its first annual meeting of stockholders after the
Conversion and the Merger, which is expected to be held in April 1996.
Assuming the receipt of stockholder approval, the
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Company expects to acquire Company Common Stock on behalf of the 1995
Recognition Plan in an amount equal to 4% of the Conversion Stock issued in
the Offerings ($1,288,000 at the maximum of the Estimated Price Range). In
the event that Progress Bank has less than 10% tangible capital upon
adoption of the 1995 Recognition Plan by the Company's stockholders, the
1995 Recognition Plan would be limited to 3% of the shares of Conversion
Stock issued in the Conversion and the Merger. In any event, these shares
will be acquired through open market purchases, if permitted, or from
authorized but unissued shares, with approval from the OTS. In the event
that authorized but unissued shares are acquired by the 1995 Recognition
Plan, such issuance would dilute the interests of other stockholders.
Although no specific award determinations have been made, upon receipt of
stockholder approval of the 1995 Recognition Plan, the Company intends to
grant shares of Company Common Stock pursuant thereto to certain directors
and executive officers of the Company. As noted above, under OTS
regulations no individual may receive more than 25% of the shares of the
shares which may be issued pursuant to a stock plan and no outside director
may receive more than 5% of the shares to be awarded, unless the Regional
Director of the OTS permits otherwise. The Merger Agreement provides that
all of the shares reserved pursuant to the 1995 Recognition Plan will be
awarded to current directors and executive officers of Roxborough-Manayunk
upon receipt of stockholder approval.
The 1995 Recognition Plan will be administered and interpreted by the
Committee, which as noted above will be "disinterested" pursuant to
applicable regulations under the federal securities laws. The trustees of
the trust created for the 1995 Recognition Plan ("Trust") will have the
responsibility to invest all funds contributed by the Company to the Trust.
Shares of Company Common Stock granted pursuant to the 1995 Recognition
Plan generally will be in the form of restricted stock payable over a
period specified by the Committee, provided however, such period shall not
be less than five years. For accounting purposes, compensation expense in
the amount of the fair market value of the Company Common Stock at the date
of the grant to the recipient will be recognized pro rata over the number
of years during which the shares are payable. A recipient will be entitled
to all voting and other stockholder rights, except that the shares, while
restricted, may not be sold, pledged or otherwise disposed of and are
required to be held in the Trust. Under the terms of the 1995 Recognition
Plan, the trustees will be authorized to vote unallocated shares in the
same proportion as they receive instructions from recipients with respect
to allocated shares which have not been earned and distributed. The
trustees will not vote allocated shares which have not been distributed if
they do not receive instructions from the recipient. If a recipient
terminates employment for reasons other than death or disability, the
recipient will forfeit all rights to the allocated shares under
restriction. If the recipient's termination is caused by death or
disability, all restrictions will expire and all allocated shares will
become unrestricted. The Board of Directors of the Company will be
authorized to terminate the 1995 Recognition Plan at any time, and if it
does so, any shares not allocated will revert to the Company.
Pursuant to the 1995 Recognition Plan, shares of restricted stock will
be granted to outside directors of the Company pursuant to a formula which
complies with Rule 16b-3
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under the Exchange Act and which will provide for the grant of a specified
number of shares upon approval of the 1995 Recognition Plan by stockholders
and a specified number of shares annually thereafter.
Employee Stock Ownership Plan. The Company will maintain an ESOP for
employees of the Company and Progress Bank following consummation of the
Conversion and the Merger. It is currently anticipated that the ESOP will
borrow funds to purchase up to 8% of the Conversion Stock to be issued in
the Offerings from the Company (although the ESOP may obtain all or part of
the loan from an unaffiliated third party) at a rate currently estimated to
be 9% per annum. The loan to the ESOP will be repaid principally from the
Company's and Progress Bank's contributions to the ESOP over a period of 10
years, and the collateral for the loan will be the Company Common Stock
purchased by the ESOP. See "Pro Forma Unaudited Financial Information."
The Company may, in any plan year, make additional discretionary
contributions for the benefit of plan participants in either cash or shares
of Company Common Stock, which may be acquired through the purchase of
outstanding shares in the market or from individual stockholders, upon the
original issuance of additional shares by the Company or upon the sale of
treasury shares by the Company. Such purchases, if made, would be funded
through additional borrowing by the ESOP or additional contributions from
the Company. The timing, amount and manner of future contributions to the
ESOP will be affected by various factors, including prevailing regulatory
policies, the requirements of applicable laws and regulations and market
conditions.
Shares purchased by the ESOP with the proceeds of the loan will be
held in a suspense account and released on a pro rata basis as debt service
payments are made. Discretionary contributions to the ESOP and shares
released from the suspense account will be allocated among participants on
the basis of compensation. Forfeitures will be reallocated among remaining
participating employees and may reduce any amount the Company might
otherwise have contributed to the ESOP. Participants will vest in their
right to receive their account balances pursuant to the ESOP after
completing ten years of service. In the case of a change in control of the
Company, as defined, however, participants will become fully vested in
their account balances. Benefits may be payable upon retirement, early
retirement or separation from service. The Company's contributions to the
ESOP are not fixed, so benefits payable under the ESOP cannot be
determined.
GAAP requires that any third party borrowing by the ESOP be reflected
as a liability on the Company's statement of financial condition. If the
ESOP purchases newly-issued shares from the Company, total stockholders'
equity would neither increase nor decrease, but per share stockholders'
equity and per share net earnings would decrease because of the increase in
the number of outstanding shares.
The ESOP is subject to the requirements of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and the regulations of
the IRS and the Department of Labor thereunder.
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THE CONVERSION AND THE MERGER
The Boards of Directors of the Mutual Holding Company and
Roxborough-Manayunk have unanimously approved the Plan of Conversion, as
has the OTS, subject to approval by the Members of the Mutual Holding
Company and the stockholders of Roxborough-Manayunk 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 of Conversion by such agency. In addition, the Boards of
Directors of the Mutual Holding Company, Roxborough-Manayunk, the Company
and Progress have each unanimously adopted the Merger Agreement.
General
In order to facilitate the combination of the Parties, the Mutual
Holding Company will first convert from mutual to stock form in accordance
with the Plan of Conversion and then simultaneously merge with and into
Roxborough-Manayunk, with Roxborough-Manayunk as the surviving entity.
Immediately thereafter, Progress will merge with and into
Roxborough-Manayunk, and Roxborough-Manayunk as the surviving entity will
change its name to "Progress Bank" As a result of the transactions, the
Mutual Holding Company, Roxborough-Manayunk and Progress will be a single,
combined entity, which will be a wholly owned subsidiary of the Company.
The above transactions are governed by the Merger Agreement, which was
unanimously adopted by the respective Boards of Directors of each of the
Parties. The conversion of the Mutual Holding Company from mutual to stock
form and the Offerings are governed by the Plan of Conversion (including a
related Plan of Merger), which is attached as Exhibit A to the Merger
Agreement and which was unanimously adopted by the Boards of Directors of
the Mutual Holding Company and Roxborough-Manayunk. The merger of Progress
and Roxborough-Manayunk is governed by the Plan of Merger, which is
attached as Exhibit B to the Merger Agreement and which was unanimously
adopted by the Boards of Directors of Roxborough-Manayunk, Progress and the
Company.
The conversion of the Mutual Holding Company from mutual to stock
form, the merger of the Mutual Holding Company with and into Roxborough-
Manayunk, the merger of Progress with and into Roxborough-Manayunk, and the
Offerings are interdependent transactions, and none of such transactions
will occur unless all of them do.
The Merger Agreement and the above exhibits thereto were filed as an
exhibit to the Registration Statement and the Application for Conversion of
which this Prospectus is a part, copies of which may be obtained from the
SEC and the OTS, respectively. See "Available Information." In addition,
the Plan of Conversion is available for inspection at each branch office of
Roxborough-Manayunk.
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The following is a summary of the material terms of the Merger
Agreement and the above exhibits, as well as the pertinent aspects of the
Conversion and the Merger. The summary is qualified in its entirety by
reference to the provisions of the Merger Agreement and the Plan of
Conversion.
Reasons for the Conversion and the Merger
The respective Boards of Directors of each of the Parties believe that
the combination of the Parties will enhance the competitive position of the
combined entities and will enable the resulting institution to compete more
effectively than either Roxborough-Manayunk or Progress could on its own.
The combined entity will have greater financial resources and, as a result
of the Offerings, increased capital levels. The Company's stockholders'
equity will increase from $13.7 million or 4.0% of total assets at
March 31, 1995 to $62.3 million or 9.6% of pro forma total assets at
March 31, 1995, assuming the Conversion Stock is sold at the midpoint of
the Estimated Price Range. The combination 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.
The terms of the Merger Agreement were the result of arm's length
negotiations between the representatives of the Company and Roxborough-
Manayunk. Among the factors considered by the Boards of Directors of the
Company and Roxborough-Manayunk, as appropriate, were (i) the ability to
expand the Company's and Roxborough-Manayunk's presence in southeastern
Pennsylvania (upon consummation of the Conversion and the Merger, Progress
Bank will have 17 branches in southeastern Pennsylvania); (ii) information
concerning the financial condition, results of operations, capital levels,
asset quality and prospects of the Company and Roxborough-Manayunk; (iii)
the short-term and long-term impact the Conversion and the Merger will have
on the Company's consolidated results of operations, including potential
cost savings resulting from consolidation in certain areas and expanded
commercial business, residential construction, commercial real estate
(primarily multi-family residential) and consumer lending as well as
expanded retail banking products and services; (iv) the general structure
of the transaction and the compatibility of the respective managements and
business philosophies; (v) the enhancement of the franchise value of the
Company; (vi) the ability of the combined enterprise to compete in relevant
banking and non-banking markets; (vii) industry and economic conditions;
and (viii) the impact of the Conversion and the Merger on the depositors,
employees, customers and communities served by the Company and Roxborough-
Manayunk through the contemplated expansion of commercial business,
residential construction, commercial real estate (primarily multi-family
residential) and consumer lending and the proposed expansion of retail
banking products and services.
Progress and Roxborough-Manayunk currently serve contiguous market
areas. Progress operates in Montgomery County through six full service
offices located in King of Prussia, Norristown, Bridgeport, Conshohocken,
Jeffersonville and Plymouth Meeting and
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in the counties of Delaware and Philadelphia through offices in Rosemont
and the Andorra section of Philadelphia. With the opening of the Paoli
branch in August 1995, Progress will add a Chester County branch and has
added Lancaster County and the Pottstown area of Montgomery County to its
lending area with the recent opening of two residential loan origination
offices. Roxborough-Manayunk maintains four full-service offices in
Northwest Philadelphia, an office in South Philadelphia and an office in
the Overbrook section of Philadelphia, as well as offices in the Drexel
Hill and Yeadon areas of Delaware County. As a result of the Conversion
and the Merger, Progress Bank will maintain offices in four of the five
counties included in the Philadelphia Metropolitan Statistical Area
("MSA"). The Philadelphia MSA is the nation's fourth largest metropolitan
area in terms of population based on 1993 U.S. census data and the
Pennsylvania counties included in the MSA account for nearly one-third of
the total population of Pennsylvania. In recent years, the Philadelphia
area economy has moved from a traditional manufacturing-based economy
towards a service-based economy, thereby providing more economic diversity
to the area. Management of Progress Bank believes that the market area
which it will serve consists primarily of stable middle class neighborhoods
as well as affluent suburbs of Philadelphia.
The Conversion and the Merger also will result in an increase in the
number of outstanding shares of Company Common Stock following the
Conversion and the Merger, as compared to the number of shares of Company
Common Stock currently outstanding, which will enhance the trading market
for the Company Common Stock. See "Market Price for Company Common Stock
and Dividends."
An additional benefit of the Conversion and the Merger will be an
increase in the accumulated earnings and profits of Roxborough-Manayunk for
federal income tax purposes. When Roxborough-Manayunk Federal Savings and
Loan Association (the "Association") transferred substantially all of its
assets and liabilities to Roxborough-Manayunk in connection with the
formation of the Mutual Holding Company, its accumulated earnings and
profits tax attribute was not able to be transferred to Roxborough-Manayunk
because no tax-free reorganization was involved. Accordingly, this tax
attribute was retained by the Association when it converted its charter to
that of the Mutual Holding Company, even though the underlying retained
earnings were transferred to Roxborough-Manayunk. The Conversion and the
Merger have been structured to re-unite the accumulated earnings and
profits tax attribute retained by the Mutual Holding Company with the
retained earnings of Roxborough-Manayunk by merging the Mutual Holding
Company with and into Roxborough-Manayunk in a tax-free reorganization.
This transaction will increase Progress Bank's ability to pay dividends to
the Company in the future.
In light of the foregoing, the Board of Directors of each of the
Parties believe that the Conversion and the Merger are in the best
interests of such companies and their respective stockholders and Members.
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Description of the Conversion and the Merger
Pursuant to the Plan and the Merger Agreement, (i) the Mutual Holding
Company will convert from mutual to stock form and simultaneously merge
with and into Roxborough-Manayunk, pursuant to which the Mutual Holding
Company will cease to exist and the shares of RM Bank Common Stock held by
the Mutual Holding Company will be cancelled, and (ii) Progress will then
merge with and into Roxborough-Manayunk. As a result of the merger of
Progress with and into Roxborough-Manayunk, the RM Public Bank Shares will
be converted into the Exchange Shares pursuant to the Exchange Ratio, which
will result in the holders of such shares owning in the aggregate
approximately the same percentage of the Company Common Stock to be issued
in the Conversion and the Merger (i.e., the Conversion Stock and the
----
Exchange Shares) as the percentage of RM Bank Common Stock owned by them in
the aggregate immediately prior to consummation of the Conversion and the
Merger, before giving effect to (a) the payment of cash in lieu of issuing
fractional Exchange Shares, (b) any shares of Conversion Stock purchased by
the stockholders of Roxborough-Manayunk in the Offerings, and (c) any
exercise of dissenters' rights.
The following diagram outlines the current organizational structure of
the parties' ownership interests:
The Mutual Holding Company and Roxborough-Manayunk
- --------------------------------------------------
Members
|
| 100%
|
FJF Financial, M.H.C. Holders of RM Public
| Bank Shares
| 87.29% | 12.71%
| |
|-------- Roxborough-Manayunk Federal--|
Savings Bank
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The Company and Progress
- ------------------------
Current Stockholders
of the Company
|
| 100%
|
Progress Financial
Corporation
| 100%
|
Progress Federal
Savings Bank
The following diagram reflects the Conversion and the Merger,
including (i) the merger of the Mutual Holding Company with and into
Roxborough-Manayunk, (ii) the merger of Progress with and into
Roxborough-Manayunk, and (iii) the offering of Conversion Stock.
Current Purchasers of Holders of RM Public
Stockholders Conversion Stock Bank Shares
of the Company
| | |
| | |
--------Progress Financial Corporation--------
|
|
Progress Bank
Effects of the Conversion and the Merger
General. Prior to the Conversion and the Merger, each depositor in
Roxborough-Manayunk has both a deposit account in the institution and a pro
rata proprietary 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
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
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nothing for his proprietary 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 Roxborough-Manayunk normally have no
way to realize the value of their proprietary 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 the Merger, additional shares
of Company Common Stock will be issued in connection with the Company's
acquisition of Roxborough-Manayunk. The Company Common Stock is separate
and apart from deposit accounts and cannot be and is not insured by the
FDIC or any other governmental agency. Certificates are issued to evidence
ownership of the permanent stock. The 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 Progress Bank, the
name of the surviving entity of the merger of Progress and
Roxborough-Manayunk.
Effect on RM Public Bank Shares. Under the Plan, upon consummation of
the Conversion and the Merger, the RM Public Bank Shares shall be converted
into Company Common Stock based upon the Exchange Ratio without any further
action on the part of the holder thereof. Upon surrender of the RM Public
Bank Shares, Company Common Stock will be issued in exchange for such
shares. See "- Delivery and Exchange of Certificates."
Upon consummation of the Conversion and the Merger, the RM Public
Stockholders of Roxborough-Manayunk, a federally-chartered savings bank,
will become stockholders of the Company. For a description of certain
changes in the rights of stockholders as a result of the Conversion and the
Merger, see "Comparison of Stockholders' Rights" in the proxy statement
being furnished to the stockholders of Roxborough-Manayunk.
Effect on Deposit Accounts. Under the Plan, each depositor in
Roxborough-Manayunk and Progress at the time of the Conversion and the
Merger will automatically continue as a depositor in Progress Bank after
the Conversion and the Merger, 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. Depositors will continue
to hold their existing certificates, passbooks and other evidences of their
accounts.
Effect on Loans. No loan outstanding from either Roxborough-Manayunk
or Progress will be affected by the Conversion and the Merger, and the
amount, interest rate, maturity and security for each loan will remain as
they were contractually fixed prior to the Conversion and the Merger.
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Effect on Voting Rights of Members. At present, all depositors and
certain borrowers of Roxborough-Manayunk 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 the Merger,
depositors and borrowers will cease to be members and will no longer be
entitled to vote at meetings of the Mutual Holding Company. Upon
completion of the Conversion and the Merger, all voting rights in Progress
Bank will be vested in the Company as the sole stockholder of Progress
Bank. Exclusive voting rights with respect to the Company will be vested
in the holders of Company Common Stock. Depositors of and borrowers from
Roxborough-Manayunk will not have voting rights in the Company after the
Conversion and the Merger, except to the extent that they become
stockholders of the Company.
Tax Effects. Consummation of the Conversion and the Merger is
conditioned on prior receipt by the 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 set forth herein will
not be taxable for federal or Pennsylvania income tax purposes to the
Parties or the Eligible Account Holders, Supplemental Eligible Account
Holders or Other Members, except as discussed below. See "- Tax Aspects."
Effect on Liquidation Rights. Were the Mutual Holding Company 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 Roxborough-Manayunk
immediately prior to liquidation. In the unlikely event that Progress Bank
were to liquidate after the Conversion and the Merger, all claims of
creditors (including those of depositors, to the extent of their 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 capital stock of Progress Bank. 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.
Conditions to the Merger
The Merger Agreement provides that consummation of the proposed
transaction is subject to the satisfaction of certain conditions, or the
waiver of certain of such conditions by the party entitled to do so, at or
prior to the Closing Date, as defined in the Merger Agreement. Each of the
Parties' obligations under the Merger Agreement is subject to the following
conditions, among others: (a) the receipt of all necessary regulatory
approvals required to consummate the transactions contemplated by the
Merger Agreement and the Plan of Conversion, and the expiration of all
waiting periods with respect thereto; (b) the approval of the Merger
Agreement and the Plan of Conversion by the stockholders of
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Roxborough-Manayunk; (c) the approval of the Merger Agreement and the Plan
of Conversion by the Members of the Mutual Holding Company; (d) the
approval of the Merger Agreement by the stockholders of the Company and by
the Company as the sole stockholder of Progress; (e) compliance with or
satisfaction of all representations, warranties, covenants and conditions
set forth in the Merger Agreement, unless waived by the parties entitled to
the benefit thereof; (f) the filing of Articles of Combination with the
OTS, and endorsement thereof by the OTS, with respect to the merger of the
Mutual Holding Company with and into Roxborough-Manayunk and the merger of
Progress with and into Roxborough-Manayunk; (g) the absence of any order,
decree or injunction of a court or agency of competent jurisdiction which
enjoins or prohibits any of the Parties from consummating either the
Conversion or the Merger; and (h) the receipt by the Parties of a tax
opinion that the transactions contemplated by the Merger Agreement qualify
as a reorganization within the meaning of Section 368 of the Code (see "-
Tax Aspects"). In addition, the required number of shares of Conversion
Stock must be sold in the Offerings. See "The Offerings."
In addition to the foregoing conditions, the obligations of the
Company and Progress under the Merger Agreement are further subject to the
satisfaction, at or prior to the Closing Date, of the following conditions,
any one or more of which can be waived by the Company and Progress:
(a) the performance and compliance in all material respects by the Mutual
Holding Company and Roxborough-Manayunk of all covenants and obligations
required to be performed by them at or prior to the Closing Date and the
accuracy in all material respects as of May 24, 1995 and as of the Closing
Date of the representations and warranties of the Mutual Holding Company
and Roxborough-Manayunk, except (i) as to any representation or warranty
which specifically relates to an earlier date or (ii) where the facts which
caused the failure of any representation or warranty to be so true and
correct would not, either individually or in the aggregate, constitute a
material adverse change in the business, operations, properties, assets or
financial condition of the Mutual Holding Company, Roxborough-Manayunk and
its subsidiaries taken as a whole; (b) the receipt of certain legal
opinions from counsel to the Mutual Holding Company and Roxborough-
Manayunk; and (c) the receipt from the Mutual Holding Company and
Roxborough-Manayunk of such certificates of their officers or others and
such other documents to evidence fulfillment of the conditions set forth in
the Merger Agreement as the Company and Progress may reasonably request.
In addition to the conditions set forth in the second preceding
paragraph which are applicable to all of the Parties, the obligations of
the Mutual Holding Company and Roxborough-Manayunk under the Merger
Agreement are further subject to the satisfaction, at or prior to the
Closing Date, of the following conditions, any one or more of which can be
waived by the Mutual Holding Company and Roxborough-Manayunk: (a) the
performance and compliance in all material respects by the Company and
Progress of all covenants and obligations required to be performed by them
at or prior to the Closing Date and the accuracy in all material respects
as of May 24, 1995 and as of the Closing Date of the representations and
warranties of the Company and Progress, except (i) as to any
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representation or warranty which specifically relates to an earlier date or
(ii) where the facts which caused the failure of any representation or
warranty to be so true and correct would not, either individually or in the
aggregate, constitute a material adverse change in the business,
operations, properties, assets or financial condition of the Company,
Progress and its subsidiaries taken as a whole; (b) the receipt of certain
legal opinions from counsel to the Company and Progress; and (c) the
receipt from the Company and Progress of such certificates of their
officers or others and such other documents to evidence fulfillment of the
conditions set forth in the Merger Agreement as the Mutual Holding Company
and Roxborough-Manayunk may reasonably request.
Required Approvals
Various approvals of the OTS are required in order to consummate the
Conversion and the Merger. The OTS has approved the Plan of Conversion,
subject to approval by the Mutual Holding Company's Members and the
stockholders of Roxborough-Manayunk. In addition, consummation of the
Conversion and the Merger is subject to OTS approval of the Company's
holding company application to acquire Roxborough-Manayunk and the
applications with respect to the merger of the Mutual Holding Company into
Roxborough-Manayunk and the merger of Progress into Roxborough-Manayunk,
with Roxborough-Manayunk being the surviving entity in both mergers.
Applications for these approvals have been filed and are currently pending.
The period for the OTS' review of any proposed acquisition, such as the
transactions contemplated by the holding company and merger applications
currently pending, commences upon receipt by the OTS of an application
deemed sufficient by the OTS. Once an application is deemed sufficient,
the OTS generally has a 60-day period for review of the application, which
may be extended by the OTS for up to an additional 30 days. 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 the Merger
may be delayed beyond the expiration of the Offerings. In the event the
Conversion and the Merger are not consummated on or before March 31, 1996,
the Merger Agreement may be terminated by any of the Parties.
Pursuant to OTS regulations, (1) the Merger Agreement and the Plan of
Conversion must be approved by 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) the Merger Agreement and the Plan of Conversion
must be approved by the holders of at least two-thirds of the outstanding
RM Bank Common Stock at the Roxborough-Manayunk Stockholders' Meeting. In
addition, the Parties have conditioned the consummation of the Conversion
and the Merger on the approval of the Merger Agreement and the Plan of
Conversion by at least a majority of the votes cast, in person or by proxy,
by the RM Public Stockholders at the Roxborough-Manayunk Stockholders'
Meeting. Under Delaware law, the Merger Agreement and the Plan of Merger
must be approved by a majority of the outstanding Company Common Stock
entitled to vote thereon at the Company Stockholders' Meeting.
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The Company has also made filings under state securities laws with the
appropriate regulatory authorities.
Conduct of Business Prior to the Closing Date
Under the terms of the Merger Agreement, each of the Parties shall,
and shall cause each of its subsidiaries to, conduct its businesses and
engage in transactions only in the ordinary course and consistent with past
practice and prudent banking practice or to the extent otherwise
contemplated under the Merger Agreement, except with the prior written
consent of the other Parties, which consent shall not be unreasonably
withheld. Each of the Parties also shall use its best efforts to (i)
preserve its business organization and that of its subsidiaries intact,
(ii) keep available to itself and the Company and Progress Bank (following
consummation of the Conversion and the Merger) the present services of its
employees and those of its subsidiaries, and (iii) preserve for itself and
the Company and Progress Bank (following consummation of the Conversion and
the Merger) the goodwill of its customers and those of its subsidiaries and
others with whom business relationships exist.
In addition, under the terms of the Merger Agreement, each of the
Parties has agreed that, except as otherwise approved by the other Parties
in writing or as permitted, contemplated or required by the Merger
Agreement or the Plan of Conversion, it will not, nor will it permit any of
its subsidiaries to: (i) change any provision of its certificate of
incorporation, charter or bylaws or any similar governing documents;
(ii) except for the issuance of Company Common Stock and/or RM Bank Common
Stock pursuant to the present terms of warrants and stock options which are
outstanding as of the date of the Merger Agreement, change the number of
shares of its authorized or issued capital stock or issue or grant any
option, warrant, call, commitment, subscription, right to purchase or
agreement of any character relating to authorized or issued capital stock,
or any securities convertible into shares of such capital stock, or split,
combine or reclassify any shares of its capital stock, or redeem or
otherwise acquire any shares of such capital stock; (iii) declare, set
aside or pay any dividend or other distribution (whether in cash, stock or
property or any combination thereof) in respect of capital stock, except
(A) with respect to Roxborough-Manayunk, for regular quarterly cash
dividends not in excess of $.20 per share and (B) with respect to the
Company, for regular quarterly cash dividends not in excess of $.02 per
share; (iv) grant any severance or termination pay to, or enter into or
amend any employment, consulting or compensation agreement with, any of its
directors, officers or employees; terminate or amend any existing employee
benefit plan or adopt any new employee benefit plan or arrangement of any
type; or award any increase in compensation or benefits to its directors,
officers or employees except as may be awarded in the ordinary course of
business and consistent with past practices and policies; (v) purchase or
otherwise acquire, or sell or otherwise dispose of, any significant assets
or incur any significant liabilities other than in the ordinary course of
business consistent with past practices and policies; (vi) file any
applications or make any contract with respect to branching or site
location or relocation; (vii) acquire in any manner whatsoever (other than
to realize upon collateral for a defaulted
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loan) any business or entity; (viii) make any material change in its
accounting methods or practices, other than changes required by generally
accepted accounting principles, or change any of its methods of reporting
income and deductions for federal income tax purposes from those employed
in the preparation of its federal income tax returns for the year ended
December 31, 1993, except as required by changes in laws or regulations;
(ix) change its lending, investment, deposit or asset and liability
management or other banking policies in any material respect except as may
be required by applicable law; (x) take any action that would result in any
of the representations or warranties of the respective Parties contained in
the Merger Agreement not to be true and correct in any material respect at
the Closing Date; (xi) in the case of Roxborough-Manayunk and the Mutual
Holding Company, amend or revise the Plan of Conversion (except with the
prior written consent of the Company and Progress, which shall not be
unreasonably withheld); or (xii) agree to do any of the foregoing.
Acquisition Proposals
Until the Closing Date or the earlier termination of the Merger
Agreement, no Party shall, nor shall any Party permit any of its
subsidiaries to, nor shall any Party authorize or permit any of its
directors, officers or employees or any investment banker, financial
advisor, attorney, accountant or other representative retained by it or any
of its subsidiaries to, directly or indirectly, encourage or solicit or
hold discussions or negotiations with, or provide any information to, any
person, entity or group (other than the other Parties) concerning any
merger, sale of substantial assets or liabilities not in the ordinary
course of business, sale of shares of capital stock or similar transactions
involving it or any of its subsidiaries (an "Acquisition Transaction");
provided, however, that a Party may provide information in connection with
an unsolicited possible Acquisition Transaction if the Board of Directors
of such Party, after consulting with counsel, determines in the exercise of
its fiduciary responsibilities that such information should be furnished.
Under the Merger Agreement, each Party is required to promptly communicate
to the other Parties the terms of any proposal which it may receive in
respect of any such Acquisition Transaction and to provide the other
Parties with copies of (i) any written legal advice provided to its Board
of Directors, (ii) all such written inquiries or proposals, and (iii) an
accurate and complete written synopsis of all such oral inquiries or
proposals.
Representations and Warranties
The Merger Agreement contains representations and warranties of each
of the Parties which are customary in merger transactions, including, but
not limited to, representations and warranties concerning: (a) the
organization and capitalization of each of the Parties and their
subsidiaries; (b) the due authorization, execution, delivery and
enforceability of the Merger Agreement; (c) consents or approvals required,
and the lack of conflicts or violations under applicable articles of
incorporation, charter, bylaws, instruments and laws, with respect to the
transactions contemplated by the Merger Agreement; (d) the documents to be
filed by the Parties with the SEC and other regulatory
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agencies; (e) the conduct of business in the ordinary course and absence of
certain changes; (f) financial statements; (g) compliance with laws; and
(h) the allowance for loan losses and real estate owned.
Closing Date of the Conversion and the Merger; Termination and Amendment
The Closing Date of the Conversion and the Merger shall be the date
specified in the Articles of Combination to be filed with the OTS with
respect to the merger of the Mutual Holding Company into Roxborough-
Manayunk and the merger of Progress into Roxborough-Manayunk, unless a
later date and time is specified as the effective time in such Articles of
Combination. Such filing will occur only after the receipt of all
requisite regulatory approvals, approval of the transactions by the
requisite vote of the stockholders of the Company and of Roxborough-
Manayunk and of the Members of the Mutual Holding Company, and the
satisfaction or waiver of all other conditions to the Conversion and the
Merger.
A closing (the "Closing") shall take place on the Closing Date, which
shall be within 15 business days following the receipt of all necessary
regulatory or governmental approvals and consents and the expiration of all
statutory waiting periods in respect thereof and the satisfaction or waiver
(to the extent permitted) of all the conditions to consummation of the
Conversion and the Merger, or on such later date as the parties may
mutually agree upon.
The Merger Agreement may be terminated, either before or after
approval by the stockholders of the Company and Roxborough-Manayunk and the
Members of the Mutual Holding Company, as follows: (a) at any time on or
prior to the Closing Date by the mutual written consent of the Parties;
(b) by the Company and Progress if (i) at the time of such termination
there shall be a material adverse change in the business, operations,
assets or financial condition of the Mutual Holding Company, Roxborough-
Manayunk and its subsidiaries taken as a whole since December 31, 1994,
(ii) there shall have been any material breach of any representation,
warranty, covenant, agreement or other obligation of the Mutual Holding
Company or Roxborough-Manayunk under the Merger Agreement and such breach
shall have not been remedied within 15 business days after receipt by the
Mutual Holding Company and Roxborough-Manayunk of notice in writing from
the Company and Progress specifying the nature of such breach and
requesting that it be remedied, or (iii) there shall have been a failure to
satisfy any of the conditions set forth in the Merger Agreement (provided
such conditions were not previously waived by the Company and Progress);
(c) by the Mutual Holding Company and Roxborough-Manayunk if (i) at the
time of such termination there shall be a material adverse change in the
business, operations, assets or financial condition of the Company,
Progress and its subsidiaries taken as a whole since December 31, 1994,
(ii) there shall have been any material breach of any representation,
warranty, covenant, agreement or obligation of the Company or Progress
under the Merger Agreement and such breach shall not have been remedied
within 15 business days after receipt by the Company and Progress of notice
in writing from the Mutual Holding Company and Roxborough-Manayunk
specifying the nature
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of such breach and requesting that it be remedied, or (iii) there shall
have been a failure to satisfy any of the conditions set forth in the
Merger Agreement (provided such conditions were not previously waived by
the Mutual Holding Company and Roxborough-Manayunk); (d) by any of the
Parties (i) if the Closing Date shall not have occurred on or prior to
March 31, 1996 unless the failure of such occurrence shall be due to the
failure of the Party seeking to terminate the Merger Agreement to perform
or observe its agreements set forth therein to be performed or observed by
such Party at or before the Closing Date or (ii) if either the stockholders
of the Company, the stockholders of Roxborough-Manayunk or the Members of
the Mutual Holding Company fail to approve the Merger Agreement and (in the
case of the Mutual Holding Company and Roxborough-Manayunk) the Plan of
Conversion; (e) by the Company and Progress or the Mutual Holding Company
and Roxborough-Manayunk upon written notice to the other 30 or more days
after the date upon which any application for a regulatory or governmental
approval necessary to consummate the Conversion and/or the Merger and the
other transactions contemplated by the Merger Agreement shall have been
denied or withdrawn at the request or recommendation of the applicable
regulatory agency or governmental authority, unless within such 30-day
period a petition for rehearing or an amended application is filed or
noticed, or 30 or more days after any petition for rehearing or amended
application is denied; (f) by the Company and Progress or the Mutual
Holding Company and Roxborough-Manayunk in writing, if any of the
applications for prior approval referred to in Section 4.06 of the Merger
Agreement are denied or are approved contingent upon the satisfaction of
any condition or requirement which, in the reasonable opinion of the Boards
of Directors of the Company and Progress or the Mutual Holding Company and
Roxborough-Manayunk, would be materially inconsistent with the terms of the
Merger Agreement; (g) by the Company and Progress if the independent
appraisal and the Actual Purchase Price would result in the issuance of
Conversion Stock and Exchange Shares (including, on a fully diluted basis,
existing options to purchase RM Bank Common Stock which are converted into
options to purchase Company Common Stock) which in the aggregate would
exceed 64% of the total number of shares of Company Common Stock (on a
fully diluted basis) to be outstanding upon consummation of the Conversion
and the Merger; and (h) by the Mutual Holding Company and Roxborough-
Manayunk if the independent appraisal and the Actual Purchase Price would
result in the issuance of Conversion Stock and Exchange Shares (including,
on a fully diluted basis, existing options to purchase RM Bank Common Stock
which are converted into options to purchase Company Common Stock) which in
the aggregate would be less than 56% of the total number of shares of
Company Common Stock (on a fully diluted basis) to be outstanding upon
consummation of the Conversion and the Merger. With respect to the
percentages in clauses (g) and (h) above, see "The Offerings - Stock
Pricing, Exchange Ratio and Number of Shares to be Issued."
To the extent permitted under applicable law, at any time prior to the
consummation of the Conversion and the Merger, whether before or after
approval thereof by the stockholders of the Company and of
Roxborough-Manayunk and the Members of the Mutual Holding Company, the
Parties may by written agreement (a) amend the Merger
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Agreement, (b) extend the time for the performance of any of the
obligations or other acts of any other Party thereto, (c) waive any
inaccuracies in the representations and warranties contained therein or in
any document delivered pursuant thereto, or (d) waive compliance with any
of the agreements or conditions contained therein.
Interests of Certain Persons in the Conversion and the Merger
Boards of Directors. Upon consummation of the Conversion and the
Merger, the Board of Directors of the Company shall consist of 12 members,
six of whom shall have been designated from the current Board of Directors
of Roxborough-Manayunk and six of whom shall have been designated from the
current Board of Directors of the Company, and the Board of Directors of
Progress Bank shall consist of 16 members, eight of whom shall have been
designated from the current Board of Directors of Roxborough-Manayunk and
eight of whom shall have been designated from the current Board of
Directors of Progress. Roxborough-Manayunk and the Company (or Progress,
as the case may be) shall each designate an equal number of persons to
serve in each of the three classes, to the extent possible. For a list of
such persons, see "Management of the Company and Progress Bank Following
the Conversion and the Merger - General." If any director designated by
Roxborough-Manayunk or the Company (or Progress, as the case may be) to
serve as a director of the Company (or Progress Bank, as the case may be)
is unable or unwilling to hold office as of the Closing Date, the Board of
Directors of Roxborough-Manayunk shall designate another director if such
director is a Roxborough-Manayunk Director, and the Board of Directors of
the Company (or Progress, as the case may be) shall designate another
director if such director is a director of the Company (or Progress, as the
case may be). For a period of three years from the Closing Date, in the
event that any of the directors of the Company (or Progress Bank, as the
case may be) shall terminate their service as a director due to death,
disability, retirement or otherwise, then the remaining directors who
served as directors of the same predecessor company as the vacated director
shall select a replacement director to fill the vacancy and the Board of
Directors of the Company (or Progress Bank, as the case may be) will
appoint such individual to serve for the remaining term.
Nominating Committees. Effective as of the Closing Date, the
Nominating Committees of the Boards of Directors of the Company and
Progress Bank shall each consist of six persons, three of whom shall be
designated by Roxborough-Manayunk and three of whom shall be designated by
the Company. The Nominating Committees shall be authorized to nominate
persons for election to the respective Boards of Directors of the Company
and Progress Bank. For a list of such persons, see "Management of the
Company and Progress Bank Following the Conversion and the Merger -
General." If any person designated by Roxborough-Manayunk or the Company
is unable or unwilling to hold office as a member of the respective
Nominating Committee as of the Closing Date, the Board of Directors of
Roxborough-Manayunk shall designate another director if such director is a
Roxborough-Manayunk Director, and the Board of Directors of the Company
shall designate another director if such director is a Company Director.
For a period of three
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years from the Closing Date, in the event that any of the members of the
Nominating Committees of the Company or Progress Bank shall terminate their
service as a director due to death, disability, retirement or otherwise,
then the remaining directors who served as directors of the same
predecessor company as the vacated committee member shall select and
appoint a replacement director to serve on the respective Nominating
Committee.
Executive Officers. Effective as of the Closing Date, John F. McGill
shall serve as Chairman of the Board of Directors of both the Company and
Progress Bank and W. Kirk Wycoff shall serve as President and Chief
Executive Officer of both the Company and Progress Bank. In addition, for
a period of three years from the Closing Date, the Boards of Directors of
the Company and Progress Bank shall each agree to elect John F. McGill as
Chairman of the Board of Directors and W. Kirk Wycoff as President and
Chief Executive Officer. For a period of three years from the Closing
Date, John F. McGill shall be appointed as an ex-officio member of each
committee of the Boards of Directors of the Company and Progress Bank with
respect to which he has not been appointed as a full voting member. As an
ex-officio member of a committee, Mr. McGill shall have the right to attend
meetings of such committee but shall not be a voting member of such
committee. Nothing contained in the Merger Agreement shall prohibit the
Company or Progress Bank from terminating Messrs. McGill and Wycoff in the
event there exists just cause for termination. For purposes of the Merger
Agreement, termination for cause shall mean termination because of personal
dishonesty, willful misconduct, breach of fiduciary duty involving personal
profit, intentional failure to perform stated duties, willful violation of
any banking law, rule or regulation or final cease-and-desist order.
Effective as of the Closing Date, John F. McGill, Jr. shall serve as an
Executive Vice President of the Company and Progress Bank, Jerry A.
Naessens shall serve as Chief Financial Officer and Treasurer of the
Company and Progress Bank, and Eric J. Morgan shall serve as Senior Vice
President and Secretary of the Company and Progress Bank. In addition, Mr.
Wycoff, as President and Chief Executive Officer of the Company and
Progress Bank, shall be authorized to appoint one other individual as Chief
Operating Officer of the Company and Progress Bank following consummation
of the Conversion and the Merger. See "Management of the Company and
Progress Bank Following the Conversion and the Merger - General."
Existing Benefit Plans and Employment Agreements. There are an
aggregate of 40,000 stock options to purchase RM Bank Common Stock
outstanding under Roxborough-Manayunk's 1992 Stock Option Plan and 1994
Stock Option Plan. All of these stock options are currently exercisable.
If any of the stock options remain outstanding immediately prior to
consummation of the Conversion and the Merger, they will be converted into
options to purchase Company Common Stock, with the number of shares subject
to the option and the exercise price per share to be adjusted based upon
the Exchange Ratio so that the aggregate exercise price remains unchanged,
and with the duration of the option remaining unchanged. For a description
of these plans, see "Management of Roxborough-Manayunk - Benefits."
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As of March 31, 1995, there was an aggregate of 2,400 shares of RM
Bank Common Stock that had been awarded to the directors and officers of
Roxborough-Manayunk pursuant to the 1992 MSBP and the 1994 MSBP and which
had not yet vested. Upon consummation of the Conversion and the Merger,
all unvested awards will be deemed fully vested and the shares will be
converted into Company Common Stock based upon the Exchange Ratio and
issued to the recipients of the awards. For a description of these plans,
see "Management of Roxborough-Manayunk - Benefits."
As of March 31, 1995, the Roxborough-Manayunk ESOP held 8,400 shares
of RM Bank Common Stock which had not yet been allocated to participants
and which were pledged as collateral for the remaining $84,000 loan to the
ESOP from an unaffiliated third party. The loan balance is expected to be
repaid immediately prior to consummation of the Conversion and the Merger,
at such time the remaining unallocated shares will be allocated to the
participants and the ESOP will be terminated. For a description of this
plan, see "Management of Roxborough-Manayunk - Benefits."
Roxborough-Manayunk's Pension Plan and Profit Sharing Plan are
expected to be terminated in connection with the Conversion and the Merger.
For a description of these plans, see "Management of Roxborough-Manayunk -
Benefits."
The employment agreement between the Company, Progress and Mr. Wycoff
provides that in the event the Company acquires or merges with another
entity so that the Company's total assets exceed $500 million, then
Mr. Wycoff's base salary will be adjusted, as determined by the Board of
Directors, to an amount equal to not less than 90% and not more than 110%
of the median base salary for the prior year for chief executive officers
of savings institutions with total assets ranging between $500 million and
$1.0 billion. The Board of Directors of the Company has not yet determined
the amount of the increased base salary upon consummation of the Conversion
and the Merger. For a description of such employment agreement, see
"Management of the Company - Employment and Severance Agreements."
New Benefit Plans. An ESOP of the Company intends to purchase up to
8% of the Conversion Stock in the Offerings ($2,576,000 at the maximum of
the Estimated Price Range) for the benefit of the employees of the Company
and its subsidiaries. See "Management of the Company and Progress Bank
Following the Conversion and the Merger - Benefits - Employee Stock
Ownership Plan."
Pursuant to the Merger Agreement, the Company will adopt the 1995
Stock Option Plan and reserve for issuance pursuant to such plan a number
of shares equal to 10% of the Conversion Stock sold in the Offerings. In
the event stockholder approval of the plan is received, 72% of the shares
available under the 1995 Stock Option Plan will be granted to current
directors and executive officers of Roxborough-Manayunk. For a description
of this plan, see "Management of the Company and Progress Bank Following
the Conversion and the Merger - Benefits - 1995 Stock Option Plan."
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Pursuant to the Merger Agreement, the Company will adopt the 1995
Recognition Plan, which following stockholder approval will purchase a
number at shares equal to 4% of the Conversion Stock sold in the Offerings
($1,288,000 at the maximum of the Estimated Price Range). All of the
shares will be awarded to current directors and executive officers of
Roxborough-Manayunk upon receipt of stockholder approval. For a
description of this plan, see "Management of the Company and Progress Bank
Following the Conversion and the Merger - Benefits - 1995 Recognition
Plan."
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 Company 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
the Merger. 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 the Merger,
each holder of a certificate or certificates theretofore evidencing issued
and outstanding shares of RM Bank Common Stock (other than the Mutual
Holding Company), upon surrender of the same to an agent, duly appointed by
the Company, which is anticipated to be the transfer agent for the Company
Common Stock (the "Exchange Agent"), shall be entitled to receive in
exchange therefor a certificate or certificates representing the number of
full shares of Company Common Stock for which the shares of RM Bank Common
Stock theretofore represented by the certificate or certificates so
surrendered shall have been converted based on the Exchange Ratio. The
Exchange Agent shall promptly mail to each such holder of record of an
outstanding certificate which immediately prior to the consummation of the
Conversion and the Merger evidenced shares of RM Bank Common Stock, and
which is to be exchanged for Company Common Stock based on the Exchange
Ratio as provided in the Plan, a form of letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to such
certificate shall pass, only upon delivery of such certificate to the
Exchange Agent) advising such holder of the terms of the exchange effected
by the Conversion and the Merger and of the procedure for surrendering to
the Exchange Agent such certificate in exchange for a certificate or
certificates evidencing Company Common Stock. The stockholders of
Roxborough-Manayunk should not forward RM Bank Common Stock certificates to
the Company or the Exchange Agent until they have received the transmittal
letter.
No holder of a certificate theretofore representing shares of RM Bank
Common Stock shall be entitled to receive any dividends in respect of the
Company Common Stock into which such shares shall have been converted by
virtue of the Conversion and the
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Merger until the certificate representing such shares of RM Bank Common
Stock is surrendered in exchange for certificates representing shares of
Company Common Stock. In the event that dividends are declared and paid by
the Company in respect of Company Common Stock after the consummation of
the Conversion and the Merger but prior to surrender of certificates
representing shares of RM Bank Common Stock, dividends payable in respect
of shares of Company Common Stock not then issued shall accrue (without
interest). Any such dividends shall be paid (without interest) upon
surrender of the certificates representing such shares of RM Bank Common
Stock. The Company shall be entitled, after the consummation of the
Conversion and the Merger, to treat certificates representing shares of RM
Bank Common Stock as evidencing ownership of the number of full shares of
Company Common Stock into which the shares of RM Bank Common Stock
represented by such certificates shall have been converted, notwithstanding
the failure on the part of the holder thereof to surrender such
certificates.
The Company shall not be obligated to deliver a certificate or
certificates representing shares of Company Common Stock to which a holder
of RM Bank Common Stock would otherwise be entitled as a result of the
Conversion and the Merger until such holder surrenders the certificate or
certificates representing the shares of RM Bank Common Stock for exchange
as provided above, or, in default thereof, an appropriate affidavit of loss
and indemnity agreement and/or a bond as may be required in each case by
the Company. If any certificate evidencing shares of Company Common Stock
is to be issued in a name other than that in which the certificate
evidencing RM Bank Common Stock surrendered in exchange therefor is
registered, it shall be a condition of the issuance thereof that the
certificate so surrendered shall be properly endorsed and otherwise in
proper form for transfer and that the person requesting such exchange pay
to the Exchange Agent any transfer or other tax required by reason of the
issuance of a certificate for shares of Company Common Stock in any name
other than that of the registered holder of the certificate surrendered or
otherwise establish to the satisfaction of the Exchange Agent that such tax
has been paid or is not payable.
Resale Considerations With Respect to the Company Common Stock
The shares of Company Common Stock that will be issued if the
Conversion and the Merger are consummated have been registered under the
Securities Act and approved for listing on the Nasdaq National Market and
will be freely transferable, except for shares of Company Common Stock
received by persons, including directors and executive officers of any of
the Parties, who may be deemed to be "affiliates" of any of the Parties
under Rule 145 promulgated under the Securities Act. Affiliates may not
sell their shares of Company Common Stock acquired pursuant to the
Conversion and the Merger, except pursuant to an effective registration
statement under the Securities Act covering such shares of Company Common
Stock or in compliance with Rule 145 or another applicable exemption from
the registration requirements of the Securities Act. Persons who may be
deemed to be affiliates of any of the Parties generally include individuals
or entities that control, are controlled by, or are under common control
with, any of the Parties and may
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include certain officers and directors of any of the Parties as well as any
stockholders who own more than 10% of the common stock of any of the
Parties.
Certain Restrictions on Purchase or Transfer of Shares after the Conversion
and the Merger
All shares of Conversion Stock purchased in connection with the
Conversion and the Merger by a director or an executive officer of either
the Mutual Holding Company or Roxborough-Manayunk will be subject to a
restriction that the shares not be sold for a period of one year following
the Conversion and the Merger, 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 Company Common 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 Company Common Stock by directors, executive officers and
their associates during the three-year period following completion of the
Conversion and the Merger 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 1% of the then outstanding Company Common Stock or to
the purchase of 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 Company Common Stock within one year
following consummation of the Conversion and the Merger. During the second
and third years following consummation of the Conversion and the Merger,
the Company may not repurchase any shares of Company Common Stock other
than pursuant to (i) an offer to all stockholders on a pro rata basis 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) 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 Progress Bank to
become undercapitalized and Progress 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 the Merger and
to permit repurchases in excess of 5%
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during the second and third years upon the establishment of exceptional
circumstances (i.e., where such repurchases would be in the best interests
of the institution and its stockholders).
Liquidation Rights
In the unlikely event of a complete liquidation of the Mutual Holding
Company in its present mutual form, each depositor of Roxborough-Manayunk
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 Roxborough-Manayunk at the time of liquidation.
After the Conversion and the Merger, each depositor, in the event of a
complete liquidation of Progress Bank (as the resulting entity of the
Merger), would have a claim as a creditor of the same general priority as
the claims of all other general creditors of Progress Bank. However,
except as described below, his claim would be solely in the amount of the
balance in his deposit account plus accrued interest. He would not have an
interest in the value or assets of Progress Bank or the Company above that
amount.
The Plan provides for the establishment, upon the completion of the
Conversion and the Merger, of a special "liquidation account" for the
benefit of Eligible Account Holders and Supplemental Eligible Account
Holders in an amount equal to the greater of (1) the retained earnings of
Roxborough-Manayunk Federal Savings and Loan Association of $16,039,000 at
June 30, 1992, the date of the latest balance sheet contained in the final
offering circular utilized in the formation of the Mutual Holding Company,
or (2) 87% of Roxborough-Manayunk's total stockholders' equity as reflected
in its latest balance sheet contained in the final Prospectus utilized in
the Offerings. As of the date of this Prospectus, the initial balance of
the liquidation account would be approximately $[20.0] million. Each
Eligible Account Holder and Supplemental Eligible Account Holder, if he
were to continue to maintain his deposit account at Progress Bank would be
entitled, upon a complete liquidation of Progress Bank after the Conversion
and the Merger, to an interest in the liquidation account prior to any
payment to the Company as the sole stockholder of Progress 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 Roxborough-Manayunk at the close of business on February 28, 1994 or
June 30, 1995, as the case may be. Each Eligible Account Holder and
Supplemental Eligible Account Holder will have a pro rata interest in the
total liquidation account for each of his deposit accounts based on the
proportion that the balance of each such deposit account on the February
28, 1994 eligibility record date (or the June 30, 1995 supplemental
eligibility record date, as the case may be) bore to the balance of all
deposit accounts in Roxborough-Manayunk on such date.
If, however, on any December 31 annual closing date of Progress Bank
commencing December 31, 1995, the amount in any deposit account is less
than the amount in such
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deposit account on February 28, 1994 or June 30, 1995, 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 Progress Bank.
Tax Aspects
Consummation of the Conversion and the Merger is expressly conditioned
upon prior receipt of either a ruling from the IRS or an opinion of counsel
with respect to certain federal income tax consequences of the Conversion
and the Merger, and either a ruling or an opinion 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 Parties or to account holders receiving
subscription rights, except to the extent, if any, that subscription rights
are deemed to have a fair market value on the date such rights are issued.
This condition may not be waived by the Parties.
Roxborough-Manayunk has submitted an application for a private letter
ruling from the IRS to the effect that, for federal income tax purposes:
(1) the exchange of the members' equity interests in the Mutual Holding
Company for interests in a liquidation account established at Roxborough-
Manayunk will satisfy the continuity of interest requirement in the merger
of the Mutual Holding Company into Roxborough-Manayunk; (2) interests in
the liquidation account established at Roxborough-Manayunk and the shares
of RM Bank Common Stock held by the Mutual Holding Company will be
disregarded in determining that an amount of RM Bank Common Stock
constituting "control" (as defined under Section 368(c) of the Code) of
Roxborough-Manayunk was acquired by the Company in exchange for shares of
Company Common Stock; and (3) the exchange of Company Common Stock for RM
Bank Common Stock will satisfy the continuity of interest requirement in
the merger of Progress into Roxborough-Manayunk, with Roxborough-Manayunk
surviving.
Upon receipt of the above-described private letter ruling, Malizia,
Spidi, Sloane & Fisch, P.C., Washington, D.C., intends to issue an opinion
to the Parties to the effect that, for federal income tax purposes: (1)
the conversion of the Mutual Holding Company from mutual to stock form and
the simultaneous merger of the Mutual Holding Company with and into
Roxborough-Manayunk, with Roxborough-Manayunk being the surviving
institution, will qualify as a reorganization within the meaning of Section
368(a)(1)(A) of the Code, (2) no gain or loss will be recognized by
Roxborough-Manayunk upon the receipt of the assets of the Mutual Holding Company
in such merger, (3) the merger of Progress with and into Roxborough-Manayunk,
with Roxborough-Manayunk being the surviving institution, will
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qualify as a reorganization within the meaning of Sections 368(a)(1)(A) and
(a)(2)(E) of the Code, (4) no gain or loss will be recognized by Progress upon
the transfer of its assets to Roxborough-Manayunk, (5) no gain or loss will be
recognized by Roxborough-Manayunk upon the receipt of the assets of
Progress, (6) no gain or loss will be recognized by the Company upon the
receipt of RM Bank Common Stock solely in exchange for Company Common
Stock, (7) no gain or loss will be recognized by the RM Public Stockholders
upon the receipt of Company Common Stock solely in exchange for their RM
Public Bank Shares, (8) the basis of the Company Common Stock to be
received by the RM Public Stockholders will be the same as the basis of the
RM Public Bank Shares surrendered in exchange therefor, before giving
effect to any payment of cash in lieu of fractional shares, (9) the holding
period of the Company Common Stock to be received by the RM Public
Stockholders will include the holding period of the RM Public Bank Shares,
provided that the RM Public Bank Shares were held as a capital asset on the
date of the exchange, (10) no gain or loss will be recognized by the
Company upon the sale of shares of Conversion Stock in the Offerings, (11)
the Eligible Account Holders, Supplemental Eligible Account Holders and
Other Members will recognize gain, if any, upon the issuance to them of
withdrawable savings accounts in Progress Bank following the Conversion and
the Merger, interests in the liquidation account and nontransferable
subscription rights to purchase Conversion Stock, but only to the extent of
the value, if any, of the subscription rights, and (12) the tax basis to
the holders of Conversion Stock purchased in the Offerings will be the
amount paid therefor, and the holding period for the shares of Conversion
Stock will begin on the date of consummation of the Offerings if purchased
through the exercise of subscription rights and on the day after the date
of purchase if purchased in the Community Offering or Syndicated Community
Offering.
Drinker, Biddle & Reath, Philadelphia, Pennsylvania, has issued an
opinion to the Parties to the effect that the income tax consequences of
the Conversion and the Merger are substantially the same under Pennsylvania
law as they are under the Code.
In the opinion of RP Financial, which opinion is not binding on the
IRS, 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 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 is not binding on either the IRS or
the Commonwealth of Pennsylvania and either taxing authority could disagree
with the
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conclusions reached therein. In the event of such disagreement, there can
be no assurance that the IRS or the Commonwealth of Pennsylvania would not
prevail in a judicial or administrative proceeding.
Accounting Treatment
Consummation of the Conversion and the Merger will be accounted for
under the pooling of interests method of accounting. As a result, the
historical basis of the assets and liabilities of the Mutual Holding
Company, Roxborough-Manayunk and Progress will be combined at the Closing
Date and carried forward at their previously recorded amounts, and the
stockholders' equity accounts of Roxborough-Manayunk and Progress will also
be combined. The consolidated income and other financial statements of the
Company issued after consummation of the Conversion and the Merger will be
restated retroactively to reflect the consolidated operations of the
Company and Roxborough-Manayunk as if the Conversion and the Merger had
taken place prior to the periods covered by such financial statements. See
"Pro Forma Unaudited Financial Information."
Dissenters' Rights of Appraisal
Holders of RM Bank Common Stock are entitled to appraisal rights under
Section 552.14 of the OTS regulations as a result of the merger of the
Mutual Holding Company with and into Roxborough-Manayunk and the merger of
Progress with and into Roxborough-Manayunk, with Roxborough-Manayunk to be
the surviving entity in both mergers. A holder of shares of RM Bank Common
Stock wishing to exercise his appraisal rights must deliver to the
Secretary of Roxborough-Manayunk, before the vote on the Plan of Conversion
and the Merger Agreement at the Roxborough-Manayunk Stockholders' Meeting,
a writing which identifies such stockholder and which states his intention
to demand appraisal of and payment for his shares of RM Bank Common Stock.
Such demand must be in addition to and separate from any proxy or vote
against the Merger Agreement, Plan of Conversion and the Plan of Merger.
Any such stockholder who wishes to exercise such appraisal rights should
review carefully the discussion of such rights in Roxborough-Manayunk's
proxy statement, including Appendix A thereto, because failure to timely
and properly comply with the procedures specified will result in the loss
of appraisal rights under Section 552.14. All written demands for
appraisal should be sent or delivered to the attention of the Secretary of
Roxborough-Manayunk, 6060 Ridge Avenue, Philadelphia, Pennsylvania 19128
so as to be received prior to the vote at the Roxborough-Manayunk
Stockholders' Meeting with respect to the Merger Agreement and the Plan of
Conversion.
In determining whether or not to exercise appraisal rights, current
Roxborough-Manayunk Stockholders should review the comparison of their
rights as Roxborough-Manayunk Stockholders with their right as stockholders
of the Company following consummation of the Conversion and the Merger.
Such comparison is contained in Roxborough-Manayunk's proxy statement to
its stockholders under "The Conversion and the Merger - Comparison of
Stockholder Rights." Because the Company will be governed by
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the Delaware General Corporation Law following consummation of the
Conversion and the Merger and Roxborough-Manayunk is governed by federal
law, including OTS regulations, there are material differences between the
rights of stockholders of Roxborough-Manayunk and stockholders of the
Company.
Expenses of the Conversion and the Merger
The Merger Agreement provides that each of the Parties shall bear and
pay all costs and expenses incurred by it in connection with the
transactions contemplated by the Merger Agreement, including without
limitation legal, accounting and investment banking expenses, provided
however that the Parties shall equally bear (i) all costs of filing the
Registration Statement and the Application for Conversion, (ii) all costs
of printing and mailing this Prospectus and the proxy statements being
furnished to the stockholders of the Company, the Members of the Mutual
Holding Company and the stockholders of Roxborough-Manayunk, and (iii) all
other registration and filing fees relating to the Merger. However,
notwithstanding the foregoing, in the event that any of the Parties shall
default in their obligations under the Merger Agreement and the Merger
Agreement shall be terminated as a result thereof, the non-defaulting
Parties will be entitled to receive, as their sole remedy at law or in
equity, in the aggregate $750,000 in immediately available funds. A
default shall be deemed to include a termination of the Merger Agreement or
a failure to consummate the Conversion and the Merger as a result of the
breach of a representation or warranty by one of the Parties or the failure
of one of the Parties to perform or observe its covenants, agreements or
obligations to be performed or observed by it at or before the Closing
Date, and compliance with such representation, warranty, covenant,
agreement or obligation was within the control of such Party.
THE OFFERINGS
Subscription Offering
In accordance with the Plan of Conversion, rights to subscribe for the
purchase of Conversion Stock have been granted under the Plan of Conversion
to the following persons in the following order of descending priority:
(1) Eligible Account Holders, (2) the ESOP, (3) Supplemental Eligible
Account Holders, (4) Other Members, and (5) Eligible Stockholders. 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 as described below
under "- Limitations on Conversion Stock Purchases."
Priority 1: Eligible Account Holders. 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 amount of Conversion Stock that
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when combined with Exchange Shares received aggregate 3% of the Conversion
Stock, (ii) one-tenth of one percent (.10%) of the total offering of
Conversion Stock in the Subscription Offering, and (iii) 15 times the
product (rounded down to the next whole number) obtained by multiplying the
amount of Conversion Stock offered in the Subscription Offering by a
fraction, of which the numerator is the amount of the Eligible Account
Holder's qualifying deposit and the denominator of which is the total
amount of qualifying deposits of all Eligible Account Holders, in each case
as of the close of business on February 28, 1994 (the "Eligibility Record
Date"), subject to the overall purchase limitations. See "- Limitations on
Conversion Stock Purchases."
If there are not sufficient shares available to satisfy all
subscriptions, shares first will be allocated so as to permit each
subscribing Eligible Account Holder to purchase, to the extent possible, 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 Eligible Account
Holders whose subscriptions remain unsatisfied 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 unsatisfied, provided that no fractional shares shall
be issued. The subscription rights of Eligible Account Holders who are
also directors or officers of any of the Parties or their subsidiaries, and
associates of such persons, will be subordinated to the subscription rights
of other Eligible Account Holders to the extent attributable to increased
deposits in the year preceding February 28, 1994.
Priority 2: ESOP. The ESOP will receive, without payment therefor,
second priority, nontransferable subscription rights to purchase, in the
aggregate, up to 8% of the Conversion Stock, 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 Estimated Price Range. The
ESOP intends to purchase 8% of the shares of Conversion Stock, or
$2,576,000 based on the maximum of the Estimated 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 Subscription and Community Offerings, including
subscriptions of any of the Parties' directors, officers, employees or
associates thereof. In the event that the Estimated Price Range is
increased above $32,200,000, the ESOP will have a first priority right to
purchase the amount in excess of $32,200,000, up to an aggregate of 8% of
the total Conversion Stock issued. See "Risk Factors - Possible Dilutive
Effect of Issuance of Additional Shares" and "Management of the Company and
Progress Bank Following Consummation of the Conversion and the Merger -
Benefits - Employee Stock Ownership Plan."
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Priority 3: Supplemental Eligible Account Holders. 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 amount of Conversion
Stock that when combined with Exchange Shares received aggregate 3% of the
Conversion Stock, (ii) one-tenth of one percent (.10%) of the total
offering of Conversion Stock in the Subscription Offering, and (iii) 15
times the product (rounded down to the next whole number) obtained by
multiplying the amount of Conversion Stock offered in the Subscription
Offering by a fraction, of which the numerator is the amount of the
Supplemental Eligible Account Holder's qualifying deposit and the
denominator of which is the total amount of qualifying deposits of all
Supplemental Eligible Account Holders, in each case as of the close of
business on June 30, 1995 (the "Supplemental Eligibility Record Date"),
subject to the overall purchase limitations. See "- Limitations on
Conversion Stock Purchases."
If there are not sufficient shares available to satisfy all
subscriptions, shares first will be allocated so as to permit each
subscribing Supplemental Eligible Account Holder to purchase, to the extent
possible, 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
unsatisfied 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 unsatisfied, provided that no fractional shares shall be issued.
Directors and officers of Roxborough-Manayunk and their associates are
excluded from the definition of Supplemental Eligible Account Holders.
Priority 4: Other Members. 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 amount of Conversion
Stock that when combined with Exchange Shares received aggregate 3% of the
Conversion Stock and (ii) one-tenth of one percent (.10%) of the total
offering of Conversion Stock in the Subscription Offering, subject to the
overall purchase limitations. See "- Limitations on Conversion Stock
Purchases."
In the event the Other Members subscribe for a number of shares which,
when added to the shares subscribed for by Eligible Account Holders, the
ESOP and Supplemental Eligible Account Holders, is in excess of the total
number of shares of Conversion Stock offered in the Subscription Offering,
shares first will be allocated so as to permit each subscribing Other
Member to purchase, to the extent possible, 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, any remaining shares will be
allocated among subscribing Other Members whose subscriptions remain
unsatisfied on a 100 shares (or whatever lesser amount
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is available) per order basis until all orders have been filled and the
remaining shares have been allocated.
Priority 5: Eligible Stockholders. 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 Eligible Stockholder will receive, without payment therefor,
fifth priority, nontransferable subscription rights to subscribe for
Conversion Stock in the Subscription Offering up to the greater of (i) the
amount of Conversion Stock that when combined with Exchange Shares received
aggregate 3% of the Conversion Stock and (ii) one-tenth of one percent
(.10%) of the total offering of Conversion Stock in the Subscription
Offering, subject to the overall purchase limitations. See "- Limitations
on Conversion Stock Purchases."
In the event the Eligible Stockholders subscribe for a number of
shares which, when added to the shares subscribed for by Eligible Account
Holders, the ESOP, Supplemental Eligible Account Holders and Other Members,
is in excess of the total number of shares of Conversion Stock offered in
the Subscription Offering, available shares will be allocated among
subscribing Eligible Stockholders on a pro rata basis in the same
proportion as each such Eligible Stockholder's subscription bears to the
total subscriptions of all subscribing Eligible Stockholders, with
subscriptions being rounded to the nearest 100 shares.
Expiration Date for the Subscription Offering. The Subscription
Offering will expire at ____ p.m., Eastern Time, on _____ __, 1995, unless
extended for up to 45 days or such additional periods by the Parties with
the approval of the OTS. Such extensions may not be extended beyond
________, 1997. Subscription rights which have not been exercised prior to
the Expiration Date will become void.
The Parties will not execute orders until the required amount of
Conversion Stock has been subscribed for or otherwise sold. If the
requisite amount has 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 pursuant to the Subscription
Offering will be returned promptly to the subscribers with interest and all
withdrawal authorizations will be cancelled. If an extension beyond the
45-day period following the Expiration Date is granted, the Parties will
notify subscribers of the extension of time and of any rights of
subscribers to modify or rescind their subscriptions.
Community Offering
To the extent that Conversion Stock remains available for purchase
after satisfaction of all subscriptions of Eligible Account Holders, the
ESOP, Supplemental Eligible Account Holders, Other Members, and Eligible
Stockholders, the Parties have determined to offer Conversion Stock
pursuant to the Plan to certain members of the general public, with
preference given to natural persons residing in Philadelphia, Bucks,
Delaware, Chester and Montgomery Counties, Pennsylvania (such natural
persons referred to as "Community
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Purchasers"). No person will be permitted to order in the Community
Offering more than 3% of the Conversion Stock offered, subject to the
overall purchase limitations. See "-Limitations on Conversion Stock
Purchases." This amount may be increased at the sole discretion of the
Company and Roxborough-Manayunk. The opportunity to subscribe for
Conversion Stock in the Community Offering category is subject to the right
of the Company and Roxborough-Manayunk, in their sole discretion, to accept
or reject any such orders in whole or in part either at the time of receipt
of an order or as soon as practicable following the completion of the
Community offering.
If there are not sufficient shares available to fill the orders of
Community Purchasers after completion of the Subscription and Community
Offerings, such stock will be allocated first to each Community Purchaser
whose order is accepted by the Parties, in an amount equal to the lesser of
100 shares or the number of shares subscribed for by each such Community
Purchaser, if possible. Thereafter, unallocated shares will be allocated
among the Community Purchasers whose orders remain unsatisfied in the same
proportion that the unfilled subscription of each bears to the total
unfilled subscriptions of all Community Purchasers whose subscription
remains unsatisfied, up to a maximum of 2% of the Conversion Stock offered.
Any remaining shares will than be allocated among the Community Purchasers
whose orders exceeded 2% of the Conversion Stock offered on an equal number
of shares basis per order until all such orders have been filled. If there
are any shares remaining, shares will be allocated to other members of the
general public who subscribe in the Community Offering applying the same
allocation described above for Community Purchasers.
Syndicated Community Offering
The Plan provides that, if feasible, any Conversion Stock not
purchased in the Subscription and Community Offerings may be offered for
sale to the general public in a Syndicated Community Offering through a
syndicate of registered broker-dealers to be formed or through an
underwritten public offering. No person will be permitted to order in the
Syndicated Community Offering more than 3% of the Conversion Stock offered,
subject to the overall purchase limitations. The Company and Roxborough-
Manayunk have the right to accept or reject orders in whole or part in
their sole discretion in the Syndicated Community Offering. Neither
Sandler O'Neill nor any registered broker-dealer shall have any obligation
to take or purchase any Conversion Stock in the Syndicated Community
Offering; however, Sandler O'Neill has agreed to use its best efforts in
the sale of Conversion Stock in the Syndicated Community Offering.
In addition to the foregoing, if a syndicate of broker-dealers
("selected dealers") is formed to assist in the Syndicated Community
Offering, a purchaser may pay for his shares with funds held by or
deposited with a selected dealer. If an order form is executed and
forwarded to the selected dealer or if the selected dealer is authorized to
execute the order form on behalf of a purchaser, the selected dealer is
required to forward the order form and funds to the Company for deposit in
a segregated account on or before noon of the business
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day following receipt of the order form or execution of the order form by
the selected dealer. Alternatively, selected dealers may solicit
indications of interest from their customers to place orders for shares.
Such selected dealers shall subsequently contact their customers who
indicated an interest and seek their confirmation as to their intent to
purchase. The selected dealer will acknowledge receipt of the order to its
customer in writing on the following business day and will debit such
customer's account on the third business day after the customer has
confirmed his intent to purchase (the "debit date") and on or before noon
of the next business day following the debit date will send funds to the
Company for deposit in a segregated account. If such alternative procedure
is employed, purchasers' funds are not required to be in their accounts
with selected dealers until the debit date.
The Syndicated Community Offering will terminate no more than 45 days
following the Expiration Date, unless extended by the Parties with the
approval of the OTS. See "- Stock Pricing, Exchange Ratio and Number of
Shares to be Issued" below for a discussion of rights of subscribers, if
any, in the event an extension is granted.
Stock Pricing, Exchange Ratio and Number of Shares to be Issued
The Plan of Conversion requires that the purchase price of the
Conversion Stock must be based on the aggregate appraised pro forma market
value of the Conversion Stock and Exchange Shares, as determined on the
basis of an independent valuation. Such pro forma market value is based
upon the incremental pro forma market value of Roxborough-Manayunk and the
Mutual Holding Company to the Company. The Parties have retained RP
Financial to determine such valuation. For its services in preparing such
appraisal and any expenses incurred in connection therewith, RP Financial
will receive a maximum fee of $35,000 plus out-of-pocket expenses. The
Company and Roxborough-Manayunk have agreed to indemnify RP Financial and
its employees and affiliates against certain losses (including any losses
in connection with claims under the federal securities laws) arising out of
its services as appraiser, except where RP Financial's liability results
from its negligence or bad faith.
The Appraisal has been prepared by RP Financial in reliance upon the
information contained in this Prospectus, including the Consolidated
Financial Statements of the Company and of Roxborough-Manayunk. RP
Financial also considered the following factors, among others: the present
and projected operating results and financial condition of the Parties and
the economic and demographic conditions in the existing market area of
Progress and Roxborough-Manayunk; certain historical, financial and other
information relating to the Company and Roxborough-Manayunk; a comparative
evaluation of the operating and financial statistics of the Company and
Roxborough-Manayunk 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 the Merger on the Company's consolidated net worth and
earnings potential; the proposed dividend policy of the Company and
Progress; and the trading
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market for the Company Common Stock and securities of comparable companies
and general conditions in the market for such securities.
On the basis of the foregoing, RP Financial has advised the Parties
that in its opinion the estimated incremental pro forma market value of
Roxborough-Manayunk and the Mutual Holding Company on a combined basis to
the Company was $32.0 million as of June 16, 1995. Because the holders of
the RM Public Bank Shares will receive the same aggregate percentage of the
Company Common Stock issued in the Conversion and the Merger as the
percentage of RM Bank Common Stock owned by them in the aggregate
immediately prior to consummation of the Conversion and the Merger (before
giving effect to additional purchases in the Offerings, fractional shares
and any exercise of dissenters' rights), the Appraisal was multiplied by
the Mutual Holding Company's percentage interest in Roxborough-Manayunk
(i.e., 87.29%) to determine the midpoint of the valuation of the Conversion
Stock ($28,000,000 rounded), and the minimum and maximum of the valuation
were set at 15% below and above the midpoint, respectively, resulting in a
range of $23,800,000 to $32,200,000. Upon consummation of the Conversion
and the Merger, the Conversion Stock and the Exchange Shares will represent
approximately 87.29% and 12.71%, respectively, of the total Company Common
Stock issued in the Conversion and the Merger, assuming no fractional
Exchange Shares, no exercise of dissenters' rights and no exercise of
outstanding stock options to purchase RM Bank Common Stock prior to such
consummation. The Boards of Directors of the Parties reviewed RP
Financial's appraisal report, including the methodology and the assumptions
used by RP Financial, and determined that the Estimated Price Range was
reasonable and adequate.
The Estimated Price Range may be increased or decreased to reflect
changes in market and financial conditions prior to completion of the
Conversion and the Merger or to fill the order of the ESOP. RP Financial
will update its appraisal upon the expiration of the Subscription and
Community Offerings and will state its opinion as to the aggregate
estimated incremental pro forma market value of the Mutual Holding Company
and Roxborough-Manayunk at such time (the "Appraised Value"). The Plan of
Conversion provides that the Actual Purchase Price will be the average
closing price of the Company Common Stock as reported on the Nasdaq
National Market during the 20 trading days ending on the day prior to the
close of the Subscription and Community Offerings. The actual number of
shares of Conversion Stock to be issued will be determined by dividing the
final Appraised Value, as determined by RP Financial, by the Actual
Purchase Price, with the resulting number of shares being rounded down to
the nearest whole number. All shares of Conversion Stock sold in the
Conversion and the Merger will be sold at a uniform price per share. The
aggregate Actual Purchase Price for all shares of Conversion Stock will not
be inconsistent with the estimated incremental pro forma market value of
Roxborough-Manayunk and the Mutual Holding Company.
The Merger Agreement provides that the Company and Progress have the
right to terminate the Merger Agreement if the aggregate number of shares
of Conversion Stock, Exchange Shares and shares of Company Common Stock to
be subject to options to
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purchase Company Common Stock upon the conversion of existing options to
purchase RM Bank Common Stock (collectively, "New Shares") would exceed 64%
of the total number of shares of Company Common Stock to be outstanding on
a fully diluted basis upon consummation of the Conversion and the Merger.
The Mutual Holding Company and Roxborough-Manayunk have the right to
terminate the Merger Agreement if the aggregate number of New Shares would
be less than 56% of the total number of shares of Company Common Stock to
be outstanding on a fully diluted basis upon consummation of the Conversion
and the Merger. The following table sets forth, based upon the number of
shares of Company Common Stock currently outstanding on a fully diluted
basis, the minimum and maximum number of shares of Conversion Stock and
Exchange Shares that can be issued in the Conversion and the Merger without
giving rise to a right of termination by the Parties:
Minimum Maximum
--------- ---------
Conversion Stock(1) 4,138,143 5,780,263
Exchange Shares(1) 602,540 841,644
--------- ---------
Total to be issued in the Conversion
and the Merger 4,740,683 6,621,907
Exchange Ratio(2) 2.92495 4.08565
Conversion of existing options to
purchase RM Bank Common Stock(3) 116,998 163,426
--------- ---------
Total New Shares 4,857,681 6,785,333
Company Common Stock currently
outstanding on a fully diluted
basis(4) 3,816,750 3,816,750
--------- ---------
Company Common Stock to be outstanding
on a fully diluted basis 8,674,431 10,602,083
========= ==========
Total New Shares as a percentage of
Company Common Stock to be outstanding
on a fully diluted basis 56.0% 64.0%
====== ======
_____________________________
(1) In accordance with OTS policies, the shares of Conversion Stock and
Exchange Shares to be issued in the Conversion and the Merger will
represent 87.29% and 12.71%, respectively, of the total shares of
Company Common Stock issued in the Conversion and the Merger (assuming
no fractional shares, no exercise of dissenters' rights and no
exercise of outstanding stock options to purchase RM Bank Common
Stock).
(2) The Exchange Ratio was determined by dividing the number of Exchange
Shares by the 206,000 outstanding RM Public Bank Shares. In the event
outstanding stock options to purchase RM Bank Common Stock are
exercised between the date of this
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Prospectus and consummation of the Conversion and the Merger, the
Exchange Ratio will be adjusted so that the RM Public Stockholders
receive in the aggregate the same percentage of the shares of Company
Common Stock issued in the Conversion and the Merger as the percentage
of RM Bank Common Stock owned by them in the aggregate immediately
prior to consummation of the Conversion and the Merger, before giving
effect to (i) the payment of cash in lieu of issuing fractional
Exchange Shares, (ii) any shares of Conversion Stock purchased by the
RM Public Stockholders in the Offering, and (iii) any exercise of
dissenters' rights. See "Pro Forma Unaudited Financial Information."
(3) If any outstanding stock options to purchase RM Bank Common Stock
remain outstanding immediately prior to consummation of the Conversion
and the Merger, they will be converted into options to purchase shares
of Company Common Stock, with the number of shares subject to the
option and the exercise price per share to be adjusted based upon the
Exchange Ratio so that the aggregate exercise price remains unchanged,
and with the duration of the option remaining unchanged. As of the
date of this Prospectus, there were options to purchase 40,000 shares
of RM Bank Common Stock outstanding, and the Merger Agreement
prohibits the grant of any additional stock options prior to the
consummation of the Conversion and the Merger.
(4) Consists of 3,280,000 currently outstanding shares of Company Common
Stock, warrants to purchase 300,000 shares of Company Common Stock and
stock options to purchase 236,750 shares of Company Common Stock.
It is possible that less than 4,138,143 shares of Conversion Stock or
more than 5,780,263 shares of Conversion Stock may be issued in the
Conversion and the Merger if the Parties having a right to terminate the
Merger Agreement in such event elect to waive their right to do so. None
of the Parties have determined under what circumstances, if any, they would
waive their rights, and there can be no assurance that the respective
Parties would waive their rights. However, in the event that the number of
shares of Conversion Stock required to be issued in the Conversion and the
Merger are outside the above range, it is anticipated that the Parties
having a right to terminate would consider all relevant factors in
determining whether or not to waive such right, including but not limited
to how far above or below the above range they are and then existing
financial and market conditions.
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The following table sets forth the number of shares of Conversion Stock
that would be issued at the minimum, midpoint, maximum and 15% above the
maximum of the Estimated Price Range at illustrative prices per share for
the Company Common Stock. The Actual Purchase Price may be more or less
than the per share prices shown in the table.
Actual
Purchase $23,800,000 $28,000,000 $32,200,000 $37,030,000
Price Minimum Midpoint Maximum 15% above Maximum
--------- ----------- ----------- ----------- ------------------
$5.00 4,760,000 5,600,000 6,440,000(2) 7,406,000(2)
$5.25 4,533,333 5,333,333 6,133,333(2) 7,053,333(2)
$5.50 4,327,273 5,090,909 5,854,545(2) 6,732,727(2)
$5.75 4,139,130 4,869,565 5,600,000 6,440,000(2)
$6.00 3,966,666(1) 4,666,666 5,366,666 6,171,666(2)
$6.25 3,808,000(1) 4,480,000 5,152,000 5,924,800(2)
$6.50 3,661,538(1) 4,307,692 4,953,846 5,696,923
$6.75 3,525,926(1) 4,148,148 4,770,370 5,485,926
_________________________
(1) The Mutual Holding Company and Roxborough-Manayunk have a right to
terminate the Merger Agreement if less than 4,138,143 shares of
Conversion Stock are issued, based upon the number of shares of
Company Common Stock currently outstanding on a fully diluted basis.
(2) The Company and Progress have a right to terminate the Merger
Agreement if more than 5,780,263 shares of Conversion Stock are
issued, based upon the number of shares of Company Common Stock
currently outstanding on a fully diluted basis.
Subject to approval of the OTS, the Estimated Price Range may be
increased or decreased to reflect market and economic conditions prior to
the completion of the Offerings, and under such circumstances the Parties
may increase or decrease the number of shares of Conversion Stock. In the
event the Appraisal is updated to below $23,800,000 or above $37,030,000
(the maximum of the Estimated Price Range, as adjusted by 15%), such
Appraisal will be filed with the SEC by post-effective amendment.
Based upon current market and financial conditions and recent
practices and policies of the OTS, in the event the Company receives orders
for Conversion Stock in excess of $32,200,000 (the maximum of the
Estimated Price Range) and up to $37,030,000 (the maximum of the Estimated
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
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Estimated Price Range or that, if such orders are received, that all
such orders will be accepted, because the final valuation and number of
shares to be issued are subject to the receipt of an updated appraisal from
RP Financial which reflects such an increase in the valuation and the
approval of such increase by the OTS. There is no obligation or
understanding on the part of management to take and/or pay for any shares
of Conversion Stock in order to complete the Offerings.
RP Financial's valuation is not intended, and must not be construed,
as a recommendation of any kind as to the advisability of purchasing such
shares. RP Financial did not independently verify the Consolidated
Financial Statements and other information provided by the Parties, nor did
RP Financial value independently the assets or liabilities of the Parties.
The valuation considers the Mutual Holding Company and Roxborough-Manayunk
as going concerns and should not be considered as an indication of the
liquidation value of the Mutual Holding Company and Roxborough-Manayunk.
Moreover, because such valuation is necessarily based upon estimates and
projections of a number of matters, all of which are subject to change from
time to time, no assurance can be given that persons purchasing Conversion
Stock or receiving Exchange Shares in the Conversion and the Merger will
thereafter be able to sell such shares at prices at or above the Actual
Purchase Price or in the range of the foregoing valuation of the pro forma
market value thereof.
No sale of shares of Conversion Stock or issuance of Exchange Shares
may be consummated unless prior to such consummation RP Financial confirms
that nothing of a material nature has occurred which, taking into account
all relevant factors, would cause it to conclude that the aggregate Actual
Purchase Price is materially incompatible with the estimate of the
incremental pro forma market value of the Mutual Holding Company and
Roxborough-Manayunk to the Company upon consummation of the Conversion and
the Merger. If such is not the case, a new Estimated Price Range may be
set, a new Exchange Ratio may be determined based upon the new Estimated
Price Range, a new Subscription and Community Offering and/or Syndicated
Community Offering may be held or such other action may be taken as the
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 issued in the Offerings may be increased or
decreased without a resolicitation of subscribers, provided that the
product of the total number of shares times the Actual Purchase Price is
not below the minimum or more than 15% above the maximum of the Estimated
Price Range. In the event market or financial conditions change so as to
cause the aggregate Actual Purchase Price of the shares to be below the
minimum of the Estimated Price Range or more than 15% above the maximum of
such range, purchasers will be resolicited (i.e., permitted to continue
their orders, in which case they will need to affirmatively reconfirm their
subscriptions prior to the expiration of the resolicitation offering or
their subscription funds will be promptly refunded with interest at
Roxborough-Manayunk's passbook rate of interest, or be permitted to modify
or rescind their subscriptions). Any increase or decrease
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in the number of shares of Conversion Stock will result in a corresponding
change in the number of Exchange Shares. No resolicitation of subscribers
will be made and subscribers will not be permitted to modify or cancel
their subscriptions unless (i) the gross proceeds from the sale of the
Conversion Stock are less than the minimum or more than 15% above the
maximum of the current Estimated Price Range or (ii) the Offerings are
extended beyond _______ __, 1995.
An increase in the number of shares of Conversion Stock would decrease
both 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. A
decrease in the number of shares of Conversion Stock would increase both a
subscriber's ownership interest and the Company's pro forma net income and
stockholders' equity on a per share basis while decreasing 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
Unaudited Financial Information."
The appraisal report of RP Financial has been filed as an exhibit to
the Application for Conversion of which this Prospectus is a part and is
available for inspection in the manner set forth under "Available
Information."
Persons in Nonqualified States or Foreign Countries
The Parties will make reasonable efforts to comply with the securities
laws of all jurisdictions in the United States in which persons entitled to
subscribe for stock pursuant to the Plan reside. However, the Parties are
not required to offer stock in the Subscription Offering to any person who
resides in a foreign country or resides in a jurisdiction of the United
States with respect to which all of the following apply: (a) the number of
persons otherwise eligible to subscribe for shares under the Plan who
reside in such jurisdiction is small; (b) the granting of subscription
rights or the offer or sale of shares of Conversion Stock to such persons
would require any of the Parties or their respective officers or directors,
under the laws of such jurisdiction, to register as a broker, dealer,
salesman or selling agent or to register or otherwise qualify the Company
Common Stock for sale in such jurisdiction or to qualify as a foreign
corporation or file a consent to service of process in such jurisdiction;
and (c) such registration, qualification or filing in the judgment of the
Parties would be impracticable or unduly burdensome for reasons of costs or
otherwise. Where the number of persons eligible to subscribe for shares in
one jurisdiction is small, the Parties will base their decision as to
whether or not to offer the Conversion Stock in such jurisdiction on a
number of factors, including but not limited to the size of accounts held
by account holders in the state, the cost of registering or qualifying the
shares, and the need to register the Company, its officers, directors or
employees as brokers, dealers or salesmen.
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Limitations on Conversion Stock Purchases
The Plan includes the following limitations on the number of shares of
Conversion Stock which may be purchased:
(1) No less than $150 of Conversion Stock may be purchased, to
the extent sufficient shares are available;
(2) The maximum amount of Conversion Stock which may be
purchased by any individual, corporation, partnership, trust or other
entity ("Person") (or Persons through a single account) in any
priority category in the Subscription Offering, in the Community
Offering or in the Syndicated Community Offering shall not exceed 3%
of the Conversion Stock issued (when combined with any Exchange Shares
received by such Person), except for the amount purchased by the ESOP;
(3) The ESOP may purchase in the aggregate up to 8% of the
Conversion Stock to be issued in the Offerings, including any
additional amount issued in the event of an increase in the Estimated
Price Range;
(4) The maximum amount of Conversion Stock which may be
subscribed for or purchased in all categories in the Conversion and
the Merger (i.e., the Offerings on a combined basis) by any Person,
together with any associate or group of Persons acting in concert,
shall not exceed 5% of the Conversion Stock issued (when combined with
any Exchange Shares received), except for the amount purchased by the
ESOP; and
(5) The maximum amount of Conversion Stock which may be
purchased in all categories in the Conversion by officers and
directors of the Mutual Holding Company and Roxborough-Manayunk and
their associates in the aggregate shall not exceed 30% of the
Conversion Stock issued (when combined with any Exchange Shares
received).
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 either the
Company or Roxborough-Manayunk, both the individual amount permitted to be
subscribed for and the overall purchase limitation may be decreased to as
low as 1% or increased up to a maximum of 5% of the Conversion Stock issued
in the Conversion and the Merger at the sole discretion of the Parties. If
such amount is increased, subscribers for the maximum amount will be, and
certain other large subscribers in the sole discretion of the Company and
Roxborough-Manayunk may be, given the opportunity to increase their
subscriptions up to the then applicable limit.
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An individual Eligible Account Holder, Supplemental Eligible Account
Holder, Other Member or Eligible Stockholder may not purchase individually
in the Subscription Offering the overall maximum purchase limit of 5% of
the Conversion Stock but may make such purchase, together with associates
of and persons acting in concert with such person, by also purchasing in
other available categories, subject to availability of shares and the
maximum overall purchase limit for purchases in the Offerings, including
Exchange Shares received by RM Public Stockholders for RM Public Bank
Shares. However, RM Public Stockholders will not have to sell any RM
Public Bank Shares or be limited in receiving Exchange Shares even if their
current ownership of RM Public Bank Shares when converted into Exchange
Shares exceeds an applicable purchase limitation, including the maximum
purchase limitation of 5% of the Conversion Stock.
In the event of an increase in the amount of Conversion Stock offered
in the Conversion due to an increase in the Estimated Price Range of up to
15% (the "Adjusted Maximum"), the additional amount will be allocated in
the following order of priority in accordance with the Plan: (i) to fill
the ESOP's subscription of 8% of the Adjusted Maximum number of shares;
(ii) in the event that there is an oversubscription by Eligible Account
Holders, to fill unfulfilled subscriptions of Eligible Account Holders,
exclusive of the Adjusted Maximum; (iii) in the event that there is an
oversubscription by Supplemental Eligible Account Holders, to fill
unfulfilled subscriptions of Supplemental Eligible Account Holders,
exclusive of the Adjusted Maximum; (iv) in the event that there is an
oversubscription by Other Members, to fill unfulfilled subscriptions of
Other Members, exclusive of the Adjusted Maximum; (v) in the event there is
an oversubscription by stockholders of Roxborough-Manayunk or the Company
entitled to subscription rights, to fill unfulfilled subscriptions of such
stockholders, exclusive of the Adjusted Maximum; and (vi) to fill
unfulfilled subscriptions in the Community Offering to the extent possible,
exclusive of the Adjusted Maximum.
The term "associate" of a person is defined to mean (i) any
corporation or other organization (other than the Mutual Holding Company,
Roxborough-Manayunk or a majority-owned subsidiary of Roxborough-Manayunk)
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
Mutual Holding Company or Roxborough-Manayunk 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 either has the same home as such person or who
is a director or officer of the Mutual Holding Company or Roxborough-
Manayunk or any of their subsidiaries.
The term "acting in concert" is defined to mean (i) knowing
participation in a joint activity or interdependent conscious parallel
action towards a common goal whether or not pursuant to an express
agreement; (ii) a combination or pooling of voting or other interests
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in the securities of an issuer for a common purpose pursuant to any
contract, understanding, relationship, agreement or other arrangement,
whether written or otherwise; or (iii) a person or company which acts in
concert with another person or company ("other party") shall also be deemed
to be acting in concert with any person or company who is also acting in
concert with that other party, except that any tax-qualified employee stock
benefit plans will not be deemed to be acting in concert with its trustee
or a person who serves in a similar capacity solely for the purpose of
determining whether stock held by the trustee and stock held by the plan
will be aggregated.
Beneficial Ownership and Proposed Purchases by Directors and Executive
Officers
The following table sets forth, for each of the Company's and
Roxborough-Manayunk's directors and executive officers and for all of their
respective directors and executive officers as a group, (1) the number of
shares of Company Common Stock beneficially owned as of ___________ __,
1995, (2) the number of Exchange Shares to be held upon consummation of the
Conversion and the Merger, based upon their beneficial ownership of Bank
Common Stock as of ___________ __, 1995, (3) the proposed purchases of
Conversion Stock, assuming sufficient shares are available to satisfy their
subscriptions, and (4) the total amount of Company Common Stock to be held
upon consummation of the Conversion and the Merger, in each case assuming
that 4,869,565 shares of Conversion Stock are sold at a price of $5.75 per
share, which is the midpoint of the Estimated Price Range.
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<TABLE><CAPTION>
Proposed Purchases of Total Company Common
Number of Conversion Stock Stock to be held
Shares of Number of
Company Common Exchange Shares Number of Number of Percentage
Name Stock Held(1) to be Held(1)(2)(3) Amount Shares Shares of Total
<S> <C> <C> <C> <C> <C> <C>
The Company:
John E. F. Corson 1,500 -- $ 10,000 1,739 3,239 .04%
William O. Daggett, Jr. 69,230 -- 100,000 17,391 86,621 .98
Donald F. U. Goebert 135,266 -- 25,000 4,347 139,613 1.58
Joseph R. Klinger 3,000 -- 10,000 1,739 4,739 .05
Paul M. LaNoce 10,000 -- 25,000 4,347 14,347 .16
William L. Mueller 64,226 -- 25,000 4,347 68,573 .77
Charles J. Tornetta 17,658 -- 25,000 4,347 22,065 .25
W. Kirk Wycoff 53,155 -- 250,000 43,478 96,633 1.09
A. John May, III 8,193 -- 10,000 1,739 9,932 .11
All director and executive
officers of the Company
as a group (9 persons) 362,228 -- 480,000 83,478 445,706 5.03
Roxborough-Manayunk:
Add B. Anderson, Jr. -- 50,941 100,000 17,391 68,332 .77
Robert E. Domanski, M.D. -- 18,242 30,000 5,217 23,459 .26
Joseph P. Healy -- 4,474 5,000 869 5,343 .06
Pietro M. Jacovini, Jr. -- 35,452 100,000 17,391 52,843 .60
William A. Lamb, Sr. -- 18,242 50,000 8,695 26,937 .30
Francis E. McGill, III -- 13,079 280,000 48,695 61,774 .70
John F. McGill -- 74,691 335,000 58,260 132,951 1.50
John F. McGill, Jr. -- 47,224 -- -- 47,224 .53
Jerry A. Naessens -- 43,644 60,000 10,434 54,078 .61
All directors and executive
officers of Roxborough-
Manayunk as a group (9
persons) -- 305,983 960,000 166,952 472,941 5.34
</TABLE>
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(1) Excludes shares which may be received upon the exercise of outstanding
common stock warrants or stock options. Directors and officers may
purchase additional shares of Company Common Stock in the after-
market following consummation of the Conversion and the Merger.
(2) Includes shares awarded under the 1992 Stock Bonus Plan and 1994
Management Stock Bonus Plan. See "Management of Roxborough-Manayunk."
(3) Excludes stock options and awards to be granted under the Company's
1995 Stock Option Plan and 1995 Recognition Plan if such plans are
approved by stockholders at the Company's first annual meeting of
stockholder following the Conversion and the Merger. See "Management
of the Company and Progress Bank Following the Conversion and the
Merger."
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Marketing Arrangements
The Company and Roxborough-Manayunk have engaged Sandler O'Neill as a
financial advisor in connection with the offering of the Conversion Stock,
and Sandler O'Neill has agreed to use its best efforts to solicit
subscriptions and purchase orders for shares of Conversion Stock in the
Offerings. Sandler O'Neill is a member of the National Association of
Securities Dealers, Inc. ("NASD") and a broker-dealer which is registered
with the SEC. Based upon negotiations between the Company, Roxborough-
Manayunk and Sandler O'Neill, Sandler O'Neill will receive a fee equal to
(a) 2.0% of the aggregate Actual Purchase Price of all shares of Conversion
Stock sold (i) in the Subscription Offering and (ii) to persons or entities
who are referred by the directors or executive officers of the Company and
Roxborough-Manayunk in the Community Offering, and (b) 3.0% of the
aggregate Actual Purchase Price of all shares of Conversion Stock otherwise
sold in the Community Offering, in each case except as set forth below. In
the event that a selected dealers agreement is entered into in connection
with a Syndicated Community Offering, the Company will pay a fee of up to
5.5% of the aggregate Actual Purchase Price of Conversion Stock to selected
broker-dealers (of which a fee of 1% to 1.5% will be payable to Sandler
O'Neill), for shares sold by such NASD member firm pursuant to a selected
dealers agreement, provided that fees payable to Sandler O'Neill for
Conversion Stock sold by Sandler O'Neill in the Syndicated Community
Offering shall be limited to an aggregate of 3% of the Actual Purchase
Price of such shares. Fees to Sandler O'Neill and to any other broker-
dealer may be deemed to be underwriting fees, and Sandler O'Neill and such
broker-dealers may be deemed to be underwriters. No fees will be paid to
Sandler O'Neill on purchases by any director, officer or employee of any of
the Parties or members of their immediate families or by any employee
benefit plan of the Company or Roxborough-Manayunk, including the ESOP.
Sandler O'Neill also will be reimbursed for its reasonable out-of-pocket
expenses, up to a maximum of $50,000 for legal expenses and $65,000 for all
expenses (including legal). The Company and Roxborough-Manayunk have
agreed to indemnify Sandler O'Neill for losses, claims, damages and
liabilities, including certain liabilities under the Securities Act.
The Parties have also retained Sandler O'Neill as a conversion agent
to provide recordkeeping services and to solicit proxies in connection with
the Conversion and the Merger for a fee of $17,500 plus out-of-pocket
expenses. Sandler O'Neill was also engaged by the Company prior to the
execution of the Merger Agreement to act as a financial advisor to the
Company and its subsidiaries in connection with the Conversion and the
Merger for a fee of $25,000, which amount will be credited toward the fees
to be paid with respect to the sale of Conversion Stock. An affiliate of
Sandler O'Neill, SOP Partners, L.P., is currently deemed to beneficially
own 6.10% of the outstanding Company Common Stock. See "Management of the
Company - Beneficial Ownership of Company Common Stock."
Directors and executive officers of the Company may participate in the
solicitation of offers to purchase Conversion Stock by mailing written
materials to prospective investors, responding to inquiries of prospective
investors, and performing ministerial or clerical work.
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In each jurisdiction in which the securities laws require that the offer
and/or sale of the Conversion Stock be made through a broker-dealer
registered in such jurisdiction, all written materials will be mailed under
cover of a letter from Sandler O'Neill. Other employees of the Parties 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 his solicitations or other participation in the Offerings
or the issuance of Exchange Shares by the payment of commissions or other
remuneration based either directly or indirectly on transactions in the
Conversion Stock and Exchange Shares, respectively.
Procedure for Purchasing Shares in the Offerings
To 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 the aggregate dollar amount subscribed for, or with
appropriate authorization for withdrawal from a deposit account at either
Roxborough-Manayunk or Progress (which may be given by completing the
appropriate blanks in the order form), must be received by the Company at
any of its offices by ____ p.m., Eastern Time, on the Expiration Date. In
addition, the Parties will require a prospective purchaser in the Offerings
to execute a certification in the form required by applicable OTS
regulations in connection with any sale of Conversion Stock. 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. In addition, the Company will not accept
orders submitted on photocopied or facsimile order forms nor order forms
unaccompanied by an executed certification form. The 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. Once received,
an executed order form may not be modified, amended or rescinded without
the consent of the Parties, unless the Offerings have not been completed
within 45 days after the end of the Subscription 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,
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depositors as of the close of business on the Eligibility Record Date
(February 28, 1994) or the Supplemental Eligibility Record Date (June 30,
1995) and depositors and certain borrowers of Roxborough-Manayunk as of the
close of business on the Voting Record Date (_______ __, 1995) must list on
the order form all accounts in which they have an ownership interest,
giving all names in each account and the account numbers.
Payment for subscriptions may be made (i) in cash if delivered in
person at any office of the Company, (ii) by check or money order or (iii)
by authorization of withdrawal from deposit accounts maintained with either
Roxborough-Manayunk or Progress. Interest will be paid on payments made by
cash, check or money order at Roxborough-Manayunk's passbook rate of
interest from the date payment is received until completion or termination
of the Conversion and the Merger. If payment is made by authorization of
withdrawal from deposit accounts, the funds authorized to be withdrawn from
a deposit account will continue to accrue interest at the contractual rates
until completion or termination of the Conversion and the Merger, but a
hold will be placed on such funds, thereby making them unavailable to the
depositor until completion or termination of the Conversion and the Merger.
If a subscriber authorizes either Roxborough-Manayunk or Progress to
withdraw the aggregate amount of the purchase price from a deposit account,
Roxborough-Manayunk or Progress will do so as of the effective date of the
Conversion and the Merger. Roxborough-Manayunk and Progress will waive any
applicable penalties for early withdrawal from certificate accounts. If
the remaining balance in a certificate account is reduced below the
applicable minimum balance requirement at the time that the funds actually
are transferred under the authorization, the certificate will be cancelled
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 aggregate dollar amount
subscribed for at the time it subscribes, but rather may pay for the amount
of Conversion Stock subscribed for by it at the Actual Purchase Price 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 Actual Purchase Price for which it subscribed.
Owners of self-directed Individual Retirement Accounts ("IRAs") may
use the assets of such IRAs to purchase Conversion Stock in the Offerings,
provided that such IRAs are not maintained at either Roxborough-Manayunk or
Progress. Persons with self-directed IRAs maintained at either Roxborough-
Manayunk or Progress must have their accounts transferred to an
unaffiliated institution or broker to purchase Conversion Stock in the
Subscription and Community Offerings. In addition, ERISA provisions and
IRS regulations require that officers, directors and 10% stockholders who
use self-directed IRA funds to purchase Conversion Stock in the
Subscription and Community Offerings make such purchases for the exclusive
benefit of the IRAs. Any interested parties wishing to use IRA funds for
stock purchases are advised to contact the Stock Information Center for
additional information.
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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 his account. Each person
exercising such subscription rights will be required to certify that he is
purchasing shares solely for his own account and that he 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.
The 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.
DESCRIPTION OF CAPITAL STOCK OF THE COMPANY
Upon consummation of the Conversion and the Merger, the Company will
be authorized to issue up to 15,000,000 shares of Company Common Stock, par
value $1.00 per share, and 3,000,000 shares of Preferred Stock, par value
$.01 per share. At March 31, 1995, the Company had 3,275,000 shares of
Company Common Stock issued and outstanding and no shares of Preferred
Stock issued or outstanding. The capital stock of the Company does not
represent or constitute a savings account or deposit of the Company or
Progress and is not insured by the FDIC or any other governmental agency.
Company Common Stock
General. Each share of Company Common Stock has the same relative
rights and is identical in all respects with each other share of Company
Common Stock. The Company Common Stock is not subject to call for
redemption and, upon receipt by the Company of the full purchase price
therefor, each share of Company Common Stock offered hereby will be fully
paid and non-assessable.
Voting Rights. Except as provided in any resolution or resolutions
adopted by the Board of Directors establishing any series of Preferred
Stock, the holders of Company Common Stock possess exclusive voting rights
in the Company. Each holder of Company Common Stock is entitled to one
vote for each share held on all matters voted upon by stockholders.
Stockholders are not permitted to cumulate votes in elections of directors.
Dividends. The holders of the Company Common Stock are entitled to
such dividends as may be declared from time to time by the Board of
Directors of the Company
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out of funds legally available therefor. For a discussion of the
requirements and limitations relating to the Company's ability to pay
dividends to stockholders and the ability of Progress to pay dividends to
the Company, see "Market Price for Company Common Stock and Dividends."
Pre-emptive Rights. Holders of the Company Common Stock do not have
any pre-emptive rights with respect to any shares which may be issued by
the Company in the future; the Company, therefore, may sell shares of
Company Common Stock without first offering them to its then-existing
stockholders.
Liquidation. In the event of any liquidation, dissolution or winding
up of the Company, the holders of the Company Common Stock would be
entitled to receive, after payment of all debts and liabilities of the
Company, all assets of the Company available for distribution, subject to
the rights of the holders of any Preferred Stock which may be issued with a
priority in liquidation or dissolution over the holders of the Company
Common Stock.
Warrants to Purchase Company Common Stock
As of the date of this Prospectus, the Company has warrants to
purchase 300,000 shares of Company Common Stock outstanding (the
"Warrants"). The following is a summary of the material provisions of the
Warrants. The Warrants are not savings accounts or deposits of the Company
or Progress and are not insured by the FDIC or any other governmental
agency.
Each Warrant entitles the holder thereof to purchase one share of the
Company Common Stock at an exercise price (the "Exercise Price") of $6.00.
The Warrants may not be exercised prior to the earlier to occur of May 31,
1996 or the effective date of the registration of the shares of Company
Common Stock underlying the Warrants (the "Common Stock Registration
Statement"). The Warrants may be exercised, in whole or in part, any time
subsequent thereto until 5:00 p.m., Eastern Time, on June 30, 1999.
The Exercise Price is subject to adjustment upon the occurrence of
certain events, including the issuance of Company Common Stock as a
dividend or distribution on the Company Common Stock and subdivisions,
combinations and certain reclassifications of Company Common Stock. No
adjustment in the Exercise Price will be required unless such adjustment
would require a change of at least 1% of the Exercise Price then in effect;
provided, however, that any adjustment that would otherwise be required to
be made shall be carried forward and taken into account in any subsequent
adjustment.
The Warrants do not confer upon the holders thereof any of the rights
or privileges of a stockholder. Accordingly, the Warrants do not entitle
holders thereof to receive any dividends, to vote, to call meetings or to
receive any distribution upon a liquidation of the Company. The Company
has authorized and reserved for issuance a number of shares of Company
Common Stock sufficient to provide for the exercise of the rights
represented by
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the Warrants. Shares issued upon exercise of the Warrants will be fully
paid and non-assessable. Warrants not exercised prior to 5:00 p.m, Eastern
Time, on June 30, 1999 shall become null and void.
The Company has filed a registration statement with respect to the
Warrants and has agreed to use its best efforts to continuously maintain
the effectiveness of such registration statement until the earlier to occur
of the second anniversary of the initial issuance of the Warrants (June 30,
1996) or the sale of all of the Warrants.
The Company has agreed to use its best efforts to file the Common
Stock Registration Statement by December 31, 1995. In addition, the
Company has agreed to use its best efforts to maintain the effectiveness of
the Common Stock Registration Statement until the earlier to occur of the
exercise of all the Warrants or June 30, 1999. In the event that the
Common Stock Registration Statement is not effective by May 31, 1996 and
shares of Company Common Stock are issued upon the exercise of Warrants
thereafter (as permitted under the terms of the Warrants), the Company will
take steps to register such shares ("Registrable Shares") of Company Common
Stock for resale in connection with obtaining effectiveness of the Common
Stock Registration Statement. In addition, in the event that the Company
plans to repurchase or bid for shares of Company Common Stock, whether on
the open market or otherwise, the Company may request that holders of
Warrants that have not previously been sold and holders of Registrable
Shares, if any, suspend or postpone the distribution thereof for a period
of 45 days or more; provided, however, the aggregate amount of days during
which the Company can delay the offering or distribution of the Warrants
and the Registrable Shares shall not exceed 90 days during any 12 month
period.
Preferred Stock
The Board of Directors of the Company is authorized to issue Preferred
Stock and to fix and state voting powers, designations, preferences or
other special rights of such shares and the qualifications, limitations and
restrictions thereof. The Preferred Stock may be issued in distinctly
designated series, may be convertible into Company Common Stock and may
rank prior to the Company Common Stock as to dividend rights, liquidation
preferences, or both.
The authorized but unissued shares of Preferred Stock (as well as the
authorized but unissued and unreserved shares of Company Common Stock) are
available for issuance in future mergers or acquisitions, in a future
public offering or private placement or for other general corporate
purposes. Except as otherwise required to approve the transaction in which
the additional authorized shares of Preferred Stock would be issued,
stockholder approval generally would not be required for the issuance of
these shares. Depending on the circumstances, however, stockholder
approval may be required pursuant to the requirements for continued listing
of the Company Common Stock on the Nasdaq National
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Market or the requirements of any exchange on which the Company Common
Stock may then be listed.
Preferred Stock Purchase Rights
In April 1990, the Company's Board of Directors declared a dividend
distribution of one preferred stock purchase right ("Right") for each
outstanding share of Company Common Stock. Each Right entitles each
registered holder, upon the occurrence of certain events, to purchase from
the Company a unit consisting of one-hundredth of a share (a "Rights Unit")
of Series A Junior Participating Preferred Stock, par value $.01 per share,
at a purchase price of $40.00 per Rights Unit (the "Purchase Price"),
subject to adjustment. The description and terms of the Rights are set
forth in a Rights Agreement (the "Rights Agreement") between the Company
and American Stock Transfer and Trust Company, as Rights Agent.
The Rights will separate from the Company Common Stock and be
distributed on a date ("Distribution Date") which will occur upon the
earlier of (i) ten business days following a public announcement that a
person or group of affiliated or associated persons, other than employee
benefit plans of the Company (an "Acquiring Person"), has acquired
beneficial ownership of 20% or more of the outstanding shares of Company
Common Stock (the "Stock Acquisition Date"), or (ii) ten business days (or
such later date as may be determined by action of the Board of Directors of
the Company prior to such time as any person becomes an Acquiring Person)
following the commencement of a tender offer or exchange offer that would
result in a person or group beneficially owning 20% or more of such
outstanding shares of Company Common Stock.
Until the Distribution Date, (i) the Rights will be evidenced by the
Company Common Stock certificates and will be transferred with and only
with such Company Common Stock certificates, (ii) new Company Common Stock
certificates issued after the Rights were declared, including shares to be
issued in the Offerings, will contain a notation incorporating by reference
the Rights Agreement and (iii) the surrender for transfer of any
certificate for Company Common Stock outstanding will also constitute the
transfer of the Rights associated with the Company Common Stock represented
by such certificate. As soon as practicable after the Distribution Date,
separate certificates representing the Rights (the "Rights Certificates")
will be mailed to the holders of record of the Company Common Stock as of
the close of business on the Distribution Date and, thereafter, the
separate Rights Certificates alone will represent the Rights. The Rights
will not be exercisable until the Distribution Date and will cease to be
exercisable at the close of business on May 11, 2000, unless the Rights are
earlier redeemed by the Company as described below.
Unless the Rights are redeemed earlier pursuant to the Rights
Agreement, in the event that, at any time following the Stock Acquisition
Date, (i) the Company is involved in a merger or other business combination
in which the Company is not the surviving corporation or in which the
Company Common Stock is changed into or exchanged for other
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securities of any other person or cash or any other property, or (ii) 50%
or more of the Company's assets or earning power is sold or transferred,
each holder of a Right shall thereafter have the right to receive, upon
exercise and payment of the Purchase Price, common stock of the acquiring
company having a value equal to two times the exercise price of the Right.
In addition, unless the Rights are redeemed pursuant to the Rights
Agreement, in the event that any person or group of affiliated or
associated persons becomes an Acquiring Person, the Rights Agreement
provides that proper provision shall be made so that each holder of a Right
will thereafter have the right to receive, upon exercise and payment of the
Purchase Price, Company Common Stock (or, in certain circumstances, cash,
property or other securities of the Company) having a value equal to two
times the exercise price of the Right. The events set forth in this
paragraph are referred to in the Rights Agreement as a "Triggering Event."
Following the occurrence of a Triggering Event, any Rights that are, or
(under certain circumstances) were, beneficially owned by any Acquiring
Person shall immediately become null and void.
At any time after a person becomes an Acquiring Person, the Company
may exchange all or part of the Rights (other than Rights which previously
have been voided as set forth above) for shares of Company Common Stock at
an exchange ratio of one share per Right, as such may be appropriately
adjusted to reflect any stock split or similar transaction.
In general, the Company may redeem the Rights in whole, but not in
part, at any time until ten days following the Stock Acquisition Date, at a
price of $.01 per Right ("Redemption Price"). Immediately upon the action
of the Board of Directors ordering redemption of the Rights, the Rights
will terminate and the only right of the holders of Rights will be to
receive the Redemption Price. Until a Right is exercised or exchanged, the
holder thereof, as such, will have no rights as a stockholder of the
Company, including the right to vote or to receive dividends.
Preferred Stock purchasable upon exercise of the Rights will not be
redeemable. Each share of Preferred Stock will be entitled to a minimum
preferential quarterly dividend payment of $1 per share but will be
entitled to an aggregate dividend of 100 times the dividend declared per
share of Company Common Stock. In the event of liquidation, the holders of
the Preferred Stock will be entitled to a minimum preferential liquidation
payment of $100 per share but will be entitled to an aggregate payment of
100 times the payment made per share of Company Common Stock. Each share
of Preferred Stock will have 100 votes, voting together with the Company
Common Stock. Finally, in the event of any merger, consolidation or other
transaction in which shares of Company Common Stock are exchanged, each
share of Preferred Stock will be entitled to receive 100 times the amount
received per share of Company Common Stock.
The Rights may have certain anti-takeover effects. The Rights would
cause substantial dilution to a person or group that acquires 20% or more
of the outstanding shares of Company Common Stock if a Triggering Event
thereafter occurs without the
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Rights having been redeemed or in the event of an exchange. However, the
Rights should not interfere with any merger or other business combination
approved by the Board of Directors because the Rights are redeemable under
certain circumstances.
Transfer Agent
The transfer agent and registrar for the Company Common Stock and the
Warrants is American Stock Transfer & Trust Company, New York, New York.
RESTRICTIONS ON ACQUISITION OF THE COMPANY AND PROGRESS BANK
General
The Certificate of Incorporation and Bylaws of the Company, the DGCL
and applicable federal laws and regulations contain certain provisions
which may be deemed to have a potential anti-takeover effect. Such
provisions may have the effect of discouraging a future takeover attempt
which is not approved by the Board of Directors but which the Company's
stockholders may deem to be in their best interest or in 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 an opportunity to do so. Certain of such
provisions also may make it more difficult for stockholders of the Company
to remove members of its Board of Directors and management. The Company is
not aware of any existing or threatened effort to acquire control of the
Company.
The following description of certain provisions of the Certificate of
Incorporation and Bylaws of the Company, the DGCL and applicable federal
laws and regulations is necessarily general and is qualified by reference
to such Certificate of Incorporation and Bylaws, the DGCL and applicable
federal laws and regulations.
Certificate of Incorporation and Bylaws
Authorized but Unissued Shares of Capital Stock. Upon consummation of
the Conversion and the Merger, the Company will have 3,000,000 authorized
but unissued shares of Preferred Stock and 15,000,000 authorized shares of
Company Common Stock. As a general matter, the existence of unissued and
unreserved shares of capital stock provides a board of directors with the
ability to cause the issuance of shares of capital stock under
circumstances that might prevent or render more difficult or costly the
completion of a takeover of a company by diluting the voting or other
rights of any proposed acquiror, by creating a substantial voting block in
institutional or other hands that might undertake to support the position
of a board of directors, by effecting an acquisition that might complicate
or preclude a takeover or otherwise.
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The Board of Directors also has the authority to issue shares of
Preferred Stock with such terms as it deems advisable. In the event of a
proposed merger, tender offer or other attempt to gain control of the
Company which the Board of Directors does not approve, the Board of
Directors could authorize the issuance of a series of Preferred Stock with
rights and preferences which could impede the completion of such a
transaction. An effect of the possible issuance of Preferred Stock,
therefore, may be to deter a future takeover attempt. See "Description of
Capital Stock - Preferred Stock."
In addition to the authorized but unissued shares of Common Stock and
Preferred Stock, the Company has adopted a shareholder rights plan which
generally would cause substantial dilution to a person or group that
acquires 20% or more of the outstanding shares of Common Stock. See
"Description of Capital Stock - Preferred Stock Purchase Rights."
Limitation on Voting Rights. Upon consummation of the Conversion and
the Merger, the Company's Certificate of Incorporation will be amended to
provide that for a period of five years from the date of Conversion and the
Merger, no person shall directly or indirectly offer to acquire or acquire
the beneficial ownership of (i) more than 10% of the issued and outstanding
shares of any class of an equity security of the Company, or (ii) any
securities convertible into, or exercisable for, any equity securities of
the Company if, assuming conversion or exercise by such person of all
securities of which such person is the beneficial owner which are
convertible into, or exercisable for, such equity securities (but of no
securities convertible into, or exercisable for, such equity securities of
which such person is not the beneficial owner), such person would be the
beneficial owner of more than 10% of any class of an equity security of the
Company. The term "person" is broadly defined to prevent circumvention of
this restriction.
The foregoing restrictions do not apply to (i) any offer with a view
toward public resale made exclusively to the Company by underwriters or a
selling group acting on its behalf, (ii) any tax-qualified employee benefit
plan or arrangement established by the Company or the Bank and any trustee
of such a plan or arrangement, and (iii) any other offer or acquisition
approved in advance by the affirmative vote of two-thirds of the Company's
entire Board of Directors. In the event that shares are acquired in
violation of such provision, all shares beneficially owned by any person in
excess of 10% shall be considered "Excess Shares" and 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 submitted to stockholders
for a vote, and the Board of Directors may cause such Excess Shares to be
transferred to an independent trustee for sale on the open market or
otherwise, with the expenses of such trustee to be paid out of the proceeds
of sale.
Board of Directors. The Company's Certificate of Incorporation
provides that the Board of Directors of the Company shall be divided into
three classes as nearly equal in number as the then total number of
directors permits, with one class to be elected annually for a term of
three years and until their successors are elected and qualified.
Vacancies
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occurring in the Board of Directors of the Company by reason of an increase
in the number of directors may be filled by a vote of 67% of the remaining
directors, and any directors so chosen shall hold office until the next
election of directors by stockholders and until their successors are
elected and qualified. Any other vacancy in the Board of Directors,
whether by reason of death, resignation, disqualification, removal or other
cause, may be filled by a vote of 67% of the remaining directors, and any
directors so chosen shall hold office until the next election of the class
for which such directors shall have been chosen and until their successors
are elected and qualified.
Directors of the Company may be removed from office only for cause by
the affirmative vote of the holders of 67% or more of the outstanding
shares of Common Stock entitled to vote generally in the election of
directors. Cause for removal exists only if the director whose removal is
proposed either has been convicted of a felony or has been adjudged by a
court of competent jurisdiction to be liable for gross negligence or
misconduct in the performance of such directors' duty to the Company.
Meetings of Stockholders. Special meetings of stockholders of the
Company, for any purpose or purposes, may be called only upon the
affirmative vote of 67% of the Board of Directors and may not be called by
the stockholders of the Company.
Stockholder Nominations and Proposals. The Certificate of
Incorporation of the Company generally provides that stockholders must
provide the Company with written notice of stockholder nominations for
election as directors and stockholder proposals not later than 30 days
prior to the date of the scheduled annual meeting; provided, however, that
if fewer than 21 days' notice of the meeting is given to stockholders, such
written notice must be received not later than the close of the tenth day
following the day on which notice of the meeting was mailed to
stockholders. Stockholder proposals which are proposed to be included in
the Company's proxy materials must be submitted in accordance with the
notice and other requirements of Rule 14a-8 under the Exchange Act. In
each case the stockholder also is required to submit specified information
regarding such stockholder and the proposed nominee(s) and/or business to
be acted upon at a meeting of stockholders.
Supermajority Provision. The Certificate of Incorporation of the
Company includes a provision which generally requires the affirmative vote
of 67% of the Company's stockholders to approve a merger or consolidation
involving the Company or the sale, lease, exchange or other disposition of
all or substantially all of the assets of the Company. This voting
requirement is not applicable, however, if the Board of Directors of the
Company shall have approved the transaction by a vote of 67% of the entire
Board.
Fair Price Provision. The Certificate of Incorporation includes a
provision which governs any proposed "business combination" (defined
generally to include certain sales, purchases, exchanges, leases,
transfers, dispositions or acquisitions of assets, mergers or
consolidations, or certain reclassifications of securities of the Company)
between the Company or its subsidiaries, on the one hand, and a "Related
Person," on the other hand.
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A "Related Person" is defined generally to include any person, partnership,
corporation, group or other entity (other than the Company and its
subsidiaries) which is the beneficial owner (as defined) of 10% or more of
the shares of the Company entitled to vote generally in an election of
directors ("Voting Shares").
Under the Certificate of Incorporation, if certain specified
conditions are not met, neither the Company nor any of its subsidiaries may
become a party to any business combination with a Related Person without
the prior affirmative vote at a meeting of the Company's stockholders by
the holders of at least 80% of all shares outstanding and entitled to vote
thereon (the Company's "Voting Shares"), voting separately as a class, and
by an "Independent Majority of Stockholders," which is defined to mean the
holders of a majority of the outstanding Voting Shares that are not
beneficially owned, directly or indirectly, by a Related Person. If such
approval were obtained, the specific conditions would not have to be met.
Such conditions also would not have to be met if the Board of Directors
approved the business combination at times and by votes specified in the
Certificate of Incorporation. The conditions necessary to avoid the vote
of 80% of the Company's outstanding Voting Shares and of an Independent
Majority of Stockholders include conditions providing that, upon
consummation of the business combination, the stockholders would receive at
least a certain minimum price per share for their shares.
Amendments to Certificate of Incorporation and Bylaws. The
affirmative vote of a majority of the issued and outstanding voting stock
of the Company is required to amend the Certificate of Incorporation, with
the exception of certain sections thereof, including provisions relating to
business combinations, which can only be amended by a vote of 67% of the
whole Board of Directors, a majority of the Continuing Directors, as
defined, the vote of at least 67% of the Voting Shares, and an Independent
Majority of Stockholders entitled to vote thereon.
The Bylaws may be altered, amended or repealed or new bylaws adopted
by the Board of Directors at a regular or special meeting upon the
affirmative vote of both 67% of the whole Board of Directors and a majority
of the Continuing Directors, as defined. The Bylaws may also be altered,
amended or repealed by the stockholders upon the affirmative vote of 67% of
the outstanding Voting Shares of the Company and by an Independent Majority
of Stockholders.
Federal Laws and Regulations
Federal laws and regulations generally require any person who intends
to acquire control of a savings and loan holding company or savings
institution to give at least 60 days prior written notice to the OTS.
"Control" is defined as the power, directly or indirectly, to direct the
management or policies of a savings institution or to vote 25% or more of
any class of voting securities of the savings institution. In addition to
the foregoing restrictions, a company must secure the approval of the OTS
before it can acquire control of a savings institution. Under federal
regulations, a person (including business entities) is deemed
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conclusively to have acquired control if, among other things, such person
acquires: (a) 25% or more of any class of voting stock of the savings
institution; (b) irrevocable proxies representing 25% or more of any class
of voting stock of the savings institution; (c) any combination of voting
stock and irrevocable proxies representing 25% or more of any class of such
institution's voting stock; or (d) control of the election of a majority of
the directors of the savings institution. In addition, a rebuttable
presumption of control arises in the event a person acquires more than 10%
of any class of voting stock (or more than 25% of any class of non-voting
stock) and is subject to one or more of eight enumerated control factors.
Such regulations also set forth rebuttable presumptions of concerted action
and the procedures to follow to rebut any such presumptions. The OTS is
specifically empowered to disapprove such an acquisition of control if it
finds, among other reasons, that (i) the acquisition would substantially
lessen competition; (ii) the financial condition of the acquiring person
might jeopardize the institution or its depositors; or (iii) the
competency, experience or integrity of the acquiring person indicates that
it would not be in the interest of the depositors, the institution or the
public to permit the acquisition of control by such person.
Delaware General Corporation Law
Section 203 of the DGCL generally provides that a Delaware corporation
shall not engage in any "business combination" with an "interested
stockholder" for a period of three years following the date that such
stockholder became an interested stockholder unless (1) prior to such date
the board of directors of the corporation approved either the business
combination or the transaction which resulted in the stockholder becoming
an interested stockholder; or (2) upon consummation of the transaction
which resulted in the stockholder becoming an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced, excluding
for this purpose, shares owned by persons who are directors and also
officers and shares owned by employee stock ownership plans in which
employee participants do not have the right to determine confidentially
whether the shares held subject to the plan will be tendered in a tender
offer or exchange offer; or (3) on or subsequent to such date, the business
combination is approved by the board of directors and authorized at an
annual or special meeting of stockholders by the affirmative vote of at
least 66 2/3% of the outstanding voting stock which is not owned by the
interested stockholder. The three-year prohibition on business
combinations with an interested stockholder does not apply under certain
circumstances, including business combinations with a corporation which
does not have a class of voting stock that is (i) listed on a national
securities exchange, (ii) authorized for quotation on an inter-dealer
quotation system of a registered national securities association, or (iii)
held of record by more than 2,000 stockholders, unless in each case this
result was directly or indirectly caused by the interested stockholder.
An "interested stockholder" generally means any person that (i) is the
owner of 15% or more of the outstanding voting stock of the corporation or
(ii) is an affiliate or associate of the corporation and was the owner of
15% or more of the outstanding voting stock of the
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corporation at any time within the three-year period immediately prior to
the date on which it is sought to be determined whether such person is an
interested stockholder; and the affiliates and associates of such a person.
The term "business combination" is broadly defined to include a wide
variety of transactions, including mergers, consolidations, sales of 10% or
more of a corporation's assets and various other transactions which may
benefit an interested stockholder.
EXPERTS
The consolidated financial statements of the Company as of December
31, 1994 and 1993 and for each of the two years in the period ended
December 31, 1994 included in this Prospectus have been included herein in
reliance upon the report of Coopers & Lybrand L.L.P., independent certified
public accountants, appearing elsewhere herein, and upon the authority of
said firm as experts in accounting and auditing.
The consolidated financial statements of the Company for the year
ended December 31, 1992 included in this Prospectus have been included
herein in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, appearing elsewhere herein, and upon the
authority of said firm. Such report contains an explanatory paragraph that
states that (i) at December 31, 1992, Progress failed to meet the minimum
capital thresholds under the Federal Deposit Insurance Corporation
Improvement Act of 1991 to be considered "adequately capitalized" and was
categorized as "significantly undercapitalized," (ii) Progress had filed a
capital plan for attaining the required levels of regulatory capital and
that such plan had been accepted by the OTS, but that on February 16, 1993
Progress had submitted an amendment to its plan and Progress had not
received notification as to acceptance or rejection of its amended capital
plan, (iii) because Progress did not meet the minimum capital thresholds to
be considered "adequately capitalized" it was subject to certain operating
restrictions, such as growth limitations on executive compensation and
restrictions on deposit interest rates, (iv) failure to increase its
capital ratios in accordance with its capital plan or further declines in
its capital ratios exposed Progress to additional restrictions and
regulatory actions, including regulatory take-over, (v) there was
substantial doubt about the Company's ability to continue as a going
concern, and (vi) the ability of the Company to continue as a going concern
is dependent upon many factors including regulatory action and the ability
of management to achieve its plan.
The consolidated financial statements of Roxborough-Manayunk as of
December 31, 1994 and 1993 and for each of the two years in the period
ended December 31, 1994, and the consolidated financial statements of
Roxborough-Manayunk Federal Savings and Loan Association [predecessor
association] for the year ended December 31, 1992, included in this
Prospectus have been audited by Deloitte & Touche, LLP, independent
auditors, as stated in their report appearing elsewhere herein and have
been included in reliance upon the report of such firm, given upon their
authority of said firm as experts in accounting and auditing.
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RP Financial has consented to the publication herein of the summary of
its report to the Parties setting forth its opinion as to the estimated
incremental pro forma market value of the Mutual Holding Company and
Roxborough-Manayunk to the Companies and its opinion with respect to
subscription rights.
LEGAL AND TAX OPINIONS
The legality of the Company Common Stock and certain legal matters
will be passed upon for the Company by Elias, Matz, Tiernan & Herrick
L.L.P., Washington, D.C., special counsel to the Company and Progress. The
federal income tax consequences of the Conversion and the Merger and
certain legal matters for Roxborough-Manayunk will be passed upon for
Roxborough-Manayunk by Malizia, Spidi, Sloane and Fisch, P.C. Certain
legal matters will be passed upon for Sandler O'Neill by Breyer & Aguggia.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY
Page
----
Independent Auditor's Reports . . . . . . . . . . F-1
Consolidated Statements of Financial Condition as of
March 31, 1995 (unaudited) and December 31, 1994
and 1993 (audited) . . . . . . . . . . . . . F-4
Consolidated Statements of Income for the three months
ended March 31, 1995 and 1994 (unaudited)
and the years ended December 31, 1994, 1993
and 1992 (audited) . . . . . . . . . . . . F-5
Consolidated Statements of Stockholders' Equity for the
three months ended March 31, 1995 (unaudited)
and the years ended December 31, 1994, 1993 and
1992 (audited) . . . . . . . . . . . . . . . F-6
Consolidated Statements of Cash Flows for the three
months ended March 31, 1995 and 1994 (unaudited)
and the years ended December 31, 1994, 1993 and
1992 (audited) . . . . . . . . . . . . . . . F-7
Notes to Consolidated Financial Statements . . . F-8
All financial statement schedules are omitted because the required
information either is not applicable or is shown in the financial
statements or in the notes thereto.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
OF ROXBOROUGH-MANAYUNK
Page
----
Independent Auditor's Report . . . . . . . . . . . . . . S-1
Consolidated Statements of Financial Condition as of
March 31, 1995 (unaudited) and December 31,
1994 and 1993 (audited) . . . . . . . . . . . . . . . . S-3
Consolidated Statements of Income for the three months
ended March 31, 1995 and 1994 (unaudited)
and the years ended December 31, 1994, 1993
and 1992 (audited) . . . . . . . . . . . . . . . . S-4
Consolidated Statements of Changes in Stockholders' Equity for
the three months ended March 31, 1995 (unaudited)
and the years ended December 31, 1994, 1993 and
1992 (audited) . . . . . . . . . . . . . . . . . . S-5
Consolidated Statements of Cash Flows for the three
months ended March 31, 1995 and 1994 (unaudited)
and the years ended December 31, 1994, 1993 and
1992 (audited) . . . . . . . . . . . . . . . . . . S-6
Notes to Consolidated Financial Statements . . . . . . . S-7
All financial statement schedules are omitted because the required
information either is not applicable or is shown in the financial
statements or in the notes thereto.
Because FJF Financial, Inc. has limited assets other than its shares
of RM Bank Common Stock (which will be cancelled in connection with the
Conversion and the Merger) and has engaged in only minimal activities, the
financial statements of the Mutual Holding Company have been omitted
because of their immateriality.
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To the Shareholders and Board of Directors of
Progress Financial Corporation:
We have audited the accompanying consolidated statements of
financial condition of Progress Financial Corporation as of
December 31, 1994 and 1993 and the related consolidated
statements of operations, stockholders' equity and cash flows for
the years then ended. 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, the 1994 and 1993 consolidated financial
statements referred to above present fairly, in all material
respects, the consolidated financial position of Progress
Financial Corporation as of December 31, 1994 and 1993 and the
consolidated results of their operations and their cash flows for
the years then ended in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the consolidated financial statements,
the Company changed its method of accounting for investments in
1994 and, as discussed in Note 10, changed its method of
accounting for income taxes in 1993.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
January 18, 1995, except for Note 19,
as to which the date is May 24, 1995
F-1
<PAGE>
[LETTERHEAD OF KPMG PEAT MARWICK LLP]
To the Stockholders and Board of Directors
Progress Financial Corporation:
We have audited the consolidated statement of operations,
stockholders' equity, and cash flows of Progress Financial
Corporation and subsidiaries (the "Company") for the year ended
December 31, 1992. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, based on our audit, the consolidated financial
statements referred to above present fairly, in all material
respects, the results of operations and the cash flows for the
year ended December 31, 1992, in conformity with generally
accepted accounting principles.
The December 31, 1992, consolidated financial statements have
been prepared assuming that the Company will continue as a going
concern. The prompt corrective action provisions of the Federal
Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
place restrictions on any insured depository institution that
does not meet certain requirements, including minimum capital
ratios. These restrictions are based on an institution's FDICIA
defined capital category and become increasingly more severe as
an institution's capital category declines. At December 31,
1992, Progress Federal Savings Bank (the "Bank") (a wholly-owned
subsidiary of the Company) is categorized as "significantly
undercapitalized." The Bank filed a capital plan in November
1991 with the Office of Thrift Supervision ("OTS") outlining its
plans for attaining the required levels of regulatory capital and
the plan has been accepted by the OTS. On February 16, 1993, the
Bank submitted an amendment to its Plan which projects that the
Bank will achieve regulatory capital compliance by June 30, 1993
through the consummation of a concurrent rights and community
offering of common stock. The Bank has not been notified as to
whether the amended plan has been accepted by the OTS. Because
the Bank does not meet the minimum capital thresholds to be
considered "adequately capitalized," it is subject to certain
operating restrictions such as growth limitations, prohibitions
on dividend payments, increased supervisory monitoring by its
primary federal regulator, limitations on executive compensation,
and restrictions on deposit interest rates. Failure to increase
its capital ratios in accordance with its capital plan or further
declines in its capital ratios exposes the Bank to additional
restrictions and regulatory
F - 2
<PAGE>
actions, including regulatory take-over. This situation raises
substantial doubt about the Company's ability to continue as a
going concern. The ability of the Company to continue as a going
concern is dependent on many factors, including regulatory action
and the ability of management to achieve its plan. Management's
plans in regard to these matters are described in the 1992
consolidated financial statements. The consolidated financial
statements do not include any adjustments that might result from
the outcome of these uncertainties.
/s/ KPMG Peat Marwick LLP
Philadelphia, Pennsylvania
January 22, 1993, except for the last paragraph above
which is as of February 16, 1993
F - 3
<PAGE>
<TABLE><CAPTION>
Progress Financial Corporation
- ----------------------------------------------------------------------------------------------------------------------------------
Consolidated Statements of Financial Condition
March 31, December 31, December 31,
Assets 1995 1994 1993
---- ---- ----
(unaudited)
<S> <C> <C> <C>
Cash and due from banks:
Interest-bearing $ 185,477 $ 311,216 $ 79,022
Non-interest-bearing 5,332,765 7,764,404 4,124,885
Investments:
Available for sale at fair value (amortized cost:
$4,030,090 in 1995 and $5,029,335 in 1994) 3,809,752 4,626,561 --
Held to maturity at amortized cost (fair value:
$12,478,778 in 1995, $11,927,540 in 1994
and $4,609,200 in 1993) 13,022,293 12,866,482 4,631,700
Mortgage-backed securities:
Available for sale at fair value in 1995 and 1994
(amortized cost: $9,645,172 in 1995 and $9,751,633
in 1994); and at lower of amortized cost or fair
value in 1993 (fair value: $8,899,274 in 1993) 9,144,870 9,103,185 8,893,139
Held to maturity at amortized cost (fair value:
$86,713,822 in 1995, $87,105,288 in 1994 and
$116,240,176 in 1993) 90,600,789 93,673,123 117,054,089
Loans, net of unearned discounts and deferred fees 211,757,377 207,273,821 160,381,704
------------- ------------- -------------
Less: allowance for loan losses (1,610,535) (1,502,428) (2,113,445)
Net loans 210,146,842 205,771,393 158,268,259
Loans held for sale (fair value: $738,920 in 1995,
$360,740 in 1994 and $16,774,050 in 1993) 727,339 351,287 16,774,050
Real estate owned, net 4,453,791 4,534,373 11,576,663
Premises and equipment 1,917,757 1,909,297 1,866,878
Accrued interest receivable 2,159,060 2,209,951 2,515,330
Deferred income taxes 1,370,370 1,370,370 1,370,370
Investments in and advances to affiliates and
joint ventures 8,203 8,203 259,835
Other assets 4,078,458 3,689,531 5,794,292
------------- ------------- -------------
Total assets $ 346,957,766 $ 348,189,376 $ 333,208,512
============= ============= =============
Liabilities and Stockholders' Equity
Liabilities:
Deposits $ 277,849,229 $ 283,957,740 $ 273,583,125
Advances from the Federal Home Loan Bank 47,820,750 44,051,750 40,536,000
Subordinated debt 3,000,000 3,000,000 --
Advance payments by borrowers for
taxes and insurance 2,354,869 2,352,159 2,522,095
Accrued interest payable 825,428 587,827 434,292
Other liabilities 1,378,485 1,219,390 1,345,614
------------- ------------- -------------
Total liabilities 333,228,761 335,168,866 318,421,126
------------- ------------- -------------
Commitments and contingencies (Note 11)
Stockholders' equity:
Serial preferred stock - 1,000,000 shares authorized but unissued -- -- --
Junior participating preferred stock - $.01 par value - 1,010 shares
authorized but unissued -- -- --
Common stock - $1 par value; 6,000,000 shares authorized;
3,275,000 shares issued and outstanding 3,275,000 3,275,000 3,275,000
Capital surplus 15,706,092 15,706,092 15,706,092
Retained earnings (deficit) (4,531,447) (4,909,360) (4,193,706)
Unrealized loss on securities available for sale (720,640) (1,051,222) --
------------- ------------- -------------
Total stockholders' equity 13,729,005 13,020,510 14,787,386
------------- ------------- -------------
Total liabilities and stockholders' equity $ 346,957,766 $ 348,189,376 $ 333,208,512
============= ============= =============
See Notes to Consolidated Financial Statements.
</TABLE>
F - 4
<PAGE>
<TABLE><CAPTION>
Progress Financial Corporation
- ------------------------------------------------------------------------------------------------------------------------------------
Consolidated Statements of Operations
For The Three Months Ended For The Years Ended
March 31, December 31,
-------------------------------- --------------------------------------------
1995 1994 1994 1993 1992
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
Interest income:
Loans, including fees $ 4,547,811 $ 3,433,033 $15,184,186 $14,122,501 $16,685,418
Mortgage-backed securities 1,654,423 1,546,297 6,617,363 6,342,912 4,852,765
Investment securities 266,942 77,785 960,014 281,412 289,308
Other 28,800 21,248 68,543 77,492 151,311
----------- ----------- ----------- ----------- -----------
Total interest income 6,497,976 5,078,363 22,830,106 20,824,317 21,978,802
----------- ----------- ----------- ----------- -----------
Interest expense:
Deposits 2,839,013 2,400,485 10,168,329 9,376,735 11,716,331
Advances from the Federal Home
Loan Bank 748,931 430,987 2,202,021 2,088,678 2,020,774
Subordinated debt 65,997 -- 134,790 -- --
----------- ----------- ----------- ----------- -----------
Total interest expense 3,653,941 2,831,472 12,505,140 11,465,413 13,737,105
----------- ----------- ----------- ----------- -----------
Net interest income 2,844,035 2,246,891 10,324,966 9,358,904 8,241,697
Provision for loan losses 100,000 50,000 521,100 368,284 275,022
----------- ----------- ----------- ----------- -----------
Net interest income after provision
for loan losses 2,744,035 2,196,891 9,803,866 8,990,620 7,966,675
----------- ----------- ----------- ----------- -----------
Other income:
Mortgage origination and servicing 206,751 221,307 713,144 487,979 264,576
Service charges on deposits 230,783 192,010 831,373 750,175 701,636
Gain (loss) from sales of securities (35,000) (70,217) (321,910) 214,919 1,197,232
Gain (loss) from mortgage banking
activities (972) (125,870) (176,466) 606,082 1,428,036
Income (loss) on properties sold (23,846) (37,211) (61,705) 102,427 1,217,786
Income from affiliates and joint
ventures -- -- -- -- 446,793
Other 24,498 194,157 560,893 64,879 360,967
----------- ----------- ----------- ----------- -----------
Total other income 402,214 374,176 1,545,329 2,226,461 5,617,026
----------- ----------- ----------- ----------- -----------
Other expense:
Salaries and employee benefits 1,200,370 1,047,159 4,362,827 3,692,617 3,741,950
Occupancy 324,757 332,778 1,292,138 1,177,050 1,133,527
Data processing 191,322 186,749 816,029 795,324 769,439
Furniture, fixtures, and equipment 126,566 108,265 498,073 426,393 478,237
Insurance premiums 257,757 261,097 1,053,533 1,004,958 783,615
Provision for real estate owned, net 75,000 -- 1,575,538 1,733,397 2,834,557
Loan and real estate owned
expenses, net 42,832 110,084 296,126 593,810 379,939
Professional services 274,267 218,217 809,318 888,150 1,223,351
Marketing 52,526 58,438 351,798 319,224 216,984
Other 222,939 203,556 1,009,469 936,832 670,171
----------- ----------- ----------- ----------- -----------
Total other expense 2,768,336 2,526,343 12,064,849 11,567,755 12,231,770
----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes 377,913 44,724 (715,654) (350,674) 1,351,931
Income tax expense (benefit) -- -- -- (1,033,562) 73,997
----------- ----------- ----------- ----------- -----------
Net income (loss) $ 377,913 $ 44,724 $ (715,654) $ 682,888 $ 1,277,934
=========== =========== =========== =========== ===========
Earnings (loss) per share $ .12 $ .01 $ (.22) $ .29 $ 1.27
=========== =========== =========== =========== ===========
Weighted average number of
shares outstanding 3,275,000 3,275,000 3,275,000 2,319,360 1,010,112
=========== =========== =========== =========== ===========
See Notes to Consolidated Financial Statements.
</TABLE>
F - 5
<PAGE>
<TABLE><CAPTION>
Progress Financial Corporation
- ---------------------------------------------------------------------------------------------------------------------------
Consolidated Statements of Stockholders' Equity
Retained Total
Common Capital earnings Unrealized stockholders'
stock surplus (deficit) loss equity
----- ------- --------- ---- ------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1991 $ 1,010,112 $10,743,872 $(6,154,528) $ -- $ 5,599,456
Net income -- -- 1,277,934 -- 1,277,934
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1992 1,010,112 10,743,872 (4,876,594) -- 6,877,390
Issuance of common stock 2,264,888 4,962,220 -- -- 7,227,108
Net income -- -- 682,888 -- 682,888
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1993 3,275,000 15,706,092 (4,193,706) -- 14,787,386
Cumulative effect of a
change in an
accounting principle -- -- -- (61,000) (61,000)
Net loss -- -- (715,654) -- (715,654)
Change in unrealized loss on
securities available for sale -- -- -- (990,222) (990,222)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1994 3,275,000 15,706,092 (4,909,360) (1,051,222) 13,020,510
Net income (unaudited) -- -- 377,913 -- 377,913
Change in unrealized loss
on securities available
for sale (unaudited) -- -- -- 330,582 330,582
----------- ----------- ----------- ----------- -----------
Balance, March 31, 1995 (unaudited) $ 3,275,000 $15,706,092 $(4,531,447) $ (720,640) $13,729,005
=========== =========== =========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
<TABLE><CAPTION>
Consolidated Statements of Cash Flows
For The Three Months Ended For The Years Ended
March 31, December 31,
1995 1994 1994 1993 1992
---- ---- ---- ---- ----
-------------------------------- ------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $ 377,913 $ 44,724 $ (715,654) $ 682,888 $ 1,277,934
Add (deduct) items not affecting
cash flows from
operating activities:
Depreciation and amortization 131,881 133,886 536,618 541,592 567,175
Provision for real estate owned 75,000 -- 1,575,538 1,733,397 2,834,557
Provision for loan losses 100,000 50,000 521,100 368,284 275,022
Capitalized interest on real
estate owned -- (11,227) (11,429) (205,975) (315,202)
(Increase) decrease in
prepaid/deferred income taxes -- -- -- (1,033,707) 1,757,661
Equity in (earnings) loss of
affiliates -- -- -- -- (446,793)
Loss (gain) from mortgage banking
activities 972 125,871 176,466 (606,082) (1,428,036)
Loss (gain) from sales of securities
available for sale 35,000 70,217 321,910 (214,919) (1,197,232)
Loss (income) on properties sold 23,846 37,211 61,705 (102,427) (1,217,786)
Amortization of deferred loan fees (128,861) (179,846) (552,673) (263,837) (463,329)
Amortization of premiums/accretion of
discounts on securities 146,685 1,226,319 2,026,991 2,806,250 1,050,288
Origination and purchases of loans
held for sale (1,008,887) (11,510,730) (17,603,137) (81,057,588) (37,711,377)
Sales of loans held for sale 630,566 27,952,614 33,849,434 65,136,168 51,623,379
Decrease (increase) in accrued interest
receivable 50,891 (422,992) 305,379 (251,945) 819,082
(Increase) decrease in other assets (388,926) 556,192 2,104,761 (3,902,054) (1,390,917)
Increase (decrease) in other
liabilities 159,094 320,074 (126,224) (129,217) 755,791
Increase (decrease) in accrued
interest payable 237,601 189,916 153,535 (120,638) (353,767)
---------- ----------- ----------- ------------ ------------
Net cash flows provided by (used in)
Operating activities 442,775 18,582,229 22,624,320 (16,619,810) 16,436,450
---------- ----------- ----------- ------------ ------------
(continued)
</TABLE>
F - 6
<PAGE>
<TABLE><CAPTION>
Progress Financial Corporation
- --------------------------------------------------------------------------------------------------------------------------------
Consolidated Statements of Cash Flows (continued)
For The Three Months Ended For The Years Ended
March 31, December 31,
-------------------------------- ---------------------------------------
1995 1994 1994 1993 1992
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from investment activities:
Capital expenditures $ (140,341) $ (202,459) $ (579,037) $ (782,155) $ (166,231)
Purchases of mortgage-backed
securities held to maturity -- (8,186,267) (13,367,998) (101,436,331) (54,878,668)
Repayments on mortgage-backed
securities held to maturity 2,938,916 11,302,037 23,346,862 30,971,096 6,339,645
Repayments on mortgage-backed
securities available for sale 102,726 2,231,640 3,896,270 15,880,528 13,253,599
Purchases of mortgage-backed
securities available for sale -- (11,133,265) (13,186,987) (23,896,000) (61,857,656)
Sales of mortgage-backed securities
available for sale -- 14,707,449 19,622,330 28,543,421 59,154,022
Sales of mortgage-backed securities
held to maturity -- -- -- 7,409,337 --
Net (increase) decrease
in total loans (4,345,291) (21,221,753) (48,214,282) (5,374,338) 18,147,217
Purchase of investment securities
held to maturity (394,900) (2,804,056) (11,132,258) (3,080,000) (3,048,400)
Purchase of investment securities
available for sale -- (2,989,057) (9,023,214) -- --
Proceeds from sale of investments
available for sale 965,000 -- 4,888,750 -- --
Maturities of investments held
to maturity 228,800 783,800 1,865,700 3,708,600 --
Proceeds from sales of real
estate owned 297,656 4,707,297 7,256,541 24,296,277 26,829,586
Net decrease in investments/advances
to affiliates and joint ventures -- -- 251,632 33,499 1,063,882
Advances for construction of real
estate owned (315,920) (404,079) (1,097,344) (6,181,705) (12,727,211)
---------- ----------- ---------- ---------- ----------
Net cash flows used in investment
activities (663,354) (13,208,713) (35,473,035) (29,907,771) (7,890,215)
---------- ----------- ---------- ---------- ----------
Cash flows from financing activities:
Net (decrease) increase in demand,
NOW, and savings deposits (7,484,427) 3,683,166 5,656,988 11,447,861 7,639,279
Net increase (decrease) in
time deposits 1,375,916 742,997 4,717,626 17,120,099 (27,820,633)
Net increase (decrease) in
advances from the FHLB 3,769,000 (9,995,000) 3,515,750 4,465,000 (2,514,000)
Net (decrease) increase
in advance payments
by borrowers for taxes
and insurance 2,710 176,724 (169,936) 972,977 (64,358)
Proceeds from issuance of
subordinated debt -- -- 3,000,000 -- --
Net proceeds from issuance
of common stock -- -- -- 7,227,108 --
Net cash flows (used in) provided ---------- ----------- ---------- ---------- ----------
by financing activities (2,336,801) (5,392,113) 16,720,428 41,233,045 (22,759,712)
---------- ----------- ---------- ---------- ----------
Net (decrease) increase in
cash and cash equivalents (2,557,380) (18,597) 3,871,713 (5,294,536) (14,213,477)
Cash and cash equivalents:
Beginning of period 8,075,620 4,203,907 4,203,907 9,498,443 23,711,920
========== =========== ========== ========== ==========
End of period $ 5,518,240 $ 4,185,310 $ 8,075,620 $ 4,203,907 $ 9,498,443
========== =========== ========== ========== ==========
Supplemental disclosures:
Non-monetary transfers:
Net conversion of loans
receivable to real estate owned $ -- $ 125,075 $ 742,721 $ 3,317,448 $ 6,852,272
========== =========== ========== ========== ==========
Securitization of mortgage
loans into mortgage-backed
securities $ -- $ 20,969,533 $24,979,348 $64,530,086 $ 50,195,343
========== =========== ========== ========== ==========
Transfer of mortgage-backed
securities held to maturity
to available for sale $ -- $ -- $ 6,955,345 $ 5,043,671 $ 37,235,000
========== =========== ========== ========== ==========
Cash payments (refunds) during
the period for:
Income taxes $ -- $ -- $ -- $ 145 $(1,683,663)
========== =========== ========== ========== ==========
Interest $ 3,416,340 $ 2,641,557 $12,363,034 $11,586,051 $14,406,073
========== =========== ========== ========== ==========
See Notes to Consolidated Financial Statements.
</TABLE>
F - 7
<PAGE>
Progress Financial Corporation
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994 (UNAUDITED) AND FOR THE YEARS
ENDED DECEMBER 31, 1994, 1993 AND 1992.
(1) Summary of Significant Accounting Policies
Progress Financial Corporation and its subsidiaries (the "Company")
follow accounting principles and reporting practices which are in
accordance with generally accepted accounting principles. In preparing the
financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities as
of the date of the balance sheet, and affect revenues and expenses for the
period. Actual results could differ from such estimates.
The material estimates relate to the determination of the allowance for
loan losses, the deferred tax asset valuation allowance, and the valuation
of real estate acquired in connection with foreclosures or in satisfaction
of loans. In connection with the determination of the allowance for losses
on loans and real estate owned, management obtains independent appraisals
for significant properties.
In the opinion of management, the financial information, which is
unaudited, reflects all adjustments (consisting solely of normal recurring
adjustments) necessary for a fair presentation of the financial
information as of and for the three months ended March 31, 1995 and 1994.
The unaudited financial information is not indicative of the results from
operations for the full year.
The more significant accounting policies are summarized below. Certain
prior period amounts have been reclassified when necessary to conform with
current period classifications.
Basis of Presentation
The consolidated financial statements include the accounts of Progress
Financial Corporation, its principal wholly-owned subsidiary Progress
Federal Savings Bank (the "Bank"), and its other subsidiaries, Progress
Realty Advisors, Inc. ("PRA") and Progress Realty Advisors, L.P. All
significant intercompany transactions and balances have been eliminated.
Investment and Mortgage-Backed Securities
In May 1993, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" ("SFAS 115"). SFAS 115
requires debt and equity securities to be classified in one of three
categories, as applicable, and to be accounted for as follows: debt
securities which the Company has the positive intent and ability to hold
to maturity are classified as "securities held to maturity" and are
reported at amortized cost; debt and equity securities that are bought and
held principally for the purpose of selling them in the near term are
classified as "trading securities" and are reported at fair value with
unrealized gains and losses included in earnings; and debt and equity
securities not classified as either held to maturity or trading securities
are classified as "securities available for sale" and are reported at fair
value with unrealized gains and losses excluded from earnings, but
reported as a separate component of stockholders equity. The Company
adopted SFAS 115 in the first quarter of 1994. The cumulative effect of
adopting SFAS 115 on January 1, 1994 resulted in a $61,000 reduction in
stockholders equity for unrealized losses on mortgage-backed securities
and investments classified as available for sale of $46,000 and $15,000,
respectively. As of March 31, 1995, stockholder's equity was reduced by
$721,000 for unrealized losses on mortgage-backed securities and
investments classified as available for sale of $501,000 and $220,000,
respectively. As of December 31, 1994, stockholders equity was reduced by
$1.1 million for unrealized losses on mortgage-backed securities and
investments classified as available for sale of $648,000 and $403,000,
respectively.
Investment and mortgage-backed securities classified as held to maturity
are carried at amortized cost, and are adjusted for amortization of
premiums and accretion of discounts over the life of the related security
on a level yield method. Investment and mortgage-backed securities that
are held for an indefinite period of time are classified as available for
sale, and are carried at fair value. Such items include those that
management intends to use as part of its asset-liability strategy or that
may be sold in response to changes in interest rates, changes in
prepayment risks, the need to increase regulatory capital or similar
factors. When an investment or mortgage-backed security is sold, any gain
or loss is recognized utilizing the specific identification method. Prior
to the adoption of SFAS 115, investment and mortgage-backed securities
were classified as either "held for
F-8
<PAGE>
Progress Financial Corporation
- --------------------------------------------------------------------------------
(1) Summary of Significant Accounting Policies (continued)
investment" or "held for sale". Investment and mortgage-backed securities
classified as held for investment were carried at amortized cost, and were
adjusted for amortization of premiums and accretion of discounts over the
life of the related security on a level yield method. Investment and
mortgage-backed securities that were held for an indefinite period of time
were classified as held for sale, and were carried at the lower of
aggregate amortized cost or fair value.
Real Estate Owned
Real estate acquired in partial or full satisfaction of loans are
classified as real estate owned ("REO"). Prior to transferring a real
estate loan to REO, it is written down to the lower of cost or estimated
fair value through a charge to the allowance for possible loan losses.
Subsequently, REO is carried at the lower of estimated fair value less
estimated costs to sell or carrying value. Valuations are periodically
performed by management, and any subsequent decline in estimated fair
value is charged to operations. Costs relating to the development and
improvement of property are capitalized, whereas costs relating to the
holding of property are only capitalized when carrying value does not
exceed estimated fair value. The interest costs relating to the
development of real estate is capitalized. If a sale of real estate owned
results in a gain, such part of the gain that is not received in cash is
deferred and amortized to income in proportion to the reduction in the
principal balance of the sales contract. Losses on such sales are charged
to operations as incurred.
Premises and Equipment
Premises and equipment are stated at cost, less accumulated depreciation.
Depreciation is computed based on the estimated useful lives of the
assets, ranging from 3 to 50 years, using the straight-line method. Gains
and losses are recognized upon disposal of the assets. Maintenance and
repairs are recorded as expenses.
Federal Income Taxes
The Company files a consolidated Federal income tax return with its
subsidiaries. Certain items of income and expense (primarily loan
origination fees and provision for loan and real estate owned losses) are
reported in different periods for tax purposes. Deferred taxes are
provided on such temporary differences existing between financial and
income tax reporting subject to the deferred tax asset realizationcriteria
required under Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS No. 109").
Loans Held for Sale
Mortgage loans originated and intended for sale in the secondary market
are carried at the lower of aggregate cost or market value. Net unrealized
losses are charged to income in the period.
Investments in Affiliates and Joint Ventures
Investments in affiliates and joint ventures are carried at cost, adjusted
for equity or losses since date of acquisition or inception.
Deferred Loan Fees
Loan origination fees and related direct loan origination costs are
deferred and recognized over the life of the loan as an adjustment to
yield. The unamortized balance of such net loan origination fees is
reported on the Company s consolidated statements of financial condition
as part of loans.
Allowance for Loan Losses
An allowance for loan losses is maintained at a level that management
considers adequate to provide for potential losses based upon an
evaluation of known and inherent risks in the loan portfolio. Management s
periodic evaluation of the adequacy of the allowance for loan losses is
based upon examination of the portfolio, past loss experience, adverse
situations that may affect the borrower s ability to repay, the estimated
value of any underlying collateral, current economic conditions, the
results of the most recent regulatory examinations, and other relevant
factors. While management uses the best information available to make
such evaluations, future adjustments to the allowance may be necessary if
economic conditions differ substantially from the assumptions used in
making the evaluations.
F-9
<PAGE>
Progress Financial Corporation
- --------------------------------------------------------------------------------
(1) Summary of Significant Accounting Policies (continued)
In May 1993, the FASB issued Statement of Financial Accounting Standards
No. 114, "Accounting by Creditors for Impairment of a Loan" ("SFAS 114").
SFAS 114 requires an adjustment to the carrying value of a loan through
the provision for loan losses when it is "probable" that a creditor will
be unable to collect all amounts due according to the contractual terms of
the loan. SFAS 114 was subsequently amended by Statement of Financial
Accounting Standards No. 118, "Accounting by Creditors for Impairment of
a Loan--Income Recognition and Disclosure" ("SFAS 118") to allow a creditor
to use existing methods for recognizing interest income on an impaired
loan. SFAS 114 and SFAS 118 are effective for financial statements issued
for years beginning after December 15, 1994. The adoption of SFAS 114 and
SFAS 118 in 1995 did not have a material impact on the Company s financial
condition or results of operations based on the Company s current loan
portfolio. As of March 31, 1995, impaired loans amounted to $2.9 million
with a related allowance for loan losses of $4 thousand.
Earnings (Loss) Per Share
The per share results of operations were computed by dividing net income
(loss) by the weighted average number of shares outstanding during the
period, including the assumed exercise of dilutive stock options using the
treasury stock method. Such options would not have had a materially
dilutive impact on earnings per share for the three months ended March 31,
1995 or the years ended December 31, 1994, 1993 or 1992 had they been
exercised. On April 2, 1990, the Board of Directors of Progress Financial
Corporation declared a dividend distribution of one Right for each
outstanding share of Common Stock of the Company to stockholders of record
at the close of business on May 11, 1990. Each Right entitles the
registered holder to purchase from the Company a unit consisting of one
one-hundredth of a share (a "Unit") of Series A Junior Participating
Preferred Stock, par value $.01 per share, at a purchase price of $40.00
per Unit, subject to adjustment. The description and terms of the Rights
are set forth in a Rights Agreement between the Company and American Stock
Transfer & Trust Company, as Rights Agent.
Loans
Loans are stated at the principal amount outstanding, net of unearned
discounts and unamortized net loan origination fees. Interest income is
recognized on the accrual basis. The accrual of interest on commercial
loans is discontinued when loans become 90 days past due and when, in
management s judgment, it is determined that a reasonable doubt exists as
to its collectibility. The accrual of interest is also discontinued on
residential mortgage and consumer loans when such loans become 90 days
past due, except for those loans in the process of collection which are
secured by real estate with a loan to value ratio less than 80%, where the
accrual of interest ceases at 180 days. When a loan is placed on
non-accrual status, interest accruals cease and uncollected accrued
interest is reversed and charged against current income. Additional
interest income on such loans is recognized only when received.
Loan Servicing Rights
The cost of loan servicing rights purchased is amortized in proportion to,
and over the period of, estimated net servicing revenues. When
participating interests in loans sold have an average contractual interest
rate adjusted for normal servicing fees that differs from the agreed upon
yield to the purchaser, a gain or loss is recognized upon the sale equal
to the present value of the differential over the estimated remaining life
of such loans. Excess servicing fees receivable are amortized over the
estimated life of the related loans sold using a method that approximates
the level yield method. The carrying value of loan servicing rights
purchased and excess servicing fees receivable is periodically evaluated
in relation to estimated future net servicing revenues based on
management s best estimate of the remaining lives of the underlying loans
being serviced.
In May 1995, the FASB issued Statement of Financial Accounting Standards
No. 122, "Accounting for Mortgage Servicing Rights and Excess Servicing
Receivables and for Securitization of Mortgage Loans" ("SFAS 122"). SFAS
122, which is effective for the years beginning after December 15, 1995,
will require Progress, which services mortgage loans for others in return
for servicing fees, to recognize these servicing rights as assets,
regardless of how such assets were acquired. Additionally, the Company
would be required to assess the fair value of these assets at each
reporting date to determine any potential impairment. Management of the
Company has not completed an analysis of the effects this pronouncement
would have on its results of operations or financial position.
F-10
<PAGE>
Progress Financial Corporation
- --------------------------------------------------------------------------------
(1) Summary of Significant Accounting Policies (continued)
Cash and Cash Equivalents
The Company s cash and due from banks are classified as cash and cash
equivalents, which have an original maturity of three months or less.
Pension Plan
The Bank had a non-contributory pension plan covering virtually all
employees who qualified as to age and length of service. The projected
unit credit method was used to measure net periodic pension cost over
employees service lives. The plan, which was funded annually by an amount
consistent with minimum government funding regulations, was terminated
effective June 30, 1992. Defined benefits will not be provided under any
successor plan. The plan ceased to exist as an entity.
F-11
<PAGE>
Progress Financial Corporation
(2) Investment Securities
The Bank is required uuder current OTS regulations to maintain defined
levels of liquidity and utilizes certain investments that qualify as liquid
assets. The Bank utilizes deposits with the Federal Home Loan Bank ("FHLB") of
Pittsburgh, bankers' acceptances, loans to financial institutions whose deposits
are insured by the FDIC, Federal funds and United States government and agency
obligations.
Investment securities are comprised of the following:
<TABLE><CAPTION>
March 31, 1995
--------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair Carrying
Held to Maturity: Cost Gains Losses Value Value
- ----------------- ---- ----- ------ ----- -----
<S> <C> <C> <C> <C> <C>
FHLB of Pittsburgh stock, pledged $ 2,468,700 $ -- $ 0 $ 2,468,700 $ 2,468,700
U.S. agency obligations 10,553,593 -- (543,515) 10,010,078 10,553,593
----------- ------------ ---------- ----------- ------------
$ 13,022,293 $ -- $ (543,515) $ 12,478,778 $ 13,022,293
=========== ============ ========== =========== ============
Gross Gross Estimated
Amortized Unrealized Unrealized Fair Carrying
Available for Sale: Cost Gains Losses Value Value
- ------------------- ---- ----- ------ ----- -----
U.S. agency obligations $ 4,000,000 $ -- $ (220,338) $ 3,779,662 $ 3,779,662
Equity investments 30,090 -- 30,090 30,090
----------- ------------ ---------- ----------- ------------
$ 4,030,090 $ -- $ (220,338) $ 3,809,752 $ 3,809,752
=========== ============ ========== =========== ============
<CAPTION>
December 31, 1994
-----------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair Carrying
Held to Maturity: Cost Gains Losses Value Value
- ------------------- ---- ----- ------ ----- -----
<S> <C> <C> <C> <C> <C>
FHLB of Pittsburgh stock, pledged $ 2,302,600 $ -- $ -- $ 2,302,600 $ 2,302,600
U.S. agency obligations 10,563,882 -- (938,942) 9,624,940 10,563,882
----------- ------------ ---------- ----------- -----------
$ 12,866,482 $ -- $ (938,942) $ 11,927,540 $ 12,866,482
=========== ============ ========== =========== ============
Gross Gross Estimated
Amortized Unrealized Unrealized Fair Carrying
Available for Sale: Cost Gains Losses Value Value
- ------------------- ---- ----- ------ ----- -----
U.S. agency obligations $ 4,999,244 $ -- $ (402,774) $ 4,596,470 $ 4,596,470
Equity investments 30,091 -- -- 30,091 30,091
----------- ------------ ---------- ----------- -----------
$ 5,029,335 $ -- $ (402,774) $ 4,626,561 $ 4,626,561
=========== ============ ========== =========== ===========
</TABLE>
F-12
<PAGE>
Progress Financial Corporation
(2) Investment Securities (continued)
<TABLE><CAPTION>
December 31, 1993
-----------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair Carrying
Held to Maturity: Cost Gains Losses Value Value
- ------------------- ---- ----- ------ ----- -----
<S> <C> <C> <C> <C> <C>
FHLB of Pittsburgh stock, pledged $ 2,631,700 $ -- $ -- $ 2,631,700 $ 2,631,700
U.S. agency obligations 2,000,000 625 (23,125) 1,977,500 2,000,000
---------- ------------ ---------- ----------- -----------
$ 4,631,700 $ 625 $ (23,125) $ 4,609,200 $ 4,631,700
========== ============ ========== =========== ============
</TABLE>
The investment securities which are classified as held to maturity and
available for sale have a weighted average coupon rate of 6.65% and 5.63%,
respectively at March 31, 1995 and 6.58% and 5.57%, respectively, at
December 31. 1994.
At March 31, 1995 and December 31, 1994 the Bank was required to maintain
$2,468,700 and $2,302,600 of FHLB stock, respectively, under current
regulations.
At March 31, 1995, December 31, 1994 and December 31, 1993 the Company's
investment securities included structured notes with a carrying value of
$6.0 million, $6.9 million and $1.0 million, respectively, and a market
value of $5.8 million, $6.5 million and $1.0 million, respectively. The
structured notes at March 31, 1995, December 31,1994 and December 31, 1993
included FHLB step-up notes of $4.0 million, $4.0 million and $1.0 million,
respectively. At March 31, 1995 and December 31, 1994 the structured notes
also included $2.0 million and $2.9 million, respectively, of other
governmental agency step-up notes. The interest rate on the step-up notes
is scheduled to increase by predetermined amounts on predetermined dates,
and the notes are callable at par on each coupon payment date after the
initial interest rate increase. If the step-up interest exceeds the then
current market rate for notes with similar terms to the next adjustment
date or maturity date, then the note would generally be called and the
Company would have to reinvest the proceeds in the lower interest rate
environment. If the step-up interest rate is less than the then current
market rate, the note would generally not be called and the Company would
continue to hold the note with a below market interest rate. The structured
notes classified as held to maturity amounted to $5.0 million, $5.0 million
and $1.0 million at March 31, 1995, December 31, 1994 and December 31,
1993, respectively. The remaining $1.0 million, $1.9 million and $0 of
structured notes were classified as available for sale at March 31, 1995,
December 31, 1994 and December 31, 1993, respectively.
F-13
<PAGE>
Progress Financial Corporation
(2)
Investment Securities (continued)
The carrying value and estimated fair value of the Company's investment
securities at March 31, 1995 by contractual maturity are shown below.
Expected maturities will differ from contractual maturities due to the
right to call or prepay such obligations with or without prepayment
penalties.
<TABLE><CAPTION>
Amortized Estimated Fair Weighted
Held to Maturity: Cost Value Average Yield
- ----------------- ---- ----- -------------
<S> <C> <C> <C>
Due after one year through five years $ 1,000,000 $ 938,125 5.57%
Due after five years through ten years 7,553,593 7,135,353 6.75
Due after ten years 2,000,000 1,936,600 7.00
No stated maturity 2,468,700 2,468,700 6.50
---------- ---------- ----
$13,022,293 $12,478,778 6.59%
========== ========== ====
Amortized Estimated Fair Weighted
Available for Sale: Cost Value Average Yield
- ----------------- ---- ----- -------------
Due after one year through five years $ 4,000,000 $ 3,779,662 5.63%
No stated maturity 30,090 30,090 --
---------- ---------- ----
$ 4,030,090 $ 3,809,752 5.63%
========== ========== ====
</TABLE>
Total realized losses for the three months ended March 31,1995 on the sale
of $1,000,000 in investment securities classified as available
for sale were $35,000.
The carrying value and estimated fair value of the Company's investment
securities at December 31, 1994 by contractual maturity are shown below.
Expected maturities will differ from contractual maturities due to the
right to call or prepay such obligations with or without prepayment
penalties.
<TABLE><CAPTION>
Armortized Estimated Fair Weighted
Held to Maturity: Cost Value Average Yield
- ----------------- ---- ----- -------------
<S> <C> <C> <C>
Due after one year through five years $ 999,312 $ 907,190 5.57%
Due after five years through ten years 7,564,570 6,837,750 6.75
Due after ten years 2,000,000 1,880,000 7.00
No stated maturity 2,302,600 2,302,600 6.10
---------- ---------- ----
$ 12,866,482 $ 11,927,540 6.58%
========== ========== ====
Amortized Estimated Fair Weighted
Available for Sale: Cost Value Average Yield
- ----------------- ---- ----- -------------
Due after one year through five years $ 4,999,244 $ 4,596,470 5.57%
No stated maturity 30,091 30,091 --
---------- ---------- ----
$ 5,029,335 $ 4,626,561 5.57%
========== ========== ====
</TABLE>
Total realized losses in 1994 on the sale of $5,000,000 in investment securities
classified as available for sale were $111,250.
F-14
<PAGE>
Progress Financial Corporation
(3) Mortgage-Backed Securities
<TABLE><CAPTION>
The following tables detail the carrying value and estimated fair value of the Company's mortgage-backed securities:
March 31, 1995
--------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair Carrying
Held to Maturity Cost Gains Losses Value Value
- ---------------- ---- ----- ------ ----- -----
<S> <C> <C> <C> <C> <C>
GNMA $ 28,667,473 $ -- $(1,423,816) $ 27,243,657 $ 28,667,473
FNMA 20,999,690 -- (997,019) 20,002,671 20,999,690
FHLMC 40,933,626 -- (1,466,132) 39,467,494 40,933,626
----------- ------------ ---------- ----------- -----------
$ 90,600,789 $ -- $(3,886,967) $ 86,713,822 $ 90,600,789
=========== ============ ========== =========== ===========
Gross Gross Estimated
Amortized Unrealized Unrealized Fair Carrying
Available for Sale: Cost Gains Losses Value Value
- ---------------- ---- ----- ------ ----- -----
GNMA $ 209,426 $ 392 $ (2,018) $ 207,800 $ 207,800
FNMA 1,081,254 -- (56,409) 1,024,845 1,024,845
FHLMC 3,356,052 -- (188,827) 3,167,225 3,167,225
Collateralized mortgage
obligations 4,998,440 -- (253,440) 4,745,000 4,745,000
----------- ------------ ---------- ----------- -----------
$ 9,645,172 $ 392 $ (500,694) $ 9,144,870 $ 9,144,870
=========== ============ ========== =========== ===========
December 31, 1994
-----------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair Carrying
Held to Maturity: Cost Gains Losses Value Value
- ---------------- ---- ----- ------ ----- -----
GNMA $ 29,324,595 $ $(2,245,130) $ 27,079,465 $ 29,324,595
FNMA 21,577,357 -- (1,645,351) 19,932,006 21,577,357
FHLMC 42,771,171 -- (2,677,354) 40,093,817 42,771,171
----------- ------------ ----------- ----------- -----------
$ 93,673,123 $ -- $(6,567,835) $ 87,105,288 $ 93,673,123
=========== ============ =========== =========== ===========
Gross Gross Estimated
Amortized Unrealized Unrealized Fair Carrying
Available for Sale: Cost Gains Losses Value Value
- ---------------- ---- ----- ------ ----- -----
GNMA $ 226,841 -- $ (8,285) $ 218,556 $ 218,556
FNMA 1,097,527 -- (83,066) 1,014,461 1,014,461
FHLMC 3,429,225 -- (274,057) 3,155,168 3,155,168
Collateralized mortgage
obligations 4,998,040 -- (283,040) 4,715,000 4,715,000
----------- ------------ ---------- ----------- -----------
$ 9,751,633 $ -- (648,448) $ 9,103,185 $ 9,103,185
=========== ============ ========== =========== ===========
</TABLE>
F-15
<PAGE>
Progress Financial Corporation
(3) Mortgage-Backed Securities (continued)
<TABLE><CAPTION>
GROSS Gross Estimated
Amortized Unrealized Unrealized Fair Carrying
Held to Maturity: Cost Gains Losses Value Value
- ---------------- ---- ----- ------ ----- -----
<S> <C> <C> <C> <C> <C>
GNMA $ 34,739,317 $ -- $ (282,198) $ 34,457,119 $ 34,739,317
FNMA 32,145,062 82,164 (316,773) 31,910,453 32,145,062
FHLMC 45,009,604 1,725 (301,390) 44,709,939 45,009,604
Collateralized mortgage
obligations 5,160,106 6,219 (3,660) 5,162,665 5,160,106
----------- ------------ --------- ----------- -----------
$117,054,089 $ 90,108 $ (904,021) $116,240,176 $117,054,089
=========== ============ ========== =========== ===========
Gross Gross Estimated
Amortized Unrealized Unrealized Fair Carrying
Available for Sale: Cost Gains Losses Value Value
- ------------------- ---- ----- ------ ----- -----
GNMA $ 204,292 $ -- $ -- $ 204,292 $ 204,292
FHLMC 5,683,417 35,709 (21,144) 5,684,982 5,683,417
Collateralized mortgage
obligations 3,005,430 -- (5,430) 3,000,000 3,005,430
---------- ------------ --------- ----------- -----------
$ 8,893,139 $ 35,709 $ (29,574) $ 8,899,274 $ 8,893,139
========== ============ ========== =========== ===========
</TABLE>
F-16
<PAGE>
Progress Financial Corporation
(3) Mortgage-Backed Securities (continued)
The carrying value and estimated fair value of the Company's mortgage-backed
securities at March 31, 1995 and December 31, 1994 by contractual maturity
are as follows:
<TABLE><CAPTION>
At March 31, 1995
-----------------
Weighted
Amortized Estimated Average
Held to Maturity: Cost Fair Value Coupon Rate
- ----------------- ---- ---------- -----------
<S> <C> <C> <C>
Due one year through five years $ 4,208,395 $ 4,046,099 7.00%
Due after five years through ten years 3,892,035 3,686,381 7.55
Due after ten years 82,500,359 78,981,342 7.57
---------- ---------- ----
$ 90,600,789 $ 86,713,822 7.54%
========== ========== ====
Weighted
Amortized Estimated Average
Available for Sale: Cost Fair Value Coupon Rate
- ----------------- ---- ---------- -----------
Due after one year through five years $ 4,093,805 $ 3,857,515 6.56%
Due after five years through ten years 39,334 39,727 8.50
Due after ten years 5,512,033 5,247,628 6.67
---------- ---------- ----
$ 9,645,172 $ 9,144,870 6.63%
========== ========== ====
At December 31, 1994
--------------------
Weighted
Amortized Estimated Average
Held to Maturity: Cost Fair Value Coupon Rate
- ----------------- ---- ---------- -----------
Due after five years through ten years $ 8,415,971 $ 7,779,474 7.27%
Due after ten years 85,257,152 79,325,814 7.45
---------- ---------- ----
$ 93,673,123 $ 87,105,288 7.43%
========== ========== ====
Weighted
Amortized Estimated Average
Available for Sale: Cost Fair Value Coupon Rate
- ----------------- ---- ---------- -----------
Due after one year through five years $ 4,229,061 $ 3,886,194 6.59%
Due after five years through ten years 14,243 14,101 8.50
Due after ten years 5,508,329 5,202,890 7.03
---------- ---------- ----
$ 9,751,633 9,103,185 6.84%
========== ========== ====
</TABLE>
The weighted average coupon rate on the Company's mortgage-backed
securities classified as available for sale and held to maturity at March
31, 1995 was 6.63% and 7.54%, respectively. The weighted average coupon
rate on the Company's mortgage-backed securities classified as available
for sale and held to maturity at December 31, 1994 was 6.84% and 7.43%,
respectively. The weighted average coupon rate on the Company's
mortgage-backed securities classified as available for sale and held to
maturity at December 31, 1993 was 7.30% and 7.67%, respectively.
F-17
<PAGE>
Progress Financial Corporation
(3) Mortgage-Backed Securities (continued)
There were no sales of mortgage-backed securities during the first quarter
of 1995. Total realized gains in 1994 on the sale of $16,246,138 in
mortgage-backed securities classified as available for sale were $13,171.
Total realized losses in 1994 on the sale of $3,586,852 in mortgage-backed
securities classified as available for sale were $223,831.
Accrued interest receivable on mortgage-backed securities amounted to
$732,278, $749,632 and $948,123 at March 31, 1995, December 31, 1994 and
1993, respectively.
The Bank pledged $39,385,940 (market value $37,949,894) in mortgage-backed
securities as collateral for advances from the FHLB at March 31, 1995. The
Bank pledged $39,249,636 (market value $36,568,676) in mortgage-backed
securities as collateral for advances from the FHLB at December 31, 1994.
F-18
<PAGE>
Progress Financial Corporation
(4) Loans, net
Loans, net are comprised of the following:
<TABLE><CAPTION>
March 31, December 31, December 31,
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Single-family residential real estate $100,582,802 $ 99,614,051 $ 63,672,041
Commercial real estate 75,673,867 71,541,563 68,829,835
Real estate construction (net of loans
in process of $8,327,901, $7,162,475
and $6,840,988, respectively) 4,930,950 5,409,363 3,977,370
Consumer loans 19,338,385 18,906,472 15,189,030
Commercial business 12,289,246 12,115,245 9,305,439
Unearned discounts and deferred loan fees (330,533) (312,873) (592,011)
Allowance for loan losses (1,610,536) (1,502,428) (2,113,445)
------------ ------------ ------------
$210,874,181 $205,771,393 $158,268,259
============ ============ ============
</TABLE>
Loans receivable from executive officers and directors, including loans to
related persons and entities, consisted of the following activity for the three
months ended March 31, 1995 and the years ended December 31, 1994 and 1993:
<TABLE><CAPTION>
Three Months Ended Years ended
------------------ -----------
March 31, December 31, December 31,
1995 1994 1993
<S> <C> <C> <C>
Balances at beginning of period $ 227,736 $ 363,866 $ 215,810
Additional loans granted 2,930 -- 311,939
Repayments (15,083) (136,130) (30,428)
Reclassification to non-related persons (1) -- -- (133,455)
--------- --------- ---------
Balances at end of period $ 215,583 $ 227,736 $ 363,866
========= ========= =========
</TABLE>
(1) Former officers and directors
At March 31, 1995, the principal amount of outstanding loans on a non-accrual
basis was $4,253,394. At December 31, 1994, 1993 and 1992, the principal amount
of outstanding loans on a non-accrual basis was $4,368,578, $5,743,149 and
$6,539,181, respectively. Additional gross interest income that would have been
recorded during the three months ended March 31, 1995 if the Company's
non-performing loans at the end of such period had been performing in accordance
with their terms during such period was $116,191. Additional gross interest
income that would have been recorded during 1994, 1993 and 1992 if the Company's
non-performing loans at the end of such periods had been performing in
accordance with their terms during such periods was $430,050, $287,070 and
$644,747, respectively. The amount of interest income that was actually recorded
during the three months ended March 31, 1995 with respect to such non-performing
loans amounted to approximately $95,174. The amount of interest income that was
actually recorded during 1994, 1993 and 1992 with respect to such non-performing
loans amounted to approximately $22,912, $20,039 and $131,391, respectively.
Accrued interest receivable on loans, net amounted to $1,187,282, $1,192,192 and
$1,548,061 at March 31, 1995, December 31, 1994 and December 31, 1993,
respectively.
At March 31, 1995 and December 31, 1994, 1993 and 1992, the Bank was servicing
loans, including participations sold, in the amounts of $272,568,862,
$240,769,000, $185,567,133 and $62,431,347, respectively, for the benefit of
others.
F-19
<PAGE>
Progress Financial Corporation
(4) Loans, net
The following is a summary of the activity in the allowance for loan losses:
<TABLE><CAPTION>
Three Months Ended March 31, Years Ended December 31,
------------------------------ ----------------------------------------
1995 1994 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $1,502,428 $2,113,445 $2,113,445 $2,703,392 $5,482,702
Provisions for loan losses 100,000 50,000 521,100 368,284 275,022
Additions acquired (1) -- -- -- 100,908 --
Losses charged against the
allowance -- (96,296) (1,318,025) (1,334,353) (3,129,820)
Recoveries on charged-off loans 8,108 62,721 185,908 275,214 75,488
--------- --------- --------- --------- ---------
Balance at end of period $l,610,536 $2,129,870 $1,502,428 $2,113,445 $ 2,703,392
========= ========= ========= ========= =========
(1) In conjunction with the acquisition of the Rosemont branch office on July 1, 1993.
</TABLE>
F-20
<PAGE>
Progress Financial Corporation
(5) Loans Held for Sale
At March 31, 1995, the Bank held $602,339 in 30 year fixed-rate residential
mortgages and $125,000 in adjustable-rate residential mortgages that were
classified as held for sale and are carried at the lower of aggregrate cost
or market (fair) value. All of these loans were under commitments of sale at
March 31, 1995. At December 31, 1994, the Bank held $351,287 in 30 year
fixed-rate residential mortgages that were classified as held for sale and
are carried at the lower of aggregate cost or market (fair) value. All of
these loans were under commitments of sale at December 31, 1994. At December
31, 1993, the Bank held $4,514,966 and $12,259,084 in 15 and 30 year
fixed-rate residential mortgages, respectively, that were classified as held
for sale and are carried at the lower of aggregate cost or market (fair)
value.
The Bank had $1,208,700, $2,018,950 and $9,137,150 in commitments to
originate agency conforming residential mortgage loans at March 31, 1995,
December 31, 1994 and December 31, 1993, respectively, of which $407,900,
$150,000 and $7,541,750 were agency conforming fixed rate residential loans.
Loans sold totalled $631,537, $34,025,900 and $64,530,086 for the three
months ended March 31, 1995 and the years ended December 31, 1994 and 1993,
respectively.
(6) Real Estate Owned, net
The following table summarizes the activity in real estate owned, net for
the three months ended March 31, 1995 and the years ended December 31, 1994
and 1993:
<TABLE><CAPTION>
Three Months Ended Years Ended
------------------ -----------
March 31, December 31, December 31,
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of period $ 4,534,373 $ 11,576,663 $ 27,901,209
Real estate acquired in settlement of loans -- 742,721 3,317,448
Capitalized interest -- 11,429 205,975
Dispositions/sales (1) (5,582) (6,220,902) (18,073,612)
Write-downs (75,000) (1,575,538) (1,774,357)
---------- ---------- ----------
Balance at end of period $ 4,453,791 $ 4,534,373 $ 11,576,663
========== ========== ==========
</TABLE>
(1) Net of funds advanced for construction
The following table summarizes the activity in the allowance for losses on
real estate owned for the three months ended March 31, 1995 and 1994 and
the years ended December 31, 1994, 1993 and 1992:
<TABLE><CAPTION>
Three Months Ended March 31, Years Ended December 31,
------------------------------ -------------------------------------------------
1995 1994 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $ -- $ -- $ -- $ 34,666 $ 1,459,326
Provision charged to income 75,000 -- 1,575,538 (34,666) 2,834,557
Charge-offs, net of recoveries (75,000) -- (1,575,538) -- (4,259,217)
--------- --------- ---------- ------- ---------
Balance at end of period $ -- $ -- $ -- $ -- $ 34,666
========= ========= ========== ======= =========
</TABLE>
F- 21
<PAGE>
Progress Financial Corporation
(7) Premises and Equipment
Land, office buildings and equipment, at cost, are summarized by major
classification:
<TABLE><CAPTION>
March 31, December 31, December 31,
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Land $ 230,413 $ 230,413 $ 230,413
Buildings and leasehold improvements 3,055,118 3,039,106 2,876,905
Furniture, fixtures and equipment 4,225,541 4,101,211 3,684,374
--------- --------- ---------
7,511,072 7,370,730 6,791,692
Accumulated depreciation (5,593,315) (5,461,433) (4,924,814)
--------- --------- ---------
$ 1,917,757 $ 1,909,297 $ 1,866,878
========= ========= =========
</TABLE>
Depreciation expense for the three months ended March 31, 1995 and 1994 and the
years ended December 31, 1994, 1993 and 1992 was $131,881, $133,886, $536,618,
$541,592 and $567,175, respectively.
F- 22
<PAGE>
Progress Financial Corporation
(8) Deposits
Deposits consisted of the following:
<TABLE><CAPTION>
At March 31, 1995 At December 31, 1994 At December 31, 1993
----------------- -------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Interest Rate Amount Interest Rate Amount Interest Rate Amount
------------- ------ ------------- ------ ------------- ------
<S> <C> <C> <C>
Money market
deposit accounts 2.98 % $ 33,954,082 2.82 % $ 37,753,689 2.82 % $ 44,481,739
NOW and Super NOW
accounts 2.53 23,723,178 2.48 27,033,300 2.39 19,741,261
Savings accounts 2.92 27,589,052 2.92 27,899,553 2.94 25,155,095
Other time deposits 5.32 162,904,172 5.07 158,787,667 4.64 158,510,656
Time deposits
$100,000 or more 5.48 10,994,641 5.07 13,735,229 4.29 9,294,614
----- ------------ ----- ------------ ----- ------------
Total interest-bearing
deposits 4.51 % 259,165,125 4.26 % 265,209,438 3.96 % 257,183,365
Non-interest-bearing ==== ==== ====
deposits 18,684,104 18,748,302 16,399,760
------------ ------------ ------------
Total Deposits $277,849,229 $283,957,740 $273,583,125
============ ============ ============
</TABLE>
Other time deposits of less than $100,000 by date of maturity are as follows:
March 31, 1995 December 31, 1994
-------------- -----------------
1995 $ 85,710,103 $102,496,820
1996 37,674,341 26,272,396
1997 24,857,090 19,424,803
1998 6,127,575 4,051,972
1999 5,995,659 6,228,566
2000 and thereafter 2,539,404 313,110
------------ ------------
$162,904,172 $158,787,667
============ ============
Other time deposits of $100,000 or more by date of maturity are as follows:
March 31, 1995 December 31, 1994
-------------- -----------------
1995 $ 9,314,148 $ 11,239,454
1996 1,576,066 1,146,894
1997 104,427 1,239,255
1998 and thereafter -- 109,626
------------ ------------
$ 10,994,641 $ 13,735,229
============ ============
Total deposits of $100,000 or more amounted to $34,827,000, $37,473,000 and
$28,499,894 at March 31, 1995, December 31, 1994 and December 31, 1993,
respectively. Accrued interest payable on deposits amounted to $593,494,
$377,441 and $291,088 at March 31, 1995, December 31, 1994 and December 31,
1993, respectively.
F - 23
<PAGE>
Progress Financial Corporation
(8) Deposits (continued)
Interest expense on deposits for the three months ended March 31, 1995 and
1994 and the years ended December 31, 1994, 1993 and 1992 consisted of the
following:
<TABLE><CAPTION>
Three Months Ended March 31, Years Ended December 31,
---------------------------- ---------------------------------------
1995 1994 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C>
NOW accounts $ 161,132 $ 109,951 $ 531,641 $ 417,896 $ 531,682
Savings accounts and money
market deposit accounts 455,328 483,650 1,958,584 1,810,067 2,107,526
Time deposits 2,222,553 1,806,884 7,678,104 7,148,772 9,077,123
----------- ---------- ----------- ---------- -----------
$ 2,839,013 2,400,485 $10,168,329 $9,376,735 $11,716,331
=========== ========== =========== ========== ===========
</TABLE>
F - 24
<PAGE>
Progress Financial Corporation
(9) Advances from the Federal Home Loan Bank
Advances from the FHLB consisted of the following:
<TABLE><CAPTION>
At March 31, 1995 At December 31, 1994 At December 31, 1993
----------------- -------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Rate Amount Rate Amount Rate Amount
---- ------ ---- ------ ---- ------
Maturity Period
- ---------------
<S> <C> <C> <C>
Line of credit (A) $ 2,000,000 (A) $ 2,200,000 (A) $ 8,100,000
Community Investment
Program line of credit (B) 308,750 (B) 308,750 -- --
FHLB advances:
1 to 12 months 6.94 % 5,500,000 6.00 % 3,000,000 5.58 % 12,000,000
13 to 24 months 4.45 8,000,000 5.24 10,500,000 -- --
25 to 36 months 7.65 5,000,000 7.65 5,000,000 5.24 10,500,000
Greater than 36 months 8.30 5,000,000 8.30 5,000,000 -- --
FHLB reverse repurchase
advances:
1 to 30 days 6.21 9,242,000 5.98 8,454,000 3.25 7,012,000
31 to 60 days 6.25 5,389,000 6.25 9,589,000 3.40 2,924,000
61 to 90 days 6.29 7,381,000 -- -- -- --
---- ----------- ---- ----------- ---- -----------
Total 6.41 % $47,820,750 6.35 % $44,051,750 4.45 % $40,536,000
==== =========== ==== =========== ==== ===========
<FN>
(A) Reprices on a daily basis. The rate was 6.81%, 6.61% and 3.19% at March 31, 1995, December 31, 1994 and December
31, 1993, respectively.
(B) Reprices on a daily basis. The rate was 6.54% and 6.34% at March 31, 1995 and December 31, 1994, respectively.
</TABLE>
Accrued interest payable on FHLB advances amounted to $231,934, $210,386 and
$143,204 at March 31, 1995, December 31, 1994 and December 31,1993,
respectively.
The following table presents certain information regarding FHLB advances for
the three months ended March 31, 1995 and March 31, 1994 and for the years
ended December 31, 1994, 1993 and 1992:
<TABLE><CAPTION>
Three Months Ended March 31, Years Ended December 31,
--------------------------- ------------------------------------------
1995 1994 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C>
Average balance outstanding $47,506,000 $ 38,752,000 $ 44,007,000 $ 48,702,000 $ 41,502,000
Maximum amount outstanding
any month-end during the period 47,821,000 44,958,000 57,244,000 61,067,000 53,018,000
Average interest rate during the
period (1) 6.39 % 4.51 % 5.00 % 4.29 % 4.87 %
Average interest rate at the end of
the period 6.41 % 4.85 % 6.35 % 4.45 % 4.75 %
<FN>
(1) Average interest rate is calculated by dividing the actual interest expense for the period by the average outstanding
balances for the period.
</TABLE>
Under terms of its collateral agreement with the FHLB, the Bank maintains
otherwise unencumbered qualifying assets, in an amount of at least as much as
its advances from the FHLB. The advances from the FHLB are secured principally
by mortgage-backed securities and the Bank's investment in securities. The
Bank had a line of credit available from the FHLB in the amount of $34,695,777,
$34,633,395 and $33,509,536 at March 31, 1995, December 31, 1994 and December
31, 1993, respectively. The unused balance on the line of credit was
$32,695,777, $32,433,395 and $25,409,536 at March 31, 1995, December 31, 1994
and 1993, respectively.
F - 25
<PAGE>
Progress Financial Corporation
(10) Income Taxes
In February 1992, the FASB issued SFAS No. 109. Under the asset and liability
method of SFAS No. 109, deferred tax assets and liabilities are recognized for
the estimated future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates in effect for the year in which those temporary
differences are expected to be recovered or settled. Under SFAS No. 109, the
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment dates.
The Company adopted SFAS No. 109 in the first quarter of 1993. The adoption of
SFAS No. 109 did not materially affect the Company's financial condition or
results of operations due to the establishment of a valuation allowance of
$3.7 million against the Company's gross deferred tax assets of $4.0 million.
Such valuation allowance was established upon the adoption of SFAS No. 109 due
primarily to the uncertainties as to the Bank' s future operations which
existed at that time as a result of the regulatory restrictions the Bank was
subject to. Prior year's financial statements were not restated to apply the
provisions of SFAS No. 109.
The valuation allowance was decreased in 1995 by the $243 thousand decrease
in the Company's deferred tax assets in excess of deferred tax liabilities
from December 31, 1994 to March 31, 1995. The valuation allowance was increased
in 1994 by the $458 thousand increase in the Company's deferred tax assets in
excess of deferred tax liabilities from December 31, 1993 to December 31, 1994.
In addition, the Company had no current tax expense or benefit due to the
generation of a net operating loss in 1994 for which no carryback potential
exists. Therefore,the Company had no book tax expense or benefit for 1994. The
level of the deferred tax asset valuation allowance as of December 31, 1994
was determined based on management's estimate of deferred tax assets that
will be realized using the "more likely than not" realization criteria
contained in SFAS No. 109 in consideration of management's projections of
future taxable income.
The Company's 1993 income tax benefit of $1.0 million represents a reduction in
the deferred tax asset valuation allowance in the fourth quarter. Such
reduction in the valuation allowance was based upon the termination of the
Capital Plan and all related operating restrictions by the OTS based on
the Bank being in full capital compliance, the successful $7.2 million
rights offering after which the Bank became in full regulatory capital
compliance, the continued reduction of non-performing assets throughout 1993,
and the continued improvement in core operating earnings. The amount of the
reduction was determined based on management's estimate of deferred tax assets
that will be realized using the "more likely than not" realization criteria
contained in SFAS No. 109 in consideration of management's projections of
future taxable income.
Income tax expense (benefit) consisted of the following:
<TABLE><CAPTION>
Three Months Ended March 31, Years Ended December 31,
---------------------------- ----------------------------------------
1995 1994 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C>
Current:
State $ -- $ -- $ -- $ 145 $ 73,997
Federal -- -- -- -- --
------- ------- ------- ----------- --------
-- -- -- 145 73,997
Deferred--Federal -- -- -- (1,033,707) --
------- ------- ------- ----------- --------
$ -- $ -- $ -- $(1,033,562) $ 73,997
======= ======= ======= ========== =======
</TABLE>
F - 26
<PAGE>
Progress Financial Corporation
(10) Income Taxes (continued)
The provision for income taxes differs from the statutory rate due to the
following:
<TABLE><CAPTION>
Three Months Ended March 31, Years Ended December 31,
---------------------------- -------------------------------------------
1995 1994 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Tax (benefit) at statutory rate $ 128,490 $ 15,206 $ (243,322) $ (119,229) $ 459,657
State tax, net of Federal effect -- -- -- 96 48,838
Tax free interest (2,380) (2,422) (9,690) (11,560) (10,791)
Book versus tax loan loss
deduction -- -- -- -- (1,468,799)
Unrealized net operating
loss benefit -- -- -- -- 1,038,422
Change in valuation
allowance (1) (130,818) (16,812) 100,248 (1,033,707) --
Other 4,708 4,028 152,764 130,838 6,670
--------- --------- ---------- ----------- -----------
$ -- $ -- $ -- $(1,033,562) $ 73,997
<FN>
(1) Subsequent to 1993, excludes the change in the valuation allowance related to the unrealized loss on securities available for
sale, which was charged directly to stockholders' equity.
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of deferred tax assets and deferred tax liabilities are presented below:
<TABLE><CAPTION>
March 31, December 31, December 31,
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 2,407,200 $ 2,474,429 $ 2,128,421
Write-downs on real estate owned 930,240 1,036,655 1,056,545
Unrealized loss on securities available for sale 245,140 357,415 --
Provision for loan losses 153,340 153,643 534,931
Loan fees 112,200 54,485 155,700
Other 48,960 51,815 19,886
----------- ----------- -----------
Total deferred tax assets 3,897,080 4,128,442 3,895,483
----------- ----------- -----------
Deferred tax liabilities:
Excess servicing fees 126,140 129,920 312,186
Depreciation and amortization 130,560 115,049 157,487
----------- ----------- -----------
Total deferred tax liabilities 256,700 244,969 469,673
----------- ----------- -----------
Deferred tax assets in excess of deferred tax liabilities
before valuation allowance 3,640,380 3,883,473 3,425,810
Valuation allowance (2,270,010) (2,513,103) (2,055,440)
----------- ----------- -----------
Net deferred tax assets $ 1,370,370 $ 1,370,370 $ 1,370,370
=========== =========== ===========
</TABLE>
Net operating loss carryforwards available for use in future years total
approximately $7.1 million. These loss carryforwards expire in 2006 ($866,000),
2007 ($4.5 million), 2008 ($654,000) and 2009 ($1.0 million).
F - 27
<PAGE>
Progress Financial Corporation
(10) Income Taxes (continued)
The significant components of deferred tax expense (benefit) computed at
the effective tax rate for the year ended December 31, 1992 is summarized
as follows:
1992
----
Deferred loan fees $ 137,259
Provision for loan losses --
Gain from sales of loans (24,020)
Depreciation (71,918)
Unrecognized deferred tax benefit (47,022)
Other - net 5,701
---------
$ --
=========
(11) Commitments and Contingencies
At December 31, 1994, the Bank had leases on a number of its office
facilities and certain equipment. Minimum future non-cancelable rental
commitments under operating leases are as follows:
March 31, 1995 December 31, 1994
-------------- -----------------
1995 $ 645,347 $ 724,570
1996 550,570 389,912
1997 384,780 224,323
1998 371,670 212,769
1999 323,132 175,229
---------- ----------
$2,275,499 $1,726,803
========== ==========
Rental expense for the three months ended March 31, 1995 and 1994 and for the
years ended December 31, 1994, 1993 and 1992 was $189,691, $183,453, $750,832,
$675,785 and $654,610, respectively.
The Bank is required by the Federal Reserve Board to maintain reserves based
principally on deposits outstanding and are included in cash and due from banks.
At March 31,1995, December 31, 1994 and 1993, required reserves were $1,293,000,
$1,128,000 and $922,000, respectively.
At March 31, 1995 and December 31, 1994, the Company was party to a number of
lawsuits. While any litigation has an element of uncertainty, after reviewing
these actions with legal counsel, management is of the opinion that the
liability, if any, resulting from these actions will not have a material effect
on the consolidated financial condition or results of operations of the Company.
F - 28
<PAGE>
Progress Financial Corporation
(12) Benefit Plans
Pension Plan
The Bank had a non-contributory pension plan covering virtually all employees
who qualified as to age and length of service. The projected unit credit method
was used to measure net periodic pension cost over employees service lives. The
plan, which was funded annually by an amount consistent with minimum government
funding regulations, was terminated effective June 30, 1992, and ceased to exist
as an entity. Defined benefits will not be provided under any successor plan.
The curtailment effect of the termination resulted in a gain of $19,062, which
was recognized in 1993.
Savings Plan
Effective July 1, 1992, the Bank implemented a savings plan under Section
401(k) of the Internal Revenue Code, covering all full-time employees of the
Bank as of that date. All full-time employees hired subsequent to July 1, 1992
become eligible to participate in the plan following completion of one year of
continuous employment. The Bank's contributions to this plan were $13,916 and
$17,348 for the three months ended March 31, 1995 and 1994, and $46,712, $46,552
and $17,227 for the years ended 1994, 1993 and 1992, respectively. The Bank's
matching contribution becomes fully vested when the employee completes three
additional years of service. Effective January 1, 1993, the Bank contributes 50%
of the employee contribution up to 6% of compensation.
Post-Retirement Benefits
In December 1990, the FASB issued Statement of Financial Accounting Standards
No. 106, "Employers' Accounting for Post-Retirement Benefits Other than
Pensions" ("SFAS No. 106"). SFAS No. 106 requires accrual during an employee's
active years of service of the expected costs of providing post-retirement
benefits (principally health care) to employees and their beneficiaries and
dependents. Adoption of SFAS No. 106 was required for fiscal years beginning
after December 15, 1992. The Company and the Bank do not provide post-retirement
benefits; therefore, the adoption of SFAS No. 106 effective January 1, 1993 had
no effect on the Company's results of operations.
Post-Employment Benefits
In November 1992, the FASB issued Statement of Financial Accounting Standards
No. 112, "Employers' Accounting of Post-Employment Benefits" ("SFAS No. 112").
SFAS No. 112 requires employers to recognize any obligation to provide
post-employment (as differentiated from post-retirement) benefits by accruing
the estimated liability. Adoption of SFAS No. 112 was required for fiscal years
beginning after December 15, 1993. The Company and the Bank do not provide
post-employment benefits; therefore, effective January 1, 1994, the adoption of
SFAS No. 112 had no effect on the Company's results of operations.
F - 29
<PAGE>
Progress Financial Corporation
(13) Related Party Transactions
Charles J. Tornetta and John E. Flynn Corson, Directors of the Company and Bank,
were limited partners in a partnership which beneficially owned a 49% interest
in the building from which the Company and the Bank conduct business in Plymouth
Meeting, Pennsylvania. The Company and the Bank paid approximately $214,507,
$415,233 and $498,807 in rental fees during 1994, 1993 and 1992, respectively,
to the management company which handled the property on behalf of the limited
partnership in which Mr. Tornetta and Mr. Corson were partners. The lease was
negotiated and signed prior to either member being elected to the Board of
Directors. As of December 31, 1994, Mr. Tornetta and Mr. Corson no longer own an
interest in the building.
Charles J. Tornetta also serves as President and owns a 25% interest in
Commonwealth Insurance Agency, Inc. Total insurance premiums paid by the
Company, the Bank and the Bank's subsidiaries to Commonwealth Insurance Agency,
Inc. in 1994, 1993 and 1992 were $21,456, $10,190 and $154,842, respectively. No
amounts were paid to Commonwealth Insurance Agency during the three months ended
March 31, 1995.
Joseph R. Klinger, a Director of the Company and the Bank, is a principal of KMR
Management, Inc., a management consulting company, which in the years ended
December 31, 1993 and 1992 received approximately $64,452 and $37,500,
respectivly, in consulting fees for professional services rendered to the Bank
and its wholly owned subsidiaries. No fees were paid to KMR Management, Inc.
in 1994 or during the three months ended March 31, 1995.
(14) Stock Options
In February 1993, the Board of Directors adopted a Stock Incentive Plan which
provides for the grant of incentive stock options, non-incentive or compensatory
stock options and stock appreciation rights to key employees. The per share
exercise price of an incentive stock option shall at least equal the fair market
value of a share of Common Stock on the date the option is granted, and the per
share exercise price of a compensatory stock option shall at least equal the
greater of par value or 85% of fair market value of a share of Common Stock on
the date the option is granted. Under this plan, 176,488 shares of common stock
were reserved for issuance of which 127,500 shares were granted in 1993. There
were no options granted under this plan in 1994, while 5,000 options were
granted during the three months ended March 31, 1995.
The Directors' Plan was also adopted in February 1993. Under the plan, each
non-employee Director of the Company was granted compensatory options to
purchase 5,000 shares of Common Stock at the Subscription Price for a share of
Common Stock as specified in the Company's concurrent rights and community
offering of Common Stock which was completed in June 1994. In addition, at the
end of each year commencing on December 31, 1993, until and including December
31, 1997, each non-employee director of the Company will receive compensatory
options to purchase 250 shares (or such lesser number of shares as remain to be
granted pursuant to the Directors' Plan) with an exercise price equal to the
fair market value of a share of Common Stock on the date the option is granted.
A total of 50,000 authorized but unissued shares of Common Stock has been
reserved for issuance pursuant to the Directors' Plan. In 1994 and 1993, 2,000
and 37,000 shares, respectively, were granted under this plan. There were no
options granted under this plan during the three months ended March 31, 1995.
Under the Company's Stock Option Plan which was adopted in April 1984 and
amended in April 1987, 95,955 shares of Common Stock were reserved for issuance
upon exercise of options or shares granted to officers and key employees. The
plan provides that the option price will be fixed by a committee of the Board of
Directors, but will not be less than 100% of the fair value of the stock at the
date of the grant. At December 31, 1993, no shares are available for future
grants.
Options granted under each of the aforementioned plans are exercisable during
the period specified in each option agreement and expire no later than the tenth
anniversary of the date the option was granted.
F - 30
<PAGE>
Progress Financial Corporation
(14) Stock Options (continued)
Changes in total options outstanding are as follows:
March 31, 1995
--------------
Shares Option
Under Price
Option Per Share
------ ---------
Outstanding at beginning of period 253,000 $ 1.00 to $13.61
Granted during the three months ended March 31, 1995 5,000 4.25
------- ----------------
Outstanding at March 31, 1995 258,000 $ 1.00 to $13.61
======= ================
Options exercisable at March 31, 1995 203,500 $ 1.00 to $13.61
======= ================
December 31, 1994
-----------------
Shares Option
Under Price
Option Per Share
------ ---------
Outstanding at beginning of year 251,000 $ 1.00 to $13.61
Granted during year 2,000 4.25
------- ----------------
Outstanding at end of year 253,000 $ 1.00 to $13.61
======= ================
Options exercisable at end of year 194,750 $ 1.00 to $13.61
======= ================
December 31, 1993
-----------------
Shares Option
Under Price
Option Per Share
------ ---------
Outstanding at beginning of year 88,500 $ 1.00 to $13.61
Granted during year 164,500 3.50 to $ 4.63
Forfeited during year (2,000) 10.83 to $13.61
------- ----------------
Outstanding at end of year 251,000 $ 1.00 to $13.61
======= ================
Options exercisable at end of year 145,375 $ 1.00 to $13.61
======= ================
December 31, 1992
-----------------
Shares Option
Under Price
Option Per Share
------ ---------
Outstanding at beginning of year 12,800 $10.83 to $13.61
Granted during year 80,000 1.00
Forfeited during year (4,300) 10.83 to $13.61
------- ----------------
Outstanding at end of year 88,500 $ 1.00 to $13.61
======= ================
Options exercisable at end of year 28,500 $ 1.00 to $13.61
======= ================
F - 31
<PAGE>
Progress Financial Corporation
(15) Recent Regulations
Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA)
FDICIA was signed into law on December 19, 1991; regulations implementing the
prompt corrective action provisions of FDICIA became effective on December 19,
1992. In addition to the prompt corrective action requirements, FDICIA includes
significant changes to the legal and regulatory environment for insured
depository institutions, including reductions in insurance coverage for certain
kinds of deposits, increased supervision by the federal regulatory agencies,
increased reporting requirements for insured institutions, and new regulations
concerning internal controls, accounting, and operations. The prompt corrective
action regulations defined specific capital categories based on an institution's
capital ratios. The capital categories, in declining order, are "well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized," and "critically undercapitalized."
To be considered "adequately capitalized," an institution must generally have a
leverage ratio of at least 4%, a Tier 1 risk-based capital ratio of at least 4%,
and a total risk-based capital ratio of at least 8%. An institution is deemed to
be "critically undercapitalized" if it has a tangible equity ratio of 2% or
less.
At March 31, 1995, the Bank's leverage ratio was 4.74%, Tier 1 risk-based ratio
was 9.03%, total risk-based ratio was 9.92%, and tangible equity ratio was
4.74%, based on leverage capital of $16,431,000, Tier 1 capital of $16,431,000,
total risk-based capital of $18,042,000 and tangible equity capital of
16,431,000, respectively. At March 31,1995, the Bank was classified as
"adequately capitalized".
At December 31, 1994, the Bank's leverage ratio was 4.57%, Tier 1 risk-based
ratio was 8.66%, total risk-based ratio was 9.47%, and tangible equity ratio was
4.57%, based on leverage capital of $15,915,000 Tier 1 capital of $15,915,000
total risk-based capital of $17,417,000 and tangible equity capital of
$15,915,000, respectively. At December 31, 1994, the Bank was classified as
"adequately capitalized."
F - 32
<PAGE>
Progress Financial Corporation
(15) Recent Regulations (continued)
The following is a reconciliation of the Bank's capital determined in accordance
with generally accepted accounting principles ("GAAP") to regulatory tangible,
core and risk-based capital:
March 31, 1995
-----------------------------------------------
Tangible Core Risk-Based
Capital % Capital % Capital %
-------- - ------ - ---------- -
(Dollars in Thousands)
GAAP Capital $16,416 $16,416 $16,416
General valuation allowance -- -- 1,611
Unrealized loss on securities
available for sale, net
of taxes 721 721 721
Goodwill (178) (178) (178)
Investment in joint venture (8) (8) (8)
Non-qualifying deferred tax
assets (520) (520) (520)
------- ------- -------
Total 16,431 4.74% 16,431 4.74% 18,042 9.92%
Minimum capital requirement 5,203 1.50 10,405 3.00 14,551 8.00
------- ---- ------- ---- ------- ----
Regulatory capital - excess $11,228 3.24% $ 6,026 1.74% $ 3,491 1.92%
======= ==== ======= ==== ======= ====
December 31, 1994
-----------------------------------------------
Tangible Core Risk-Based
Capital % Capital % Capital %
-------- - ------ - ---------- -
(Dollars in Thousands)
GAAP Capital $15,584 $15,584 $15,584
General valuation allowance -- -- 1,502
Unrealized loss on securities
available for sale, net
of taxes 1,051 1,051 1,051
Goodwill (192) (192) (192)
Investment in joint venture (8) (8) (8)
Non-qualifying deferred tax
assets (520) (520) (520)
------- ------- -------
Total 15,915 4.57% 15,915 4.57% 17,417 9.47%
Minimum capital requirement 5,225 1.50 10,450 3.00 14,708 8.00
------- ---- ------- ---- ------- ----
Regulatory capital - excess $10,690 3.07% $ 5,465 1.57% $ 2,709 1.47%
======= ==== ======= ==== ======= ====
F - 33
<PAGE>
Progress Financial Corporation
(15) Recent Regulations (continued)
Dividend Restrictions
The Bank's ability to pay dividends is restricted by certain regulations.
Under the current regulations, the Bank is not permitted to pay cash
dividends or repurchase any of its capital stock if such payment or
repurchase would cause its regulatory capital to be reduced below either
the amount of the liquidation account or the regulatory capital
requirements applicable to it. An institution that exceeds its fully phased
in capital requirement could, after prior notice, but without the approval
of the OTS, make capital distributions during a calendar year of up to 100%
of its current net income plus the amount that would reduce its "surplus
capital ratio" (the excess capital over its fully phased-in capital
requirement) to less than one-half of its surplus capital ratio at the
beginning of the calendar year. Any additional capital distributions would
require prior regulatory approval. An institution that meets its regulatory
capital requirement, but not its fully phased-in capital requirement, could
make capital distributions without prior OTS approval of between 25% and
75% of current earnings. A savings institution that does not meet its
minimum regulatory capital requirements cannot make any capital
distributions without prior OTS approval. Because the Bank is the primary
source of working capital for the Company, the Company's ability to pay
dividends is therefore limited. The Company discontinued the payment of
regular dividends after the second quarter of 1990.
(16) Financial Instruments
Financial Instruments with Off Balance-Sheet Risk
The Company is a party to various financial instruments required in the
normal course of business to meet the financing needs of its customers,
which are not included in the Consolidated Statements of Financial
Condition at March 31, 1995 or December 31, 1994. Management does not
expect any material losses from these transactions. The Company's
involvement in such financial instruments at March 31, 1995 and December
31, 1994 is summarized as follows:
<TABLE><CAPTION>
(Dollars in Thousands)
Contract or
Notional Amount
---------------
March 31,1995 December 31, 1994
------------- -----------------
<S> <C> <C>
Amounts representing credit risk:
Commitments to extend credit (including unused lines of credit) $30,117 $ 22,258
Standby letters of credit, financial guarantees and other letters of credit $ 657 $ 657
</TABLE>
The Bank uses the same credit policies in extending commitments and letters
of credit as it does for on-balance sheet instruments. The Bank controls its
exposure to loss from these agreements through credit approval processes and
monitoring procedures. Letters of credit and commitments to extend credit
are generally issued for one year or less and may require payment of a fee.
The total commitment amounts do not necessarily represent future cash
disbursements, as many of the commitments expire without being drawn upon.
The Bank may require collateral in extending commitments, which may include
cash, accounts receivable, securities, real or personal property, or other
assets. For those commitments which require collateral, the value of the
collateral generally equals or exceeds the amount of the commitment.
The majority of the Company's commitments to extend credit and letters of
credit carry current market interest rates if converted to loans. Because
commitments to extend credit and letters of credit are generally
unassignable by either the Company or the borrower, they only have value to
the Company and the borrower. The estimated fair value approximates the
recorded deferred fee amounts.
Concentrations of Credit Risk
The Bank extends credit in the normal course of business to its customers,
substantially all of whom operate or reside within Montgomery County,
Pennsylvania and surrounding business areas including southern New Jersey.
The ability of its customers to meet contractual obligations is, to some
extent, dependent upon the conditions of this regional economy.
F- 34
<PAGE>
Progress Financial Corporation
(16) Financial Instruments (continued)
In addition, certain groups of Bank loan customers share characteristics
which, given current economic conditions, may affect their ability to meet
contractual obligations. These customers and their credit extensions at
December 31, 1994 include: retail consumers that account for 57% of all
credit extensions; commercial mortgages and commercial real estate that
account for 34%; residential construction and land that account for 3%;
and commercial business that account for 6%. At March 31,1995, retail
customers accounted for 57% of all credit extensions; commercial
mortgages and commercial real estate accounted for 35%; residential
construction and land loans accounted for 2%; and commercial business
accounted for 6%.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments" ("SFAS No. 107") requires the
estimation of so called fair values of financial instruments as defined
in SFAS No. 107.
Limitations: Estimates of "fair value" are made at a specific point in
time, based upon, where available, relevant market prices and information
about the financial instrument. Such estimates do not include any premium
or discount that could result from offering for sale at one time the
Company's entire holdings of a particular financial instrument. For a
substantial portion of the Company's financial instruments, no quoted
market exists. Therefore, estimates of "fair value" are necessarily based
on a number of significant assumptions (many of which involve events
outside the control of management). Such assumptions include assessments of
current economic conditions, perceived risks associated with these
financial instruments and their counterparties, future expected loss
experience and other factors. Given the uncertainties surrounding these
assumptions, the reported "fair values" represent estimates only and,
therefore, cannot be compared to the historical accounting model. Use of
different assumptions or methodologies could result in different "fair
value" estimates. The estimated "fair values" presented neither include nor
give effect to the values associated with the Company's banking or other
businesses, existing customer relationships, branch banking network
property, equipment, or certain tax implications related to the realization
of unrealized gains or losses. Also, under SFAS 107, the "fair value"
of non-interest bearing deposits, savings and NOW accounts and money market
deposit accounts is equal to the carrying amount because these deposits
have no stated maturity. This approach to estimating "fair value" excludes
the significant benefit that results from the low-cost funding provided by
such deposit liabilities in comparison to alternative sources of funding.
The following methods and assumptions were used to estimate the fair value
of each major classification of financial instruments at March 31, 1995 and
December 31, 1994 and 1993:
Cash and cash equivalents: Current carrying amounts reported in the
statement of financial condition for cash and short-term instruments
approximate estimated fair value.
Investment and mortgage-backed securities: Fair values for investment and
mortgage-backed securities were based on current quoted market prices.
Loans: For variable rate loans that reprice frequently and have no
significant credit risk, fair values are based on carrying values. The
estimated fair values for certain mortgage loans (e.g., one-to-four family
residential) and other consumer loans are based on quoted market prices of
similar loans sold in conjunction with securitization transactions,
adjusted for differences in loan characteristics. The fair value of
non-accruing and restructured loans were estimated using discounted cash
flow analyses, with incremental discount rates which consider credit risk
and other relevant factors. The fair values for all other loans were
estimated using discounted cash flow analyses, using interest rates
currently being offered for loans with similar terms to borrowers of
similar credit quality. The carrying amount of accrued interest
approximates its fair value.
Interest Receivable: Current carrying amounts reported in the statement of
financial condition for interest receivable approximate estimated fair
value.
Deposits: Fair values disclosed for deposits with no stated maturity
(checking, NOW, savings, and money market accounts) are, by definition,
equal to the amount payable on demand at March 31, 1995 and December 31,
1994 and 1993 (i.e., current carrying amounts). Fair values for deposits
with stated maturities (time deposits) were estimated using a discounted
cash flow calculation that uses current interest rates offered in the
Company's market area for deposits with comparable terms and maturities.
F-35
<PAGE>
Progress Financial Corporation
(16) Financial Instruments (continued)
Advances from the FHLB:
Short-term: Current carrying amounts of borrowings under repurchase
agreements and other short-term borrowings approximate estimated
fair value.
Long-term: Fair value of long-term borrowings are estimated using a
discounted cash flow calculation that uses current borrowing rates for
advances with comparable terms and maturities.
Subordinated Debt: Fair value of subordinated debt was estimated using a
discounted cash flow calculation using a current interest rate for debt
with comparable term and maturity.
Other Liabilities: Includes interest payable and advance payments by
borrowers for taxes and insurance. Current carrying amounts of interest
payable and advance payments by borrowers for taxes and insurance
approximate estimated fair value.
Commitments to extend credit and letters of credit: The majority of the
Company's commitments to extend credit and letters of credit carry current
market interest rates if converted to loans. Because commitments to extend
credit and letters of credit are generally unassignable by either the
Company or the borrower, they only have value to the Company and the
borrower. The estimated fair value approximates the recorded deferred fee
amounts.
The carrying amounts and fair values of the Company's financial
instruments were as follows:
<TABLE><CAPTION>
March 31, 1995 December 31, 1994 December 31, 1993
-------------- ----------------- -----------------
Estimated Estimated Estimated
Carrying Fair Carrying Fair Carrying Fair
Value Value Value Value Value Value
------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Financial assets:
Cash and due from banks and
interest-bearing deposits $ 5,518,242 $ 5,518,242 $ 8,075,620 $ 8,075,620 $ 4,203,907 $ 4,203,907
Investment and mortgage-
backed securities 116,577,704 112,147,222 120,269,351 112,762,574 130,578,928 129,748,650
Loans receivable 212,484,716 207,151,350 207,625,108 199,070,000 177,155,754 177,195,278
Interest receivable 2,159,060 2,159,060 2,209,951 2,209,951 2,515,330 2,515,330
----------- ----------- ----------- ----------- ----------- -----------
$336,739,722 $326,975,874 $338,180,030 $322,118,145 $314,453,919 $313,663,165
=========== =========== =========== =========== =========== ===========
Financial liabilities:
Deposits $277,849,229 $277,157,404 $283,957,740 $283,638,741 $273,583,125 $276,006,855
Advances from the FHLB 47,820,750 47,835,563 44,051,750 43,371,830 40,536,000 40,780,000
Subordinated debt 3,000,000 2,827,950 3,000,000 2,823,300 -- --
Other financial liabilities 3,180,297 3,180,297 2,939,986 2,939,986 2,956,387 2,956,387
----------- ----------- ----------- ----------- ----------- -----------
$331,850,276 $331,001,214 $333,949,476 $332,773,857 $317,075,512 $319,743,242
=========== =========== =========== =========== =========== ===========
</TABLE>
F-36
<PAGE>
Progress Financial Corporation
(17) Selected Quarterly Consolidated Financial Data (unaudited)
The following table represents quarterly financial data for the periods
indicated. In the opinion of management, this information reflects all
adjustments (consisting solely of normal recurring adjustments) necessary
for a fair presentation of the results of operations for the periods
indicated. Reclassifications have been made to certain previously reported
amounts to conform with the 1994 classifications.
<TABLE><CAPTION>
(Dollars in Thousands. except per share data)
Mar. 31 Dec. 31, Sept. 30, Jun. 30, Mar, 31, Dec. 31,
1995 1994 1994 1994 1994 1993
------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Loans, including fees $ 4,548 $ 4,260 $ 3,911 $ 3,580 $ 3,433 $ 3,413
Mortgage-backed securities 1,654 1,744 1,716 1,611 1,546 1,701
Investment securities 267 285 343 254 78 71
Other 29 23 11 14 21 11
------- ------- --------- ------- -------- -------
Total interest income 6,498 6,312 5,981 5,459 5,078 5,196
------- ------- --------- ------- -------- -------
Interest expense:
Deposits 2,839 2,771 2,558 2,439 2,400 2,454
Advances from the FHLB 749 641 648 482 431 506
Subordinated debt 66 68 67 -- -- --
------- ------- --------- ------- --------- -------
Total interest expense 3,654 3,480 3,273 2,921 2,831 2,960
------- ------- --------- ------- -------- -------
Net interest income 2,844 2,832 2,708 2,538 2,247 2,236
------- ------- --------- ------- -------- -------
Provision for loan losses 100 115 56 300 50 133
------- ------- --------- ------- -------- -------
Gain (loss) from sales of securities (35) (198) (55) 1 (70) (117)
Gain (loss) from mortgage banking
activities (1) (5) 1 (46) (126) (122)
Income (loss) from properties sold (24) (2) (42) 19 (37) (69)
Other income 462 508 549 441 607 359
Other expense 2,768 2,672 2,763 4,104 2,526 2,917
------- ------- --------- ------- -------- -------
Income (loss) before
income taxes 378 348 342 (1,451) 45 (763)
Income tax expense (benefit) -- -- -- -- -- (1,040)
------- ------- -------- -------- ------- --------
Net income (loss) $ 378 $ 348 $ 342 $(1,451) $ 45 $ 277
------- ------- -------- -------- ------- --------
Earnings (loss) per share $ .12 $ .11 $ .10 $ (.44) $ .01 $ .08
======= ======= ======== ======== ======= ========
</TABLE>
Sept. 30, Jun. 30, Mar. 31,
1993 1993 1993
--------- -------- --------
Interest income:
Loans, including fees $ 3,468 $ 3,648 $ 3,594
Mortgage-backed securities 1,698 1,655 1,289
Investment securities 74 64 72
Other 21 31 14
------- ------- -------
Total interest income 5,261 5,398 4,969
------- ------- -------
Interest expense:
Deposits 2,520 2,176 2,227
Advances from the FHLB 489 574 519
Subordinated debt -- -- --
-------- ------- ------
Total interest expense 3,009 2,750 2,746
-------- ------- ------
Net interest income 2,252 2,648 2,223
-------- ------- ------
Provision for loan losses 17 35 183
-------- ------- ------
Gain (loss) from sales of securities 163 27 142
Gain (loss) from mortgage banking
activities 521 55 152
Income (loss) from properties sold 87 9 75
Other income 350 332 262
Other expense 3,286 2,739 2,626
Income (loss) before
income taxes 70 297 45
Income tax expense (benefit) -- -- 6
-------- -------- --------
Net income (loss) $ 70 $ 297 $ 39
======== ======== ========
Earnings (loss) per share $ .02 $ .18 $.04
======== ======== ========
F-37
<PAGE>
Progress Financial Corporation
(18) Condensed Financial Information of Progress Financial Corporation
(Parent Company Only)
<TABLE><CAPTION>
Condensed Statements of Financial Condition
March 31, December 31,
------------------------------- ---------------------------
1995 1994 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Assets
Cash on deposit with subsidiary $ 34,810 $ 98 $ 95,773 $ 98
Investments in subsidiaries 16,579,628 14,477,342 15,805,201 14,787,288
Equity investments 30,090 -- 30,091 --
Deferred debt issuance costs 84,477 -- 89,445 --
----------- ----------- ----------- -----------
Total assets $16,729,005 $14,477,440 $16,020,510 $14,787,386
=========== =========== =========== ===========
Liabilities and stockholders' equity
Liabilities:
Subordinated debt $ 3,000,000 $ -- $ 3,000,000 $ --
Stockholders' equity: ----------- ----------- ----------- -----------
Serial preferred stock -- -- -- --
Common stock 3,275,000 3,275,000 3,275,000 3,275,000
Capital surplus 15,706,092 15,706,092 15,706,092 15,706,092
Retained earnings (deficit) (4,531,447) (4,148,983) (4,909,360) (4,193,706)
Unrealized loss on securities available for sale (720,640) (354,669) (1,051,222) --
----------- ----------- ----------- ------------
Total stockholders' equity 13,279,005 14,477,439 13,020,510 14,787,386
Total liabilities and stockholders' equity $16,729,005 $14,477,440 $16,020,510 $ 14,787,386
=========== =========== =========== ============
</TABLE>
<TABLE><CAPTION>
Condensed Statements of Operations
For The Three Months Ended For The Years Ended
March 31, December 31,
-------------------------------- ------------------------------------------------
1995 1994 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Equity in undistributed income
(loss) of subsidiaries $ 443,845 $ 44,7233 $ (580,864) $ 682,888 $ 1,277,550
Interest income 64 -- -- -- 384
--------- --------- ---------- ----------- -----------
Total income (loss) 443,909 44,723 (580,864) 682,888 1,277,934
Interest expense - subordinated debt 65,996 -- 134,790 -- --
--------- --------- ---------- ----------- -----------
Income (loss) before income taxes 377,913 44,723 (715,654) 682,888 1,277,934
Income tax expense -- -- -- -- --
--------- --------- ---------- ----------- -----------
Net income (loss) $ 377,913 $ 44,723 $ (715,654) $ 682,888 $ 1,277,934
========= ========= ========== =========== ===========
</TABLE>
Under a tax sharing arrangement between the Company and the Bank, income tax
expense (benefit) is recorded on the books of the Bank.
F-38
<PAGE>
Progress Financial Corporation
<TABLE><CAPTION>
(18) Condensed Financial Information of Progress Financial Corporation (continued)
(Parent Company Only)
Condensed Statements of Cash Flows
For The Three Months Ended For The Years Ended
March 31, December 31,
----------------------------- --------------------------------------
1995 1994 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 377,913 $ 44,724 $ (715,654) $ 682,888 $1,277,934
Add (deduct) items not affecting
cash flow from operating activities:
Equity in (earnings) losses of
subsidiaries (443,845) (44,724) 580,864 (682,888) (1,277,550)
Amortization of deferred debt
issuance cost 4,969 -- 9,940 -- --
--------- --------- --------- --------- ----------
Net cash flows (used in) provided
by operating activities (60,963) -- (124,850) -- 384
--------- --------- --------- --------- ----------
Cash flows from investment activities:
Capital contributions and additional
investment in subsidiaries -- -- (2,650,000) (7,227,108) (11,668)
Purchase of equity investment -- -- (30,091) -- --
--------- --------- --------- --------- ----------
Net cash flows used in investment
activities -- -- (2,680,091) (7,227,108) (11,668)
--------- --------- --------- --------- ----------
Cash flows from financing activities:
Net proceeds from issuance of
subordinated debt -- -- 2,900,616 -- --
Net proceeds from issuance of
common stock -- -- -- 7,227,108 --
--------- --------- --------- --------- ----------
Net cash flows provided by
financing activities -- -- 2,900,616 7,227,108 --
--------- --------- --------- --------- ----------
Net increase (decrease) in cash and
cash equivalents (60,963) -- 95,675 -- (11,284)
Cash and cash equivalents:
Beginning of period 95,773 98 98 98 11,382
--------- --------- --------- --------- ----------
End of period $ 34,810 $ 98 $ 95,773 $ 98 $ 98
========= ========= ========== =========== ==========
</TABLE>
These statements should be read in conjunction with the other notes to the
consolidated financial statements.
(19) Proposed Merger
On May 24, 1995 the Company and the Bank entered into a definitive
agreement whereby the Bank will merge with another, locally based,
depository institution. In connection with this transaction, the Company
will raise additional capital through a common stock offering. The
transaction requires approval from the stockholders and regulatory bodies.
F-39
<PAGE>
DELOITTE & TOUCHE, LLP
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Roxborough-Manayunk Federal Savings Bank:
We have audited the accompanying consolidated statements of financial
condition of Roxborough-Manayunk Federal Savings Bank and subsidiaries (the
"Bank") as of December 31, 1994 and 1993, and the related consolidated
statements of income, changes in stockholders' equity and cash flows for
the years then ended. We have also audited the related consolidated
statements of income and cash flows for the year ended December 31, 1992 of
Roxborough-Manayunk Federal Savings and Loan Association and subsidiaries
(the "Predecessor Association"). These consolidated financial statements
are the responsibility of the Bank's and Predecessor Association'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 financial position of the Bank at December 31,
1994 and 1993, the results of its operations and its cash flows for the
years then ended, and the Predecessor Association's results of operations
and cash flows for the year ended December 31, 1992 in conformity with
generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, on
December 31, 1992, Roxborough-Manayunk Federal Savings and Loan
Association, the Predecessor Association, reorganized from a federally
chartered mutual savings association into a mutual holding company named
FJF Financial, M.H.C. ("FJF Financial") (the "Reorganization"). As part of
the Reorganization, FJF Financial transferred substantially all of its
assets and liabilities at book value, except for $100,000, to a newly
formed federally chartered capital stock savings bank named
Roxborough-Manayunk Federal Savings Bank, the Bank, in exchange for
1,415,000 shares of the Bank's common stock. The Bank also sold 200,000
shares of common stock to persons other than FJF Financial.
S-1
<PAGE>
As discussed in Note 2 to the consolidated financial statements, at
December 31, 1993, the Bank changed its method of accounting for
investments in debt and equity securities to conform with Statement of
Financial Accounting Standards ("SFAS") No. 115, and also beginning January
1, 1993, the Bank changed its method of accounting for income taxes to
conform with SFAS No. 109.
/s/ Deloitte & Touche, LLP
January 27, 1995
S-2
<PAGE>
<TABLE><CAPTION>
ROXBOROUGH-MANAYUNK FEDERAL SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
- -------------------------------------------------------------------------------------------------
March 31, 1995 December 31,
------------------------------
ASSETS (Unaudited) 1994 1993
<S> <C> <C> <C>
Cash on hand and in banks $ 1,401,744 $ 1,109,607 $ 713,074
Interest-bearing deposits 39,441,632 17,942,152 31,050,807
------------- ------------- -------------
Total cash and cash equivalents 40,843,376 19,051,759 31,763,881
Investments held to maturity
(approximate market value - 1995,
$48,850,000; 1994, $47,731,000;
1993, $29,925,000) 49,502,741 49,325,074 29,137,133
Investments available for sale at market
(amortized cost - 1995, $775,000;
1994, $760,000; 1993, $750,000) 770,033 754,965 750,000
Mortgage-backed securities available
for sale at market value (amortized cost -
1995, $77,168,000; 1994,
$102,227,000; 1993, $108,465,000) 76,376,773 98,475,788 108,532,491
Loans receivable (net of allowance for
loan losses - 1995, $415,564; 1994,
$416,629; 1993, $450,181) 95,175,491 95,524,003 98,622,032
Loans available for sale (amortized
cost - 1995, $1,304,605; 1994,
$1,198,544) 1,304,605 1,198,544
Accrued interest receivable:
Loans 825,866 780,332 794,206
Mortgage-backed securities 455,323 621,841 673,259
Investments 1,010,742 647,040 384,534
Federal Home Loan Bank stock - at
cost 1,685,700 1,614,500 1,844,300
Real estate acquired through
forclosure - net 94,826 88,105 189,058
Office properties and equipment 2,121,119 2,192,199 2,270,471
Excess of cost over fair value of net
assets acquired (goodwill) 288,325 347,552 628,283
Prepaid expenses and other assets 1,884,334 1,553,778 1,599,725
Deferred income taxes 389,395 1,395,836 73,456
Prepaid income taxes 41,664
------------- ------------- -------------
TOTAL ASSETS $ 272,728,649 $ 273,571,316 $ 277,304,493
============= ============= =============
<CAPTION>
March 31, 1995 December 31,
LIABILITIES AND -------------------------------
STOCKHOLDERS' EQUITY (Unaudited) 1994 1993
<S> <C> <C> <C>
Liabilities:
Deposits $ 239,038,712 $241,230,534 $ 244,305,737
Accrued interest payable 116,543 91,564 82,926
Advances from borrowers for taxes
and insurance 1,295,239 2,457,479 2,548,346
FHLB advances 7,884,000 7,884,000 7,884,000
Accounts payable and accrued
expenses 858,316 1,165,644 1,149,838
Employee Stock Ownership Plan debt 83,842 90,610 116,310
Accrued income taxes 470,782 174,382
------------- ------------- -------------
Total liabilities 249,747,434 253,094,213 256,087,157
------------- ------------- -------------
Stockholders' equity:
Preferred stock, no par value
2,500,000 shares authorized, none
issued
Common Stock, $1 par value
7,500,000 shares authorized,
1995 - 1,621,000 shares issued
and outstanding;
1994-1993 - 1,615,000 shares
issued and outstanding 1,621,000 1,615,000 1,615,000
Additional paid-in capital 16,997,430 16,934,430 16,934,430
Employee Stock Ownership Plan (83,842) (90,610) (116,310)
Contribution for shares acquired by
Management Recognition Plan (36,000) (36,000) (48,000)
Unrealized gain (loss) net of related
taxes on securities available for sale (525,315) (2,478,994) 44,267
Retained earnings - partially restricted 5,007,942 4,533,277 2,787,949
------------- ------------- -------------
Total stockholders' equity 22,981,215 20,477,103 21,217,336
------------- ------------- -------------
TOTAL LIABILITES AND
STOCKHOLDERS' EQUITY $ 272,728,649 $ 273,571,316 $ 277,304,493
=========== =========== ===========
</TABLE>
See Notes to consolidated financial statements
S-3
<PAGE>
<TABLE><CAPTION>
ROXBOROUGH-MANAYUNK FEDERAL SAVINGS BANK AND SUBSIDIARIES AND
ROXBOROUGH-MANAYUNK FEDERAL SAVINGS AND LOAN ASSOCIATION AND
SUBSIDIARIES ("PREDECESSOR ASSOCIATION")
CONSOLIDATED STATEMENTS OF INCOME
- -------------------------------------------------------------------------------------------------------------------------------
Three-Month Period Ended Years Ended December 31,
---------------------------------------------
March 31, Predecessor
------------------------------ Association
1995 1994
(Unaudited) 1994 1993 1992
<S> <C> <C> <C> <C> <C>
INTEREST INCOME:
Interest on loans $ 2,200,608 $ 2,301,878 $ 9,041,620 $ 8,745,045 $ 9,187,567
Interest on mortgage-backed securities 1,603,671 1,223,308 5,326,966 7,065,235 6,627,023
Interest and dividends on investments 1,130,673 711,352 3,727,127 2,256,517 2,741,930
----------- ----------- ----------- ----------- -----------
Total interest income 4,934,952 4,236,538 18,095,713 18,066,797 18,556,520
----------- ----------- ----------- ----------- -----------
INTEREST EXPENSE:
Interest on deposits 2,371,592 2,011,084 8,316,357 8,984,548 10,434,385
Other 118,099 118,834 474,749 102,134 48,319
----------- ----------- ----------- ----------- -----------
Total interest expense 2,489,691 2,129,918 8,791,106 9,086,682 10,482,704
----------- ----------- ----------- ----------- -----------
NET INTEREST INCOME 2,445,261 2,106,620 9,304,607 8,980,115 8,073,816
PROVISION FOR LOAN LOSSES 15,000 15,000 60,000 94,000 60,000
----------- ----------- ----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 2,430,261 2,091,620 9,244,607 8,886,115 8,013,816
----------- ----------- ----------- ----------- -----------
OTHER INCOME:
Gain (loss) on sale of mortgage-
backed securities (30,994) 678,755 112,326
Rental income 42,048 31,852 129,301 129,778 102,592
Other 111,531 94,824 375,462 421,019 484,265
----------- ----------- ----------- ----------- -----------
Total other income 122,585 126,676 504,763 1,229,552 699,183
----------- ----------- ----------- ----------- -----------
OTHER EXPENSES:
Salaries 608,592 567,511 2,360,520 2,165,749 2,129,512
Amortization of goodwill 59,227 81,139 280,731 370,115 461,664
Office occupancy 118,262 145,972 521,672 478,763 454,255
Depreciation 96,401 93,905 385,773 351,392 392,977
Telephone and postage 46,348 48,345 158,227 149,964 148,978
Pension and profit-sharing 160,159 126,508 526,269 540,878 279,011
Federal insurance premium 139,483 140,050 560,566 437,282 452,676
Stationery, printing and supplies 26,271 30,116 111,749 115,057 103,856
Payroll taxes 54,028 50,440 175,775 162,730 154,253
Other employee benefits 68,574 66,784 228,922 267,971 225,348
Directors' fees 34,845 28,800 123,050 117,750 83,700
Furniture, fixture and equipment expense 51,493 42,522 187,497 165,223 172,366
Director, officer and employee expenses 30,162 42,781 156,811 156,691 168,691
Professional services 85,978 69,369 275,806 267,710 230,327
Advertising 41,796 29,595 142,557 99,799 102,752
Other 121,962 137,464 458,294 558,726 539,770
----------- ----------- ----------- ----------- -----------
Total other expenses 1,743,581 1,701,301 6,654,219 6,405,800 6,100,136
----------- ----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES (BENEFIT)
AND CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING METHOD 809,265 516,995 3,095,151 3,709,867 2,612,863
----------- ----------- ----------- ----------- -----------
INCOME TAXES (BENEFIT):
Current 266,868 185,122 1,167,332 611,522 907,568
Deferred 26,532 22,491 22,491 577,096 (66,747)
----------- ----------- ----------- ----------- -----------
Total income taxes 293,400 207,613 1,189,823 1,188,618 840,821
----------- ----------- ----------- ----------- -----------
INCOME BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING METHOD 515,865 309,382 1,905,328 2,521,249 1,772,042
CUMULATIVE EFFECT ON PRIOR YEARS
(to December 31, 1992) OF CHANGING
TO A DIFFERENT METHOD OF ACCOUNTING
FOR INCOME TAXES 406,700
----------- ----------- ----------- ----------- -----------
NET INCOME $ 515,865 $ 309,382 $ 1,905,328 $ 2,927,949 $ 1,772,042
=========== =========== =========== =========== ===========
EARNINGS PER SHARE $ 0.32 $ 0.19 $ 1.18 $ 1.81
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
S-4
<PAGE>
<TABLE><CAPTION>
ROXBOROUGH-MANAYUNK FEDERAL SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
- ----------------------------------------------------------------------------------------------------------------------------
Unrealized
Gain (Loss) on
Mortgage-
Employee backed
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, 1992 $ 200,000 $1,560,075 $ 1,760,075
Transform of all assets and
liabilities (except $100,000
in cash) from FJF Financial,
M.H.C. in exchange for
1,415,000 shares of common
stock 1,415,000 15,374,355 16,789,355
Formation of Employee Stock
Option Plan $(140,000) (140,000)
Formation of Mangement
Recognition Plan $(60,000) (60,000)
----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1992 $1,615,000 $16,934,430 (140,000) (60,000) 18,349,430
Net income $ 2,927,949 2,927,949
Cash dividends declared (140,000) (140,000)
Adoption of SFAS No. 115, net
of income taxes of $22,804 $ 44,267 44,267
Principal payments made by
Employee Stock Ownership
Plan 23,690 23,690
Release of Management
Recognition Plan shares 12,000 12,000
----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1993 1,615,000 16,934,430 (116,310) (48,000) 44,267 2,787,949 21,217,336
Net income 1,905,328 1,905,328
Cash dividends declared (160,000) (160,000)
Unrealized loss on mortgage-
backed securities available
for sale, net of income tax
benefit of $1,277,085 (2,523,261) (2,523,261)
Principal payments made by
Employee Stock Ownership
Plan 25,700 25,700
Release of Management
Recognition Plan shares 12,000 12,000
----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1994 1,615,000 16,934,430 (90,610) (36,000) (2,478,994) 4,533,277 20,477,103
Net income for the three-month
period ended March 31, 1995
(unaudited) 515,865 515,865
Cash dividends declared
(unaudited) (41,200) (41,200)
Recovery of unrealized loss on
mortgage-backed securities
available for sale, net of
income tax benefit of
$270,643 (unaudited) 1,953,679 1,953,679
</TABLE>
S-5
<PAGE>
<TABLE><CAPTION>
ROXBOROUGH-MANAYUNK FEDERAL SAVINGS BANK AND
SUBSIDIARIES AND ROXBOROUGH-MANAYUNK FEDERAL SAVINGS
AND LOAN ASSOCIATION AND SUBSIDIARIES ("PREDECESSOR ASSOCIATION")
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------------------------------------------------------
Three-Month Period Ended Years Ended December 31,
---------------------------------------------
March 31, Predecessor
------------------------------ Association
1995 1994
(Unaudited) 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Income before cumulative effect of
accounting change $ 515,865 $ 309,382 $ 1,905,328 $ 2,521,249 $ 1,772,042
Cumulative effect of an accounting
change 406,700
Adjustments to reconcile net income to
net cash provided by operating
activities:
Provision for loan losses 15,000 15,000 60,000 94,000 60,000
Depreciation 97,502 95,004 385,773 351,392 392,978
Management Recognition Plan expense 12,000 12,000
Amortization of:
Goodwill 59,227 81,139 280,731 370,115 461,664
Net (discounts) premium on:
Loans purchased (38,008) (55,826) (149,282) (450,328) (494,326)
Investments 4,609 (5,086) (201,391) (69,707) (34,864)
Mortgage-backed securities 593,174 577,097 1,484,985 (328,167) (687,985)
(Gain) loss on sale of mortgage-
backed securities 30,994 (678,755) (112,326)
Changes in assets and liabilities
which provided (used) cash:
Deferred income taxes (121,258) (22,491) 170,396 (66,747)
Deferred loan fees (10,745) 52,269 (126,959) 136,376 35,787
Accrued interest receivable (242,718) (35,307) (197,214) 196,882 230,569
Prepaid expenses and other assets (330,556) (495,405) 45,947 (1,134,921) 81,665
Accrued interest payable (24,979) (24,215) (8,638) 8,572 (51,947)
Accounts payable and accrued
expenses 307,328 389,041 (15,806) 72,403 168,895
Income taxes payable (296,400) (109,785) 216,046 (538,721) (41,327)
------------ ------------ ------------ ----------- -----------
Net cash provided by
operating activities 680,290 672,050 3,669,029 1,139,486 1,714,078
------------ ------------ ------------ ----------- -----------
INVESTING ACTIVITIES:
Principal collected on:
Mortgage-backed securities 3,758,416 21,502,457 43,430,375 51,133,751 32,513,443
Longer-term loans 2,948,958 5,894,007 20,004,859 22,742,196 24,090,660
Longer-term loans originated (2,413,450) (2,124,000) (14,380,575) (18,255,000) (14,823,000)
Longer-term loans acquired (231,200) (510,082) (3,459,670) (25,102,000) (2,780,000)
Purchases of:
Investments (5,197,344) (11,889,939) (35,031,324) (11,874,100) (5,494,800)
Mortgage-backed securities (18,480,296) (38,676,807) (59,213,000) (80,951,000)
Property and equipment (26,422) (207,685) (307,501) (219,497) (235,448)
FHLB stock (71,200)
Proceeds from:
Redemption of FHLB Stock 229,800 229,800
Sales of investments 4,000,000
Maturities of investments 5,000,000 5,000,000 15,034,809 9,178,681 9,999,000
Sale of mortgage-backed securities 20,676,552 15,073,000 10,794,000
(Increase) decrease in real estate
acquired through foreclosure (6,721) (2,130) 100,953 49,413 59,575
------------ ------------ ------------ ----------- -----------
Net cash used in investing
activities 24,437,589 (587,868) (13,055,081) (16,486,556) (22,827,570)
------------ ------------ ------------ ----------- -----------
FINANCING ACTIVITIES:
Net increase (decrease) in deposits (2,191,822) 215,648 (3,075,203) 15,344,257 23,601,439
Net decrease in advances from
borrowers for taxes and insurance (1,162,240) (1,254,145) (90,867) (347,310) (335,992)
Net increase in FHLB advances 7,884,000
Proceeds from sale of stock, net of
conversion costs 69,000 1,560,075
Proceeds from ESOP debt 140,000
Dividends declared (41,200) (20,000) (160,000) (140,000)
------------ ------------ ------------ ----------- -----------
Net cash provided by (used
in) financing activities (3,326,262) (1,058,497) (3,326,070) 22,740,947 24,965,522
------------ ------------ ------------ ----------- -----------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 21,791,617 (974,315) (12,712,122) 7,393,877 3,852,030
CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR 19,051,759 31,763,881 31,763,881 24,370,004 20,517,974
------------ ------------ ------------ ----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 40,843,376 $ 30,789,566 $ 19,051,759 $31,763,881 $24,370,004
============ ============ ============ =========== ===========
SUPPLEMENTAL DISCLOSURE:
Interest paid on deposits and
funds borrowed $ 2,500,000 $ 2,100,000 $ 8,800,000 $ 9,000,000 $10,535,000
Income taxes paid 1,050,000 29,137,133 965,000
Transfer of mortgage-backed securities
to mortgage-backed securities
available for sale
</TABLE>
See notes to consolidated financial statements.
S-6
<PAGE>
ROXBOROUGH-MANAYUNK FEDERAL SAVINGS BANK AND SUBSIDIARIES AND
ROXBOROUGH-MANAYUNK FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARIES
("PREDECESSOR ASSOCIATION")
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 and
1992 AND (UNAUDITED) FOR THE THREE-MONTH
PERIODS MARCH 31, 1995 and 1994
- --------------------------------------------------------------------------------
1. REORGANIZATION AND BASIS OF PRESENTATION
Reorganization - On December 31, 1992, Roxborough-Manayunk Federal
Savings and Loan Association and subsidiaries (the "Predecessor
Association") reorganized from a federally chartered mutual savings
association into a mutual holding company named FJF Financial, M.H.C.
("FJF Financial") (the "Reorganization"). As part of the
Reorganization, FJF Financial transferred substantially all of its
assets and liabilities at book value, except for $100,000, to a newly
formed federally chartered capital stock savings bank named
Roxborough-Manayunk Federal Savings Bank (the "Bank") in exchange for
1,415,000 shares of the Bank's common stock. The Bank also sold
200,000 shares of common stock to persons other than FJF Financial.
Subsequent to the Reorganization, the Bank capitalized all of the
Predecessor Association's retained earnings to additional paid-in
capital as of the date of the Reorganization.
The accompanying consolidated financial statements present the results
of the Predecessor Association's operations and cash flows for the
year ended December 31, 1992.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Financial Statements - The accompanying consolidated financial
statements and related information contained in these footnotes as of
March 31, 1995 and for the three-month periods ended March 31, 1995
and 1994 are unaudited but in management's opinion reflect all
adjustments consisting only of normal recurring accruals necessary for
fair presentation.
Principles of Consolidation - The consolidated financial statements of
the Bank and the Predecessor Association for the applicable periods
include the accounts of Ridge Service Corporation and Montgomery
Service Corporation, wholly owned subsidiaries of the Bank and the
Predecessor Association, respectively. Intercompany accounts and
transactions have been eliminated in consolidation.
Cash and Cash Equivalents - The Bank considers all highly liquid
investments with an original maturity of three months or less to be
cash equivalents.
S-7
<PAGE>
Investments and Mortgage-Backed Securities - In May 1993, the
Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards ("SFAS") No. 115, Accounting for
Certain Investments in Debt and Equity Securities. The Bank elected
to adopt SFAS No. 115 effective December 31, 1993. There was no
effect on stockholders' equity as previously reported or current
earnings of initially applying the new standard. The Bank adopted the
requirements of SFAS No. 115 to classify and account for debt and
equity securities as follows:
Held to Maturity - Debt and equity 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 market value. Market 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. Unrealized
losses, net of taxes, amounting to $525,315 and $2,478,994 are
recorded as a component of stockholders' equity at March 31, 1995 and
December 31, 1994, respectively.
Prior to the adoption of SFAS No. 115, the Bank accounted for debt and
equity securities as follows:
Held for Investment - Debt securities classified as held to maturity,
were carried at their remaining unpaid principal balance, net of
unamortized premiums or unaccreted discounts. Investments and
mortgage-backed securities were classified as held for investment when
management had the ability and the intent to hold these securities
until maturity.
Interest Income - Interest income on loans, mortgage-backed securities
and investments 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.
Provisions for Losses - Provisions for losses include charges to
reduce the recorded balances of mortgage loans receivable and 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 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 Bank's
control.
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. 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 assets. The costs of
maintenance and repairs are expensed as incurred, and renewals and
betterments are capitalized.
Excess Cost Over Fair Value of Net Assets Acquired - Goodwill is being
amortized over the remaining average life of the assets acquired
(originally fifteen years) using the interest method.
S-8
<PAGE>
Interest Rate Risk - The Bank is engaged principally in providing
first mortgage loans to individuals. At December 31, 1994, the Bank'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 Bank 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 Bank defers all loan fees, net of certain direct loan
origination costs, and recognizes income as a yield adjustment over
the life of the loan 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 - The Bank previously accounted for income taxes in
accordance with Accounting Principles Board Opinion No. 11. In
February 1992, the FASB issued SFAS No. 109, Accounting for Income
Taxes. SFAS No. 109 requires a change from the deferred method to the
asset and liability method of accounting for income taxes. Under the
asset and liability method, 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. Under SFAS No. 109, the effect on deferred
taxes of a change in tax rates is recognized in income in the period
that includes the enactment date. The Bank adopted SFAS No. 109 in
1993, and has reported the cumulative effect of the change in method
of accounting for income taxes of $406,700 as of January 1, 1993, in
the consolidated statement of income.
Reclassifications - Certain items in the 1992 and 1993 consolidated
financial statements have been reclassified to conform with the
presentation in the 1994 consolidated financial statements.
S-9
<PAGE>
3. INVESTMENTS
A comparison of cost and approximate market value of investments, by
maturity, is as follows:
<TABLE><CAPTION>
Held to Maturity
March 31, 1995
------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Approximate
Cost Gains Losses Market Value
<S> <C> <C> <C> <C>
U.S. Treasury securities:
Less than 1 year $ 5,032,867 $ 12,683 $ $ 5,045,550
5 to 10 years 5,074,874 161,655 5,236,529
----------- -------- -------- -----------
Total 10,107,741 174,338 10,282,079
---------- -------- -------- -----------
FHLB Bonds:
5 to 10 years 21,000,000 457,815 20,542,185
Other agencies (FNMA,
FHLMC and
SLMA debentures):
5 to 10 years 18,000,000 368,813 17,631,187
Other 395,000 395,000
---------- --------- -------- -----------
Total $49,502,741 $ 174,338 $826,628 $48,850,451
=========== ========= ======== ===========
</TABLE>
<TABLE><CAPTION>
Available for Sale
March 31, 1995
---------------------------------------------
Gross
Amortized Unrealized Approximate
Cost Losses Market Value
<S> <C> <C> <C>
Mutual Funds $525,033 $525,033
Federal Home Loan Mortgage
Corporation 7.9% noncumulative
preferred stock 250,000 $5,000 $245,000
-------- ------ --------
Total $775,033 $5,000 $770,033
======== ====== ========
</TABLE>
S-10
<PAGE>
<TABLE><CAPTION>
Held to Maturity
December 31, 1994
------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Approximate
Cost Gains Losses Market Value
<S> <C> <C> <C> <C>
U.S. Treasury securities:
Less than 1 year $ 4,997,364 $ 9,789 $ 4,987,575
5 to 10 years 5,077,710 46,473 5,031,237
----------- -------- -----------
Total 10,075,074 56,262 10,018,812
---------- -------- -----------
FHLB Bonds:
5 to 10 years 21,000,000 827,300 20,172,700
Other agencies (FNMA,
FHLMC and
SLMA debentures):
5 to 10 years 18,000,000 $ 6,218 716,250 17,289,968
Other 250,000 250,000
----------- --------- ---------- -----------
Total $49,325,074 $ 6,218 $1,599,812 $47,731,480
=========== ========= ========== ===========
</TABLE>
<TABLE><CAPTION>
Available for Sale
December 31, 1994
---------------------------------------------
Gross
Amortized Unrealized Approximate
Cost Losses Market Value
<S> <C> <C> <C>
Mutual Funds $509,965 $509,965
Federal Home Loan Mortgage
Corporation 7.9% noncumulative
preferred stock 250,000 $5,000 $245,000
-------- ------ --------
Total $759,965 $5,000 $754,965
======== ====== ========
</TABLE>
S-11
<PAGE>
<TABLE><CAPTION>
Held to Maturity
December 31, 1993
------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Approximate
Cost Gains Losses Market Value
<S> <C> <C> <C> <C>
U.S. Treasury securities:
Less than 1 year $ 5,011,995 $ 15,688 $ 5,027,683
5 to 10 years 5,089,055 588,447 5,677,502
----------- --------- -----------
Total 10,101,050 604,135 10,705,185
----------- --------- -----------
FHLB Bonds:
Less than 1 year 3,001,309 101,495 3,102,804
5 to 10 years 8,000,000 $ 27,500 7,972,500
----------- --------- --------- -----------
Total 11,001,309 101,495 27,500 11,075,304
----------- --------- --------- -----------
Other agencies (FNMA,
FHLMC and
SLMA debentures):
1 to 5 years 6,000,000 64,670 3,900 6,060,770
5 to 10 years 2,000,000 48,600 2,048,600
----------- --------- --------- -----------
Total 8,000,000 113,270 3,900 8,109,370
----------- --------- --------- -----------
Other 34,774 34,774
----------- --------- --------- -----------
Total $29,137,133 $818,900 $ 31,400 $29,924,633
=========== ======== ========= ===========
</TABLE>
<TABLE><CAPTION>
Available for Sale
December 31, 1993
---------------------------
Gross
Unrealized Approximate
Losses Market Value
<S> <C> <C>
Mutual Funds $ 500,000 $ 500,000
Federal Home Loan Mortgage
Corporation 7.9% noncumulative
preferred stock $ 250,000 250,000
--------- ---------
Total $ 750,000 $ 750,000
========= =========
</TABLE>
There were no sales of debt securities for the three-month period ended
March 31, 1995 or the years ended December 31, 1994, 1993 or 1992.
S-12
<PAGE>
4. MORTGAGE-BACKED SECURITIES AVAILABLE FOR SALE
Mortgage-backed securities are summarized as follows:
<TABLE><CAPTION>
March 31, 1995
------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Approximate
Cost Gains Losses Market Value
<S> <C> <C> <C> <C>
GNMA pass-through certificates $ 13,931,079 $ 67,905 $ 13,998,984
FNMA pass-through certificates 16,947,128 $ 275,278 16,671,850
FNMA real estate mortgage
investment conduits 5,487,035 243,741 5,243,294
FHLMC pass-through certificates 32,526,865 121,295 32,405,570
FHLMC real estate mortgage
investment conduits 8,275,624 218,549 8,057,075
------------ ---------- ----------- -------------
Total $ 77,167,731 $ 67,905 $ 858,863 $ 76,376,773
============ ========== =========== ============
</TABLE>
<TABLE><CAPTION>
December 31, 1994
------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Approximate
Cost Gains Losses Market Value
<S> <C> <C> <C> <C>
GNMA pass-through certificates $ 14,155,501 $ 29,220 $ 558,729 $ 13,625,992
FNMA pass-through certificates 23,009,658 42,773 1,276,330 21,776,101
FNMA real estate mortgage
investment conduits 5,931,876 412,465 5,519,411
FHLMC pass-through certificates 50,721,860 174,932 1,380,821 49,515,971
FHLMC real estate mortgage
investment conduits 8,407,972 28,092 397,751 8,038,313
------------ ---------- ----------- ------------
Total $102,226,867 $ 275,017 $4,026,096 $ 98,475,788
============ ========== =========== ============
</TABLE>
<TABLE><CAPTION>
December 31, 1993
------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Approximate
Cost Gains Losses Market Value
<S> <C> <C> <C> <C>
GNMA pass-through certificates $ 15,676,891 $ 499,896 $ 16,176,787
FNMA pass-through certificates 28,687,537 203,179 $ 36,591 28,854,125
FNMA real estate mortgage
investment conduits 8,201,839 148,067 24,574 8,325,332
FHLMC pass-through certificates 40,632,384 255,585 1,011,744 39,876,225
FHLMC real estate mortgage
investment conduits 15,266,769 146,947 113,694 15,300,022
------------ ---------- ----------- ------------
Total $108,465,420 $1,253,674 $1,186,603 $108,532,491
============ ========== =========== ============
</TABLE>
S-13
<PAGE>
Proceeds from the sale of mortgage-backed securities during the three-
month period ended March 31, 1995 were $20,676,552 resulting in a loss
of $30,994. There were no sales of mortgage-backed securities during
the three-month period ended March 31, 1994.
Proceeds from the sale of mortgage-backed securities during the year
ended December 31, 1993 and 1992 were $15,073,000 and $10,794,000
resulting in a gain of $678,755 and $112,326, respectively. There were
no sales of mortgage-backed securities during the year ended December
31, 1994.
5. LOANS RECEIVABLE
Loans receivable at consist of the following:
<TABLE><CAPTION>
December 31,
March 31 ----------------------------------
1995 1994 1993
<S> <C> <C> <C>
Mortgage loans:
1-4 Family residential $73,458,439 $74,124,022 $80,885,924
Other dwelling units 14,887,183 14,603,435 13,900,000
Home equity and improvement loans-net 4,616,895 4,323,377 2,308,257
Loans secured by commercial equipment
leases 2,802,037 3,178,721 2,828,501
Construction loans 995,000 910,000 557,624
Loans on savings accounts 439,601 537,052 509,687
----------- ----------- -----------
Total loans 97,199,155 97,676,607 100,989,993
Plus unamortized premiums 420,832 458,540 620,279
Less:
Net discounts on loans purchased and
loans acquired through merger (442,957) (518,673) (829,694)
Loans in process (342,682) (421,804) (327,368)
Deferred loan fees (1,243,293) (1,254,038) (1,380,997)
Allowance for loan losses (415,564) (416,629) (450,181)
----------- ----------- -----------
Total $95,175,491 $95,524,003 $98,622,032
=========== =========== ===========
</TABLE>
The Bank originates loans to customers in its local market area,
principally Philadelphia 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.
Originated or purchased commercial real estate loans totaled
$14,886,000 at March 31, 1995 and $14,603,435 and $13,900,000 at
December 31, 1994 and 1993, respectively. Of the commercial real
estate loans at March 31, 1995, $5,427,000 are collateralized by multi-
family residential property and $9,459,000 are collateralized by
business property. Of the commercial real estate loans, of
December 31, 1994 and 1993, $5,226,242 and $5,273,000 are
collateralized by multi-family residential property; $9,377,193 and
$8,627,000 by business property, respectively.
At December 31, 1994, 1993 and 1992 (Predecessor Association), the Bank
was servicing loans for others amounting to $3,733,124, $4,478,707 and
$6,589,469, respectively. At March 31, 1995 the Bank was servicing
loans for others amounting to $3,528,416. 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
S-14
<PAGE>
with these loans serviced for others, the Bank held borrower's escrow
balances of approximately $280,415 at March 31, 1995 and $428,335,
$518,618 and $666,313 at December 31, 1994, 1993 and 1992,
respectively.
Following is a summary of changes in the allowance for loan losses:
<TABLE><CAPTION>
March 31, Year Ended December 31,
-------------------------- ----------------------------------------
1995 1994 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Balance, beginning of year $416,629 $450,181 $450,181 $384,547 $394,743
Provision 15,000 15,000 60,000 94,000 60,000
Write-offs (16,065) (15,090) (93,552) (28,366) (70,196)
--------- -------- -------- -------- --------
Balance, end of year $415,564 $450,091 $416,629 $450,181 $384,547
========= ======== ======== ======== ========
</TABLE>
Nonaccrual loans for which interest has been fully reserved totaled
approximately $1,122,000 and $1,251,000 at March 31, 1995 and
December 31, 1994, respectively.
The Bank originates and purchases fixed and adjustable interest rate
loans and mortgage-backed securities. At March 31, 1995 and December
31, 1994, fixed rate loans and mortgage-backed securities were
approximately $134,796,000 and $156,550,000, respectively, and
adjustable interest rate loans and mortgage-backed securities were
$39,017,000 and $37,486,000, respectively.
As of March 31, 1995 and December 31, 1994, the Bank has approximately
$793,000 and $605,050, respectively, in outstanding loan commitments,
all at fixed rates. The interest rates on these commitments range from
8.625% to 9.50% at March 31, 1995 and from 7.875% to 9.00% at December
31, 1994 and had a commitment term of ninety days or less. These
commitments are subject to normal credit risk.
Certain directors and officers of the Bank have loans with the Bank.
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 approximately $746,104, $652,989 and $532,181, at
December 31, 1994, 1993 and 1992, respectively, and $736,515 at March
31, 1995. Current year originations to these persons were $121,500,
$388,564 and $251,523 for the years ended December 31, 1994, 1993 and
1992, respectively. There were no originations to these persons during
the three month period ended March 31, 1995. Loan repayments for the
years ended December 31, 1994, 1993 and 1992 were $28,535, $267,756 and
$9,104, respectively, and $9,589 for the three month period ended March
31, 1995.
6. REAL ESTATE ACQUIRED THROUGH FORECLOSURE
The following summarizes the changes in the allowance for real estate
acquired through foreclosure losses:
<TABLE><CAPTION>
March 31, Year Ended December 31,
-------------------------- ----------------------------------------
1995 1994 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Balance, beginning of year $ 1,847 $ 80,867 $ 80,867 $ 52,501 $125,178
Provision 6,411 77,540 41,880 1,000
Write-offs (156,560) (13,514) (73,677)
--------- -------- -------- -------- --------
Balance, end of year $ 8,258 $ 80,867 $ 1,847 $ 80,867 $ 52,501
========= ======== ======== ======== ========
</TABLE>
S-15
<PAGE>
7. OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment are summarized by major classification
as follows:
<TABLE><CAPTION>
March 31, December 31,
----------- -------------------------------
1995 1994 1995
<S> <C> <C> <C>
Land $ 613,159 $ 613,159 $ 613,159
Buildings 3,282,453 3,279,758 3,272,094
Furniture and equipment 2,585,613 2,561,886 2,354,238
Leasehold improvements 82,889 82,889
----------- ----------- -----------
Total 6,564,114 6,537,692 6,239,491
Accumulated depreciation
and amortization (4,442,995) (4,345,493) (3,969,020)
----------- ----------- -----------
Net $ 2,121,119 $ 2,192,199 $ 2,270,471
=========== =========== ===========
</TABLE>
8. DEPOSITS
Deposits consist of the following major classifications:
<TABLE><CAPTION>
March 31, December 31,
1995 1994 1993
-------------------------- ----------------------- ------------------------
Amount Weighted Amount Weighted Amount Weighted
Interest Interest Interest
Rate Rate Rate
<S> <C> <C> <C> <C> <C> <C>
NOW accounts $ 14,738,000 1.85 % $ 15,499,000 1.87 % $ 13,787,000 2.02 %
Money Market Demand
accounts 11,936,000 4.43 10,285,000 4.23 9,821,000 2.53
Passbook accounts 110,648,712 3.78 115,681,534 3.79 126,574,737 3.02
Certificate accounts 101,716,000 4.79 99,765,000 4.49 94,123,000 4.21
------------ ---- ------------ ---- ------------ ----
Total $239,038,712 4.12 % $241,230,534 3.97 % $244,305,737 3.40 %
============ ==== ============ ==== ============ ====
</TABLE>
At December 31, 1994 and 1993, the Bank had deposits of $100,000 or
greater totaling approximately $17,623,000 and $18,383,000,
respectively. At March 31, 1995, such deposits totaled $18,332,000.
While frequently renewed at maturity rather than paid out, certificate
accounts were scheduled to mature contractually within the following
periods:
<TABLE><CAPTION>
March 31, December 31,
-------------- ----------------------------------
1995 1994 1993
<S> <C> <C> <C>
1 year or less $ 37,199,000 $ 36,783,000 $ 60,771,000
1 year - 3 years 42,407,000 40,309,000 17,225,000
3 years - 5 years 22,110,000 22,673,000 16,127,000
------------ ------------ ------------
Total $101,716,000 $ 99,765,000 $ 94,123,000
============ ============ ============
</TABLE>
S-16
<PAGE>
Interest expense on deposits is as follows:
<TABLE><CAPTION>
Three-Month Period Ended
March 31, Year Ended December 31,
------------------------------- --------------------------------------------
1995 1994 1994 1993 1992
<S> <C> <C> <C> <C> <C>
NOW $ 190,330 $ 124,440 $ 549,159 $ 591,965 $ 835,292
Passbook 1,148,949 942,025 3,856,257 4,045,371 3,417,301
Certificates and MMDA 1,040,747 948,157 3,925,931 4,364,191 6,198,062
Early withdrawal penalities (8,434) (3,538) (14,990) (16,979) (16,270)
---------- ----------- ---------- ---------- -----------
Total $2,371,592 $ 2,011,084 $8,316,357 $8,984,548 $10,434,385
========== =========== ========== ========== ===========
</TABLE>
9. FHLB ADVANCES
Federal Home Loan Bank advances at March 31, 1995 and December 31,
1994 were $7,884,000. Advances are collateralized under a blanket
collateral lien agreement. Advances at March 31, 1995 and December
31, 1994 have calendar year maturity dates as follows: 1998,
$6,000,000 and 2008, $1,884,000.
10. INCOME TAXES
The Bank is permitted under the Internal Revenue Code (the "Code") to
deduct an annual addition to a reserve for bad debts in determining
taxable income, subject to certain limitations. The Bank's deduction
is based upon the percentage of taxable income method as defined by
the Code. The bad debt deduction allowable under this method equals
8% of taxable income determined without regard to that deduction and
with certain adjustments. This addition differs from the bad debt
experience used for financial accounting purposes. Bad debt
deductions for income tax purposes are included in taxable income of
later years only if the bad debt reserve is used subsequently for
purposes other than to absorb bad debt losses. Because the Bank does
not intend to use the reserve for purposes other than to absorb
losses, no deferred income taxes have been provided. Retained
earnings and stockholders' equity March 31, 1995 and at December 31,
1994 and 1993 includes approximately $5,576,000, $5,576,000 and
$5,370,000, respectively, representing such bad debt deductions for
which no deferred income taxes have been provided.
Income tax expense consists of the following components:
Federal State Total
Three-Month Period Ended March 31:
1995 $ 240,400 $ 53,000 $ 293,400
1994 175,083 32,530 207,613
Year Ended December 31:
1994 $ 903,523 $ 286,300 1,189,823
1993 1,170,300 18,318 1,188,618
1992 840,821 840,821
S-17
<PAGE>
The Bank's provision for income taxes differs from the amounts
determined by applying the statutory federal income tax rate to income
before income taxes for the following reasons:
<TABLE><CAPTION>
Year Ended December 31,
Predecessor
Three-Month Period Ended March 31, Association
1995 1994 1994 1993 1992
---------------------- -------------------- ------------------- -------------------- -------------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Tax at federal tax rate $275,150 34.0% $175,778 34.0% $1,052,351 34.0% $1,261,355 34.0% $ 888,373 34.0%
Decrease resulting from
amortization of goodwill
premiums and discounts
relating to an
acquisition - net (3,242) (0.4) (4,574) (0.9) (18,295) (0.6) (23,974) (0.6) (21,894) (0.8)
Special bad debt deduction (72,120) (2.8)
State income tax expense,
net of federal income tax 34,980 4.3 21,470 4.2 188,958 6.1 12,090 0.3
Provision for loan losses 20,400 0.8
Other (13,488) (1.6) 14,939 2.9 (33,191) (1.1) (60,853) (1.7) 26,062 1.0
-------- --- ------ --- ------ --- ------ --- ------ ----
Total $293,400 36.3% $207,613 40.2% $1,189,823 38.4% $1,188,618 32.0% $ 840,821 32.2%
======== ==== ======== ==== ========== ==== ========== ==== ========= ====
</TABLE>
Items that give rise to significant portions of the deferred tax
accounts are as follows:
March 31, December 31,
-------------- -------------------------
1995 1994 1993
Deferred tax assets:
Deferred loan fees $ 422,720 $ 426,000 $ 458,000
Reserve for uncollected interest 55,203 63,000 121,000
Unrealized losses on investments
and mortgage-backed securities 258,400 1,277,000 23,000
Other 319,669 65,000 65,000
---------- ---------- ----------
1,055,992 1,831,000 667,000
---------- ---------- ----------
Deferred tax liabilities:
Depreciation (17,655) (19,000) (24,000)
Allowance for loan losses (244,151) (305,000) (153,000)
Other (404,791) (111,000) (417,000)
---------- ---------- ----------
(666,597) (435,000) (594,000)
---------- ---------- ----------
Total $ 389,395 $1,396,000 $ 73,000
========== ========== ==========
11. REGULATORY CAPITAL REQUIREMENTS
Under current regulations, the Bank must meet certain capital
requirements. The capital regulations require that the Bank have core
capital of 3.0% of total adjusted assets, tangible capital of 1.5% of
total adjusted assets, and a credit risk-based requirement of 8.0% of
adjusted assets at March 31, 1995 and December 31, 1994.
S-18
<PAGE>
At March 31, 1995, the Bank had the following capital ratios
(percentages relate to adjusted assets):
<TABLE><CAPTION>
(Dollar Amounts in Thousands)
Core Tangible Risk Based
-------------------------------- ------------------------------ ----------------------------
Amount Percent Amount Percent Amount Percent
<S> <C> <C> <C> <C> <C> <C>
Capital per generally
accepted accounting
principles $22,981 8.4% $22,981 8.4% $22,981 28.6%
Unrealized loss securities
available for sale 525 0.2 525 0.2 525 0.7
General loan loss reserve 416 0.5
Supervisory goodwill (288) (0.1)
------- ------ ------- ------ ------- ------
Regulatory capital 23,506 8.6 23,218 8.5 23,922 29.8
Minimum required regulatory
capital 8,189 3.0 4,094 1.5 6,419 8.0
------- ------ ------- ------ ------- ------
Excess capital $15,317 5.6% $19,124 7.0% $17,503 21.8%
======= ====== ======= ====== ======= =======
</TABLE>
At December 31, 1994, the Bank had the following capital ratios
(percentages relate to adjusted assets):
<TABLE><CAPTION>
(Dollar Amounts in Thousands)
Core Tangible Risk Based
-------------------------------- ------------------------------ ----------------------------
Amount Percent Amount Percent Amount Percent
<S> <C> <C> <C> <C> <C> <C>
Capital per generally
accepted accounting
principles $20,477 7.4% $20,477 7.4% $20,477 22.2%
Unrealized loss securities
available for sale 2,479 0.9 2,479 0.9 2,479 2.7
General loan loss reserve 417 0.4
Supervisory goodwill (348) (0.1)
------- ------ ------- ------ ------- ------
Regulatory capital 22,956 8.3 22,608 8.2 23,373 25.3
Minimum required regulatory
capital 8,266 3.0 4,133 1.5 7,380 8.0
------- ------ ------- ------ ------- ------
Excess capital $14,690 5.3% $18,475 6.7% $15,993 17.3%
======= ====== ======= ====== ======= ======
</TABLE>
The OTS has finalized an interest rate risk (IRR) component of capital
for thrift institutions effective in calendar 1995. The IRR component
is based on the loss in net portfolio value due to an interest rate
increase or decrease of 200 basis points, whichever causes the greater
loss in net portfolio value. Thrifts will be required to hold capital
only when the interest rate risk exposure exceeds a decline in net
portfolio value of more than 2% of an institution's assets. The
additional capital would consist of one half of the difference between
the interest rate risk exposure and 2% of assets. The impact of the
new capital component is not expected to have a material effect on the
Bank's capital position.
S-19
<PAGE>
The Bank's management believes that, under the current and proposed
regulations, the Bank will continue to meet its minimum capital
requirements in the foreseeable future. However, events beyond the
control of the Bank, such as increased interest rates or a downturn in
the economy in areas where the Bank has most of its loans, could
adversely affect future earnings and, consequently, the ability of the
Bank to meet its future minimum capital requirements.
The OTS has adopted a rule that limits capital distributions by savings
associations, such as cash dividends, payments to repurchase or
otherwise acquire an association's shares, payments to stockholders of
another association in a cash-out merger and other distributions
charged against capital. The rule establishes three tiers of
associations (Tier 1 being the highest; and Tier 3, the lowest), with
the most flexibility afforded to well capitalized associations. The
Bank is rated a Tier 1 association under these rules. These
limitations may affect the amount of cash dividends which the Bank will
be able to pay.
12. PENSION AND PROFIT-SHARING PLANS
The Bank 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 Bank'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, 1994, 1993 and 1992:
1994 1993 1992
Service cost - benefits earned
during the period $ 73,068 $ 67,943 $ 54,227
Interest cost on projected
benefit obligation 70,682 69,334 68,966
Actual return on plan assets (37,886) (46,529) (56,579)
Net amortization and deferreal (32,465) (17,444) (19,481)
---------- ---------- ----------
Net periodic pension cost $ 73,399 $ 73,304 $ 47,133
========== ========== ==========
S-20
<PAGE>
1994 1993
Actuarial present value of
benefit obligations:
Vested benefits $ 817,540 $ 771,497
Nonvested benefits 34,171 27,141
---------- ----------
Accumulated benefit obligation 851,711 798,638
Effect of future salary increases 387,443 313,199
---------- ----------
Projected benefit obligation 1,239,154 1,111,837
Plan assets at fair value 1,085,923 957,843
---------- ----------
Plan assets less than projected
benefit obligation (153,231) (153,994)
Unrecognized:
Prior service cost (211,730) (228,387)
Net loss from past experience 406,556 394,672
Net asset at date of transition (89,077) (96,543)
---------- ----------
Accrued pension liability $ (47,482) $ (84,252)
========== ==========
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 were 6.5% and 5.0% for the years ended
December 31, 1994 and 1993. The expected long-term rate of return on
assets was 6.5% and 7% for 1994 and 1993. Plan assets consist
primarily of certificates of deposit at the Bank.
The Bank also maintains a profit-sharing plan for eligible employees.
Profit-sharing contributions are at the discretion of the Board of
Directors. The contribution was $303,349 in 1994, $210,853 in 1993 and
$221,580 in 1992. Plan assets consist primarily of a diversified stock
portfolio.
13. EMPLOYEE STOCK OWNERSHIP PLAN
In connection with the Reorganization (see Note 1) the Bank 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, which has an interest rate of 8%,
has not been guaranteed by the Bank, however, the Bank anticipates
contributing sufficient funds to meet debt service requirements. The
debt is payable over a five-year period.
The outstanding loan balance of $83,842 and $90,610 at March 31, 1995
and December 31, 1994, respectively, has been reflected as a liability
and the shares purchased have been reflected as a reduction of
stockholders' equity on the statement of financial condition at
December 31, 1994. As principal payments are made by the ESOP, the
corresponding liability is reduced and stockholders' equity is
increased. Annual contributions to the ESOP are made in amounts
determined by the Board of Directors.
14. OTHER EMPLOYEE BENEFITS
Stock Option Plan - In connection with the Reorganization, the Bank's
Board of Directors has adopted a Stock Option Plan ("Option Plan").
The purpose of the Option Plan is to provide additional incentive to
retain officers, directors and key employees.
A total of 20,000 shares of authorized but unissued common stock of the
Bank has been reserved for future issuance under the Plan. The option
price per share may not be less than 100% of the fair market
S-21
<PAGE>
value of the shares on the date of the grant and no option shall be
exercisable after the expiration of 10 years from the date granted;
provided, however, that in the case of any employee who owns more than
10% of the outstanding common stock at the time the option is granted,
the option price may not be less than 110% of the fair market value of
the shares on the date of the grant, and the option shall not be
exercisable after the expiration of five years from the date it is
granted.
Management Recognition Plan - The Bank'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 Bank 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 Bank. The MRP is managed by trustees who are
directors of the Bank and who have responsibility to invest all funds
contributed by the Bank to the trust created for the MRP. The Bank 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. As of December 31, 1994, 2,400 shares have been allocated to
individual employees.
During December 1994 the Board approved the contribution of an
additional 6,000 shares to the MRP Trust. The shares were contributed
in January 1995.
Supplemental Retirement Benefits - In November 1993 the Bank entered
into a Nonqualified Retirement and Death Benefit Agreement (the
"Agreement") with certain officers of the Bank. 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 $70,000 for
the year ended December 31, 1994.
15. FAIR VALUE DISCLOSURE
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No.
119, Disclosures about Derivative Financial Instruments and Fair Value
of Financial Instruments. The estimated fair value amounts have been
determined by the Bank 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 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>
March 31, 1995 December 31, 1994 December 31, 1993
---------------------------- --------------------------- ---------------------------
Carrying Fair Carrying Fair Carrying Fair
Amount Value Amount Value Amount Value
<S> <C> <C> <C> <C> <C> <C>
Assets:
Cash and cash
equivalents $ 40,843,000 $ 40,843,000 $ 19,052,000 $ 19,052,000 $ 31,764,000 $ 31,764,000
Investments 50,278,000 49,620,000 50,085,000 48,486,000 29,887,000 30,675,000
Mortgage-backed
securities available
for sale 77,168,000 76,377,000 102,227,000 98,476,000 108,532,000 108,532,000
loans receivable 96,480,000 96,118,000 96,723,000 93,754,000 98,622,000 99,325,000
Liabilities:
NOW, MMDA and
Passbook accounts 137,323,000 137,323,000 141,466,000 141,466,000 150,183,000 150,183,000
Certificate accounts 101,716,000 99,080,000 99,765,000 97,626,000 94,123,000 99,798,000
FHLB Advances 7,884,000 7,700,000 7,884,000 7,700,000 7,884,000 7,901,000
</TABLE>
S-22
<PAGE>
Cash and Cash Equivalents - For cash and cash equivalents, the carrying
amount is a reasonable estimate of fair value.
Investments and Federal Home Loan Mortgage Corp. Stock - For investment
securities, fair values are based on quoted market prices or dealer
quotes.
Mortgage-backed Securities - Estimated fair value for mortgage-backed
securities issued by quasi-governmental agencies is based on quoted
market prices.
Loans Receivable - The fair value was estimated by discounting
approximate cash flow of the portfolio to achieve a current market
yield. Consideration was given to prepayment speeds, economic
conditions, risk characteristics, and other factors as considered
appropriate.
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
is estimated using rates currently offered for deposits and advances of
similar remaining maturities.
The fair value estimates presented herein are based on pertinent
information available to management as of December 31, 1994. 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 financial statements since that date
and, therefore, current estimates of fair value may differ
significantly from the amounts presented herein.
16. PROPOSED MERGER
On May 24, 1995 the Board of Directors of Roxborough-Manayunk Federal
Savings Bank entered into a definitive agreement whereby the Bank will
merge with another, locally based, depository institution. In
connection with this transaction the Bank will reorganize and raise
additional capital through a common stock offering. The transaction
requires approval from the stockholders and regulatory bodies.
******
S-23
<PAGE>
======================================= =======================================
No person has been authorized to give any
information or to make any representations other
than those contained in this Prospectus and, if
given or made, such information or representations
must not be relied upon as having been authorized
by the Company, Progress, the Mutual Holding UP TO $36.9 MILLION
Company or Roxborough-Manayunk. This Prospectus OF COMMON STOCK
does not constitute an offer to sell or a
solicitation of an offer to buy any securities or
an offer to or solicitation of any person in any
jurisdiction in which such offer or solicitation
would be unlawful. The delivery of this
Prospectus at any time does not imply that
information herein is correct as of any time PROGRESS
subsequent to its date. FINANCIAL
_________________________ CORPORATION
TABLE OF CONTENTS
_________________________
Page
----
Available Information . . . . . . . . . 7
Summary . . . . . . . . . . . . . . . . 8
Selected Consolidated Financial and
Other Data of the Company . . . . . 23
Selected Consolidated Financial and Other
Data of Roxborough-Manayunk . . . . . 25
Selected Pro Forma Unaudited
Consolidated Financial Data ____________________
of the Company . . . . . . . . . . . 27
Risk Factors . . . . . . . . . . . . . 29 PROSPECTUS
Market Price for Company Common Stock ____________________
and Dividends . . . . . . . . . . . . 38
Use of Proceeds . . . . . . . . . . . . 39
Capitalization . . . . . . . . . . . . 42
Regulatory Capital . . . . . . . . . . 45
Pro Forma Unaudited Financial
Information . . . . . . . . . . . . . 47
Management's Discussion and Analysis of
Financial Condition and Results of
Operations of the Company . . . . . . 59
Business of the Company . . . . . . . . 80
Management's Discussion and Analysis of --------------------
Financial Condition and Results of Sandler O'Neill &
Operations of Roxborough-Manayunk . . 113 Partners, L.P.
Business of Roxborough-Manayunk . . . . 130
Regulation . . . . . . . . . . . . . . 157 --------------------
Taxation . . . . . . . . . . . . . . . 172
Management of the Company . . . . . . . 175
Managment of the Mutual August __, 1995
Holding Company . . . . . . . . . . . 184
Management of Roxborough-Manayunk . . . 184
Management of the Company and
Progress Bank Following the
Conversion and the Merger . . . . . . 197
The Conversion and the Merger . . . . 205
The Offerings . . . . . . . . . . . . . 228
Description of Capital Stock
of the Company . . . . . . . . . . . 247
Restrictions on Acquisition of the
Company and Progress Bank . . . . . . 252
Experts . . . . . . . . . . . . . . . . 257
Legal and Tax Opinions . . . . . . . . 258
Index to Consolidated Financial
Statements of the Company . . . . . . 259
Index to Consolidated Financial
Statements of Roxborough-Manayunk . . 260
Until _________ __, 1995 or 25 days after
commencement of the Syndicated Community Offering,
if any, whichever is later, 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.
======================================= =======================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
SEC filing fees . . . . . . . . . . . . . . . . . . $ 14,628
OTS filing fees . . . . . . . . . . . . . . . . . . 14,400
NASD filing fees . . . . . . . . . . . . . . . . . 4,742
Nasdaq listing fees . . . . . . . . . . . . . . . . 17,500
Printing, postage and mailing . . . . . . . . . . . 225,000
Legal fees . . . . . . . . . . . . . . . . . . . . 300,000
Blue Sky legal fees . . . . . . . . . . . . . . . . 15,000
Accounting fees . . . . . . . . . . . . . . . . . . 100,000
Underwriter's fees(1):
Underwriter's counsel . . . . . . . . . . . . . . 50,000
Out-of-pocket expenses . . . . . . . . . . . . . 15,000
Appraiser's fees . . . . . . . . . . . . . . . . . 35,000
Conversion agent fees and expenses . . . . . . . . 23,500
Transfer agent and stock certificates . . . . . . . 10,000
Miscellaneous . . . . . . . . . . . . . . . . . . . 25,230
-------
Total . . . . . . . . . . . . . . . . . . . . . . . $850,000
=======
_____________________
(1) In addition to the foregoing expenses, Sandler O'Neill will
receive fees based on the number of shares of Conversion Stock sold in the
Offerings. Based upon the assumptions and the information set forth under
"Pro Forma Unaudited Financial Information" and "The Offerings - Marketing
Arrangements" in the Prospectus, it is estimated that such fees will amount
to $477,800, $572,800, $667,720 and $776,878 at the minimum, midpoint,
maximum and 15% above the maximum of the Estimated Price Range,
respectively.
Item 14. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law ("DGCL") sets
forth circumstances under which directors, officers, employees and agents
may be insured or indemnified against liability which they may incur in
their capacity as such. The Certificate of Incorporation and Bylaws of the
Company provide that the directors, officers, employees and agents of the
Company shall be indemnified to the full extent permitted by law.
II - 1
<PAGE>
Such indemnity shall extend to expenses, including attorneys' fees, judgments,
fines and amounts paid in the settlement, prosecution or defense of the
foregoing actions. Section 102(b)(7) of the DGCL provides that a director's
personal liability to a corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director may be eliminated or limited, except
under certain circumstances. The Certificate of Incorporation provides for the
limitation of personal liability of directors to stockholders for monetary
damages to the Company or its stockholders for such director's breach of
fiduciary duty as a director of the Company to the full extent permitted by
law.
The Company carries a liability insurance policy for its officers and
directors.
Item 15. Recent Sales of Unregistered Securities.
(a) On June 30, 1994, the Company sold 12 units consisting of
$250,000 Principal Amount of 8 1/4% Subordinated Notes due 2004, to which
were attached warrants to purchase 25,000 shares of Company Common Stock at
$6.00 per share ("Unit").
(b) There were no underwriters in connection with the sale of the
Units. The Units were sold to individual accredited investors, including
institutional investors.
(c) The Units were sold for $250,000 each, for an aggregate cash
consideration of $3,000,000.
(d) The offer and sale of the Units were exempt from registration
under the Securities Act of 1933 by Section 4(2) thereof and Regulation D
promulgated thereunder. The Units were sold to 13 purchasers, all of which
were accredited or institutional investors as defined in Regulation D.
II - 2
<PAGE>
Item 16. Exhibits and Financial Statement Schedules.
The exhibits and financial statement schedules filed as a part of this
Registration Statement are as follows:
(a) List of Exhibits:
Exhibit No. Exhibit Location
----------- ------- ------------
1.1 Engagement Letter with Sandler
O'Neill & Partners, L.P., dated
June 14, 1995 E-1
1.2 Agency Agreement with Sandler
O'Neill & Partners, L.P. *
2.1 Agreement and Plan of Reorganization by
and among Progress Financial Corporation,
Progress Federal Savings Bank, FJF
Financial, M.H.C. and Roxborough-
Manayunk Federal Savings Bank,
dated May 24, 1995 (1)
2.2 Plan of Conversion of FJF Financial,
M.H.C. and Roxborough-Manayunk Federal
Savings Bank (1)
3.1 Certificate of Incorporation (2)
3.2 Bylaws (3)
4.1 Specimen Common Stock certificate (4)
4.2 Specimen Preferred Stock Purchase
Rights certificate (5)
5 Opinion of Elias, Matz, Tiernan &
Herrick L.L.P. regarding legality of
securities being registered *
8.1 Opinion of Malizi, Spidi, Sloane &
Fisch, P.C. regarding federal income
tax consequences *
8.2 Opinion of Drinker, Biddle & Reath regarding
Pennsylvania income tax consequences *
8.3 Opinion of RP Financial, Inc. regarding
subscription rights *
8.4 Ruling from the Internal Revenue Service *
10.1 Key Employee Stock Compensation Plan (4)
10.2 Amendment, dated December 15, 1987,
to Key Employee Stock Compensation
Plan (6)
10.3 1993 Stock Incentive Plan (7)
II - 3
<PAGE>
Exhibit No. Exhibit Location
----------- ------- ------------
10.4 1993 Directors' Stock Option Plan (7)
10.5 Rights Agreement, dated April 25,
1990, between the Registrant and
American Stock Transfer and Trust
Company, as Rights Agent (5)
10.6 Employment Agreement between Progress
Financial Corporation, Progress
Federal Savings Bank and W. Kirk
Wycoff, dated January 1, 1995 E-9
21 Subsidiaries of the Company (7)
23.1 Consent of Elias, Matz, Tiernan &
Herrick L.L.P. (contained in the
opinion included as Exhibit 5)
23.2 Consent of Malizi, Spidi, Sloan &
Fisch, P.C. (contained in opinion
included as Exhibit 8.1)
23.3 Consent of Drinker, Biddle & Reath (contained
in opinion included as Exhibit 8.2)
23.4 Consent of RP Financial, Inc. E-19
23.5 Consent of Coopers & Lybrand L.L.P. E-20
23.6 Consent of KPMG Peat Marwick LLP E-21
23.7 Consent of Deloitte & Touche, LLP E-22
24 Power of Attorney (included in the
signature page to this Registration
Statement)
99.1 Proxy Statement and form of proxy for
solicitation of stockholders of
Progress Financial Corporation E-23
99.2 Order Form *
99.3 Transmittal letters to stockholders of
Progress Financial Corporation *
_______________
* To be filed by amendment.
(1) Exhibit is incorporated by reference to the Registrant's Current
Report on Form 8-K dated May 24, 1995 filed by the Registrant with the
SEC.
(2) Exhibit is incorporated by reference to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1987 filed by the
Registrant with the SEC.
II - 4
<PAGE>
(3) Exhibit is incorporated by reference to the Registrant's Registration
Statement on Form S-4 (File No. 33-3685) filed with the SEC on March
3, 1986.
(4) Exhibit is incorporated by reference to the Registrant's Registration
Statement on Form S-8 (File No. 33-10160) filed with the SEC on
November 13, 1986.
(5) Exhibit is incorporated by reference to the Registrant's Registration
Statement on Form 8-A filed with the SEC on April 30, 1990.
(6) Exhibit is incorporated by reference to the Registrant's Registration
Statement on Form S-8 (File No. 33-19570) filed with the SEC on
January 19, 1988.
(7) Incorporated by reference to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1994 filed with the SEC on March
24, 1995.
(b) Financial Statement Schedules.
No financial statement schedules are filed because the required
information is not applicable or is included in the Consolidated Financial
Statements or related Notes.
Item 17. Undertakings
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;
(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 end 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 a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement;
II - 5
<PAGE>
(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 of 1933, 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.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II - 6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Plymouth Meeting, Commonwealth of Pennsylvania on the 20th day of June
1995.
PROGRESS FINANCIAL CORPORATION
By: /s/ W. Kirk Wycoff
-----------------------------
W. Kirk Wycoff
Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated. Each person whose signature appears
below hereby makes, constitutes and appoints W. Kirk Wycoff his true and
lawful attorney, with full power to sign for such person and in such
person's name and capacity indicated below any and all amendments to this
Registration Statement, hereby ratifying and confirming such person's
signature as it may be signed by said attorney to any and all amendments.
/s/ W. Kirk Wycoff Date: June 20, 1995
- --------------------------------------
W. Kirk Wycoff
Chairman, President and
Chief Executive Officer
(principal executive officer)
/s/ Peter J. Meier Date: June 20, 1995
- --------------------------------------
Peter J. Meier
Vice President and Corporate
Controller (principal accounting
officer)
/s/ William O. Daggett, Jr. Date: June 20, 1995
- ------------------------------------
William O. Daggett, Jr.
Director
II - 7
<PAGE>
/s/ John E. F. Corson Date: June 20, 1995
- -----------------------------------
John E. F. Corson
Director
/s/ Donald F. U. Goebert Date: June 20, 1995
- -----------------------------------
Donald F. U. Goebert
Director
/s/ Joseph R. Klinger Date: June 20, 1995
- ----------------------------------
Joseph R. Klinger
Director
/s/ Paul M. LaNoce Date: June 20, 1995
- -----------------------------------
Paul M. LaNoce
Director
/s/ A. John May, III Date: June 20, 1995
- -----------------------------------
A. John May, III
Director
/s/ William L. Mueller Date: June 20, 1995
- -----------------------------------
William L. Mueller
Director
/s/ Charles J. Tornetta Date: June 20, 1995
- -----------------------------------
Charles J. Tornetta
Director
II - 8
Exhibit 1.1
Engagement Letter
with
Sandler O'Neill & Partners, L.P.
<PAGE>
Sandler O'Neill Coporate Strategies Telephone: 212-466-7700
Divsion of Sandler O'Neill & Partners, L.P. 800-635-6855
Two World Trade Center, 104th Floor Facsimile: 212-466-7711
New York, New York 10048
Sandler O'Neill
June 14, 1995
Board of Directors
Progress Financial Corporation
Plymouth Meeting Executive Campus
600 West Germantown Pike
Plymouth Meeting, PA 19462
Board of Directors
FJF Financial, M.H.C.
6060 Ridge Avenue
Philadelphia, PA 19128
Ladies and Gentlemen:
We understand that Progress Financial Corporation ("PFC"), Progress
Federal Savings Bank ("Progress"), FJF Financial, M.H.C. ("FJF") and
Roxborough-Manayunk Federal Savings Bank (the "Bank") have entered into an
Agreement and Plan of Reorganization dated as of May 24, 1995 (the
"Reorganization Agreement") pursuant to which FJF will convert from mutual
to stock form and be merged into the Bank and immediately thereafter
Progress will be merged into the Bank, with the resulting entity to operate
as a wholly-owned subsidiary of PFC (the "Reorganization").
In connection with the Reorganization, each publicly held share of the
Bank's stock will be converted into shares of PFC common stock at an
exchange ratio to be determined based on an independent appraisal. In
addition, PFC will offer and sell an additional number of shares of PFC
common stock, based upon the independent appraisal, to certain depositors
and borrowers of the Bank as of specified record dates, certain tax-
qualified employee benefit plans of the Bank and shareholders of PFC and
the Bank as of specified record dates in a Subscription Offering and to
members of the general public in a Direct Community Offering and, under
certain circumstances, in a Syndicated Community Offering (collectively,
the "Offerings"). Sandler O'Neill Corporate Strategies, a division of
Sandler O'Neill & Partners, L.P. ("Sandler O'Neill"), is pleased to act as
financial advisor to PFC and FJF (collectively, the "Companies") in
connection with the Offerings. For purposes of this letter, the term
"Actual Purchase Price" shall mean the price at which the shares of PFC's
common stock are sold in the Offerings. This letter is to confirm the
terms and conditions of our engagement.
E-1
<PAGE>
Progress Financial Corporation
FJF Financial, M.H.C.
June 14, 1995
Page 2 Sandler O'Neill
ADVISORY SERVICES
- -----------------
Sandler O'Neill will act as a consultant and advisor to the Companies
and will work with their respective management, counsel, accountants and
other advisors in connection with the Offerings. We anticipate that our
services will include the following, each as may be necessary and as may
reasonably be requested:
1. Consulting as to the securities marketing implications of any
aspect of the Reorganization;
2. Reviewing with the Boards of Directors of the Companies the
independent appraiser's appraisal, particularly with regard to
aspects of the appraisal involving the methodology employed;
3. Reviewing all offering documents, including the Prospectus, stock
order forms and related offering materials (it being understood
that preparation and filing of such documents will be the
responsibility of the Companies and their counsel);
4. Design and direct the implementation of a marketing strategy for
the Offerings;
5. Assisting in obtaining all requisite regulatory approvals;
6. Assisting management in scheduling and preparing for meetings
with potential investors and broker-dealers; and
7. Providing such other general advice and assistance as may be
requested to promote the successful completion of the
Reorganization.
SYNDICATED COMMUNITY OFFERING
- -----------------------------
If any shares of PFC's common stock remain available after the
expiration of the Subscription Offering and the Direct Community Offering,
at the request of the Companies and subject to the continued satisfaction
of the conditions set forth in the second paragraph under the caption
"Definitive Agreement" below, Sandler O'Neill, in consultation with the
Companies, will seek to form a syndicate of registered dealers to assist in
the sale of such common stock in a Syndicated Community Offering on a best
efforts basis, subject to the terms and conditions set forth in a selected
dealers agreement. Sandler O'Neill will endeavor to distribute the common
stock among dealers in a fashion which best meets the distribution
objectives of PFC and the
E-2
<PAGE>
Progress Financial Corporation
FJF Financial, M.H.C.
June 14, 1995
Page 3 Sandler O'Neill
requirements of the Reorganization Agreement, 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 shares of PFC's common stock.
FEES
- ----
If the Reorganization is consummated, PFC agrees to pay Sandler
O'Neill for its services hereunder the fees set forth below:
1. a fee of two percent (2.0%) of the aggregate Actual Purchase
Price of (a) all shares of common stock sold in the Subscription
Offering and (b) shares sold in the Direct Community Offering to
persons or entities who are depositors or borrowers of Progress
as of the record date for the meeting of PFC shareholders to vote
on the Reorganization Agreement or who are otherwise referred by
the directors or executive officers of the Companies, excluding
in each case shares purchased by (i) any employee benefit plan of
the Companies established for the benefit of their respective
directors, officers and employees, (ii) any director, officer or
employee of PFC, FJF, Progress or the Bank or members of their
immediate families, and (iii) Sandler O'Neill or its affiliates
or their respective partners, directors, officers, employees,
agents and controlling persons within the meaning of Section 15
of the Securities Act of 1933 (the "Securities Act") or Section
20 of the Securities and Exchange Act of 1934 (the "Exchange
Act") (Sandler O'Neill and each such person or entity, a "Sandler
Related Party"), with respect to which no fee shall be payable;
2. a fee of three percent (3.0%) of the aggregate Actual Purchase
Price of all shares of common stock otherwise sold in the Direct
Community Offering, excluding shares purchased by (i) any
employee benefit plan of the Companies established for the
benefit of their respective directors, officers and employees,
(ii) any director, officer or employee of PFC, FJF, Progress or
the Bank or members of their immediate families, and (iii) any
Sandler Related Party, with respect to which no fee shall be
payable; and
3. with respect to any shares of common stock sold by an NASD member
firm (other than Sandler O'Neill) under any selected dealers
agreement in the Syndicated Community Offering, (a) the sales
commission payable to the selected dealer under such agreement,
(b) any sponsoring dealer's fees, and (c) a management fee to
Sandler O'Neill of no less than one percent and not to exceed
E-3
<PAGE>
Progress Financial Corporation
FJF Financial, M.H.C.
June 14, 1995
Page 4 Sandler O'Neill
one and one-half percent (1.5%). Sandler O'Neill will endeavor
to limit the aggregate fees to be paid by PFC 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 price per share
in a similar market environment, which shall not exceed 5.5% of
the aggregate Actual Purchase Price of the shares sold under such
agreements. Any fees payable to Sandler O'Neill for common stock
sold by Sandler O'Neill under any such agreement shall be limited
to an aggregate of three percent (3%) of the Actual Purchase
Price of such shares; provided, however, that no fee shall be
-------- -------
payable to Sandler O'Neill with respect to any shares purchased
under any such agreement by any Sandler Related Party.
If (i) Sandler O'Neill's engagement hereunder is terminated for any of
the reasons provided for under the second paragraph of the section of this
letter captioned "Definitive Agreement," or (ii) the Reorganization
Agreement is terminated by the parties thereto, no fees shall be payable to
Sandler O'Neill hereunder.
All fees payable to Sandler O'Neill hereunder shall be payable in cash
at the time of the closing of the Offerings. In recognition of the long
lead times involved, the Companies agree to make advance payments to
Sandler O'Neill in the aggregate amount of $50,000, $25,000 of which shall
be payable upon execution of this letter 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. Pursuant to the terms of an engagement letter dated as of May
23, 1995 and amended by letter dated June 6, 1995 ("Engagement Letter")
between Sandler O'Neill and PFC pursuant to which Sandler O'Neill acted as
financial advisor to PFC in connection with its consideration of a business
combination involving the PFC and FJF, all retainer and transaction related
fees paid pursuant to the Engagement Letter shall be credited against any
fees which may become due and payable upon consummation of the Offerings
under the terms of this agreement.
COSTS AND EXPENSES
- ------------------
In addition to any fees that may be payable to Sandler O'Neill
hereunder and the expenses to be borne by the Companies pursuant to the
following paragraph, the Companies agree to reimburse Sandler O'Neill, upon
request made from time to time, for its reasonable out-of-pocket expenses
incurred in connection with its engagement hereunder, including, without
limitation, legal fees, advertising, promotional, syndication, and travel
expenses, up to a maximum of $50,000 for legal expenses and $65,000
overall, regardless of whether the
E-4
<PAGE>
Progress Financial Corporation
FJF Financial, M.H.C.
June 14, 1995
Page 5 Sandler O'Neill
Reorganization is consummated or whether the Companies enter into a
definitive agency agreement with Sandler O'Neill; provided, however, that
-------- -------
Sandler O'Neill shall document such expenses to the reasonable satisfaction
of the Companies. The provisions of this paragraph are not intended to
apply to or in any way impair the indemnification provisions of this
letter.
As is customary, the Companies will bear all other expenses incurred
in connection with the Reorganization and the Offerings, including, without
limitation, (i) the cost of obtaining all securities and bank regulatory
approvals, including any required NASD filing fees; (ii) the cost of
printing and distributing the offering materials; (iii) the costs of blue
sky qualification of the shares in the various states (including fees and
expenses of blue sky counsel); (iv) listing fees; and (v) all fees and
disbursements of the Companies' counsel, accountants and other advisors.
In the event Sandler O'Neill incurs any such fees and expenses on behalf of
the Companies, the Companies will reimburse Sandler O'Neill for such fees
and expenses whether or not the Reorganization is consummated; provided,
--------
however, that Sandler O'Neill shall not incur any expense in excess of
- -------
$2,500 on behalf of the Companies pursuant to this paragraph without the
prior approval of the Companies.
DUE DILIGENCE REVIEW
- --------------------
Sandler O'Neill's obligation to perform the services contemplated by
this letter shall be subject to the satisfactory completion of such
investigation and inquiries relating to the Companies and their
subsidiaries, and their respective directors, officers, agents and
employees, as Sandler O'Neill and its counsel in their sole discretion may
deem appropriate under the circumstances. In this regard, the Companies
agree that, at their expense, they will make available to Sandler O'Neill
all information which Sandler O'Neill requests, and will allow Sandler
O'Neill the opportunity to discuss with their respective managements the
financial condition, business and operations of the Companies. The
Companies acknowledge that Sandler O'Neill will rely upon the accuracy and
completeness of all information received from the Companies and their
directors, officers, employees, agents, independent accountants and
counsel.
BLUE SKY MATTERS
- ----------------
The Companies and Sandler O'Neill agree that PFC's counsel shall serve
as counsel with respect to blue sky matters in connection with the
Offerings; provided, however, that PFC will cause such counsel to prepare a
-------- -------
Blue Sky Memorandum related to the Offerings including Sandler O'Neill's
participation therein and shall furnish Sandler O'Neill a copy thereof
addressed
E-5
<PAGE>
Progress Financial Corporation
FJF Financial, M.H.C.
June 14, 1995
Page 6 Sandler O'Neill
to Sandler O'Neill or upon which such counsel shall state Sandler O'Neill
may rely.
CONFIDENTIALITY
- ---------------
Other than disclosure to other firms made part of any syndicate of
selected dealers or as required by law or regulation, Sandler O'Neill
agrees that it will not disclose any Confidential Information relating to
the Companies obtained in connection with its engagement hereunder (whether
or not the Reorganization is consummated). As used in this paragraph, the
term "Confidential Information" shall not include information which (i) is
or becomes generally available to the public other than as a result of a
disclosure by Sandler O'Neill, (ii) was available to Sandler O'Neill on a
non-confidential basis prior to its disclosure to Sandler O'Neill by the
Companies, or (iii) becomes available to Sandler O'Neill on a non-
confidential basis from a person other than the Companies who is not
otherwise known to Sandler O'Neill to be bound not to disclose such
information pursuant to a contractual, legal or fiduciary obligation.
INDEMNIFICATION
- ---------------
Since Sandler O'Neill will be acting on behalf of the Companies in
connection with the Reorganization and the Offerings, the Companies agree
to indemnify and hold Sandler O'Neill and its affiliates and their
respective partners, directors, officers, employees, agents and controlling
persons within the meaning of Section 15 of the Securities Act or Section
20 of the Exchange Act (Sandler O'Neill and each such person being an
"Indemnified Party") harmless from and against any and all losses, claims,
damages and liabilities, joint or several, to which such Indemnified Party
may become subject under applicable federal or state law, or otherwise,
related to or arising out of the Reorganization or the engagement of
Sandler O'Neill pursuant to, or the performance by Sandler O'Neill of the
services contemplated by, this letter, and will reimburse any Indemnified
Party for all expenses (including reasonable legal fees and expenses) as
they are incurred, including expenses incurred in connection with the
investigation of, preparation for or defense of any pending or threatened
claim or any action or proceeding arising therefrom, whether or not such
Indemnified Party is a party; provided, however, that the Companies will
-------- -------
not be liable in any such case to the extent that any such loss, claim,
damage, liability or expense (i) arises out of or is based upon any untrue
statement of a material fact or the omission of a material fact required to
be stated therein or necessary to make not misleading any statements
contained in any proxy statement or prospectus (preliminary or final), or
any amendment or supplement thereto, or any of the applications, notices,
filings or documents related thereto made in reliance on and in conformity
with written information furnished to the Companies by Sandler O'Neill
expressly for use therein, or (ii) is primarily attributable to the gross
negligence, willful misconduct or bad faith of Sandler O'Neill. If the
foregoing
E-6
<PAGE>
Progress Financial Corporation
FJF Financial, M.H.C.
June 14, 1995
Page 7 Sandler O'Neill
indemnification is unavailable for any reason, the Companies agree to
contribute to such losses, claims, damages, liabilities and expenses in the
proportion that its financial interest in the Offerings bears to that of
Sandler O'Neill.
DEFINITIVE AGREEMENT
- --------------------
Sandler O'Neill and the Companies agree that (a) except as set forth
in clause (b) of this sentence, the foregoing represents the general
intention of the Companies and Sandler O'Neill with respect to the services
to be provided by Sandler O'Neill in connection with the Offerings, which
will serve as a basis for Sandler O'Neill commencing activities, and (b)
the only legal and binding obligations of the Companies and Sandler O'Neill
with respect to the subject matter hereof shall be (1) the Companies'
obligation to reimburse costs and expenses pursuant to the section
captioned "Costs and Expenses," (2) those set forth under the captions
"Confidentiality" and "Indemnification," and (3) as set forth in a duly
negotiated and executed definitive Agency Agreement to be entered into
prior to the commencement of the Subscription Offering relating to the
services of Sandler O'Neill in connection with the Offerings. Such Agency
Agreement shall be in form and content satisfactory to Sandler O'Neill and
the Companies and their respective counsel and shall contain standard
indemnification provisions consistent herewith.
Sandler O'Neill's execution of such Agency Agreement shall also be
subject to (i) Sandler O'Neill's satisfaction with its investigation of the
Companies' respective business, financial condition and results of
operations, (ii) preparation of offering materials that are satisfactory to
Sandler O'Neill and its counsel, (iii) compliance with all relevant legal
and regulatory requirements to the reasonable satisfaction of Sandler
O'Neill's counsel, (iv) agreement that the appraisal range established by
the independent appraiser is reasonable and (v) market conditions at the
time of the proposed offering. Sandler O'Neill may terminate this
agreement if such Agency Agreement is not entered into prior to May 31,
1996.
MISCELLANEOUS
- -------------
This Agreement and appendix hereto may be altered only by written
consent signed by the parties. This Agreement is governed by the laws of
the Commonwealth of Pennsylvania.
E-7
<PAGE>
Progress Financial Corporation
FJF Financial, M.H.C.
June 14, 1995
Page 8 Sandler O'Neill
Please confirm that the foregoing correctly sets forth our agreement
by signing and returning to Sandler O'Neill the duplicate copy of this
letter enclosed herewith.
Very truly yours,
Sandler O'Neill & Partners, L.P.
By: Sandler O'Neill & Partners Corp.,
the sole general partner
By: /s/ Christopher Quackenbush
---------------------------
Christopher Quackenbush
Vice President
Accepted and agreed to as of
the date first above written:
Progress Financial Corporation FJF Financial, M.H.C.
By: /s/ W. Kirk Wycoff By: /s/ John F. McGill
------------------------- ------------------------
Its: President Its: President
------------------------- ------------------------
E-8
Exhibit 10.6
Employment Agreement between Progress
Financial Corporation, Progress Federal
Savings Bank and W. Kirk Wycoff
<PAGE>
AGREEMENT
AGREEMENT, dated this 1st day of January 1995, between Progress
Financial Corporation (the "Corporation"), a Delaware-chartered
corporation, Progress Federal Savings Bank (the "Savings Bank"), a
federally chartered savings bank and a wholly-owned subsidiary of the
Corporation, and W. Kirk Wycoff (the "Executive").
WITNESSETH
WHEREAS, the Executive is presently an officer of the Corporation and
the Savings Bank (together the "Employers"); and
WHEREAS, the Employers desire to be ensured of the Executive's
continued active participation in the business of the Employers; and
WHEREAS, in order to induce the Executive to remain in the employ of
the Employers and in consideration of the Executive agreeing to remain in
the employ of the Employers, the parties desire to specify the severance
benefits which shall be due the Executive in the event that his employment
with the Employers is terminated under specified circumstances;
NOW THEREFORE, in consideration of the premises and the mutual
agreements herein contained, the parties hereby agree as follows:
1. Definitions. The following words and terms shall have the
meanings set forth below for the purposes of this Agreement:
(a) Annual Compensation. The Executive's "Annual Compensation" for
purposes of this Agreement shall be deemed to mean the compensation paid to
the Executive by the Employers or any subsidiary thereof during the most
recent 12 calendar months preceding the Date of Termination, including Base
Salary and benefits and bonuses under any employee benefit plans of the
Employers.
(b) Base Salary. "Base Salary" shall have the meaning set forth in
Section 3(a) hereof.
(c) Cause. Termination of the Executive's employment for "Cause"
shall mean termination because of personal dishonesty, incompetence,
willful misconduct, breach of fiduciary duty involving personal profit,
intentional failure to perform stated duties, willful violation of any
banking law, rule or regulation or final cease-and-desist order or material
breach of any provision of this Agreement. For purposes of this paragraph,
no act or failure to act on the Executive's part shall be considered
"willful" unless done, or omitted to be
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<PAGE>
2
done, by the Executive not in good faith and without reasonable belief that
the Executive's action or omission was in the best interest of the
Employers.
(d) Change in Control of the Corporation. "Change in Control of the
Corporation" shall mean a change in control of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the Securities Exchange Act of 1934, as
amended ("Exchange Act"), or any successor thereto, whether or not any
security of the Corporation is registered under Exchange Act; provided
that, without limitation, such a change in control shall be deemed to have
occurred if (i) any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Corporation representing 25% or more of the combined
voting power of the Corporation's then outstanding securities; or (ii)
during any period of two consecutive years, individuals who at the
beginning of such period constitute the Board of Directors of the
Corporation cease for any reason to constitute at least a majority thereof
unless the election, or the nomination for election by stockholders, of
each new director was approved by a vote of at least two-thirds of the
directors then still in office who were directors at the beginning of the
period.
(e) Code. "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(f) Date of Termination. "Date of Termination" shall mean (i) if the
Executive's employment is terminated for Cause or for Disability, the date
specified in the Notice of Termination, and (ii) if the Executive's
employment is terminated for any other reason, the date on which a Notice
of Termination is given or as specified in such Notice.
(g) Disability. Termination by the Employers of the Executive's
employment based on "Disability" shall mean termination because of any
physical or mental impairment which qualifies the Executive for disability
benefits under the applicable long-term disability plan maintained by the
Employers or any subsidiary or, if no such plan applies, which would
qualify the Executive for disability benefits under the Federal Social
Security System.
(h) IRS. "IRS" shall mean the Internal Revenue Service.
(i) Notice of Termination. Any purported termination of the
Executive's employment by the Employers for any reason, including without
limitation for Cause, Disability or Retirement, or by the Executive for any
reason, shall be communicated by written "Notice of Termination" to the
other party hereto. For purposes of this Agreement, a "Notice of
Termination" shall mean a dated notice which (i) indicates the specific
termination provision in this Agreement relied upon, (ii) sets forth in
reasonable detail the facts and circumstances claimed to provide a basis
for termination of Executive's employment under the provision so indicated,
(iii) specifies a Date of Termination, which
E-10
<PAGE>
3
shall be not less than thirty (30) nor more than ninety (90) days after
such Notice of Termination is given, except in the case of the Employers'
termination of Executive's employment for Cause, and (iv) is given in the
manner specified in Section 10 hereof.
(j) Retirement. Termination by the Employers of the Executive's
employment based on "Retirement" shall mean voluntary termination by the
Executive in accordance with the Employers' retirement policies, including
early retirement, generally applicable to their salaried employees.
2. Term of Employment.
(a) The Employers hereby employ the Executive as President and Chief
Executive Officer of the Corporation and the Savings Bank and Executive
hereby accepts said employment and agrees to render such services to the
Employers on the terms and conditions set forth in this Agreement. The
term of employment under this Agreement shall be for three years,
commencing on the date of this Agreement and, subject to the requirements
of the succeeding sentence, shall be deemed automatically, without further
action, to extend for an additional year on the date of expiration of the
term of this Agreement. Prior to the date of expiration of the term of
this Agreement and each annual anniversary thereafter, the Board of
Directors of the Employers shall consider and review (with appropriate
corporate documentation thereof, and after taking into account all relevant
factors, including the Executive's performance hereunder) extension of the
term under this Agreement, and the term shall continue to extend in the
manner set forth above unless either the Board of Directors does not
approve such extension and provides written notice to the Executive of such
event or the Executive gives written notice to the Employers of the
Executive's election not to extend the term, in each case with such written
notice to be given not less than ninety (90) days prior to any such date.
References herein to the term of this Agreement shall refer both to the
initial term and successive terms.
(b) During the term of this Agreement, the Executive shall perform
such executive services for the Employers as may be consistent with his
titles and from time to time assigned to him by the Employers' Boards of
Directors.
3. Compensation and Benefits.
(a) The Employers shall compensate and pay Executive for his services
during the term of this Agreement at a minimum base salary of $235,420 per
year ("Base Salary"), which may be increased from time to time in such
amounts as may be determined by the Board of Directors of the Employers and
may not be decreased without the Executive's express written consent. In
that regard, in the event the Corporation acquires, directly or indirectly,
by merger, acquisition or consolidation another financial institution, such
that, at the time of the consummation of such merger, acquisition or
consolidation, the
E-11
<PAGE>
4
Corporation's total assets exceed $500 million, Executive's Base Salary
will be adjusted to an amount (as determined by the Board of Directors of
the Employers) equal to not less than 90% and not more than 110% of the
median base salary for the prior year for Chief Executive Officers of
thrift institutions with total assets ranging between $500 million and $1.0
billion as published by SNL Securities. In addition to his Base Salary,
the Executive shall be entitled to receive during the term of this
Agreement such bonus payments as may be determined by the Board of
Directors of the Employers. In that regard, for the term of the Agreement,
Executive shall be entitled to participate in a bonus plan whereby he would
be potentially entitled to receive a bonus potentially equal to a minimum
of 30% of his Base Salary, subject to the accomplishment of certain goals
established or to be established by the Board of Directors of the
Employers.
(b) During the term of the Agreement, Executive shall be entitled to
participate in and receive the benefits of any pension or other retirement
benefit plan, profit sharing, stock option, employee stock ownership, or
other plans, benefits and privileges given to employees and executives of
the Employers, to the extent commensurate with his then duties and
responsibilities, as fixed by the Board of Directors of the Employers. The
Employers shall not make any changes in such plans, benefits or privileges
which would adversely affect Executive's rights or benefits thereunder,
unless such change occurs pursuant to a program applicable to all executive
officers of the Employers and does not result in a proportionately greater
adverse change in the rights of or benefits to Executive as compared with
any other executive officer of the Employers. 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.
(c) During the term of the Agreement, Executive shall be entitled to
an annual expense allowance not to exceed 10.0% of his Base Salary.
(d) During the term of this Agreement, Executive shall be entitled to
four (4) weeks of paid annual vacation in accordance with the policies as
established from time to time by the Board of Directors of the Employers.
Executive shall be entitled to receive any additional compensation from the
Employers for failure to take a vacation and shall be able to accumulate
unused vacation time from one year to the next.
4. Expenses. The Employers shall reimburse Executive or otherwise
provide for or pay for all reasonable expenses incurred by Executive in
furtherance of, or in connection with the business of the Employers,
including, but not by way of limitation, automobile (including costs of
leasing, insurance, repairs, maintenance, and licensing) and traveling
expenses, and all reasonable entertainment expenses (whether incurred at
the Executive's residence, while traveling or otherwise), subject to such
reasonable documentation and other limitations as may be established by the
Board of Directors of the Employers. If such expenses are paid in the
first instance by Executive, the Employers shall reimburse the Executive
therefor.
E-12
<PAGE>
5
5. Termination.
(a) The Employers shall have the right, at any time upon prior Notice
of Termination, to terminate the Executive's employment hereunder for any
reason, including without limitation termination for Cause or Retirement,
and Executive shall have the right, upon prior Notice of Termination, to
terminate his employment hereunder for any reason.
(b) In the event that (i) Executive's employment is terminated by the
Employers for Cause or Retirement or in the event of the Executive's death,
or (ii) Executive terminates his employment hereunder other than in
connection with a Change in Control of the Corporation, Executive shall
have no right pursuant to this Agreement to compensation or other benefits
for any period after the applicable Date of Termination except as otherwise
provided herein.
(c) In the event that (i) Executive's employment is terminated
(including termination due to Disability) by the Employers for other than
Cause, Retirement or the Executive's death or (ii) such employment is
terminated by the Executive (a) due to a material breach of this Agreement
by the Employers, which breach has not been cured within fifteen (15) days
after a written notice of non-compliance has been given by the Executive to
the Employers, or (b) in connection with a Change in Control of the
Corporation (which election by the Executive must be made not later than 90
days after the effective date of the Change in Control of the Corporation),
then the Employers shall, subject to the provisions of Section 6 hereof, if
applicable
(A) pay to the Executive, in equal monthly installments
beginning with the first business day of the month following the Date
of Termination, a cash severance amount equal to the greater of (i)
the amount of compensation remaining to be paid to the Executive under
the terms of this Agreement or (ii) the Executive's Annual
Compensation, and
(B) maintain and provide for a period ending at the earlier of
(i) the expiration of the remaining term of employment pursuant hereto
prior to the Notice of Termination or (ii) the date of the Executive's
full-time employment by another employer (provided that the Executive
is entitled under the terms of such employment to benefits
substantially similar to those described in this subparagraph (B)), at
no cost to the Executive, the Executive's continued participation in
all group insurance, life insurance, health and accident, disability
and other employee benefit plans, programs and arrangements in which
the Executive was entitled to participate immediately prior to the
Date of Termination (other than stock option and restricted stock
plans of the Employers), provided that in the event that the
Executive's participation in any plan, program or arrangement as
provided in this subparagraph (B) is barred, or during such period any
such plan, program or arrangement is
E-13
<PAGE>
6
discontinued or the benefits thereunder are materially reduced, the
Employers shall arrange to provide the Executive with benefits
substantially similar to those which the Executive was entitled to
receive under such plans, programs and arrangements immediately prior
to the Date of Termination.
(d) In the event of the failure by the Employers to elect or to re-
elect or to appoint or to re-appoint the Executive to the offices of
President and Chief Executive Officer of the Corporation and the Savings
Bank or a material adverse change made by the Employers in the Executive's
functions, duties or responsibilities as President and Chief Executive
Officer of the Corporation and President and Chief Executive Officer of the
Savings Bank without the Executive's express written consent, the Executive
shall be entitled to terminate his employment hereunder and shall be
entitled to the payments and benefits provided for in Section 5(c)(A) and
(B); however, such termination shall not otherwise constitute a material
breach of this Agreement by the Employers.
6. Limitation of Benefits under Certain Circumstances. If the
payments and benefits pursuant to Section 5 hereof, either alone or
together with other payments and benefits which Executive has the right to
receive from the Employers, would constitute a "parachute payment" under
Section 280G of the Code, the payments and benefits pursuant to Section 5
hereof shall be reduced, in the manner determined by the Executive, by the
amount, if any, which is the minimum necessary to result in no portion of
the payments and benefits under Section 5 being non-deductible to either of
the Employers pursuant to Section 280G of the Code and subject to the
excise tax imposed under Section 4999 of the Code. The determination of
any reduction in the payments and benefits to be made pursuant to Section 5
shall be based upon the opinion of independent tax counsel selected by the
Employers' independent public accountants and paid by the Employers. Such
counsel shall be reasonably acceptable to the Employers and the Executive;
shall promptly prepare the foregoing opinion, but in no event later than
thirty (30) days from the Date of Termination; and may use such actuaries
as such counsel deems necessary or advisable for the purpose. In the event
that the Employers and/or the Executive do not agree with the opinion of
such counsel, (i) the Employers shall pay to the Executive the maximum
amount of payments and benefits pursuant to Section 5, as selected by the
Executive, which such opinion indicates that there is a high probability do
not result in any of such payments and benefits being non-deductible to the
Employers and subject to the imposition of the excise tax imposed under
Section 4999 of the Code and (ii) the Employers may request, and Executive
shall have the right to demand that the Employers request, a ruling from
the IRS as to whether the disputed payments and benefits pursuant to
Section 5 hereof have such consequences. Any such request for a ruling
from the IRS shall be promptly prepared and filed by the Employers, but in
no event later than thirty (30) days from the date of the opinion of
counsel referred to above, and shall be subject to Executive's approval
prior to filing, which shall not be unreasonably withheld. The Employers
and Executive agree to be bound by any ruling received from the IRS and to
make appropriate payments to each other
E-14
<PAGE>
7
to reflect any such rulings, together with interest at the applicable
federal rate provided for in Section 7872(f)(2) of the Code. Nothing
contained herein shall result in a reduction of any payments or benefits to
which the Executive may be entitled upon termination of employment under
any circumstances other than as specified in this Section 6, or a reduction
in the payments and benefits specified in Section 5 below zero.
7. Mitigation; Exclusivity of Benefits.
(a) The Executive shall not be required to mitigate the amount of any
benefits hereunder by seeking other employment or otherwise, nor shall the
amount of any such benefits be reduced by any compensation earned by the
Executive as a result of employment by another employer after the Date of
Termination or otherwise.
(b) The specific arrangements referred to herein are not intended to
exclude any other benefits which may be available to the Executive upon a
termination of employment with the Employers pursuant to employee benefit
plans of the Employers or otherwise.
8. Withholding. All payments required to be made by the Employers
hereunder to the Executive shall be subject to the withholding of such
amounts, if any, relating to tax and other payroll deductions as the
Employers may reasonably determine should be withheld pursuant to any
applicable law or regulation.
9. Assignability. The Employers may assign this Agreement and its
rights and obligations hereunder in whole, but not in part, to any
corporation, bank or other entity with or into which the Employers may
hereafter merge or consolidate or to which the Employers may transfer all
or substantially all of its assets, if in any such case said corporation,
bank or other entity shall by operation of law or expressly in writing
assume all obligations of the Employers hereunder as fully as if it had
been originally made a party hereto, but may not otherwise assign this
Agreement or its rights and obligations hereunder. The Executive may not
assign or transfer this Agreement or any rights or obligations hereunder.
10. Notice. For the purposes of this Agreement, notices and all
other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by
certified or registered mail, return receipt requested, postage prepaid,
addressed to the respective addresses set forth below:
To the Employers: Progress Financial Corporation
Progress Federal Savings Bank
600 West Germantown Pike
Plymouth Meeting, Pennsylvania 19462
E-15
<PAGE>
8
To the Executive: W. Kirk Wycoff
875 Lantern Lane
Blue Bell, Pennsylvania 19422
11. 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 Employers 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.
12. 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
Commonwealth of Pennsylvania.
13. Nature of Obligations. Nothing contained herein shall create or
require the Employers 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 Employers hereunder, such
right shall be no greater than the right of any unsecured general creditor
of the Employers.
14. 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.
15. Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and effect.
16. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument.
17. Regulatory Actions. The following provisions shall be applicable
to the parties to the extent that they are required to be included in
employment agreements between a savings association and its employees
pursuant to Section 563.39(b) of the Regulations Applicable to all Savings
Associations, 12 C.F.R. Sec.563.39(b), or any successor thereto, and shall be
controlling in the event of a conflict with any other provision of this
Agreement, including without limitation Section 5 hereof.
E-16
<PAGE>
9
(a) If Executive is suspended from office and/or temporarily
prohibited from participating in the conduct of the Employers' affairs
pursuant to notice served under Section 8(e)(3) or Section 8(g)(1) of the
Federal Deposit Insurance Act ("FDIA")(12 U.S.C. Sec.Sec.1818(e)(3) and
1818(g)(1)), the Employers' obligations under this Agreement shall be
suspended as of the date of service, unless stayed by appropriate
proceedings. If the charges in the notice are dismissed, the Employers
may, in their discretion: (i) pay Executive all or part of the
compensation withheld while its obligations under this Agreement were
suspended, and (ii) reinstate (in whole or in part) any of its obligations
which were suspended.
(b) If Executive is removed from office and/or permanently prohibited
from participating in the conduct of the Employers' affairs by an order
issued under Section 8(e)(4) or Section 8(g)(1) of the FDIA (12 U.S.C.
Sec.Sec.1818(e)(4) and (g)(1)), all obligations of the Employers under this
Agreement shall terminate as of the effective date of the order, but vested
rights of the Executive and the Employers as of the date of termination
shall not be affected.
(c) If the Savings Bank is in default, as defined in Section 3(x)(1)
of the FDIA (12 U.S.C. Sec.1813(x)(1)), all obligations under this Agreement
shall terminate as of the date of default, but vested rights of the
Executive and the Employers as of the date of termination shall not be
affected.
(d) All obligations under this Agreement shall be terminated pursuant
to 12 C.F.R. Sec.563.39(b)(5) (except to the extent that it is determined that
continuation of the Agreement for the continued operation of the Employers
is necessary): (i) by the Director of the Office of Thrift Supervision
("OTS"), or his/her designee, at the time the Federal Deposit Insurance
Corporation ("FDIC") or Resolution Trust Corporation enters into an
agreement to provide assistance to or on behalf of the Savings Bank under
the authority contained in Section 13(c) of the FDIA (12 U.S.C. Sec.1823(c));
or (ii) by the Director of the OTS, or his/her designee, at the time the
Director or his/her designee approves a supervisory merger to resolve
problems related to operation of the Savings Bank or when the Savings Bank
is determined by the Director of the OTS to be in an unsafe or unsound
condition, but vested rights of the Executive and the Employers as of the
date of termination shall not be affected.
18. Regulatory Prohibition. Notwithstanding any other provision of
this Agreement to the contrary, any payments made to the Executive pursuant
to this Agreement, or otherwise, are subject to and conditioned upon their
compliance with Section 18(k) of the FDIA (12 U.S.C. Sec.1828(k)) and any
regulations promulgated thereunder.
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<PAGE>
10
IN WITNESS WHEREOF, this Agreement has been executed as of the date
first above written.
Attest: PROGRESS FINANCIAL CORPORATION
/s/ Joyce E. Bilger
__________________________ By: /s/ Eric J. Morgan
-----------------------------------------
Eric J. Morgan
Vice President of Credit and Finance
By: /s/ William L. Mueller
-----------------------------------------
William L. Mueller, Director
Attest: PROGRESS FEDERAL SAVINGS BANK
/s/ Joyce E. Bilger
__________________________ By: /s/ Eric J. Morgan
-----------------------------------------
Eric J. Morgan
Vice President of Credit and Finance
By: /s/ William L. Mueller
-----------------------------------------
William L. Mueller, Director
Attest: W. KIRK WYCOFF
/s/ Joyce E. Bilger
__________________________ By: /s/ W. Kirk Wycoff
-----------------------------------------
W. Kirk Wycoff, Individually
E-18
Exhibit 23.4
Consent of RP Financial, Inc.
<PAGE>
[LETTERHEAD OF RP FINANCIAL, INC.]
June 29, 1995
Board of Directors
FJF Financial, M.H.C.
Roxborough-Manayunk Federal Savings Bank
6060 Ridge Avenue
Philadelphia, Pennsylvania 19128
Board of Directors
Progress Financial Corporation
Progress Federal Savings Bank
600 West Germantown Pike
Plymouth Meeting, Pennsylvania 19462
Gentlemen:
We hereby consent to the use of our firm's name in the Form AC
Application for Conversion of FJF Financial, M.H.C., and any amendments
thereto, in the Form S-1 Registration Statement of Progress Financial
Corporation and any amendments thereto, and the inclusion of, summary of
and references to our Appraisal Report and our statement concerning
subscription rights in such filings including the Proxy Statements of
Roxborough-Manayunk Federal Savings Bank and FJF Financial, M.H.C. and the
Prospectus and Proxy Statement of Progress Financial Corporation.
Very truly yours,
RP FINANCIAL, INC.
/s/ William E. Pommerening
William E. Pommerening
Chief Executive Officer
E-19
Exhibit 23.5
Consent of Coopers & Lybrand L.L.P.
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of
our report dated January 18, 1995, except for Note 19, as to which the date
is May 24, 1995 which includes an explanatory paragraph regarding the
Company's change in its methods of accounting for investments and income
taxes, on our audits of the financial statements of Progress Financial
Corporation as of December 31, 1994 and 1993 and for the years ended
December 31, 1994 and 1993. We also consent to the reference to our firm
under the caption "Experts."
/s/ Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
June 27, 1995
E-20
Exhibit 23.6
Consent of KPMG Peat Marwick LLP
<PAGE>
Consent of Independent Auditors
To the Stockholders and Board of Directors
Progress Financial Corporation:
We consent to the use of our report dated January 22, 1993 except
for matters referred to below, which are as of February 16, 1993,
on the consolidated financial statements of Progress Financial
Corporation, included herein and to the reference of our firm
under the heading "Experts" in the prospectus.
Our report contains an explanatory paragraph that states that i)
at December 31, 1992, Progress Federal Savings Bank (the Bank),
the principal wholly-owned subsidiary of the Company, failed to
meet the minimum capital thresholds under the Federal Deposit
Insurance Corporation Improvement Act of 1991 ("FDICIA") to be
considered "adequately capitalized" and is categorized as
"significantly undercapitalized," ii) the Bank filed a capital
plan for attaining the required levels of regulatory capital and
that plan has been accepted by the OTS, but that on February 16,
1993 the Bank submitted an amendment to its plan and the Bank had
not received notification as to acceptance or rejection of its
amended capital plan, iii) because the bank does not meet the
minimum capital thresholds to be considered "adequately
capitalized" it is subject to certain operating restrictions such
as growth limitations, prohibition on dividend payments,
increased supervisory monitoring by its primary regulator,
limitations on executive compensation, and restriction on deposit
interest rates, iv) failure to increase its capital ratios in
accordance with its capital plan or further declines in its
capital ratios exposes the Bank to additional restrictions and
regulatory actions, including regulatory take-over, v) there is
substantial doubt about the Company's ability to continue as a
going concern, and vi) the ability of the Company to continue as
a going concern is dependent upon many factors including
regulatory action and the ability of management to achieve its
plan.
/s/ KPMG Peat Marwick LLP
Philadelphia, Pennsylvania
June 26, 1995
E-21
Exhibit 23.7
Consent of Deloitte & Touche, LLP
<PAGE>
Exhibit 23.7
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Progress Financial
Corporation on Form S-1 of our report on the consolidated financial
statements of Roxborough-Manayunk Federal Savings Bank and subsidiaries for
the years ended December 31, 1994 and 1993 and also on the consolidated
financial statements of Roxborough-Manayunk Federal Savings and Loan
Association and subsidiaries (Predecessor Association) for the year ended
December 31, 1992, dated January 27, 1995, appearing in the Proxy
Statement/Prospectus, which is part of this Registration Statement.
DELOITTE & TOUCHE LLP
/s/ DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
June 27, 1995
E-22
Exhibit 99.1
Proxy Statement and Form of Proxy
<PAGE>
PROGRESS FINANCIAL CORPORATION
Plymouth Meeting Executive Campus
600 East Germantown Pike
Plymouth Meeting, Pennsylvania 19462
(610) 825-8800
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held on _______ __, 1995
NOTICE IS HEREBY GIVEN that a Special Meeting of
Stockholders of Progress Financial Corporation (the "Company")
will be held at ____________________________, on _______
__, 1995, at __:00 _.m., Eastern Time, for the following
purposes, as more completely set forth in the accompanying Proxy
Statement and the accompanying Prospectus:
(1) To approve and adopt the Agreement and Plan of
Reorganization adopted by the Company, Progress Federal Savings
Bank ("Progress"), FJF Financial, M.H.C. (the "Mutual Holding
Company") and Roxborough-Manayunk Federal Savings Bank
("Roxborough-Manayunk"), including the exhibits thereto (the
"Merger Agreement"). Pursuant to the Merger Agreement, (i) the
Mutual Holding Company will convert from the mutual to the stock
form pursuant to a Plan of Conversion and simultaneously merge
with and into Roxborough-Manayunk; (ii) Progress will then merge
with and into Roxborough-Manayunk, with the resulting entity to
operate under the name of "Progress Bank" as a wholly owned
subsidiary of the Company; (iii) the shares of Roxborough-
Manayunk common stock (other than those held by the Mutual
Holding Company, which will be cancelled) will be converted into
shares of common stock, par value $1.00 per share, of the Company
("Company Common Stock") pursuant to an exchange ratio; and (iv)
the Company's Certificate of Incorporation will be amended to
increase the number of authorized shares of Company Common Stock
to 15,000,000 and the authorized shares of Preferred Stock to
3,000,000 and to add certain restrictions on the acquisition of
more than 10% of the outstanding Company Common Stock for five
years. In addition, the Company is offering shares of Company
Common Stock by means of a Prospectus which accompanies the Proxy
Statement. The above transactions are collectively referred to
herein as the "Conversion and the Merger."
(2) To transact such other business as may properly come
before the meeting. Except with respect to procedural matters
incident to the conduct of the meeting, management of the Company
is not aware of any matters other than those set forth above
which may properly come before the meeting.
Stockholders of record of the Company at the close of
business on ________ __, 1995 are entitled to notice of and to
vote at the Special Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
W. Kirk Wycoff
Chairman, President and
Chief Executive Officer
Plymouth Meeting, Pennsylvania
________ __, 1995
YOU ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING. IT IS
IMPORTANT THAT YOUR SHARES BE REPRESENTED REGARDLESS OF THE
NUMBER YOU OWN. EVEN IF YOU PLAN TO BE PRESENT, YOU ARE URGED
TO COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY PROMPTLY
IN THE ENVELOPE PROVIDED. IF YOU ATTEND THIS MEETING, YOU MAY
VOTE EITHER IN PERSON OR BY PROXY. ANY PROXY GIVEN MAY BE
REVOKED BY YOU IN WRITING OR IN PERSON AT ANY TIME PRIOR TO THE
EXERCISE THEREOF.
E-23
<PAGE>
PROGRESS FINANCIAL CORPORATION
PROXY STATEMENT
______________________________
SPECIAL MEETING OF STOCKHOLDERS
This Proxy Statement is being furnished to the holders of
the Company Common Stock of Progress Financial Corporation in
connection with the solicitation of proxies on behalf of the
Board of Directors, to be used at the Special Meeting of
Stockholders ("Special Meeting") to be held at
_____________________, on _________ __, 1995, at _0:00 _.m.,
Eastern Time, and at any adjournment thereof for the purposes set
forth in the Notice of Special Meeting. This Proxy Statement is
expected to be mailed to stockholders on or about ________ __,
1995.
Each proxy solicited hereby, if properly signed and returned
to the Company and not revoked prior to its use, will be voted in
accordance with the instructions contained therein. If no
contrary instructions are given, each signed proxy received will
be voted in favor of the Merger Agreement and, upon the
transaction of such other business as may properly come before
the meeting, in accordance with the best judgment of the persons
appointed as proxies. Only proxies that are returned can be
counted and voted at the Special Meeting.
Any stockholder giving a proxy has the power to revoke it at
any time before it is exercised by (i) filing with the Secretary
of the Company written notice thereof (Eric J. Morgan, Secretary,
Progress Financial Corporation, 600 West Germantown Pike,
Plymouth Meeting, Pennsylvania 19462), (ii) submitting a duly
executed proxy bearing a later date, or (iii) appearing at the
Special Meeting and giving the Secretary notice of his or her
intention to vote in person. Proxies solicited hereby may be
exercised only at the Special Meeting and any adjournment thereof
and will not be used for any other meeting.
VOTING SECURITIES AND REQUIRED VOTE
Only stockholders of record at the close of business on
____________ __, 1995 ("Voting Record Date") are entitled to
notice of and to vote at the Special Meeting. On the Voting
Record Date, there were _______ shares of Company Common Stock
outstanding, and the Company had no other class of equity
securities outstanding and entitled to vote at the Special
Meeting. Each share of Company Common Stock is entitled to one
vote at the Special Meeting on all matters properly presented at
the Special Meeting. The Merger Agreement, including the
issuance of Company Common Stock in connection with the
Conversion and the Merger and the amendments to the Company's
Certificate of
2
E-24
<PAGE>
Incorporation, must be approved by the holders of a majority of
the outstanding Company Common Stock entitled to vote thereon in
order to consummate the Conversion and the Merger.
A majority of the outstanding Company Common Stock,
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 present at the Special Meeting and
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 adoption of the Merger Agreement
must be approved by the holders of at least a majority of the
outstanding Company Common Stock, abstentions and broker non-
votes will have the same effect as a vote against such proposal.
INCORPORATION OF INFORMATION BY REFERENCE
The Prospectus of the Company which accompanies this Proxy
Statement is incorporated herein by reference in its entirety.
The Prospectus sets forth a description of the Conversion and the
Merger and the related offering of Company Common Stock under the
captions "The Conversion and the Merger" and "The Offerings."
Such captions also describe the effects of the Conversion and the
Merger on the stockholders of the Company, including the tax
consequences of the Conversion and Merger.
Information regarding the Company, Progress, the Mutual
Holding Company and Roxborough-Manayunk (collectively, the
"Parties") are set forth in the Prospectus under the captions
"Summary - The Company and Progress" and "-Roxborough-Manayunk
and the Mutual Holding Company." The Prospectus also describes
the business and financial condition of the Company and
Roxborough-Manayunk under the captions "Business of the Company,"
"Management's Discussion and Analysis of Financial Condition and
Results of Operations of the Company," "Business of Roxborough-
Manayunk" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations of Roxborough-Manayunk." In
addition, the historical, consolidated financial statements of
the Company and Roxborough-Manayunk are included in the
Prospectus. Information regarding the use of proceeds from the
sale of Company Common Stock in connection with the Conversion
and Merger, the historical capitalization of the Company and
Roxborough-Manayunk and the pro forma capitalization of the
Company, and other pro forma data are set forth in the Prospectus
under the captions "Use of Proceeds," "Capitalization" and "Pro
Forma Unaudited Financial Information," respectively. The Pro
Forma Unaudited Financial Information shows the effects of the
Conversion and the Merger on the Company's total stockholders'
equity and net income, on both an aggregate and per share basis,
based upon the assumptions set forth therein.
The Prospectus sets forth certain information as to the
Company Common Stock beneficially owned by (i) the only persons
or entities who or which were known to the Company to be the
beneficial owner of more than 5% of the issued and outstanding
3
E-25
<PAGE>
Company Common Stock, (ii) the directors of the Company, and
(iii) all directors and executive officers of the Company as a
group. See "Management of the Company" in the Prospectus.
The Prospectus also sets forth a description of management
of the Company, the Mutual Holding Company and Roxborough-
Manayunk, as well as the management of the Company and Progress
Bank after the Conversion and the Merger. See "Management of the
Company," "Management of the Mutual Holding Company," "Management
of Roxborough-Manayunk" and "Management of the Company and
Progress Bank Following the Conversion and the Merger" in the
Prospectus.
THE CONVERSION AND THE MERGER
On May 24, 1995, the Parties adopted the Merger Agreement
and the Boards of Directors of Roxborough-Manayunk and the Mutual
Holding Company adopted the Plan of Conversion attached as an
exhibit to the Merger Agreement. Pursuant to the Plan of
Conversion and the Merger Agreement, (i) the Mutual Holding
Company will convert from mutual to stock form and simultaneously
merge with and into Roxborough-Manayunk, 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
Roxborough-Manayunk ("RM Bank Common Stock") held by the Mutual
Holding Company will be cancelled, and (ii) Progress will then
merge with and into Roxborough-Manayunk, and Roxborough-Manayunk
as the surviving entity will change its name to "Progress Bank"
and become a wholly owned subsidiary of the Company. The
outstanding shares of RM Bank Common Stock held by the public
stockholders of Roxborough-Manayunk (the "RM Public Bank
Shares"), which amounted to 206,000 shares or 12.71% of the
outstanding RM Bank Common Stock at March 31, 1995, will be
converted into shares of Company Common Stock (the "Exchange
Shares") pursuant to a ratio (the "Exchange Ratio") that will
result in the holders of such shares (the "RM Public
Stockholders") receiving in the aggregate approximately the same
percentage of Company Common Stock to be issued in the Conversion
and the Merger (i.e., the Conversion Stock (as defined below) and
----
the Exchange Shares) as the percentage of RM Bank Common Stock
owned by them in the aggregate immediately prior to consummation
of the Conversion and the Merger, before giving effect to (a) the
payment of cash in lieu of issuing fractional Exchange Shares,
(b) any shares of Conversion Stock purchased by the RM Public
Stockholders in the Offerings, and (c) any exercise of
dissenters' rights by the RM Public Stockholders (the
"Exchange"). For diagrams of the corporate structure of the
Mutual Holding Company and Roxborough-Manayunk prior to
consummation of the Conversion and the Merger and the corporate
structure of the Company thereafter, see "The Conversion and the
Merger - Description of the Conversion and the Merger" in the
Prospectus.
In addition to shares of Company Common Stock to be issued
pursuant to the Exchange, pursuant to the Plan of Conversion, the
Company is offering up to $32.2 million (which may be increased
up to $37.0 million under certain circumstances) of Company
4
E-26
<PAGE>
Common Stock in connection with the Offerings described herein
(the "Conversion Stock") as part of the Conversion and the
Merger. See "The Offerings" below and "The Offerings" in the
Prospectus. The conversion of the Mutual Holding Company from
mutual to stock form, the merger of the Mutual Holding Company
with and into Roxborough-Manayunk, the merger of Progress with
and into Roxborough-Manayunk, and the Offerings are
interdependent transactions, and none of such transactions will
occur unless all of them do.
Pursuant to OTS regulations, consummation of the Conversion
and the Merger is conditioned upon the approval of the Plan of
Conversion by the OTS, as well as (1) the approval of the Merger
Agreement and the Plan of Conversion by 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 as of the close of business
on __________, 1995 (the "Voting Record Date") at a special
meeting of Members called for the purpose of submitting such
documents for approval, and (2) the approval of the Merger
Agreement and the Plan of Conversion by the holders of at least
two-thirds of the shares of the RM Bank Common Stock, including
the Mutual Holding Company (the "Stockholders"), outstanding as
of the close of business on the Voting Record Date eligible to be
voted at the special meeting of the stockholders of Roxborough-
Manayunk called for the purpose of submitting such documents for
approval (the "Roxborough-Manayunk Stockholders' Meeting"). In
addition, the Parties have conditioned the consummation of the
Conversion and the Merger on the approval of the Merger Agreement
and the Plan of Conversion by at least a majority of the votes
cast, in person or by proxy, by the RM Public Stockholders at the
Roxborough-Manayunk Stockholders' Meeting. The Mutual Holding
Company intends to vote its shares of RM Bank Common Stock, which
amount to 87.29% of the outstanding shares, in favor of the
Merger Agreement and the Plan of Conversion at the Roxborough-
Manayunk Stockholders' Meeting. Under Delaware law, the Merger
Agreement must be approved by a majority of the outstanding
Company Common Stock as of the close of business on _______, 1995
entitled to vote thereon at the Special Meeting.
A copy of the Merger Agreement may be obtained by a
stockholder of the Company upon a request directed to Eric J.
Morgan, Secretary, Progress Financial Corporation, 600 West
Germantown Pike, Plymouth Meeting, Pennsylvania 19462.
REASONS FOR THE CONVERSION AND THE MERGER
The respective Boards of Directors of each of the Parties
believe that the combination of the Parties will enhance the
competitive position of the combined entities and will enable the
resulting institution to compete more effectively than either
Roxborough-Manayunk or Progress could on its own. The combined
entity will have greater financial resources and, as a result of
the Offerings, increased capital levels. The Company's
stockholders' equity will increase from $13.7 million or 4.0% of
total assets at March 31, 1995 to $62.3 million or 9.7% of pro
forma total assets at March 31, 1995, assuming the Conversion
Stock is sold at the midpoint of the Estimated Price Range (as
defined under "The Offerings - Stock Pricing, Exchange Ratio and
Number of Shares to be Issued in the Conversion and the Merger").
The combination will result in increased funds being
5
E-27
<PAGE>
available for lending purposes, greater resources for expansion
of services, and better opportunities for attracting and
retaining qualified personnel.
The terms of the Merger Agreement were the result of arm's
length negotiations between the representatives of the Company
and Roxborough-Manayunk. Among the factors considered by the
Boards of Directors of the Company and Roxborough-Manayunk, as
appropriate, were (i) the ability to expand the Company's and
Roxborough-Manayunk's presence in southeastern Pennsylvania (upon
consummation of the Conversion and the Merger, Progress Bank will
have 17 branches in southeastern Pennsylvania); (ii) information
concerning the financial condition, results of operations,
capital levels, asset quality and prospects of the Company and
Roxborough-Manayunk; (iii) the short-term and long-term impact
the Conversion and the Merger will have on the Company's
consolidated results of operations, including potential cost
savings resulting from consolidation in certain areas and
expanded commercial business, residential construction,
commercial real estate (primarily multi-family residential) and
consumer lending as well as expanded retail banking products and
services; (iv) the general structure of the transaction and the
compatibility of the respective managements and business
philosophies; (v) the enhancement of the franchise value of the
Company; (vi) the ability of the combined enterprise to compete
in relevant banking and non-banking markets; (vii) industry and
economic conditions; and (viii) the impact of the Conversion and
the Merger on the depositors, employees, customers and
communities served by the Company and Roxborough-Manayunk through
the contemplated expansion of commercial business, residential
construction, commercial real estate (primarily multi-family
residential) and consumer lending and the proposed expansion of
retail banking products and services.
THE OFFERINGS
Pursuant to the Plan of Conversion and in connection with
the Conversion and the Merger, the Company is offering shares of
Conversion Stock in the Offerings described below pursuant to the
accompanying Prospectus. The Conversion Stock is first being
offered pursuant to nontransferable subscription rights, in the
following order of priority, to (i) depositors of Roxborough-
Manayunk with account balances of $50.00 or more as of the close
of business on February 28, 1994 ("Eligible Account Holders");
(ii) an Employee Stock Ownership Plan ("ESOP") of the Company;
(iii) depositors of Roxborough-Manayunk with account balances of
$50.00 or more as of the close of business on June 30, 1995
("Supplemental Eligible Account Holders"); (iv) depositors of
Roxborough-Manayunk as of the close of business on __________,
1995 (other than Eligible Account Holders and Supplemental
Eligible Account Holders) and borrowers of Roxborough-Manayunk as
of the close of business on December 31, 1992 who continue to be
borrowers as of the close of business on __________, 1995 ("Other
Members"); and (v) stockholders of Roxborough-Manayunk as of
___________, 1995 and of the Company as of ___________, 1995
("Eligible Stockholders") (the "Subscription Offering").
Subscription rights will expire if not exercised by _:00 p.m.,
Eastern Time, on ________, 1995, unless extended.
Subject to the prior rights of holders of subscription
rights, Conversion Stock not subscribed for in the Subscription
Offering is being offered in a community offering (the
6
E-28
<PAGE>
"Community Offering") to certain members of the general public to
whom a copy of the Prospectus is delivered, with preference given
to natural persons residing in Philadelphia, Bucks, Delaware,
Chester and Montgomery Counties, Pennsylvania. To the extent
necessary, shares not subscribed for in the Subscription and
Community Offerings will be offered to certain members of the
general public in a syndicated community offering (the
"Syndicated Community Offering") (the Subscription Offering, the
Community Offering and any Syndicated Community Offering are
referred to collectively as the "Offerings"). The Company and
Roxborough-Manayunk reserve the absolute right to reject or
accept any orders in the Community Offering and the Syndicated
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 Parties have retained Sandler O'Neill Corporate
Strategies, a division of Sandler O'Neill & Partners, L.P.
("Sandler O'Neill") as consultant and advisor in connection with
the Offerings and to assist in soliciting subscriptions in the
Offerings. The Parties have also retained Sandler O'Neill as a
conversion agent to provide recordkeeping services and to solicit
proxies in connection with the Conversion and the Merger. See
"The Offerings - Subscription Offering," "- Community Offering,"
"- Syndicated Community Offering" and "- Marketing Arrangements"
in the Prospectus. Sandler O'Neill was also engaged by the
Company prior to the execution of the Merger Agreement to act as
a financial advisor to the Company and its subsidiaries in
connection with the Conversion and the Merger, and Sandler
O'Neill has engaged in other transactions with the Company and
Roxborough-Manayunk in the past. An affiliate of Sandler
O'Neill, SOP Partners, L.P., is currently deemed to beneficially
own 6.10% of the outstanding Company Common Stock. See
"Management of the Company - Beneficial Ownership of Company
Common Stock" in the Prospectus.
Stock Pricing, Exchange Ratio and Number of Shares to be Issued
in the Conversion and the Merger
Federal regulations require the aggregate purchase price of
the Conversion Stock to be consistent with an independent
appraisal of the incremental pro forma market value of
Roxborough-Manayunk and the Mutual Holding Company, which was
determined by RP Financial, Inc. ("RP Financial") to be $32.0
million as of June 16, 1995 (the "Appraisal"). Because the
holders of the RM Public Bank Shares will receive in the
aggregate approximately the same percentage of the Company Common
Stock to be issued in the Conversion and the Merger as the
percentage of RM Bank Common Stock owned by them in the aggregate
immediately prior to consummation of the Conversion and the
Merger (before giving effect to additional purchases in the
Offerings, fractional shares and any exercise of dissenters'
rights), the Appraisal was multiplied by the Mutual Holding
Company's percentage interest in Roxborough-Manayunk (i.e.,
87.29%) to determine a midpoint ($28,000,000 rounded), and the
minimum and maximum range were set at 15% below and above the
midpoint, respectively, resulting in a range of $23,800,000 to
$32,200,000 for the Conversion Stock (the "Estimated Price
Range"). This appraisal of the Conversion Stock is not intended
and should not be construed as a recommendation of any kind as to
the advisability of purchasing such stock.
7
E-29
<PAGE>
The Estimated Price Range may be increased or decreased to
reflect changes in market and financial conditions prior to
completion of the Conversion and the Merger or to fill the order
of the ESOP. RP Financial will update its appraisal upon the
expiration of the Subscription and Community Offerings and will
state its opinion as to the aggregate estimated incremental pro
forma market value of the Mutual Holding Company and Roxborough-
Manayunk at such time (the "Appraisal Value"). The Plan of
Conversion provides that the per share price of the Conversion
Stock (the "Actual Purchase Price") will be the average closing
price of the Company Common Stock as reported on the Nasdaq
National Market during the 20 trading days ending on the day
prior to the close of the Offerings. The actual number of shares
of Conversion Stock to be issued will be determined by dividing
the Appraised Value, as determined by RP Financial, by the Actual
Purchase Price, with the resulting number of shares being rounded
down to the nearest whole number. All shares of Conversion Stock
sold in the Conversion and the Merger will be sold at a uniform
price per share. The aggregate Actual Purchase Price for all
shares of Conversion Stock will not be inconsistent with the
estimated incremental pro forma market value of Roxborough-
Manayunk and the Mutual Holding Company.
The Merger Agreement provides that the Company and Progress
have the right to terminate the Merger Agreement if the aggregate
number of shares of Conversion Stock, Exchange Shares and shares
of Company Common Stock to be subject to options to purchase
Company Common Stock upon the conversion of existing options to
purchase RM Bank Common Stock (collectively, "New Shares") would
exceed 64% of the total number of shares of Company Common Stock
to be outstanding on a fully diluted basis upon consummation of
the Conversion and the Merger. The Mutual Holding Company and
Roxborough-Manayunk have the right to terminate the Merger
Agreement if the aggregate number of New Shares would be less
than 56% of the total number of shares of Company Common Stock to
be outstanding on a fully diluted basis upon consummation of the
Conversion and the Merger. The following table sets forth, based
upon the number of shares of Company Common Stock currently
outstanding on a fully diluted basis, the minimum and maximum
number of shares of Conversion Stock and Exchange Shares that can
be issued in the Conversion and the Merger without giving rise to
a right of termination by the Parties:
8
E-30
<PAGE>
<TABLE><CAPTION>
Minimum Maximum
----------- -----------
<S> <C> <C>
Conversion Stock(1) 4,138,143 5,780,263
Exchange Shares(1) 602,541 841,644
--------- ---------
Total to be issued in the Conversion
and the Merger 4,740,684 6,621,907
Exchange Ratio(2) 2.92496 4.08565
Conversion of existing options to
purchase RM Bank Common Stock(3) 116,998 163,426
--------- ---------
Total New Shares 4,857,682 6,785,333
Company Common Stock currently
outstanding on a fully diluted basis (4) 3,816,750 3,816,750
--------- ---------
Company Common Stock to be outstanding
on a fully diluted basis 8,674,432 10,602,083
========= ==========
Total New Shares as a percentage of Company
Common Stock to be outstanding on a fully diluted
basis 56.0% 64.0%
======== =======
</TABLE>
(Footnotes on following page)
_____________________________
(1) In accordance with the policies of the Office of Thrift
Supervision ("OTS"), the shares of Conversion Stock and
Exchange Shares to be issued in the Conversion and the
Merger will represent 87.29% and 12.71%, respectively, of
the total shares of Company Common Stock issued in the
Conversion and the Merger (assuming no fractional shares, no
exercise of dissenters' rights and no exercise of
outstanding stock options to purchase RM Bank Common Stock).
(2) The Exchange Ratio was determined by dividing the number of
Exchange Shares by the 206,000 outstanding RM Public Bank
Shares. In the event outstanding stock options to purchase
RM Bank Common Stock are exercised between the date of the
Prospectus and consummation of the Conversion and the
Merger, the Exchange Ratio will be adjusted so that the RM
Public Stockholders receive in the aggregate the same
percentage of the shares of Company Common Stock issued in
the Conversion and the Merger as the percentage of RM Bank
Common Stock owned by them in the aggregate immediately
prior to consummation of the Conversion and the Merger,
before giving effect to (i) the payment of cash in lieu of
issuing fractional Exchange Shares, (ii) any shares of
Conversion Stock purchased by the RM Public Stockholders in
the Offering, and (iii) any exercise of dissenters' rights
by the RM Public Stockholders. See "Pro Forma Unaudited
Financial Information" and "The Offerings - Stock Pricing,
Exchange Ratio and Number of Shares to be Issued" in the
Prospectus.
9
E-31
<PAGE>
(3) If any outstanding stock options to purchase RM Bank Common
Stock remain outstanding immediately prior to consummation
of the Conversion and the Merger, they will be converted
into options to purchase shares of Company Common Stock,
with the number of shares subject to the option and the
exercise price per share to be adjusted based upon the
Exchange Ratio so that the aggregate exercise price remains
unchanged, and with the duration of the option remaining
unchanged. As of the date of the Prospectus, there were
options to purchase 40,000 shares of RM Bank Common Stock
outstanding, and the Merger Agreement prohibits the grant of
any additional stock options prior to the consummation of
the Conversion.
(4) Consists of 3,280,000 currently outstanding shares of
Company Common Stock, warrants to purchase 300,000 shares of
Company Common Stock and stock options to purchase 236,750
shares of Company Common Stock.
As shown in the above table, the number of shares of Company
Common Stock to be issued in the Conversion and the Merger exceed
the number of shares of Common Stock currently outstanding on a
fully diluted basis. It is possible that less than 4,138,143
shares of Conversion Stock or more than 5,780,263 shares of
Conversion Stock may be issued in the Conversion and the Merger
if the Parties having a right to terminate the Merger Agreement
in such event elect to waive their right to do so. None of the
Parties have determined under what circumstances, if any, they
would waive their rights, and there can be no assurance that the
respective Parties would waive their rights. However, in the
event that the number of shares of Conversion Stock required to
be issued in the Conversion and the Merger are outside the above
range, it is anticipated that the Parties having a right to
terminate would consider all relevant factors in determining
whether or not to waive such right, including but not limited to
how far above or below the above range they are and then existing
financial and market conditions.
The following table set forth the number of shares of
Conversion Stock that would be issued at the minimum, midpoint,
maximum and 15% above the maximum of the Estimated Price Range at
illustrative prices per share for the Company Common Stock. The
Actual Purchase Price may be more or less than the per share
prices shown in the table.
10
E-32
<PAGE>
<TABLE><CAPTION>
Actual
Purchase $23,800,000 $28,000,000 $32,200,000 $37,030,000
Price Minimum Midpoint Maximum 15% above Maximum
---------- -------------- ------------- ------------- -------------------
<S> <C> <C> <C> <C>
$5.00 4,760,000 5,600,000 6,440,000(2) 7,406,000(2)
$5.25 4,533,333 5,333,333 6,133,333(2) 7,053,333(2)
$5.50 4,327,273 5,090,909 5,854,545(2) 6,732,727(2)
$5.75 4,139,130 4,869,565 5,600,000 6,440,000(2)
$6.00 3,966,666(1) 4,666,666 5,366,666 6,171,666(2)
$6.25 3,808,000(1) 4,480,000 5,152,000 5,924,800(2)
$6.50 3,661,538(1) 4,307,692 4,953,846 5,696,923
$6.75 3,525,926(1) 4,148,148 4,770,370 5,485,926
</TABLE>
_________________________
(1) The Mutual Holding Company and Roxborough-Manayunk have a
right to terminate the Merger Agreement if less than
4,138,143 shares of Conversion Stock are issued, based upon
the number of shares of Company Common Stock currently
outstanding on a fully diluted basis.
(2) The Company and Progress have a right to terminate the
Merger Agreement if more than 5,780,263 shares of Conversion
Stock are issued, based upon the number of shares of Company
Common Stock currently outstanding on a fully diluted basis.
Subject to approval of the OTS, the Estimated Price Range
may be increased or decreased to reflect market and economic
conditions prior to the completion of the Offerings, and under
such circumstances the Parties may increase or decrease the
number of shares of Conversion Stock. No resolicitation of
subscribers will be made and subscribers will not be permitted to
modify or cancel their subscriptions unless (i) the gross
proceeds from the sale of the Conversion Stock are less than the
minimum or more than 15% above the maximum of the current
Estimated Price Range or (ii) the Offerings are extended beyond
_______ __, 1995.
AMENDMENTS TO CERTIFICATE OF INCORPORATION
Upon consummation of the Conversion and the Merger, Section
5 of the Company's Certificate of Incorporation will be amended
to (1) increase the number of authorized shares of Company Common
Stock from 6,000,000 to 15,000,000 and the number of authorized
shares of Preferred Stock from 1,000,000 to 3,000,000, and
(2) add a provision which would restrict the acquisition of the
beneficial ownership of more than 10% of the outstanding Company
Common Stock for five years from the date of consummation of the
Conversion and the Merger. See Appendix A attached hereto for
the proposed amendments to Section 5 of the Company's Certificate
of Incorporation. In the event the stockholders
11
E-33
<PAGE>
of the Company approve the Merger Agreement, including the
amendments to the Company's Certificate of Incorporation, but the
Conversion and the Merger are not consummated, the Board of
Directors of the Company intends to abandon the proposed
amendments to the Certificate of Incorporation without further
action by the stockholders of the Company.
Increase in Number of Authorized Shares
As of the date of this Proxy Statement, the Company has
3,280,000 shares of Company Common Stock issued and outstanding,
291,193 shares of Company Common Stock reserved for future
issuance pursuant to stock option plans, and 300,000 shares of
Company Common Stock reserved for issuance pursuant to
outstanding warrants, for a total of 3,871,193 shares either
issued and outstanding or reserved for issuance. In order to
have a sufficient number of authorized shares of Company Common
Stock available to issue Conversion Stock and Exchange Shares in
the Conversion and the Merger, the Board of Directors has
approved an amendment to the Company's Certificate of
Incorporation to increase the number of authorized shares of
Company Common Stock from 6,000,000 to 15,000,000.
The Total New Shares of Company Common Stock to be either
issued or reserved for issuance in connection with the Conversion
and the Merger is expected to range from 4,857,682 to 6,785,333.
See "The Offerings - Stock Pricing, Exchange Ratio and Number of
Shares to be Issued in the Conversion and the Merger." In
addition, pursuant to the Merger Agreement, the Company intends
to adopt a 1995 Stock Option Plan and a 1995 Recognition Plan and
to submit such plans to stockholders for approval at the 1996
annual meeting. If both plans are approved by stockholders, the
Company expects to reserve for issuance pursuant to such plans an
aggregate of 579,340 to 809,236 shares of Company Common Stock.
See "Management of the Company and Progress Bank Following the
Conversion and the Merger - Benefits" in the Prospectus. Based
on the above, the Company currently expects to have shares of
Common Stock issued and reserved for issuance aggregating between
9,308,215 and 11,465,762.
Pursuant to a Rights Agreement adopted in 1990, each share
of Company Common Stock currently includes one preferred stock
purchase right ("Right") entitling the holder to purchase from
the Company, upon the occurrence of certain events, one-hundredth
of a share of Series A Junior Participating Preferred Stock. See
"Description of Capital Stock of the Company - Preferred Stock
Purchase Rights" in the Prospectus. Based on the number of
shares of Company Common Stock currently issued or reserved for
issuance, the Company currently has 38,711 shares of Preferred
Stock reserved for issuance. Upon consummation of the Conversion
and the Merger and assuming the adoption of its new stock benefit
plans at the 1996 annual meeting, the Company expects to have
between 93,082 and 114,657 shares of Preferred Stock reserved for
issuance pursuant to Rights.
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The shares of Company Common Stock and Preferred Stock that
will be authorized but not issued or reserved for issuance upon
consummation of the Conversion and the Merger will be available
for additional stock issuances in the future. The Board of
Directors of the Company believes that it is important to have
excess shares available in order to provide the Board of
Directors with flexibility as to any future stock dividends,
stock benefit plans or other stock issuances. Because the Board
of Directors will be able to determine the timing and amount of
such stock issuances and, with respect to the Preferred Stock,
the terms of such shares, and because the Preferred Stock could
be issued with either full or limited voting rights, the number
of authorized shares that will be neither issued nor reserved for
issuance could be deemed to have an anti-takeover effect. For a
description of the capital stock of the Company and a discussion
of the effects of authorized but unissued shares of capital
stock, see "Description of Capital Stock of the Company" and
"Restrictions on Acquisition of the Company and Progress Bank" in
the Prospectus.
Restriction on Acquiring More Than 10% of the Outstanding Stock
The Board of Directors has approved an amendment to the
Company's Certificate of Incorporation to provide that for a
period of five years from the date of consummation of the
Conversion and the Merger, no person shall directly or indirectly
offer to acquire or acquire the beneficial ownership of (i) more
than 10% of the issued and outstanding shares of any class of an
equity security of the Company, or (ii) any securities
convertible into, or exercisable for, any equity securities of
the Company if, assuming conversion or exercise by such person of
all securities of which such person is the beneficial owner which
are convertible into, or exercisable for, such equity securities
(but of no securities convertible into, or exercisable for, such
equity securities of which such person is not the beneficial
owner), such person would be the beneficial owner of more than
10% of any class of an equity security of the Company. The term
"person" is broadly defined to prevent circumvention of this
restriction.
The foregoing restrictions do not apply to (i) any offer
with a view toward public resale made exclusively to the Company
by underwriters or a selling group acting on its behalf, (ii) any
tax-qualified employee benefit plan or arrangement established by
the Company or Progress Bank and any trustee of such a plan or
arrangement, and (iii) any other offer or acquisition approved in
advance by the affirmative vote of two-thirds of the Company's
entire Board of Directors. In the event that shares are acquired
in violation of such provision, all shares beneficially owned by
any person in excess of 10% shall be considered "Excess Shares"
and 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 submitted to stockholders for a vote, and the
Board of Directors may cause such Excess Shares to be transferred
to an independent trustee for sale on the open market or
otherwise, with the expenses of such trustee to be paid out of
the proceeds of sale.
The above provisions were adopted by the Board of Directors
of the Company in accordance with an OTS regulation which permits
such restriction for a specified period of
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<PAGE>
not more that five years following the date of completion of a
conversion from mutual to stock form. The Board of Directors
believes that it is in the best interests of all stockholders to
encourage potential acquirors of more than 10% of the outstanding
Company Common Stock to discuss and, where appropriate, negotiate
the terms of such acquisition with the Board of Directors. In
this regard, the term "offer" in proposed Section 5(b) of the
Certificate of Incorporation does not include (i) inquiries
directed solely to the management of the Company and not intended
to be communicated to stockholders which are designed to elicit
an indication of management's receptivity to the basic structure
of a potential acquisition with respect to the amount of cash and
or securities, manner of acquisition and formula for determining
price, or (ii) non-binding expressions of understanding or
letters of intent with the management of the Company regarding
the basic structure of a potential acquisition with respect to
the amount of cash and or securities, manner of acquisition and
formula for determining price. However, the restriction on
acquiring more than 10% of any class of an equity security may be
deemed to have an anti-takeover effect. See "Restrictions on
Acquisition of the Company and Progress Bank" in the Prospectus.
STOCKHOLDER PROPOSALS
Any proposal which a stockholder wishes to have included in
the proxy materials for the next annual meeting of stockholders
of the Company, which is expected to be held in April 1996, must
be received at the main office of the Company, 600 West
Germantown Pike, Plymouth Meeting, Pennsylvania 19462, no later
than November 27, 1995. It is urged that any such proposals be
sent by certified mail, return receipt requested.
OTHER MATTERS
Each proxy solicited hereby also confers discretionary
authority on the Board of Directors of the Company to vote the
proxy with respect to the approval of the minutes of the last
meeting of stockholders, matters incident to the conduct of the
meeting, and upon such other matters as may properly come before
the Special Meeting. Management is not aware of any business
that may properly come before the Special Meeting other than
those matters described above in this Proxy Statement. However,
if any other matters should properly come before the Special
Meeting, it is intended that the proxies solicited hereby will be
voted with respect to those other matters in accordance with the
judgment of the persons voting the proxies.
The cost of solicitation of the proxies will be borne by the
Company. In addition to solicitations by mail, the directors and
officers of the Company may solicit proxies personally or by
telephone without additional compensation. The Company will
reimburse brokerage firms and other custodians, nominees and
fiduciaries for reasonable expenses incurred by them in sending
the Company's proxy materials to the beneficial owners of the
Company Common Stock. The Parties have engaged Sandler O'Neill
to provide recordkeeping and proxy solicitation services in
connection with the Conversion and the Merger for a fee of
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<PAGE>
$17,500 plus out-of-pocket expenses. Sandler O'Neill has also
been engaged by the Company and Roxborough-Manayunk as a
financial advisor in connection with the offering of Conversion
Stock, and Sandler O'Neill was also engaged by the Company prior
to the execution of the Merger Agreement to act as a financial
advisor to the Company and its subsidiaries in connection with
the Conversion and the Merger. See "The Offerings - Marketing
Arrangements" in the Prospectus. An affiliate of Sandler
O'Neill, SOP Partners, L.P., is currently deemed to beneficially
own 6.10% of the outstanding Company Common Stock. See
"Management of the Company - Beneficial Ownership of Company
Common Stock" in the Prospectus.
YOUR VOTE IS IMPORTANT! THE BOARD OF DIRECTORS RECOMMENDS
THAT YOU VOTE FOR THE MERGER AGREEMENT. WE URGE YOU TO MARK,
---
SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT TODAY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE.
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<PAGE>
APPENDIX A
PROPOSED AMENDMENTS TO THE CERTIFICATE OF
INCORPORATION OF PROGRESS FINANCIAL CORPORATION
Upon consummation of the Conversion and the Merger, Section
5 of the Company's Certificate of Incorporation will be revised
to read in its entirety as follows:
Section 5. Capital Stock. (a) The total number of
--------------
shares of all classes of stock which the Corporation shall have
the authority to issue is 18,000,000, consisting of: (i)
15,000,000 shares of Common Stock, $1.00 par value per share; and
(ii) 3,000,000 shares of Preferred Stock, $.01 par value per
share.
The shares of Preferred Stock may be issued from time to
time in one or more series. The Board of Directors of this
Corporation shall have authority to fix by resolution or
resolutions the designations and the powers, preferences and
relative, participating, optional or other special rights and
qualifications, limitations or restrictions thereof, including
without limitation the voting rights, the dividend rate,
conversion rights, redemption price and liquidation preference of
any series of shares of Preferred Stock to be the number of
shares constituting any such series, and to increase or decrease
the number of shares of any such series (but not below the number
of shares thereof then outstanding). In case the number of
shares of any such series shall be so decreased, the shares
constituting such decrease shall resume the status which they had
prior to the adoption of the resolution or resolution originally
fixing the number of shares of such series.
(b) Except as set forth below, for a period of five years
from the completion of the conversion of FJF Financial, M.H.C.
from mutual to stock form and the merger of Progress Federal
Savings Bank into Roxborough-Manayunk Federal Savings Bank (the
"Conversion and the Merger"), no Person shall directly or
indirectly Offer to acquire or acquire the Beneficial Ownership
of (i) more than 10% of the issued and outstanding shares of
Common Stock, or of any other class of an equity security of the
Corporation having regular voting rights, or (ii) any security
convertible into, or exercisable for, any such securities of the
Corporation if, assuming conversion or exercise by such Person of
all securities of which such Person is the Beneficial Owner which
are convertible into, or exercisable for, such equity securities
(but of no securities convertible into, or exercisable for, such
equity securities of which such Person is not the Beneficial
Owner), such Person would be the Beneficial Owner of more than
10% of any class of an equity security of the Corporation. In
the event that shares are acquired in violation of this Section
5(b), all shares Beneficially Owned by any Person in excess of
10% shall be considered "Excess Shares" and 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
submitted to stockholders for a vote, and the
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<PAGE>
Board of Directors may cause such Excess Shares to be transferred
to an independent trustee for sale on the open market or
otherwise, with the expenses of such trustee to be paid out of
the proceeds of the sale.
For the purposes of this Section 5(b):
(i) The terms "Person" and "Beneficial Ownership" have the
meanings assigned to them in Section 8 hereof.
(ii) The term "Offer" shall mean every offer to buy or
acquire, solicitation of an offer to sell, tender offer or
request or invitation for tender of, a security or interest in a
security for value; provided that the term "Offer" shall not
include (i) inquiries directed solely to the management of the
Corporation and not intended to be communicated to stockholders
which are designed to elicit an indication of management's
receptivity to the basic structure of a potential acquisition
with respect to the amount of cash and or securities, manner of
acquisition and formula for determining price, or
(ii) non-binding expressions of understanding or letters of
intent with the management of the Corporation regarding the basic
structure of a potential acquisition with respect to the amount
of cash and or securities, manner of acquisition and formula for
determining price.
(iii) The term "Acquire" includes every type of
acquisition, whether effected by purchase, exchange, operation of
law or otherwise.
The provisions of this Section 5(b) shall not apply to (i)
any Offer with a view toward public resale made exclusively to
the Corporation by underwriters or a selling group acting on its
behalf, (ii) any tax-qualified employee benefit plan or
arrangement established by the Corporation or Progress Bank and
any trustee of such a plan or arrangement, and (iii) any other
Offer or acquisition approved in advance by the affirmative vote
of two-thirds of the Corporation's Board of Directors. A
majority of the Continuing Directors (as defined in Section 8
hereof) shall have the power to make all determinations with
respect to this Section 5(b).
This Section 5(b) shall expire and, along with all
references thereto, no longer be a part hereof on the fifth
anniversary of the completion of the Conversion and the Merger.
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<PAGE>
PROGRESS FINANCIAL CORPORATION REVOCABLE PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF PROGRESS FINANCIAL CORPORATION (THE "COMPANY") FOR USE AT THE
SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON _________ __, 1995
AND AT ANY ADJOURNMENT THEREOF.
The undersigned, being a stockholder of the Company as of
________ __, 1995, hereby authorizes the Board of Directors of
the Company or any successors thereto as proxies, with full
powers of substitution, to represent the undersigned at the
Special Meeting of Stockholders of the Company to be held at the
_____________________________________ on _______ __, 1995 at
__:00 _.m., Eastern Time, and at any adjournment of said meeting,
and thereat to act with respect to all votes that the undersigned
would be entitled to cast, if then personally present, as
follows:
1. To approve and adopt the Agreement and Plan of
Reorganization adopted by the Company, Progress Federal
Savings Bank ("Progress"), FJF Financial, M.H.C. (the
"Mutual Holding Company") and Roxborough-Manayunk Federal
Savings Bank ("Roxborough-Manayunk"), including the exhibits
thereto (the "Merger Agreement"), pursuant to which: (i) the
Mutual Holding Company will convert from the mutual to the
stock form pursuant to a Plan of Conversion and
simultaneously merge with and into Roxborough-Manayunk; (ii)
Progress will then merge with and into Roxborough-Manayunk,
with the resulting entity to operate under the name of
"Progress Bank" as a wholly owned subsidiary of the Company;
(iii) the shares of Roxborough-Manayunk common stock (other
than those held by the Mutual Holding Company, which will be
cancelled) will be converted into shares of common stock of
the Company ("Company Common Stock") pursuant to an exchange
ratio; and (iv) the Company's Certificate of Incorporation
will be amended to increase the number of authorized shares
of Company Common Stock to 15,000,000 and the authorized
shares of Preferred Stock to 3,000,000 and to add certain
restrictions on the acquisition of more than 10% of the
outstanding Company Common Stock for five years. In
addition, the Company is offering shares of Company Common
Stock by means of a Prospectus which accompanies the Proxy
Statement.
FOR / / AGAINST / / ABSTAIN / /
2. In their discretion, the proxies are authorized to vote upon
such other business as may properly come before the meeting.
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<PAGE>
Shares of the Company's Common Stock will be voted as
specified. If not otherwise specified, this proxy will be voted
FOR the proposal to approve the Merger Agreement and otherwise at
the discretion of the proxies. You may revoke this proxy at any
time prior to the time it is voted at the Special Meeting.
Dated: , 1995
---------------------
---------------------------------------
---------------------------------------
Signature(s)
Please sign this exactly as
your name(s) appear(s) on this
proxy. When signing in a
representative capacity,
please give title. When
shares are held jointly, only
one holder need sign.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING
THE ENCLOSED ENVELOPE.
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