As filed with the Securities and Exchange Commission on August 9, 1995
Registration No. 33-60817
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
AMENDMENT NO. 1
TO
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 ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]_________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]_________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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Title of Each Class of Proposed Maximum
Securities Aggregate Amount of
to be Registered Offering Price(1) Registration Fee(2)
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Common Stock, par
value $1.00 per share $42,421,812.00 $14,628.21
Preferred Stock
Purchase Right(3) $0 $0
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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
Stock based upon a 15% increase in the maximum of the Estimated Price
Range, as such terms are defined in the Prospectus.
(2) Previously paid.
(3) Each share of Common Stock has one Preferred Stock Purchase Right
attached thereto without charge.
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.
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<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
-------------------------------------------- -----------------------
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 Stock
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 Conversion Stock is being offered pursuant to a Plan of Conversion and
related Plan of Merger (together, the "Plan" or the "Plan of Conversion")
adopted by Roxborough-Manayunk Federal Savings Bank ("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 Federal Savings Bank ("Progress"), a subsidiary of the
Company (collectively, the "Parties"). The amount of the Conversion Stock
being offered is based upon the Mutual Holding Company's 87.29% percentage
interest in Roxborough-Manayunk. The Mutual Holding Company will convert to a
federal interim stock savings bank and merge with Roxborough-Manayunk, which
will then merge with Progess and become a subsidiary of the Company, all as
more fully described herein (collectively, with the Exchange described below,
the "Conversion and the Merger").
Upon consummation of the Conversion and the Merger, the Company will also
issue up to $4.7 million of Company Common Stock (which may be increased up to
$5.4 million) in exchange for the common stock, par value $1.00 per share, of
Roxborough-Manayunk ("Roxborough-Manayunk Common Stock") held by the
stockholders of Roxborough-Manayunk other than the Mutual Holding Company
(the "Roxborough-Manayunk Public Stockholders").
The Offerings. Nontransferable subscription rights to subscribe for up to
$32,200,000 (which may be increased up to $37,030,000) of 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.
<PAGE>
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 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 12:00 noon, Eastern Time,
on September __, 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 November __, 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 Roxborough-Manayunk Common Stock held
by the Roxborough-Manayunk Public Stockholders (the "Roxyborough-Manayunk
Public Shares"), which amounted to 206,000 shares or 12.71% of the outstanding
Roxborough-Manayunk Common Stock at March 31, 1995, will be converted into
shares of Exchange Stock pursuant to a ratio (the "Exchange Ratio") that will
result in the Roxborough-Manayunk 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 Roxborough-
Manayunk Common Stock owned by them in the aggregate immediately prior to
consummation of the Conversion and the Merger (although the Roxborough-
Manayunk Public Stockholders will receive a smaller percentage ownership
in the Company than they had in Roxborough-Manayunk), before giving effect to
(a) the payment of cash in lieu of issuing fractional shares of Exchange Stock,
(b) any shares of Conversion Stock purchased by such stockholders in the
Offerings described herein, and (c) any exercise of dissenters' rights (the
"Exchange"). The 1,415,000 shares or 87.29% of the outstanding Roxborough-
Manayunk Common Stock held by the Mutual Holding Company will be cancelled
upon consummation of the Conversion and the Merger.
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<PAGE>
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 Holding Company's percentage interest in Roxborough-
Manayunk (i.e., 87.29%) to determine a midpoint ($28,000,000 rounded) for the
offering of Conversion Stock, 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 (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 multiplying the Appraised Value, as determined by RP Financial, by the
Mutual Holding Company's percentage interest in Roxborough-Manayunk and then
dividing the resulting amount 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 November __, 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 "Risk Factors - Purchases of Conversion Stock in the Offerings,"
"The Offerings - Subscription Offering," "- Community Offering" and "-
Limitations on Conversion Stock Purchases."
-3-
<PAGE>
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 August __, 1995 was $______ per share. See
"Market Price for Company Common Stock and Dividends."
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY EACH
PROSPECTIVE INVESTOR, SEE "RISK FACTORS" BEGINNING ON PAGE __.
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.
-4-
<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
legal, accounting, printing and other miscellaneous 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 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 were less than 35
Roxborough-Manayunk Public Stockholders.
-7-
<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 Roxborough-Manayunk Common Stock, and there were
206,000 Roxborough-Manayunk Public Shares outstanding representing 12.71% of
the total issued and outstanding Roxborough-Manayunk Common Stock. The
principal executive offices of Roxborough-Manayunk and the Mutual Holding
-8-
<PAGE>
Company are located at 6060 Ridge Avenue, Philadelphia, Pennsylvania 19128,
and their telephone number is (215) 483-2800.
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 $62.4 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. See "The
Conversion and the Merger - Reasons for the Conversion and the Merger."
In addition to the above, the Parties also considered that Progress is
categorized as an "adequately capitalized" institution under OTS regulations
which needs additional capital in order to support future growth and remain
competitive, while Roxborough-Manayunk is already categorized as a "well
capitalized" institution that would have difficulty generating adequate rates of
return
-9-
<PAGE>
on the additional capital that it would receive in a conversion of the
Mutual Holding Company from mutual to stock form that did not involve a
combination with another institution. By combining Progress and Roxborough-
Manayunk, the resulting institution Progress Bank will be a well capitalized
institution that will have sufficient capital to support future growth without
having the amount of excess capital that the Mutual Holding Company and
Roxborough-Manayunk would have if they converted on their own.
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, which documents were subsequently amended
on August 7, 1995. Pursuant to the Plan of Conversion and the Merger Agreement,
(i) the Mutual Holding Company will convert from the mutual form to a federal
interim stock savings bank to be known as "FJF Financial Interim Federal Savings
Bank" ("Interim") 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 Roxborough-Manayunk 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" ("Progress
Bank") and become a wholly owned subsidiary of the Company. The
outstanding Roxborough-Manayunk Public Shares, which amounted to 206,000 shares
or 12.71% of the outstanding Roxborough-Manayunk Common Stock at March 31, 1995,
will be converted into the Exchange Stock 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 Roxborough-Manayunk Common Stock owned by them in
the aggregate immediately prior to consummation of the Conversion and the
Merger (although the Roxborough-Manayunk Public Stockholders will receive
a smaller percentage ownership interest in the Company than they had in
Roxborough-Manayunk, before giving effect to (a) the payment of cash in lieu of
issuing fractional shares of Exchange Stock, (b) any shares of Conversion Stock
purchased by the Roxborough-Manayunk Public Stockholders in the Offerings, and
(c) any exercise of dissenters' rights.
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. The amount of the Conversion Stock being offered is based upon
the Mutual Holding Company's 87.29% percentage interest in Roxborough-
Manayunk. See "- The Offerings" below and "The Offerings." The conversion of
the Mutual Holding Company from the mutual form to a federal interim stock
savings bank, the merger of Interim 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.
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<PAGE>
The following diagrams outline 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 Roxborough-Manayunk
| Public Shares
| 87.29% | 12.71%
| |
|-------- Roxborough-Manayunk Federal--|
Savings Bank
The Company and Progress
------------------------
Current Stockholders
of the Company
|
| 100%
|
Progress Financial
Corporation
| 100%
|
Progress Federal
Savings Bank
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The following diagram reflects the Conversion and the Merger, including
(i) the Conversion of the Mutual Holding Company from the mutual form to a
federal interim stock savings bank, (ii) the merger of Interim with and into
Roxborough-Manayunk, (iii) the merger of Progress with and into Roxborough-
Manayunk, and (iv) the offering of Conversion Stock.
Current Purchasers of Holders of Roxborough-Manayunk
Stockholders Conversion Stock Public Shares
of the Company
| | |
| | |
--------Progress Financial Corporation--------
|
|
Progress Bank
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 August 7, 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 Roxborough-Manayunk 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 Roxborough-Manayunk
Public Stockholders at the Roxborough-Manayunk Stockholders' Meeting. The
Mutual Holding Company intends to vote its shares of Roxborough-Manayunk
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 August 14, 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").
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<PAGE>
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
$62.4 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 $62.7 million or 9.72% of adjusted total assets,
$63.0 million or 9.77% of adjusted total assets and $65.0 million or 23.57%
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.
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
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<PAGE>
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 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."
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<PAGE>
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 August 7, 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 August 7, 1995
("Other Members"); and (v) stockholders of Roxborough-Manayunk as of
August 7, 1995 and of the Company as of August 14, 1995 ("Eligible
Stockholders"). Subscription rights will expire if not exercised by 12:00
noon, Eastern Time, on September __, 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 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.
-15-
<PAGE>
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, 1993 SOP Partners, L.P., is
currently deemed to beneficially own 6.10% of the outstanding Company
Common Stock and 16.67% of the Company's outstanding subordinated debt and
outstanding warrants. See "Risk Factors - Relationships Between the Company,
Roxborough-Manayunk and Sandler O'Neill" and "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 Roxborough-Manayunk Public 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 Roxborough-Manayunk 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.
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
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<PAGE>
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 multiplying the Appraised Value, as determined by RP Financial, by the
Mutual Holding Company's percentage interest in Roxborough-Manayunk and then
dividing the resulting amount 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 Stock and shares of Company Common Stock to
be subject to options to purchase Company Common Stock upon the conversion
of existing options to purchase Roxborough-Manayunk 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 Stock that can be issued in the
Conversion and the Merger without giving rise to a right of termination of
the Merger Agreement by any of the Parties:
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<PAGE>
Minimum Maximum
--------- ---------
Conversion Stock(1) 4,128,656 5,767,011
Exchange Stock(1) 601,160 839,715
--------- ---------
Total to be issued in the Conversion
and the Merger 4,729,816 6,606,726
Exchange Ratio(2) 2.91825 4.07629
Conversion of existing options to
purchase Roxborough-Manayunk
Common Stock(3) 116,730 163,051
--------- ---------
Total New Shares 4,846,546 6,769,777
Company Common Stock currently
outstanding 3,808,000 3,808,000
--------- ---------
on a fully diluted basis (4)
Company Common Stock to be outstanding
on a fully diluted basis 8,654,546 10,577,777
========= ==========
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 Stock 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 Roxborough-Manayunk
Common Stock).
(2) The Exchange Ratio was determined by dividing the number of Exchange
Stock by the 206,000 outstanding Roxborough-Manayunk Public Shares. In the
event outstanding stock options to purchase Roxborough-Manayunk 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 Roxborough-Manayunk 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 Roxborough-Manayunk Common
Stock owned by them in the aggregate immediately prior to consummation of
the Conversion and the Merger (although the Roxborough-Manayunk Public
Stockholders will receive a smaller percentage ownership interest in the
Company than they had in Roxborough-Manayunk), before giving effect to
(i) the payment of cash in lieu of issuing fractional shares of Exchange
Stock, (ii) any shares of Conversion Stock purchased by the Roxborough-
Manayunk Public Stockholders in the Offerings, 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 Roxborough-Manayunk 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
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<PAGE>
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 Roxborough-Manayunk
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 228,000 shares of Company Common Stock.
It is possible that less than 4,128,656 shares of Conversion Stock or
more than 5,767,011 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 is 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 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
(Footnotes on following page)
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<PAGE>
-------------------------
(1) The Mutual Holding Company and Roxborough-Manayunk have a right to
terminate the Merger Agreement if less than 4,128,656 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 5,767,011 shares of Conversion Stock are
issued, based upon the number of shares of Company Common Stock
currently outstanding on a fully diluted basis.
Based upon the minimum and maximum Exchange Ratio that will not give
rise to a right of termination of the Merger Agreement by any of the Parties,
the following table sets forth the number of shares of Exchange Stock to be
received by the Roxborough-Manayunk Public Stockholders.
Number of Shares of Exchange Stock
----------------------------------
Minimum Maximum
------- -------
Roxborough-Manayunk Public Shares(1):
Per share 2.91825 4.07629
Total of 206,000 shares 601,160 839,715
------------------
(1) Cash will be paid in lieu of issuing fractional shares of Exchange Stock.
Assumes no exercise of dissenters' rights and no exercise of outstanding
stock options to purchase Roxborough-Manayunk Common Stock.
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 November __, 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
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<PAGE>
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 Stock 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 Stock 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, in each case
when combined with any Exchange Stock received. If a purchase limitation
is increased, persons who submitted an order for the current maximum
amount will be given the opportunity to increase their order. 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 Stock to be
issued to Roxborough-Manayunk Public Stockholders for their Roxborough-Manayunk
Public Shares, certain holders of Roxborough-Manayunk Public Shares may be
limited in their ability to purchase Conversion Stock in the Offerings. See
"Risk Factors - Possible Dilution to Roxborough-Manayunk 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 Stock received by Roxborough-Manayunk Public Stockholders
for Roxborough-Manayunk Public 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
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<PAGE>
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 8.5% of the Conversion Stock issued in the Offerings (476,000
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 approval, which is expected to be sought at the first
meeting of stockholders of the Company following the six-month anniversary of
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 3.5% of the Conversion Stock issued in the
Offerings ($1,127,000 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
-22-
<PAGE>
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 $62.7 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 obtain all or part of the funds to
purchase the stock from an unaffiliated third party if such financing can be
obtained on terms at least as favorable. To date, no unaffiliated third party
lender has been identified, and there can be no assurance that such unaffiliated
financing can be obtained. 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, and if made by the Company, the loan will be for 10 years
at a fixed interest rate currently estimated to be 9% per annum. See
"Management of the Company and Progress Bank Following the Conversion and the
Merger - Benefits - Employee Stock Ownership Plan." 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. For a discussion of facts
and circumstances, see "Use of Proceeds." 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."
-23-
<PAGE>
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, 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 "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
Roxborough-Manayunk 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."
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."
-24-
<PAGE>
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 Roxborough-Manayunk Common Stock are entitled to appraisal
rights under Section 552.14 of the OTS regulations as a result of the merger
of Interim 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; risks relating to the recapitalization of SAIF
and the effect of a reduction in Bank Insurance Fund ("BIF") premiums; expenses
of the Conversion and the Merger; the possible dilutive effect of the issuance
of additional shares; relationships between the Company, Roxborough-Manayunk
and Sandler O'Neill; 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; and the possible adverse
tax consequences of the distribution of subscription rights.
-25-
<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(6) 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(6) 1994(6) 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 -- -- -- -- -- -- (4.05)
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>
-26-
<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.
(6) In the opinion of management, the financial information at March 31, 1995
and for the three months ended March 31, 1995 and 1994 reflects all
adjustments (consisting solely of normal recurring adjustments) necessary
for a fair presentation of the financial information as of such date and
for such periods. The results of operations for the three months ended
March 31, 1995 is not necessarily indicative of the results of operations
for the full year.
-27-
<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(6) 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(6) 1994(6) 1994 1993 1992 1991 1990
------- ------- ------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating 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>
-28-
<PAGE>
<TABLE><CAPTION>
Three Months Ended
March 31, Year Ended December 31,
------------------- ----------------------------------------------------------
1995(6) 1994(6) 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 Roxborough-Manayunk 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.
(6) In the opinion of management, the financial information at March 31, 1995
and for the three months ended March 31, 1995 and 1994 reflects all
adjustments (consisting solely of normal recurring adjustments) necessary
for a fair presentation of the financial information as of such date and
for such periods. The results of operations for the three months ended
March 31, 1995 is not necessarily indicative of the results of operations
for the full year.
-29-
<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 Stock.
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 shares of Exchange
Stock 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 December 31,
At March 31, ----------------------------
1995 1994 1993 1992
------ ------ ------ ------
Financial Condition:
Total assets $645,164 $647,237 $636,240 $566,992
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 62,437 59,225 61,731 48,681
Book value per
share-primary 7.05 6.69 6.97 NM
-30-
<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 $5,667 $4,613 $21,314 $19,178 $17,155
Provision for loan losses 115 65 581 462 335
Net interest income after provision
for loan losses 5,552 4,548 20,733 18,716 16,820
Total non-interest income 525 500 2,049 3,456 6,316
Total non-interest expense 4,617 4,332 19,139 18,394 18,752
Income before income taxes and
cumulative effect 1,460 716 3,643 3,778 4,384
Net income 907 428 2,233 6,131 3,301
Net income per share .11 .05 .26 .81 NM
Selected Ratios:
Performance ratios:
Return on average assets(2) .56% .27% .35% 1.01% .58%
Return on average equity(2) 5.90 2.74 3.69 10.91 6.97
Equity to assets (period end) 9.68 9.78 9.15 9.70 8.59
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 3.15 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 for the Company and
average monthly balances for Roxborough-Manayunk 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.
-31-
<PAGE>
SUMMARY OF RECENT DEVELOPMENTS 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.
June 30, December 31, June 30,
1995(6) 1994 1994(6)
----------- ----------- -----------
Financial Condition Data:
Total assets $356,451 $348,189 $336,302
Loans, net 204,561 205,772 186,817
Loans held for sale(1) 1,305 351 306
Investment securities:
Held to maturity 12,987 12,866 12,796
Available for sale(1) 4,929 4,627 6,718
Mortgage-backed securities:
Held to maturity 87,740 93,673 98,194
Available for sale(1) 15,292 9,103 10,999
Deposits 291,969 283,958 275,766
Borrowings 44,378 47,052 44,018
Stockholders' equity 14,384 13,021 12,682
Book value per share(2) 4.39 3.98 3.87
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1995(6) 1994(6) 1995(6) 1994(6)
------ ------ ------ ------
Operating Data:
Interest income $6,660 $ 5,459 $13,158 $10,537
Interest expense 3,904 2,921 7,558 5,752
----- ------ ------ ------
Net interest income 2,756 2,538 5,600 4,785
Provision for loan losses 150 300 250 350
----- ------ ------ ------
Net interest income after
provision for loan losses 2,606 2,238 5,350 4,435
Other income 621 415 1,023 789
Other expense 2,925 4,104 5,693 6,630
----- ------ ------ ------
Income (loss) before income taxes 302 (1,451) 680 (1,406)
Income tax expense -- -- -- --
------ ------- ------- -------
Net income (loss) $ 302 $(1,451) $ 680 $(1,406)
====== ====== ====== ======
Net income (loss) per share $ .09 $ (.44) $ .20 $ (.43)
====== ====== ====== ======
Cash dividends per share $ -- $ -- $ -- $ --
======= ====== ====== ======
Other Data(3):
Return (loss) on average assets .34% (.43)% .39% (.42)%
Return (loss) on average equity 8.58 (10.44) 9.96 (9.85)
Average equity to average
assets 4.01 4.15 3.94 4.28
Dividend payout ratio -- -- -- --
Net interest margin(4) 3.30 3.24 3.40 3.11
Interest rate spread(4) 2.99 3.06 3.10 2.94
Non-performing loans as a
percent of total loans at end
of period(5) .64 3.39 .64 3.39
Non-performing assets as a
percent of total assets at
end of period(5) 1.42 3.70 1.42 3.70
Allowance for loan losses as a
percent of non-performing
loans at end of period 110.03 27.92 110.03 27.92
Allowance for loan losses as a
percent of total loans at end
of period .70 .95 .70 .95
Net charge-offs as a percent of
average loans .14 .35 .14 .38
Full service banking offices 8 8 8 8
(Footnotes on following page)
-32-
<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.
(6) In the opinion of management, the financial information at June 30, 1995 and
1994 and for the three and six months ended June 30, 1995 and 1994 reflects
all adjustments (consisting solely of normal recurring adjustments)
necessary for a fair presentation of the financial information as of such
dates and for such periods. The results of operations for the three and six
months ended June 30, 1995 is not necessarily indicative of the results of
operations for the full year.
Summary of Financial Condition
At June 30, 1995, the Company's total assets, deposits and stockholders'
equity amounted to $356.5 million, $292.0 million and $14.4 million,
respectively, as compared to $348.2 million, $284.0 million and $13.0 million,
respectively, at December 31, 1994. The $8.3 million or 2.4% increase in total
assets was primarily funded by an $8.0 million or 2.8% increase in total
deposits (which was partially offset by a $2.7 million decline in FHLB advances)
and, to a lesser extent, $680,000 of net income recognized during the period.
The Company's real estate owned declined from $4.5 million at December 31, 1994
to $3.7 million at June 30, 1995. The $3.7 million of real estate owned at June
30, 1995 primarily consisted of a medical office building located in the Bronx,
New York with an aggregate carrying value of $3.1 million as of such date. In
June 1995, the Company entered into an agreement to sell the medical office
building for a purchase price of $3.2 million. For additional information
regarding such sale, see "Business of the Company - Asset Quality -Non-
Performing Assets."
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<PAGE>
The Company's stockholders' equity increased by $1.4 million or 10.5%
during the six months ended June 30, 1995 due to $680,000 of net income
recognized during the period as well as a $678,000 reduction in the net
unrealized loss on securities classified by the Company as available for sale.
At June 30, 1995, Progress' tangible and core capital totalled $16.7 million or
4.70% of adjusted total assets, which exceeded the minimum 1.5% and 3.0%
requirements by $11.4 million and $6.0 million, respectively. Additionally, as
of such date, Progress' risk-based capital totalled $18.2 million or 9.57% of
total risk-weighted assets, which exceeded the minimum 8.0% requirement by $3.0
million.
Results of Operation
The Company reported net income of $302,000 and $680,000 during the three
and six months ended June 30, 1995, respectively, as compared to net losses of
$1.5 million and $1.4 million during the same respective periods in the prior
year. The increase in net income for the three-month period was primarily due
to a $1.2 million decline in total other expense, a $218,000 increase in net
interest income, a $206,000 increase in total other income and a $150,000
reduction in the provision for loan losses. The increase in net income for the
six-month period was primarily due to a $937,000 decline in total other expense,
an $815,000 increase in net interest income, a $234,000 increase in total other
income and a $100,000 reduction in the provision for loan losses.
Net interest income increased by $218,000 or 8.6% and by $815,000 or 17.0%
during the three and six months ended June 30, 1995, respectively. Total
interest income increased by $1.2 million or 22.0% and by $2.6 million or 24.9%
during the three and six months ended June 30, 1995, respectively. The increase
during the three-month period was due to a $20.8 million or 6.6% increase in the
average balance of total interest-earning assets (primarily mortgage loans) and
an increase in the average yield earned thereon of 100 basis points. The
increase in interest income during the six-month period was due to a $21.9
million or 7.0% increase in the average balance of total interest-earning assets
(primarily mortgage loans) and an increase in the average yield earned thereon
of 114 basis points.
Total interest expense increased by $983,000 or 33.7% and by $1.8 million
or 31.4% during the three and six months ended June 30, 1995, respectively. The
increase during the three-month period was due to a $15.0 million or 5.0%
increase in the average balance of interest-bearing liabilities (primarily time
deposits, FHLB advances and NOW and Super NOW accounts) and an increase in the
average rate paid thereon of 107 basis points. The increase in interest expense
during the six-month period was due to a $14.8 million or 5.0% increase in the
average balance of interest-bearing liabilities (primarily time deposits, FHLB
advances and NOW and Super NOW accounts) and an increase in the average rate
paid thereon of 98 basis points.
The Company's provision for loan losses amounted to $150,000 and $250,000
during the three and six months ended June 30, 1995, respectively, as compared
to $300,000 and $350,000 during the same periods in the prior year. At June 30,
1995, the Company's allowance for loan losses amounted to $1.5 million or .70%
of the total loan portfolio (including loans classified as held for sale) and
110.0% of total non-performing loans.
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<PAGE>
Total other income increased by $206,000 or 49.6% and by $234,000 or 29.7%
during the three and six months ended June 30, 1995, respectively. The increase
during the three- month period was primarily due to a $28,000 increase in
mortgage origination and servicing income, a $47,000 increase in service charges
on deposits, a $75,000 increase in gain from mortgage banking activities and a
$70,000 increase in miscellaneous other income. The increase in total other
income during the six-month period was primarily due to a $13,000 increase in
mortgage origination and servicing income, an $86,000 increase in service
charges on deposits, a $200,000 increase in gain from mortgage banking
activities and a $34,000 decline in loss from sales of securities.
Total other expense decreased by $1.2 million or 28.7% and by $937,000 or
14.1% during the three and six months ended June 30, 1995, respectively. The
decreases during the three and six-month periods were due primarily to decreases
of $1.2 million and $1.1 million, respectively, in the provision for real estate
owned.
The Company did not recognize any income tax expense during the three and
six months ended June 30, 1995 and 1994 due to the utilization of net operating
loss carryforwards. At June 30, 1995, the Company had net operating loss
carryforwards for income tax purposes of approximately $7.1 million. See
"Taxation - Federal Taxation" for a discussion of the effect the Conversion and
the Merger will have on the Company's ability to utilize such net operating loss
carryforwards.
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<PAGE>
SUMMARY OF RECENT DEVELOPMENTS 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.
June 30, December 31, June 30,
1995(6) 1994 1994(6)
------------ ------------ ------------
Financial Condition Data:
Total assets $277,837 $273,571 $277,075
Loans receivable, net 96,537 95,524 94,362
Loans held for sale(1) 1,146 1,199 120
Investment securities:
Held to maturity 55,831 49,325 48,334
Available for sale(1) 788 755 752
Mortgage-backed securities:
Held to maturity -- -- --
Available for sale(1) 75,562 98,476 93,272
Deposits 241,344 241,230 244,453
Borrowings 7,961 7,884 7,988
Stockholders' equity 24,310 20,477 20,799
Book value per share(2) 15.00 12.68 12.88
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1995(6) 1994(6) 1995(6) 1994(6)
------ ------ ----- ------
Operating Data:
Interest income $4,807 $4,411 $9,717 $8,622
Interest expense 2,599 2,121 5,089 4,258
----- ----- ----- -----
Net interest income 2,208 2,290 4,628 4,364
Provision for loan losses 15 15 30 30
----- ----- ------ -----
Net interest income after provision
for loan losses 2,193 2,275 4,598 4,334
Other income 126 146 243 250
Other expense 1,678 1,666 3,390 3,313
----- ----- ----- -----
Income before income taxes 641 755 1,451 1,271
Income tax expense 234 263 528 469
----- ----- ----- -----
Net income $ 407 $ 492 $ 923 $ 802
===== ===== ===== =====
Net income per share $ .25 $ .30 $ .57 $ .50
===== ===== ===== =====
Cash dividends per share $ .025 $ .025 $ .025 $ .025
===== ===== ===== =====
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- -------------------
1995(6) 1994(6) 1995(6) 1994(6)
------- ------- ------- -------
Other Data(3):
Return on average assets .59% .71% .67% .58%
Return on average equity 6.81 9.42 7.99 7.48
Average equity to average assets 8.59 7.55 8.44 7.77
Net interest margin(4) 3.21 3.31 3.38 3.15
Interest rate spread(4) 2.81 3.05 3.00 2.87
Non-performing loans as a percent
of total loans at end of
period(5) 1.92 1.96 1.92 1.96
Non-performing assets as a percent
of total assets at end of
period(5) .70 .81 .70 .81
Allowance for loan losses as a
percent of non-performing loans
at end of period 22.09 22.87 22.09 22.87
Allowance for loan losses as a
percent of total loans at end of
period .42 .45 .42 .45
Net charge-offs as a percent of
average loans -- .02 .01 .02
Full service banking offices 8 8 8 8
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----------------------
(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 Roxborough-Manayunk 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.
(6) In the opinion of management, the financial information at June 30, 1995 and
1994 and for the three and six months ended June 30, 1995 and 1994 reflects
all adjustments (consisting solely of normal recurring adjustments)
necessary for a fair presentation of the financial information as of such
dates and for such periods. The results of operations for the three and six
months ended June 30, 1995 is not necessarily indicative of the results of
operations for the full year.
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<PAGE>
At June 30, 1995, Roxborough-Manayunk's total assets, deposits and
stockholders' equity amounted to $277.8 million, $241.3 million and $24.3
million, respectively, compared to $273.6 million, $241.2 million and $20.5
million, respectively, at December 31, 1994. The $4.2 million or 1.5% increase
in total assets was primarily due to an increase in cash and U.S. government
agency securities of $28.0 million, which was partially offset by a $24.0
million decrease in mortgage-backed securities.
Roxborough-Manayunk's stockholders' equity increased by $3.8 million or
18.7% due to a $2.9 million recovery of unrealized losses on securities
classified as available for sale and $923,000 in net income. At June 30, 1995,
Roxborough-Manayunk's tangible and core capital totalled $23.9 million or 8.6%
of adjusted total assets, which exceeded the minimum 1.5% and 3.0% requirements
by $19.4 million and $15.5 million, respectively. Furthermore, as of such date,
Roxborough-Manayunk's risk-based capital totalled $23.9 million or 25.6% of
total risk-weighted assets, which exceeded the minimum 8.0% requirement by $16.4
million.
Roxborough-Manayunk reported net income of $407,000 and $923,000 for the
three and six months ended June 30, 1995, respectively, as compared to net
income of $492,000 and $802,000 during the same periods in the prior year. The
$85,000 or 17.3% decrease in net income for the three-month period was due to
decreases in net interest income and other income, coupled with an increase in
other expenses, offset somewhat by a decrease in income tax expense. The
$121,000 or 15.0% increase in net income for the six-month period was due
primarily to an increase in net interest income offset somewhat by increases in
other expenses and income tax expense.
Net interest income decreased by $82,000 or 3.6% and increased $264,000 or
6.1% during the three and six months ended June 30, 1995, respectively, as
compared to the same periods in 1994. The decrease during the three-month
period was due to a decrease in the net interest rate spread from 3.05% to
2.81%. The cost of funds also increased during this period as the interest rate
paid on savings accounts increased, while at the same time, the interest rates
charged on lending activities decreased.
Total other income decreased by $20,000 or 13.7% and $7,000 or 2.8% during
the three and six months ended June 30, 1995 due primarily to decreases in fee
income.
Total other expense remained relatively stable during the three month
periods but increased by $77,000 or 2.3% during the six months ended June 30,
1995 as compared to the same period in 1994. The increase during the six-month
period was due primarily to an increase in advertising expenses.
Income tax expense decreased $29,000 or 11.0% and increased $59,000 or
12.6% during the three and six months ended June 30, 1995, respectively, as
compared to the same periods in 1994 due to the levels of income before income
taxes during these respective periods.
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<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
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<PAGE>
securities portfolio from held to maturity to available for sale in
order to maintain the Company's existing interest rate risk position or
credit risk policy. The decision to reclassify a portion of its investment
and mortgage-backed securities portfolio from held to maturity to available
for sale will depend upon what effect the Conversion and the Merger has on
the consolidated interest rate risk and credit risk positions. 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. Consequently, the transfer of a portion of
the Company's investment and mortgage-backed securities portfolio from held to
maturity to available for sale will result in any unrealized gains or losses
with respect to such securities 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, as
of an effective date to be determined by the OTS. 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.
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<PAGE>
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 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.
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<PAGE>
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 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."
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
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<PAGE>
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.
A bill has been introduced in the House Banking Committee that would
consolidate the OTS with the Office of the Comptroller of the Currency ("OCC").
The resulting agency would regulate all federally chartered commercial banks and
savings institutions. In the event that the OTS is consolidated with the OCC,
it is possible that the thrift charter could be eliminated and that savings
institutions could be forced to convert to commercial banks. Under present law,
this would trigger a recapture of a savings institution's bad debt reserve.
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.
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
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<PAGE>
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."
In July 1995 the Chairman of the FDIC announced in testimony before the
U.S. Congress related to the condition of the SAIF and related issues a proposal
to recapitalize the SAIF by a one-time charge of SAIF-insured institutions of
approximately $6.6 billion, or approximately $.85 to $.90 for every $100 of
assessable deposits, and an eventual merger of the SAIF with the BIF. The
Company currently is unable to predict the likelihood of legislation effecting
these changes, although a consensus among regulators, legislators and bankers
appears to be developing in this regard. If the proposed assessment of $.85 to
$.90 per $100 of assessable deposits was effected based on deposits as of
March 31, 1995, as proposed, Progress Bank's pro rata share would amount to
approximately $4.4 million to $4.7 million, respectively.
Dividends
The Company suspended dividend payments on the Company Common Stock
after the second quarter of 1990 in order to conserve its capital resources
in light of operating losses and the inability of Progress to meet its
risk-based capital requirement at the time, and the Company 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
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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."
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, which
expenses are estimated to be approximately $50,000. 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 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.
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
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of shares will decrease net income per share and stockholders' equity per
share on a pro forma basis. 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 3.5% 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 Common Stock equal to an aggregate
of 8.5% of the Conversion Stock issued in the Offerings (476,000 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 95,250
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 Roxborough-Manayunk 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
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Roxborough-Manayunk's existing plans, Company Common Stock will be issued in
lieu of Roxborough-Manayunk 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."
The Company has 300,000 warrants outstanding, with each warrant entitling
the holder thereof to purchase one share of Company Common Stock at an exercise
price of $6.00 per share (the "Warrants"). 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
Company has agreed to use its best efforts to file such registration statement
in December 1995. Once the Warrants become exercisable, they may be exercised
in whole or in part until June 30, 1999. See "Description of Capital Stock of
the Company - Warrants to Purchase Company Common Stock." Assuming the
issuance of 4,869,565 shares of Conversion Stock at $5.75 per share (the
midpoint of the Estimated Price Range), there will be 8,853,606 shares
of Company Common Stock outstanding upon consummation of the Conversion
and the Merger. Accordingly, the exercise of all 300,000 Warrants would dilute
the voting interests of the Company's stockholders at the time by approximately
3.3%.
Possible Dilution to Roxborough-Manayunk Public Stockholders as a Result of
Purchase Limitations
The OTS has required that the purchase limitations contained in the
Plan of Conversion include Exchange Stock to be issued to Roxborough-Manayunk
Public Stockholders for their Roxborough-Manayunk Public Shares. As a result,
certain holders of Roxborough-Manayunk Public Shares may be limited in their
ability to purchase Conversion Stock in the Offerings, as the amount of
Exchange Stock received by such Roxborough-Manayunk 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."
Purchases of Conversion Stock in the Offerings
Persons who subscribe for shares of Conversion Stock in the Offerings will
need to submit a stock order form for the aggregate dollar amount of shares they
wish to purchase (the "Order Amount"), rather than a specific number of shares
or shares at a specific price per share. The Order Amount will be divided by
the Actual Purchase Price, which 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, in order to
determine the number of shares of Conversion Stock to be received by each
subscriber. As a result, unlike when shares of Company Common Stock are
purchased in the open market, a subscriber will not know at the time he submits
a stock order form either the number of shares that he will receive or the price
per share that he will be paying. In addition, a subscriber will most likely
receive an odd lot number of shares
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of Conversion Stock, which may result in higher commissions when the shares are
sold. However, a subscriber purchasing shares of Conversion Stock in the
Offerings will not pay any brokerage commissions with respect to such purchase.
Relationships Between the Company, Roxborough-Manayunk and Sandler O'Neill
The Parties have engaged Sandler O'Neill as a financial advisor in
connection with the offering of 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. See "The
Offerings - Marketing Arrangements" for a discussion of the fees to be paid to
Sandler O'Neill in that regard. In addition, 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. Furthermore, 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 the Conversion Stock.
Moreover, Sandler O'Neill served as one of eight market makers with respect to
the Company Common Stock in April 1995 and has engaged in other transactions
with the Company and Roxborough-Manayunk in the past. Finally, an affiliate of
Sandler O'Neill, 1993 SOP Partners, L.P., is currently deemed to beneficially
own 200,000 shares or 6.10% of the outstanding Company Common Stock, warrants to
purchase an additional 50,000 shares of Company Common Stock and $500,000 of
subordinated debt of the Company. See "Management of the Company - Beneficial
Ownership of Company Common Stock."
The Parties selected Sandler O'Neill to serve as their financial advisor
based upon, among other things, Sandler O'Neill's expertise with respect
to stock offerings of financial institutions in general and savings
institutions in particular, as well as its familiarity with the Parties.
In addition, prior to engaging Sandler O'Neill, the Company and Roxborough-
Manayunk had considered two other prospective financial advisors and
had determined that Sandler O'Neill's compensation arrangements were the most
competitive. The Company, Roxborough-Manayunk and Sandler O'Neill believe that
Sandler O'Neill's ownership of the Company Common Stock and the Company's
warrants and subordinated debt do not present any material conflicts of
interest. However, in order to minimize any potential conflicts of interest,
Sandler O'Neill has indicated that its affiliate will not exercise its
subscription rights to purchase shares of Conversion Stock, and Sandler O'Neill
has ceased its market-making activities with respect to the Company Common Stock
until the completion or termination of the Conversion and the Merger.
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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. For example, the Company's Certificate of Incorporation upon
consummation of the Conversion and the Merger will include a provision
prohibiting any person from acquiring beneficial ownership of more than 10% of
the outstanding Company Common Stock for a period of three years following
consummation of the Conversion and the Merger. In addition, any business
combination with any person owning 10% or more of the outstanding Company
Common Stock would need to be approved by the holders of at least 80% of the
outstanding Company Common Stock and by the holders of a majority of the stock
not held by such 10% stockholder, unless such transaction was approved by the
Board of Directors or certain other conditions were met. If any person
acquires 20% or more, or commences a tender offer to acquire 20% or more, of
the outstanding Company Common Stock, the preferred stock purchase rights
attached to each share of Company Common Stock will become exercisable
under the Company's shareholder rights plan. All currently outstanding
shares of Company Common Stock, as well as shares of Conversion Stock and
Exchange Stock to be issued in the Conversion and the Merger, have or will have
a preferred stock purchase right attached thereto. Generally, the exercisability
of such rights would make any hostile takeover attempt prohibitively expensive
unless the Board of Directors agreed to redeem such rights. 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."
Directors and executive officers of the Company, Progress and
Roxborough-Manayunk expect to hold 13.77% of the shares of Company Common
Stock outstanding upon consummation of the Conversion and the Merger
(including 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 3.5% of the Conversion Stock
issued in the Offerings. Under the
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terms of the 1995 Recognition Plan, current directors and executive officers
of Roxborough-Manayunk will be allocated shares of Company Common Stock over
which the trustees of such plan will have voting rights until such shares
vest. 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 8.5% 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."
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
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1995:
First Quarter 5.00 4.25
Second Quarter 6.25 4.50
Third Quater
(through
August __, 1995) 5.875 5.00
On May 24, 1995, the day prior to the public announcement of the
Conversion and the Merger, the closing price of a share of Company Common
Stock on the Nasdaq Stock Market was $5.875. 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 August 14, 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.
As of August 14, 1995, there were 1,621,000 shares of Roxborough-Manayunk
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
Roxborough-Manayunk Public Shares. The Roxborough-Manayunk 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
Roxborough-Manayunk Public 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
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<PAGE>
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 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 if such financing can be obtained
on terms at least as favorable. To date, no unaffiliated third party lender
has been identified, and there can be no assurance that such unaffiliated
financing can be obtained. 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, and if made by the Company, the loan will be for 10
years at a fixed interest rate currently estimated to be 9% per annum. 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
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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 $23.6 million. See "The Conversion and the Merger
- Liquidation Rights" and "The 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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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) (869) (1,016) (1,163) (1,332)
------- ------- ------- ------- ------- ------- -------
Total stockholders' equity $ 13,729 $ 22,981 $ 39,080 $ 58,815 $ 62,437 $ 66,059 $ 70,225
======= ======= ======= ======= ======= ======= =======
</TABLE>
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-------------------
(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 Roxborough-Manayunk Public Shares currently
outstanding are converted into 602,685, 709,041, 815,397 and 829,510 shares
of Exchange Stock at the minimum, midpoint, maximum and 15% above the
maximum of the Estimated Price Range, respectively, and (ii) that no
fractional shares of Exchange Stock 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 meeting of
stockholders following the six-month anniversary of 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 8.5% of the shares of
Conversion Stock will be reserved for issuance under such plan. If the
Company uses authorized but unissued shares for the 1995 Stock Option
Plan, the exercise of all the stock options under such plan would dilute
the voting interests of then existing stockholders by approximately 4.7%.
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.
-55-
<PAGE>
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."
(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
meeting of stockholders following the six-month anniversary of 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 3.5% of the shares of Conversion Stock
issued in the Conversion and the Merger, or 144,869, 170,434, 196,000
and 199,392 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 2.5% 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 then existing stockholders by approximately 1.9%.
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 Roxborough-Manayunk 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 Roxborough-Manayunk 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 Interim
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,
-56-
<PAGE>
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."
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.
-57-
<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 $16,431 4.74% $23,218 8.51% $42,019 6.75%
Requirement 5,203 1.50 4,094 1.50 9,333 1.50
------ ----- ------ ----- ------ -----
Excess $11,228 3.24% $19,124 7.01% $32,686 5.25%
====== ===== ====== ===== ====== =====
Core capital:
Actual $16,431 4.74% $23,506 8.61% $42,307 6.80%
Requirement(3) 10,405 3.00 8,189 3.00 18,665 3.00
------ ---- ------ ---- ------ ----
Excess $ 6,026 1.74% $15,317 5.61% $23,642 3.80%
====== ==== ====== ==== ====== ====
Risk-based
capital:
Actual $18,042 9.92% $23,922 29.81% $44,334 16.76%
Requirement(3) 14,551 8.00 6,419 8.00 21,160 8.00
------ ---- ------ ----- ------ -----
Excess $ 3,491 1.92% $17,503 21.81% $23,174 8.76%
====== ===== ====== ==== ====== ====
<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 $59,505 9.28% $62,717 9.72% $65,938 10.16% $69,621 10.67%
Requirement 9,623 1.50 9,677 1.50 9,730 1.50 9,791 1.50
------ ---- ------- ----- ------ ---- ------ ----
Excess $49,882 7.78% $53,040 8.22% $56,198 8.66% $59,830 9.17%
====== ==== ======= ==== ====== ==== ====== ====
Core capital:
Actual $59,793 9.32% $63,004 9.77% $66,216 10.21% $69,909 10.71%
Requirement(3) 19,247 3.00 19,353 3.00 19,460 3.00 19,582 3.00
------ ---- ------ ---- ------ ---- ------ ----
Excess $40,436 6.32% $43,651 6.77% $46,756 7.21% $50,327 7.71%
====== ==== ====== ==== ====== ==== ====== ====
Risk-based
capital:
Actual $61,820 22.55% $65,031 23.57% $68,243 24.57% $71,936 25.71%
Requirement(3) 21,935 8.00 22,077 8.00 22,219 8.00 22,382 8.00
------ ---- ------ ---- ------- ---- ------ -----
Excess $39,885 14.55% $42,954 15.57% $46,024 16.57% $49,554 17.71%
====== ==== ====== ===== ====== ===== ====== =====
</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."
-58-
<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 Stock 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 yield on one-year U.S.
Government
-59-
<PAGE>
securities was used rather than the arithmetic average of the average yield on
total interest-earning assets and the average rate paid on deposits, because
of the differences in the arithmetic averages for Progress and
Roxborough-Manayunk and because the yields on one-year U.S. Government
securities is believed to be reflective of market interest rates. The effect
of withdrawals from deposit accounts at 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."
-60-
<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 23,357(2) 62,983
------- ------- ------ -------
Cash and cash equivalents 5,518 40,843 23,455 69,816
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 $25,477 $645,164
======= ======= ====== =======
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) (980)(5) (1,016)
Unrealized loss on securities
available for sale (721) (525) 245(4) (1,001)
------- ------- ------- -------
Total stockholders' equity 13,729 22,981 25,727 62,437
------- ------- ------ -------
Total liabilities and
stockholders' equity $346,958 $272,729 $25,477 $645,164
======= ======= ====== =======
Book value per common share
(period end)(6) $ 4.19 $ 14.18(7) $ 7.05
======== ======== ========
(Footnotes on following page)
-61-
<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 $980,000 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. The cancellation of this subordinated debt will not
institute either a forgiveness of debt by the Company or a bad debt
write-off for Roxborough-Manayunk for accounting or tax purposes.
(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 Roxborough-Manayunk 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 Roxborough-Manayunk 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
Roxborough-Manayunk Common Stock outstanding would be 5,578,606 at March
31, 1995, and the adjusted book value per share of Roxborough-Manayunk
Common Stock would be $4.12 at March 31, 1995.
-62-
<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 $ 378(1)$ 11,811
Total interest expense 3,654 2,490 -- 6,144
--------- --------- ----------- -----------
Net interest income before
provision for loan losses 2,844 2,445 378 5,667
Provision for loan losses 100 15 -- 115
--------- --------- ----------- -----------
Net interest income after
provision for loan losses 2,744 2,430 378 5,552
Total non-interest income 402 123 -- 525
Total non-interest expense 2,768 1,744 105(2) 4,617
--------- --------- --------- -----------
Income before income taxes 378 809 273 1,460
Income taxes -- 293 260(3) 553
----------- --------- --------- -----------
Net income $ 378 $ 516 $ 13 $ 907
========= ========= ========== ===========
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 $ 259(1) $ 9,574
Total interest expense 2,831 2,130 -- 4,961
--------- --------- --------- ---------
Net interest income before
provision for loan losses 2,247 2,107 259 4,613
Provision for loan losses 50 15 -- 65
--------- --------- --------- ---------
Net interest income after
provision for loan losses 2,197 2,092 259 4,548
Total non-interest income 374 126 -- 500
Total non-interest expense 2,526 1,701 105(2) 4,332
--------- --------- --------- ---------
Income before income taxes 45 517 154 716
Income taxes -- 208 80(3) 288
---------- --------- --------- ---------
Net income $ 45 $ 309 $ 74 $ 428
========= ========= ========= =========
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)
-63-
<PAGE>
<TABLE><CAPTION>
Pro Forma Unaudited Consolidated Statements of Income
(Dollars in thousands, except per share data)
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 $ 1,684(1) $ 42,610
Total interest expense 12,505 8,791 -- 21,296
---------- --------- ---------- ----------
Net interest income before
provision for loan losses 10,325 9,305 1,684 21,314
Provision for loan losses 521 60 -- 581
---------- --------- ---------- ----------
Net interest income after
provision for loan losses 9,804 9,245 1,684 20,733
Total non-interest income 1,545 504 -- 2,049
Total non-interest expense 12,065 6,654 420(2) 19,139
---------- --------- --------- ----------
Income (loss) before
income taxes (716) 3,095 1,264 3,643
Income taxes -- 1,190 220(3) 1,410
----------- --------- --------- ----------
Net income (loss) $ (716) $ 1,905 $ 1,044 $ 2,233
========== ========= ========= ==========
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 $ 839(1) $ 39,730
Total interest expense 11,465 9,087 -- 20,552
-------- --------- ---------- ----------
Net interest income before
provision for loan losses 9,359 8,980 839 19,178
Provision for loan losses 368 94 -- 462
-------- --------- ---------- ----------
Net interest income after
provision for loan losses 8,991 8,886 839 18,716
Total non-interest income 2,226 1,230 -- 3,456
Total non-interest expense 11,568 6,406 420(2) 18,394
-------- --------- --------- ----------
Income (loss) before income
taxes and cumulative effect of
change in accounting principle (351) 3,710 419 3,778
Income taxes (benefit) (1,034) 1,189 1,062(3) 1,217
-------- --------- --------- ----------
Income (loss) before cumulative
effect of change in accounting
principle 683 2,521 (643) 2,561
Cumulative effect of change in
accounting principle -- 407 3,163(5) 3,570
----------- --------- --------- ----------
Net income $ 683 $ 2,928 $ 2,520 $ 6,131
========= ========= ========= ==========
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>
-64-
<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 $839(1) $41,375
Total interest expense 13,737 10,483 -- 24,220
--------- ------ ----- ------
Net interest income before
provision for loan losses 8,242 8,074 839 17,155
Provision for loan losses 275 60 -- 335
--------- ------ ----- ------
Net interest income after
provision for loan losses 7,967 8,014 839 16,820
Total non-interest income 5,617 699 -- 6,316
Total non-interest expense 12,232 6,100 420(2) 18,752
--------- ------ --- ------
Income before income taxes 1,352 2,613 419 4,384
Income taxes 74 841 168(3) 1,083
--------- ------ --- ------
Net income $ 1,278 $ 1,772 $251 $3,301
========= ====== === ======
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
$23,357,000 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 $196,000.
(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 $109,000, $62,000, $506,000 and
$168,000, 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 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
-65-
<PAGE>
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
Roxborough-Manayunk 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.
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<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 (833) (980) (1,127) (1,296)
------------ ---------- ---------- ----------
Estimated adjusted net proceeds(1) $ 19,735 $ 23,357 $ 26,979 $ 31,145
=========== ========== ========== ==========
Net income:
Historical combined $ 743 $ 743 $ 743 $ 743
Pro forma adjustments:
Income on adjusted net proceeds(1) 191 227 262 302
ESOP(2) (29) (34) (39) (44)
1995 MRP(3) (25) (29) (34) (39)
------------- ----------- ----------- ------------
Pro forma $ 880 $ 907 $ 932 $ 962
============ =========== ========== ===========
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) (833) (980) (1,127) (1,296)
----------- ---------- ---------- ----------
Pro forma stockholders' equity(7) $ 58,815 $ 62,437 $ 66,059 $ 70,225
========== ========== ========== ==========
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) (.10) (.11) (.11) (.14)
----------- ---------- ----------- -----------
Pro forma stockholders' equity
per share(3)(5)(7) $ 7.34 $ 7.05 $ 6.82 $ 7.16
=========== ========= ========== ==========
Pro forma price to book ratio(8) 78.3% 81.6% 84.3% 90.8%
=========== ========= ========== ==========
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 (833) (980) (1,127) (1,296)
-------- -------- -------- --------
Estimated adjusted net proceeds(1) $ 19,735 $ 23,357 $ 26,979 $ 31,145
========= ======== ========= ========
Net income:
Historical combined $ 1,475 $ 1,475 $ 1,475 $ 1,475
Pro forma adjustments:
Income on adjusted net proceeds(1) 854 1,011 1,168 1,349
ESOP(2) (114) (134) (155) (178)
1995 MRP(3) (100) (118) (135) (156)
-------- -------- -------- --------
Pro forma $ 2,115 $ 2,234 $ 2,353 $ 2,490
======== ======== ======== ========
Net income per share(4):
Historical combined $ .19 $ .17 $ .16 $ .16
Pro forma adjustments:
Income on adjusted net proceeds(1) .10 .12 .13 .14
ESOP(2) (.01) (.02) (.02) (.02)
1995 MRP(3) (.01) (.01) (.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) (833) (980) (1,127) (1,296)
-------- -------- -------- --------
Pro forma stockholders' equity(7) $ 55,603 $ 59,225 $ 62,847 $ 67,013
========= ========= ========= =========
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) (.10) (.11) (.11) (.13)
-------- -------- -------- --------
Pro forma stockholders' equity
per share(3)(5)(7) $ 6.94 $ 6.69 $ 6.49 $ 6.84
======== ======== ======== ========
Pro forma price to book ratio(8) 82.9% 85.9% 88.6% 95.0%
======== ======== ======== ========
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 144,869, 170,434, 196,000 and 199,392 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 1.9%, (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 $7.31, $7.03, $6.80 and
$7.15, in each case at the minimum, midpoint, maximum and 15% above
the maximum of the Estimated Price Range, respectively,
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<PAGE>
and (iii) the pro forma net income per share for the year ended December
31, 1994 would be $.27, $.26, $.25 and $.27, and pro forma stockholders'
equity per share at December 31, 1994 would be $6.91, $6.67, $6.47 and
$6.83, 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 shares of Exchange Stock to be issued were
then added to such amounts. The number of shares of Conversion Stock
actually sold and the corresponding number of shares of Exchange Stock
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 meeting of stockholders following the six-month anniversary
of 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 8.5% 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 the voting interests of
the existing stockholders by approximately 4.7%. 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 $7.27, $6.99, $6.77 and $7.20, 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 $.27, and pro forma stockholders' equity per share at December 31,
1994 would be $6.89, $6.65, $6.45 and $6.87, in each case at the
minimum, midpoint, maximum and 15% above the maximum of the Estimated
Price Range, respectively.
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<PAGE>
(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.
(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) shares of Exchange Stock 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 shares of Exchange Stock 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.
-71-
<PAGE>
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 from $50.4 million at December 31, 1991 to $8.8 million at March 31,
1995.
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. Such loans are for generally shorter
terms (which will improve the Company's interest rate risk position), carry
higher interest rates (which compensates the Company for the additional credit
risk inherent in such lending) and diversifies the Company's asset base (so that
it is not dependent upon one type of loan or loan customer). 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
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<PAGE>
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 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
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<PAGE>
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.
<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
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<PAGE>
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.
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, which disintermediation is expected to continue. 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
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<PAGE>
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 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.
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<PAGE>
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 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
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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 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).
The Company's net interest income for 1994, 1993 and 1992 was less than
total other expense in each of such periods, partly due to the provisions
for real estate owned and other expenses incurred in connection with the
resolution of problem assets. As a result, the Company incurred losses
before income taxes in both 1994 and 1993. For the three months ended
March 31, 1995, the Company's net interest income before provision for loan
losses exceeded total other expense by $76,000, which when combined with
total other income resulted in the Company returning to profitability.
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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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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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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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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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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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. Non-performing assets 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 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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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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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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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. The increased legal expenses related to new
products, corporate and regulatory filings, and other general matters.
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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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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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, which amount is believed to be no less
favorable to Progress than would be obtained from unaffiliated third
parties. 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.
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
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$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.
Impact of Inflation and Changing Prices
The financial statements and related financial data presented herein have
been prepared in accordance with generally accepted accounting principles,
which generally require the measurement of financial position and operating
results in terms of historical dollars, without considering changes in relative
purchasing power over time due to inflation. Unlike most industrial companies,
virtually all of the Company's assets and liabilities are monetary in nature.
As a result, interest rates generally have a more significant impact on the
Company's performance than does the effect of inflation. Interest rates do not
necessarily move in the same direction or in the same magnitude as the prices
of goods and services, since such prices are affected by inflation to a larger
extent than interest rates.
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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
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Pennsylvania, as only approximately $25.6 million of mortgage loans, including
approximately $13.3 million of single-family residential loans, were secured
by properties 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.
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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
two-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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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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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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<PAGE>
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 repaid in accordance with its terms, which enabled
the borrowers to receive a $200,000 discount for otherwise repaying the
loan in full prior to August 31, 1995. Because of the favorable interest rate
on the loan, early prepayment of the loan was not reasonably anticipated.
As a result of the borrower repaying the loan, the Company recognized 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
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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.
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.
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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 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.
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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,
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.
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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 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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<PAGE>
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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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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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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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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<PAGE>
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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<PAGE>
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.
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-
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<PAGE>
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
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
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<PAGE>
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 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
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<PAGE>
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
-----------------------
(1) Denotes rate shock used to compute interest rate risk capital
component.
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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. 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
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<PAGE>
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.
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
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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.
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
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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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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. Management evaluates the allowance
for loan losses on a monthly basis. Roxborough-Manayunk currently
maintains an allowance for loan losses based upon management's periodic
evaluation of the composition of Roxborough-Manayunk's loan portfolio,
including 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
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<PAGE>
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.
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
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<PAGE>
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, 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.
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<PAGE>
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 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-
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<PAGE>
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.
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 Inflation and Changing Prices
The financial statements and related financial data presented herein have
been prepared in accordance with generally accepted accounting principles,
which generally require the measurement of financial position and operating
results in terms of historical dollars, without considering changes in relative
purchasing power over time due to inflation. Unlike most industrial companies,
virtually all of Roxborough-Manayunk's assets and liabilities are monetary
in nature. As a result, interest rates generally have a more significant
impact on Roxborough-Manayunk's performance than does the effect of inflation.
Interest rates do not necessarily move in the same direction or in the same
magnitude as the prices of goods and services, since such prices are affected
by inflation to a larger extent than interest rates.
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
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<PAGE>
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 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.
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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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<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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<PAGE>
-----------------------------
(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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Total loans outstanding, net (1) $96,480 $46,603 $96,722 $98,622 $77,824 $83,876 $90,814
Average loans outstanding, net 98,494 97,847 97,302 85,293 82,829 91,421 94,676
Allowance balances (at beginning
of period) 417 450 450 385 395 361 280
Provision:
One- to four-family and home
equity 12 12 49 76 51 52 78
Multi-family and commercial
real estate 2 2 9 14 7 9 4
Consumer and commercial
leases (2) 1 1 2 4 2 -- --
Net charge-offs:
One- to four-family and home
equity 16 15 93 29 70 27 1
Multi-family and commercial
real estate -- -- -- -- -- -- --
Consumer and commercial
leases(2) -- -- -- -- -- -- --
-------- ------- -------- -------- -------- -------- --------
Allowance balance (at end
of period) $ 416 $ 450 $ 417 $ 450 $ 385 $ 395 $ 361
======= ====== ======= ======= ======= ======= =======
Allowance for loan losses
as a percent of
total loans outstanding .43% .46% .43% .46% .49% .47% .40%
Net charge-offs as a
percent of average
loans outstanding .02% .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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<PAGE>
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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<PAGE>
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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<PAGE>
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) Primarily consists of FNMA, FHLMC, SLMA debentures and certificates of
deposit.
(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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<PAGE>
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 .38
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 3.53 500 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 99.97
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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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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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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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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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 March 1995, the FASB issued SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of." SFAS No. 121 establishes accounting standards for the impairment of
long-lived assets, certain identifiable intangibles and goodwill related to
those assets to be held and used and for long-lived assets and certain
identifiable intangibles to be disposed of. The standard requires an impairment
loss to be recognized when the carrying amount of the asset exceeds the
fair value of the asset. The fair value of an asset is the amount at which the
asset could be bought or sold in a current transaction between willing parties,
that is, other than in a forced liquidation sale. An entity that recognizes an
impairment loss shall disclose additional information in the financial
statements related to the impaired asset. All long-lived assets and certain
identifiable intangibles to be disposed of and for which management has
committed to a plan to dispose of the assets, whether by sale or abandonment,
shall be reported at the lower of the carrying amount or fair value less cost
to sell. Subsequent revisions in estimates of fair value less cost to sell
shall be reported as adjustments to the carrying amount of assets to be
disposed of, provide that the carrying amount of the asset does not exceed the
carrying amount of the asset before an adjustment was made to reflect the
decision to dispose of the asset. The state requires additional disclosure in
the footnotes regarding assets to be disposed of.
In December 1994, the Accounting Standards Division of the AICPA approved
SOP 94-6, "Disclosure of Certain Significant Risks and Uncertainties." SOP
94-6 requires disclosures in the financial statements beyond those now being
required or generally made in the financial statements about the risk and
uncertainties existing as of the date of those financial statements in the
following areas: nature of operations, use of estimates in the preparation
of financial statements, certain significant estimates, and current
vulnerability due to certain concentrations. The standard is effective for
financial statements issued for fiscal years ending after December 15, 1995.
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
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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
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
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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 shares of Exchange Stock 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.
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
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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 average net income and net worth. The usage of net
operating losscarryforwards 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.
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<PAGE>
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 August 7, 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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<TABLE><CAPTION>
Year of Amount and Percentage of
Director Expiration Shares Beneficially
Name Age(1) Since of Term Owned as of August 14, 1995
------------------------ ------ -------- ---------- ---------------------------
Amount Percentage
------ ----------
<S> <C> <C> <C> <C> <C>
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 172,655(8) 5.1
</TABLE>
___________________
* 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 August 14, 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 August 14,
1995. Does not include warrants to purchase 12,500 shares of
Company Common Stock which are not currently exercisable.
(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 August 14,
1995. Does not include warrants to purchase 50,000 shares of
Company Common Stock which are not currently exercisable.
(5) Includes 250 shares subject to stock options which are exercisable
within 60 days of August 14, 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 August 14, 1995.
Does not include warrants to purchase 25,000 shares of Company
Common Stock which are not currently exercisable.
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<PAGE>
(7) Includes 5,250 shares subject to stock options which are exercisable
within 60 days of August 14, 1995. Does not include warrants to
purchase 25,000 shares of Company Common Stock which are not currently
exercisable.
(8) Includes 7,000 shares which are held jointly by Mr. Wycoff with or for
the benefit of certain family members and 117,500 shares subject to
stock options which are exercisable within 60 days of August 14, 1995.
Does not include warrants to purchase 12,500 shares of Company
Common Stock which are not currently exercisable.
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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<PAGE>
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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<PAGE>
(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. His 8,750 unexercisable
options have expired.
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
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meeting also receives $150 per meeting attended. Effective January 1,
1995, director fees are no longer paid to Mr. Wycoff.
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, 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 (i) 5,000 shares of Company Common Stock in June
1993 at an exercise price of $3.50 per share, (ii) 250 shares on
December 31, 1993 at $4.63 per share, and (iii) 250 shares on
December 31, 1994 at an exercise price of $4.25 per share. In addition,
each non-employee director will also be granted an option to purchase 250
shares on December 31 of each year thereafter until December 31, 1997.
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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<PAGE>
Employment and Severance Agreements
The Company and Progress (collectively the "Employers") have entered
into an employment agreement with W. Kirk Wycoff effective January 1, 1995.
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 shall 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.
The Conversion and the Merger will not be deemed to constitute a
change in control of the Company for purposes of the above employment
and severance agreements.
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 time for comparable transactions with non-affiliated
persons. Effective January 1, 1990,
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<PAGE>
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 Company Common Stock
The following table sets forth the amount of Company Common Stock held
by the only persons or entities known to the Company to be the beneficial
owner of more than 5% of the outstanding Company Common Stock as of August 14,
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 August 14, 1995 Common Stock
-------------------- --------------------- -------------
1993 SOP Partners, L.P.(1) 200,000 6.10%
Two World Trade Center
104th Floor
New York, New York 10048
W. Kirk Wycoff 172,655(2) 5.08
875 Lantern Lane
Blue Bell, Pennsylvania 19422
Directors and executive
officers of the Company
as a group (nine persons) 482,228(3) 14.10
_______________________
(1) 1993 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." Does
not include warrants to purchase 50,000 shares of Company Common
Stock which are not currently exerciseable.
(2) Includes 7,000 shares which are held jointly by Mr. Wycoff with or for
the benefit of certain family members and 117,500 shares which may be
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acquired upon the exercise of stock options exercisable within 60 days
of August 14, 1995. Does not include warrants to purchase 12,500 shares
of Company Common Stock which are not currently exercisable.
(3) Does not include warrants to purchase 125,000 shares of Company Common
Stock held by the group which are not currently exercisable.
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 Roxborough-Manayunk Common Stock Bene-
Director Roxborough- ficially Owned as of August 7, 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 39,005(5)(6)(7) 16.88% 2.38%
Board and Chief Executive
Officer
Pietro M. Jacovini, Jr. 79 Vice Chairman of the Board 1982 1998 11,300(6)(8) 5.21 *
Robert E. Domanski, M.D. 46 Director 1991 1998 6,300(6)(8) 2.90 *
William A. Lamb, Sr. 58 Director 1994 1997 6,300(6)(8) 2.90 *
Francis E. McGill, III(4) 34 Director 1991 1997 4,800(6)(8) 2.21 *
Add B. Anderson, Jr. 67 Director 1973 1997 15,800(6)(8) 7.28 *
John F. McGill, Jr.(4) 33 Executive Vice President, 1991 1996 26,152(6)(7)(9) 11.52 *
Secretary and Director
Joseph P. Healy 67 Director 1989 1996 2,300(6)(7)(8) * *
DIRECTOR EMERITUS
Anthony P. Stefanowicz 89 Director Emeritus -- -- -- -- --
OTHER EXECUTIVE OFFICER
Jerry A. Naessens 59 Treasurer and Chief -- -- 29,720(6)(10) 9.70 1.33
Financial Officer
Directors and executive
officers as a group (10
persons) 133,677 54.34 8.05
</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 August 7, 1995, there were 206,000 shares issued
to persons other than the Mutual Holding Company and 40,000 shares
subject to options exercisable within 60 days of August 7, 1995.
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(3) As a percentage of the total amount of shares issued by Roxborough-
Manayunk including shares issued to the Mutual Holding Company. At
August 7, 1995, there were 1,621,000 shares issued and 40,000 shares
subject to options exercisable within 60 days of August 7, 1995.
(4) John F. McGill is the father of John F. McGill, Jr. and uncle of
Francis E. McGill, III.
(5) Includes 505 shares held in the ESOP allocated to Mr. McGill's account
and options to purchase 15,000 shares which are exercisable within 60
days of August 7, 1995. See "- 1992 Stock Option Plan" and "- 1994
Stock Option Plan." Also includes 1,800 shares awarded under the 1992
Management Stock Bonus Plan which are not fully vested. See "- 1992
Management Stock Bonus Plan."
(6) Includes fully vested shares awarded under the 1992 and 1994 Management
Stock Bonus Plans. See "- 1992 Management Stock Bonus Plan" and "- 1994
Management Stock Bonus Plan."
(7) Does not include 14,000 shares owned by the Roxborough-Manayunk ESOP
for which such individual is a trustee.
(8) Includes options to purchase 1,000 shares which are exercisable within
60 days of August 7, 1995. See "- 1994 Stock Option Plan."
(9) Includes 352 shares held in the ESOP allocated to Mr. McGill, Jr.'s
account and options to purchase 11,000 shares which are exercisable
within 60 days of August 7, 1995. See "- 1992 Stock Option Plan" and
"- 1994 Stock Option Plan." Also includes 1,080 shares awarded under
the 1992 Management Stock Bonus Plan which are not fully vested. See
"- 1992 Management Stock Bonus Plan."
(10) Includes 320 shares held in the ESOP allocated to Mr. Naessens' account
and options to purchase 8,000 shares which are exercisable within 60
days of August 7, 1995. See "-1992 Stock Option Plan" and "-1994 Stock
Option Plan." Also includes 720 shares awarded under the 1992 Management
Stock Bonus Plan which are not fully vested. See "- 1992 Management
Stock Bonus Plan."
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<PAGE>
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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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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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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(5) Includes allocations of shares of Roxborough-Manayunk 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 Roxborough-Manayunk 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 Roxborough-Manayunk Common Stock at December 31,
1994 ($12.68 per share).
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AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END
OPTION/SAR VALUES(1)
<TABLE><CAPTION>
Number of Securities Value of
Underlying Unexercised in-the-
Unexercised Money Options/SARs
Options/SARs at at December 31,
Shares December 31, 1994 1994 ($)
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 Roxborough-Manayunk 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 Roxborough-Manayunk 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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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. To the extent possible, existing insurance plans will be combined
with similar plans of Progress. No decision has been made by the Parties
as to which plans will be utilized.
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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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.
Upon completion of the Conversion and the Merger, Roxborough-Manayunk
intends to liquidate the Pension Plan and distribute the proceeds to the
participants. Employees will be given the opportunity to "roll-over" the
proceeds into existing Progress plans or purchase annuities.
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. These agreements will remain in effect upon completion of the
Conversion and the Merger.
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
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to Roxborough-Manayunk, thereby reducing net income and Roxborough-
Manayunk's capital by that amount. Although the Conversion and the Merger
may technically trigger the "change in control" provisions of the agreements,
the parties have agreed to not exercise such provisions. 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 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 Roxborough-Manayunk 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.
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Options to purchase 10,000, 6,000, and 4,000 shares of Roxborough-Manayunk
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 Company Common Stock, as adjusted for the Exchange Ratio.
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 Roxborough-Manayunk 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 Roxborough-Manayunk 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 Company Common Stock, as adjusted for the Exchange Ratio.
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 Roxborough-Manayunk Common Stock. Benefits may be paid either in
shares of Roxborough-Manayunk Common Stock or in cash. The ESOP borrowed funds
from an unaffiliated third party lender sufficient to purchase 14,000 shares of
Roxborough-Manayunk 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
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under the ESOP loan. The remaining 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. Upon termination of the ESOP, all participants'
accounts will be 100% vested and non-forfeitable.
Contributions to the ESOP and shares released from the suspense
account are allocated among participants on the basis of total compensation
as reported on Form W-2, excluding bonuses. All participants must be
employed at least 1,000 hours in a plan year and be employed on the last
day of the plan year in order to receive an allocation. Participants who
are not actively employed at the last day of the plan year due to
retirement, total and permanent disability, or death shall share in the
allocation of
contributions and forfeitures for that Plan year only if otherwise
eligible. Participant benefits become 20% vested after three years of
service, increasing by 20% annually thereafter until benefits are 100%
vested after seven years. 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.
Upon completion of the Conversion and the Merger, shares of Roxborough-
Manayunk Common Stock held by the ESOP Trust will be exchanged for shares of
Company Common Stock in accordance with the Exchange Ratio and will then be
distributed to Roxborough-Manayunk's employees.
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.
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<PAGE>
Roxborough-Manayunk contributed sufficient funds to the 1992 MSBP
Trust so that the 1992 MSBP Trust could purchase 3% of Roxborough-Manayunk
Common Stock offered to persons other than the Mutual Holding Company in the
MHC Reorganization (i.e., 6,000 shares). Restricted Roxborough-Manayunk
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. Vested and unvested shares granted under the 1992
MSBP (final 2,000 shares vest on December 31, 1995) will be exchanged for
Company Common Stock pursuant to the Exchange Ratio.
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 Roxborough-Manayunk 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 Roxborough-Manayunk 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 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 Roxborough-Manayunk 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.
All shares granted under the 1994 MSBP are vested and therefore are owned by
the grantees and will be exchanged for Company Common Stock pursuant to
the Exchange Ratio.
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,
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<PAGE>
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.
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. As
a result of the Boards of Directors of both the Company and Progress Bank
consisting of an even number of directors, there exists the potential for
a deadlock on each of the respective Boards. 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,
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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. Messrs. John F. McGill, W. Kirk Wycoff,
John F. McGill, Jr., Jerry A. Naessens and Eric J. Morgan are
entitled to receive during 1995 base salaries of $250,000, $235,000,
$150,000, $135,000 and $88,000. For information concerning the
historical compensation of such officers (excluding Mr. Morgan), the
employment or severance agreements entered into with such officers and the
various employee benefit plans such officers are currently participating in
and will be entitled to participate in following consummation of the Conversion
and the Merger, see "Management of the Company," "Management of Roxborough-
Manayunk" and "Management of the Company and Progress Bank Following the
Conversion and the Merger - Benefits."
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
and with respect to the directors, the proposed year of expiration of their
term.
<TABLE><CAPTION>
Year of
Expiration
Name Position of Term
---- -------- ----------
<S> <C> <C>
John F. McGill(1)(3) Chairman of the Board 1998
W. Kirk Wycoff(2)(3) President, Chief Executive Officer and Director 1997
John F. McGill, Jr.(1)(3) Executive Vice President and Director 1996
Jerry A. Naessens(1)(3) Chief Financial Officer, Treasurer and Director 1998
Eric J. Morgan(4) Senior Vice President and Secretary --
Add B. Anderson, Jr., Esq.(1) Director 1997
William O. Daggett, Jr.(2)(3) Director 1998
Joseph P. Healy(1) Director 1996
Paul M. LaNoce(2) Director 1996
A. John May, III(2) Director 1996
Francis E. McGill, III, Esq.(1) Director 1997
William L. Mueller, Esq.(2)(3) Director 1998
Charles J. Tornetta(2) Director 1997
</TABLE>
_____________________
(1) For a description of the business experience of such persons, see
"Management of Roxborough-Manayunk."
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(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.
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 and with respect to the directors, the proposed year of expiration
of their term.
<TABLE><CAPTION>
Year of
Expiration
Name Position of Term
---- -------- ----------
<S> <C> <C>
John F. McGill(1)(3) Chairman of the Board 1998
W. Kirk Wycoff(2)(3) President, Chief Executive Officer and Director 1997
John F. McGill, Jr.(1) Executive Vice President and Director 1996
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 1997
John E.F. Corson(2) Director 1996
William O. Daggett, Jr.(2)(3) Director 1998
Robert E. Domanski, M.D.(1) Director 1998
Donald F.U. Goebert(2) Director 1996
Joseph P. Healy(1) Director 1996
Pietro M. Jacovini, Jr.(1) Director 1998
Joseph R. Klinger(2) Director 1998
William A. Lamb, Sr.(1)(3) Director 1997
Paul M. LaNoce(2) Director 1996
Francis E. McGill, III, Esq.(1)(3) Director 1997
William L. Mueller, Esq.(2)(3) Director 1998
Charles J. Tornetta(2) Director 1997
</TABLE>
_____________________
(1) For a description of the business experience of such persons, see
"Management of Roxborough-Manayunk."
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(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 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 meeting of stockholders following the six-month
anniversary of 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 approval by the holders of a majority of the outstanding voting stock
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
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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.
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
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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).
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 8.5% of the Conversion Stock issued in the Offerings (476,000
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
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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 meeting of stockholders following the six-month anniversary
of the Conversion and the Merger, which is expected to be held in April 1996.
Assuming the receipt of approval by the holders of a majority of the outstanding
voting stock, the Company expects to acquire Company Common Stock on behalf of
the 1995 Recognition Plan in an amount equal to 3.5% of the Conversion Stock
issued in the Offerings ($1,127,000 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 2.5% 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
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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.
Under the terms of the 1995 Recognition Plan, the trustees will be
authorized to vote unallocated and unvested shares in the same proportion
as shares of Company Common Stock are actually voted at any meeting. 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 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 if such financing can be obtained
on terms at least as favorable) 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,
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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.
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 the mutual form to a federal interim
stock savings bank in accordance with the Plan of Conversion and then Interim
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 the mutual form
to a federal interim stock savings bank 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
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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 the mutual form to a
federal interim stock savings bank, the merger of Interim 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.
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 $62.4 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
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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 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."
In addition to the above, the Parties also considered that Progress is
categorized as an "adequately capitalized" institution under OTS regulations
which needs additional capital in order to support future growth and remain
competitive, while Roxborough-Manayunk is already categorized as a "well
capitalized" institution that would have difficulty generating adequate rates
of return on the additional capital that it would receive in a conversion of
the Mutual Holding
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Company from mutual to stock form that did not involve a combination with
another institution. By combining Progress and Roxborough-Manayunk, the
resulting institution Progress Bank will be a well capitalized institution
that will have sufficient capital to support future growth without having the
amount of excess capital that the Mutual Holding Company and Roxborough-Manayunk
would have if they converted on their own.
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.
Description of the Conversion and the Merger
Pursuant to the Plan and the Merger Agreement, (i) the Mutual Holding
Company will convert from the mutual form to a federal interim stock savings
bank and then Interim will simultaneously merge with and into Roxborough-
Manayunk, pursuant to which the Mutual Holding Company (and Interim) will
cease to exist and the shares of Roxborough-Manayunk 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 Roxborough-Manayunk Public
Shares will be converted into the Exchange Stock 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 Stock) as the percentage of Roxborough-Manayunk Common Stock owned by
them in the aggregate immediately prior to consummation of the Conversion and
the Merger (although the Roxborough-Manayunk Public Stockholders will receive
a smaller percentage ownership interest in the Company than they had in
Roxborough-Manayunk), before giving effect to (a) the payment of cash in lieu
of issuing fractional shares of Exchange Stock, (b) any shares of Conversion
Stock
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purchased by the stockholders of Roxborough-Manayunk in the Offerings,
and (c) any exercise of dissenters' rights.
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 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.
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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 Roxborough-Manayunk Public Shares. Under the Plan, upon
consummation of the Conversion and the Merger, the Roxborough-Manayunk Public
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 Roxborough-Manayunk Public 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
Roxborough-Manayunk 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.
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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.
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
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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
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
Interim 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
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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
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 under the Bank Merger Act with respect to both the merger of
Interim 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.
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The OTS has a general moratorium on non-supervisory merger conversions.
Because neither Progress nor Roxborough-Manayunk is considered a troubled
institution by the OTS, the Parties met with the OTS prior to filing the
regulatory applications and received OTS permission to file the
applications and to proceed with the Conversion and the Merger. The Parties
believe that the OTS will approve the merger applications despite the
general moritorium because the amount of Company Common Stock to be issued
in the Conversion and the Merger will exceed the number of shares of
Company Common Stock currently outstanding on a fully diluted basis. As a
result, the Conversion and the Merger do not constitute an acquisition
of a mutual institution by a significantly larger stock company. However,
there can be no assurances that OTS approval of the holding company and
merger applications will be received.
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
Roxborough-Manayunk 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 Roxborough-Manayunk 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.
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.
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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 Roxborough-Manayunk
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 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
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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 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 Interim 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
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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 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
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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 Stock (including, on
a fully diluted basis, existing options to purchase Roxborough-Manayunk 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 Stock (including,
on a fully diluted basis, existing options to purchase Roxborough-Manayunk
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 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
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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 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
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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 Roxborough-Manayunk 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."
As of March 31, 1995, there was an aggregate of 2,400 shares of
Roxborough-Manayunk Common Stock that had been awarded to the directors and
officers of Roxborough-Manayunk pursuant to the 1992 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 Roxborough-Manayunk 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."
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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 8.5% 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."
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 3.5% of the Conversion Stock sold in the Offerings
($1,127,000 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.
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Exchange Stock. After consummation of the Conversion and the Merger,
each holder of a certificate or certificates theretofore evidencing issued
and outstanding shares of Roxborough-Manayunk 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 Roxborough-Manayunk
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 Roxborough-Manayunk 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 Roxborough-Manayunk 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
Roxborough-Manayunk 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 Merger until the certificate
representing such shares of Roxborough-Manayunk 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
Roxborough-Manayunk 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 Roxborough-Manayunk Common Stock.
The Company shall be entitled, after the consummation of the Conversion and
the Merger, to treat certificates representing shares of Roxborough-Manayunk
Common Stock as evidencing ownership of the number of full shares of Company
Common Stock into which the shares of Roxborough-Manayunk 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 Roxborough-Manayunk 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 Roxborough-Manayunk Common Stock for
exchange as provided above, or, in default
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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 Roxborough-Manayunk 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 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.
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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% 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
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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) 87.29% of Roxborough-Manayunk's total stockholders' equity as reflected
in its latest balance sheet contained in the final Prospectus utilized in
the Offerings plus the amount of any dividends waived by the Mutual Holding
Company (which amounted to $2.7 million at June 30, 1995). As of the date of
this Prospectus, the initial balance of the liquidation account would be
approximately $23.9 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 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.
Progress currently maintains a liquidation account for the benefit of
savings account holders of Progress on June 30, 1982. Upon consummation of the
Conversion and the Merger, Progress Bank will assume Progress' current
liquidation account in addition to the establishment of the liquidation account
for the benefit of Eligible Account Holders and Supplemental Eligible Account
Holders of Roxborough-Manayunk described above.
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
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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 Roxborough-Manayunk Common Stock held by the Mutual Holding Company will be
disregarded in determining that an amount of Roxborough-Manayunk 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
Roxborough-Bank Common Stock will satisfy the continuity of interest
requirement in the merger of Progress into Roxborough-Manayunk, with
Roxborough-Manayunk surviving.
Malizia, Spidi, Sloane & Fisch, P.C., Washington, D.C., has issued 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 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 Roxborough-
Manayunk Common Stock solely in exchange for Company Common Stock, (7) no
gain or loss will be recognized by the Roxborough-Manayunk Public Stockholders
upon the receipt of Company Common Stock solely in exchange for their
Roxborough-Manayunk Public Shares, (8) the basis of the Company Common
Stock to be received by the Roxborough-Manayunk Public Stockholders will be the
same as the basis of the Roxborough-Manayunk Public 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 Roxborough-Manayunk Public Stockholders will include the holding
period of the Roxborough-Manayunk Public Shares, provided that the
Roxborough-Manayunk Public
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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 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
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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 Roxborough-Manayunk 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 Roxborough-Manayunk
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 Roxborough-Manayunk 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 Public Stockholders should review the comparison of their
rights as Roxborough-Manayunk Public 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 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
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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
when combined with Exchange Stock 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
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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."
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 Stock 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
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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 Stock 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 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 Stock 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
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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 12:00 noon, Eastern Time, on September __, 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
September __, 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 Purchasers"). No person will be permitted
to order in the Community Offering more than 3% of the Conversion Stock
offered (when combined with any Exchange Stock received), 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
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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
(when combined with any Exchange Stock received), 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 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.
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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 Stock, 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 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 Roxborough-Manayunk Public Shares will receive the same aggregate percentage
of the Company Common Stock issued in the Conversion and the Merger as the
percentage of Roxborough-Manayunk 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 Stock will represent
approximately
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87.29% and 12.71%, respectively, of the total Company Common Stock issued in
the Conversion and the Merger, assuming no fractional shares of Exchange
Stock, no exercise of dissenters' rights and no exercise of outstanding stock
options to purchase Roxborough-Manayunk 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 multiplying the
final Appraised Value, as determined by RP Financial, by the Mutual Holding
Company's percentage interest in Roxborough-Manayunk and then dividing the
resulting amount 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 Stock and shares of Company Common Stock to
be subject to options to purchase Company Common Stock upon the conversion
of existing options to purchase Roxborough-Manayunk 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 Stock 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) 4,128,656 5,767,011
Exchange Stock(1) 601,160 839,715
--------- ---------
Total to be issued in the Conversion
and the Merger 4,729,816 6,606,726
Exchange Ratio(2) 2.91825 4.07629
Conversion of existing options to
purchase Roxborough-Manayunk Common
Stock(3) 116,730 163,051
--------- ---------
Total New Shares 4,846,546 6,769,777
Company Common Stock currently
outstanding on a fully diluted
basis(4) 3,808,000 3,808,000
--------- ---------
Company Common Stock to be outstanding
on a fully diluted basis 8,654,546 10,577,777
========= ==========
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 Stock 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 Roxborough-Manayunk
Common Stock).
(2) The Exchange Ratio was determined by dividing the number of Exchange
Stock by the 206,000 outstanding Roxborough-Manayunk Public Shares. In the
event outstanding stock options to purchase Roxborough-Manayunk 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 Roxborough-Manayunk 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 Roxborough-Manayunk Common
Stock owned by them in the aggregate immediately prior to consummation of
the Conversion and the Merger (although the Roxborough-Manayunk Public
Stockholders will receive a smaller percentage ownership interest in the
Company than they had in Roxborough-Manayunk), before giving effect to
(i) the payment of cash in lieu of issuing fractional shares of Exchange
Stock, (ii) any shares of Conversion Stock purchased by the Roxborough-
Manayunk Public Stockholders in the Offering, and (iii) any exercise of
dissenters' rights. See "Pro Forma Unaudited Financial Information."
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(3) If any outstanding stock options to purchase Roxborough-Manayunk 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 Roxborough-Manayunk 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 228,000 shares of Company Common Stock.
It is possible that less than 4,128,656 shares of Conversion Stock or
more than 5,767,011 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 4,128,656 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 5,767,011 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 Stock 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 Stock
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 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 November __, 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 Stock
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 Stock 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 Stock
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, in
each case when combined with any Exchange Stock received. 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 Stock received by Roxborough-Manayunk Public Stockholders for
Roxborough-Manayunk Public Shares. However, Roxborough-Manayunk Public
Stockholders will not have to sell any Roxborough-Manayunk Public Shares or be
limited in receiving Exchange Stock even if their current ownership of
Roxborough-Manayunk Public Shares when converted into Exchange Stock 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 any of the Parties,
or a majority-owned subsidiary of any of the Parties) 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 any of
the Parties 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 August 14, 1995, (2)
the number of Exchange Stock to be held upon consummation of the Conversion
and the Merger, based upon their beneficial ownership of Bank Common Stock
as of August 14, 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 (2)(3)
Shares of Number of Shares
Company Common of Exchange Stock Number of Number of Percentage
Name Stock Held(1) to be Held(1) Amount Shares Shares of Total
<S> <C> <C> <C> <C> <C> <C>
The Company and Progress (4)(5):
John E. F. Corson 6,750 -- $ 10,000 1,739 8,489 .10%
William O. Daggett, Jr. 61,980 -- 100,000 17,391 79,371 .90
Donald F. U. Goebert 140,516 -- 25,000 4,347 144,863 1.64
Joseph R. Klinger 8,250 -- 10,000 1,739 9,989 .11
Paul M. LaNoce 15,250 -- 25,000 4,347 19,597 .22
William L. Mueller 65,476 -- 25,000 4,347 69,823 .79
Charles J. Tornetta 22,908 -- 25,000 4,347 27,255 .31
W. Kirk Wycoff 172,655 -- 250,000 43,478 216,133 2.41
A. John May, III 7,943 -- 10,000 1,739 9,682 .11
All directors and executive
officers of the Company
as a group (9 persons) 500,728 -- 480,000 83,478 584,206 6.50
Roxborough-Manayunk:
Add B. Anderson, Jr. -- 54,352 100,000 17,391 71,743 .81
Robert E. Domanski, M.D. -- 21,672 30,000 5,217 26,889 .30
Joseph P. Healy -- 7,912 5,000 869 13,255 .15
Pietro M. Jacovini, Jr. -- 38,872 100,000 17,391 56,263 .63
William A. Lamb, Sr. -- 21,672 50,000 8,695 48,609 .55
Francis E. McGill, III -- 16,512 170,000 29,565 65,097 .74
John F. McGill 1,000 132,440 300,000 57,143 161,700 2.16
John F. McGill, Jr. 2,000 88,752 145,000 25,217 107,967 1.22
Jerry A. Naessens 3,000 83,936 60,000 10,434 97,370 1.10
All directors and executive
officers of Roxborough-
Manayunk as a group (9
persons) 6,000 466,120 960,000 171,922 644,042 7.27
</TABLE>
-----------------------
(1) Includes shares awarded under the 1992 Stock Bonus Plan and 1994
Management Stock Bonus Plan. See "Management of Roxborough-Manayunk."
Includes stock options to purchase Roxborough-Manayunk Common Stock, which
when adjusted for an assumed Exchange Ratio of 3.44:1, will equal the
following number of shares of Exchange Stock: Mr. John F. McGill, 51,600
shares; Mr. John F. McGill, Jr., 37,840 shares; Mr. Naessens, 27,520
shares; and each of the six non-employee directors, 3,440 shares. Does
not include 505.6, 352.04 and 320.15 shares of Roxborough-Manayunk
Common Stock allocated to the accounts of Messrs. McGill, McGill, Jr. and
Naessens, respectively, under Roxborough-Manayunk's ESOP.
(2) Directors and officers may purchase additional shares of Company
Common Stock in the after-market following consummation of the
Conversion and the Merger.
(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."
(4) Includes stock options to purchase Company Common Stock which are
exercisable within 60 days of August 14, 1995 in the following amounts:
each of Messrs. Corson, Daggett, Goebert, Klinger, LaNoce, Mueller and
Tornetta, 5,250 shares; Mr. May, 250 shares; Mr. Wycoff, 117,500 shares;
and all directors and executive officers of the Company as a group, 154,500
shares.
(5) Excludes shares which may be received upon the exercise of outstanding
common stock warrants in the future. The warrants are not currently
exercisable. Messrs. Daggett, Goebert, Mueller, Tornetta, Wycoff and all
directors and executive officers of the Company as a group own warrants to
purchase 12,500, 50,000, 25,000, 25,000, 12,500, and 125,000 shares of
Company Common Stock, respectively.
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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, 1993 SOP Partners, L.P., is currently deemed to beneficially
own 6.10% of the outstanding Company Common Stock and 16.67% of the Company's
outstanding subordinated debt and warrants. 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 Stock by the payment of commissions or other
remuneration based either directly or indirectly on transactions in the
Conversion Stock and Exchange Stock, 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
Roxborough-Manayunk (which may be given by completing the appropriate
blanks in the order form), must be received by Roxborough-Manayunk at
any of its offices by 12:00 noon, 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 (August 7, 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
Roxborough-Manayunk. 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 Roxborough-Manayunk to withdraw the aggregate
amount of the purchase price from a deposit account, Roxborough-Manayunk
will do so as of the effective date of the Conversion and the Merger.
Roxborough-Manayunk 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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<PAGE>
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.
The Company issued 12 units consisting of subordinated debt and Warrants
in a private placement on June 30, 1995, with each unit consisting of $250,000
of subordinated debt and Warrants to purchase 25,000 shares of Company Common
Stock. Because fractional units were issued, there are currently 13 holders
of the Warrants. Five of the directors and executive officers of the Company
own 125,000 Warrants (see "Management of the Company - Board of Directors"),
an affiliate of Sandler O'Neill, 1993 SOP Partners, L.P., owns 50,000
Warrants, (see "Management of the Company - Beneficial Ownership of Company
Common Stock"), and Roxborough-Manayunk owns 25,000 Warrants. The remaining
100,000 Warrants are held by six individuals or entities.
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 (including subsequently issued
shares such as those that are proposed to be issued in connection with the
Conversion and the Merger). 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 all shares to be
issued in the Conversion and the Merger, will also represent ownership of the
Rights and 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.
-269-
<PAGE>
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 three 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 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.
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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<PAGE>
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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<PAGE>
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
-272-
<PAGE>
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 two-thirds 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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<PAGE>
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 Progress Financial
Corporation 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 Progress Financial Corporation
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.
-274-
<PAGE>
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.
-275-
<PAGE>
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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<PAGE>
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 Roxborough-Manayunk 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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<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Stockholders 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.
......................................
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>
KPMG PEAT MARWICK LLP
INDEPENDENT AUDITORS' REPORT
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 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
F-2
<PAGE>
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>
PROGRESS FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE><CAPTION>
MARCH 31, DECEMBER 31, DECEMBER 31,
1995 1994 1993
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
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
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
PROGRESS FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE><CAPTION>
FOR THE THREE MONTHS FOR THE YEARS ENDED
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
---------- ---------- ----------- ----------- -----------
---------- ---------- ----------- ----------- -----------
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
PROGRESS FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE><CAPTION>
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.
F-6
<PAGE>
PROGRESS FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE><CAPTION>
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 income from
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
Originations 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.......................... (388,927) 556,192 2,104,761 (3,902,054) (1,390,917)
Increase (decrease) in other
liabilities..................... 159,095 320,074 (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
----------- ------------ ------------ ------------- ------------
CASH FLOWS FROM INVESTING
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.... 2,938,917 11,302,037 23,346,862 30,971,096 6,339,645
Repayments on mortgage-backed
securities available for sale.. 102,727 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
</TABLE>
F-7
<PAGE>
PROGRESS FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
<TABLE><CAPTION>
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>
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 investing
activities...................... (663,352) (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............ (2,557,378) (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................... $ 5,518,242 $ 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
----------- ------------ ------------ ------------- ------------
----------- ------------ ------------ ------------- ------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-8
<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. The Bank is a federally
chartered stock savings bank which conducts community banking business through
eight full service offices. PRA holds a 2% ownership interest in Progress Realty
Advisors, L.P. which conducts commercial mortgage banking and brokerage services
for institutional real estate investors, lenders and real estate owners and
developers. 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, stockholders' equity was
F-9
<PAGE>
PROGRESS FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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--(CONTINUED)
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 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 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
F-10
<PAGE>
PROGRESS FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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--(CONTINUED)
realization criteria 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 estimated 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 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.
Progress adopted Statements of Financial Accounting Standards No.'s 114 and
118 (SFAS 114), "Accounting by Creditors for Impairment of a Loan" and
"Accounting by Creditors for Impairment of a Loan--Income Recognition and
Disclosures" as of January 1, 1995. SFAS 114 requires that certain impaired
loans be measured based either on the present value of expected future cash
flows discounted at the loan's effective interest rate, or the loan's observable
market price, or the fair value of the collateral if the loan is collateral
dependent. The adoption of SFAS 114 did not result in additional provisions for
loan losses primarily because 100% of impaired loan valuations continue to be
based on the fair value of collateral.
The provision for loan losses charged to expense is based upon past loan and
loss experienced and an evaluation of potential losses in the current loan and
lease portfolio, including the evaluation of impaired loans under SFAS 114. A
loan is considered to be impaired when, based upon current information and
events, it is probable that Progress will be unable to collect all amounts due
according to the contractual terms of the loan. An insignificant delay or
insignificant shortfall in amount of payments does not require application of
SFAS 114. For this purpose, delays less than 60 days are considered to be
insignificant and shortfalls less than $5,000 are considered to be
insignificant. As of
F-11
<PAGE>
PROGRESS FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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--(CONTINUED)
March 31, 1995, 100% of the impaired loan balance was measured for impairment
based on the fair value of the loans' collateral. Impairment losses are included
in the provision for loan losses. SFAS 114 does not apply to large groups of
smaller balance homogeneous loans that are collectively evaluated for
impairment, except for those loans restructured under a troubled debt
restructuring. Loans collectively evaluated for impairment include consumer
loans, residential real estate loans, and credit card loans, and are not
included in the data that follows.
The following table summarizes impaired loan information.
<TABLE><CAPTION>
MARCH 31,
$(THOUSANDS) 1995
------------ --------
<S> <C>
Impaired loans..................................................................... $ 2,915
Impaired loans with related reserve for loan losses calculated under SFAS 114...... 33
Impaired loans with no related reserve for loan losses calculated under SFAS 114... 2,882
</TABLE>
<TABLE><CAPTION>
THREE MONTHS ENDED
MARCH 31, 1995
------------------
<S> <C>
Average impaired loans...................................................... $2,945
Interest income recognized on impaired loans................................ 0
Cash basis interest income recognized on impaired loans..................... 0
</TABLE>
At March 31, 1995, all but approximately $58,000 of Progress' non-accrual
loans, excluding non-accrual consumer loans, residential real estate loans and
credit card loans, were considered to be impaired loans.
Interest payments on impaired loans are typically applied to principal
unless collectability of the principal amount is fully assured, in which case
interest is recognized on the cash basis.
Commercial loans and commercial real estate loans are placed on nonaccrual
at the time the loan is 90 days delinquent unless the credit is well secured and
in the process of collection. Generally, commercial loans are charged off no
later than 120 days delinquent unless the loan is well secured and in the
process of collection, or other extenuating circumstances support collection.
Residential real estate loans are typically placed on nonaccrual at the time the
loan is 90 days delinquent. Credit card loans and other unsecured personal
credit lines are typically charged off no later than 180 days delinquent. Other
consumer loans are typically charged off at 120 days delinquent. In all cases,
loans must be placed on nonaccrual or charged off at an earlier date if
collection of principal or interest is considered doubtful.
All interest accrued but not collected for loans that are placed on
nonaccrual or charged off is reversed to interest income. The interest on these
loans is accounted for on the cash basis or cost recovery method, until
qualifying for return to accrual. Loans are returned to accrual status when all
the principal and interest amounts contractually due are reasonably assured of
repayment within a reasonable time frame and when the borrower has demonstrated
payment performance of cash or cash equivalents for a minimum of six months.
F-12
<PAGE>
PROGRESS FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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--(CONTINUED)
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 25, 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 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
F-13
<PAGE>
PROGRESS FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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--(CONTINUED)
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.
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.
(2) INVESTMENT SECURITIES
The Bank is required under 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
COST GAINS LOSSES VALUE VALUE
----------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Held to Maturity:
FHLB of Pittsburgh stock,
pledged....................... $ 2,468,700 -$- $ -- $ 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
----------- ----- ---------- ----------- -----------
----------- ----- ---------- ----------- -----------
Available for Sale:
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
----------- ----- ---------- ----------- -----------
----------- ----- ---------- ----------- -----------
</TABLE>
F-14
<PAGE>
PROGRESS FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(2) INVESTMENT SECURITIES--(CONTINUED)
<TABLE><CAPTION>
DECEMBER 31, 1994
---------------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR CARRYING
COST GAINS LOSSES VALUE VALUE
----------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Held to Maturity:
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
----------- ----- ---------- ----------- -----------
----------- ----- ---------- ----------- -----------
Available for Sale:
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>
<TABLE><CAPTION>
DECEMBER 31, 1993
---------------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR CARRYING
COST GAINS LOSSES VALUE VALUE
----------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Held to Maturity:
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
F-15
<PAGE>
PROGRESS FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(2) INVESTMENT SECURITIES--(CONTINUED)
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.
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
COST VALUE AVERAGE YIELD
----------- -------------- -------------
<S> <C> <C> <C>
Held to Maturity:
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%
----------- -------------- ---
----------- -------------- ---
Available for Sale:
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
COST VALUE AVERAGE YIELD
----------- -------------- -------------
<S> <C> <C> <C>
Held to Maturity:
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%
----------- -------------- ---
----------- -------------- ---
Available for Sale:
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-16
<PAGE>
PROGRESS FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(3) MORTGAGE-BACKED SECURITIES
The following tables detail the carrying value and estimated fair value of
the Company's mortgage-backed securities:
<TABLE><CAPTION>
MARCH 31, 1995
---------------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR CARRYING
COST GAINS LOSSES VALUE VALUE
------------ ---------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Held to Maturity:
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
------------ ---------- ----------- ------------ ------------
------------ ---------- ----------- ------------ ------------
Available for Sale:
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
FHLMC collateralized mortgage
obligations 3,003,180 -- (78,180) 2,925,000 2,925,000
Non-agency collateralized
mortgage obligations........... 1,995,260 -- (175,260) 1,820,000 1,820,000
------------ ---------- ----------- ------------ ------------
$ 9,645,172 $ 392 $ (500,694) $ 9,144,870 $ 9,144,870
------------ ---------- ----------- ------------ ------------
------------ ---------- ----------- ------------ ------------
<CAPTION>
DECEMBER 31, 1994
---------------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR CARRYING
COST GAINS LOSSES VALUE VALUE
------------ ---------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Held to Maturity:
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
------------ ---------- ----------- ------------ ------------
------------ ---------- ----------- ------------ ------------
Available for Sale:
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
FHLMC collateralized mortgage
obligations 3,003,240 -- (78,240) 2,925,000 2,925,000
Non-agency collateralized
mortgage obligations........... 1,994,800 -- (204,800) 1,790,000 1,790,000
------------ ---------- ----------- ------------ ------------
$ 9,751,633 $ -- (648,448) $ 9,103,185 $ 9,103,185
------------ ---------- ----------- ------------ ------------
------------ ---------- ----------- ------------ ------------
</TABLE>
F-17
<PAGE>
PROGRESS FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(3) MORTGAGE-BACKED SECURITIES--(CONTINUED)
<TABLE><CAPTION>
DECEMBER 31, 1993
---------------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR CARRYING
COST GAINS LOSSES VALUE VALUE
------------ ---------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Held to Maturity:
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
FHLMC 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
------------ ---------- ----------- ------------ ------------
------------ ---------- ----------- ------------ ------------
Available for Sale:
GNMA............................. $ 204,292 $ -- $ -- $ 204,292 $ 204,292
FHLMC............................ 5,683,417 35,709 (24,144) 5,694,982 5,683,417
FHLMC 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>
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
COST FAIR VALUE COUPON RATE
----------- ----------- -----------
<S> <C> <C> <C>
Held to Maturity:
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%
----------- ----------- ---
----------- ----------- ---
Available for Sale:
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%
----------- ----------- ---
----------- ----------- ---
</TABLE>
F-18
<PAGE>
PROGRESS FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(3) MORTGAGE-BACKED SECURITIES--(CONTINUED)
<TABLE><CAPTION>
AT DECEMBER 31, 1994
-----------------------------------------
WEIGHTED
AMORTIZED ESTIMATED AVERAGE
COST FAIR VALUE COUPON RATE
----------- ----------- -----------
<S> <C> <C> <C>
Held to Maturity:
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%
----------- ----------- ---
----------- ----------- ---
Available for Sale:
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.
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-19
<PAGE>
PROGRESS FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(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.
F-20
<PAGE>
PROGRESS FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(4) LOANS, NET--(CONTINUED)
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 1994 and December 31, 1994, 1993 and 1992, the Bank
was servicing loans, including participations sold, in the amounts of
$272,568,862, $203,536,000 $240,769,000, $185,567,133 and $62,431,347,
respectively, for the benefit of others.
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
---------- ---------- ----------- ----------- -----------
---------- ---------- ----------- ----------- -----------
</TABLE>
------------
(1) In conjunction with the acquisition of the Rosemont branch office on July 1,
1993.
(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. The
interest rates on fixed rate residential mortgage commitments ranged from 8.25%
to 9.38% at March 31, 1995, from 8.00% to 9.00% at December 31, 1994, and from
6.13% to 7.75% at December 31, 1993. 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.
F-21
<PAGE>
PROGRESS FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(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........................... (75,000) -- (1,575,538) -- (4,259,217)
-------- ---- ----------- -------- -----------
Balance at end of period.............. $ -- $-- $ -- $ -- $ 34,666
-------- ---- ----------- -------- -----------
-------- ---- ----------- -------- -----------
</TABLE>
(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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(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> <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
-------------- -----------------
-------------- -----------------
F-23
<PAGE>
PROGRESS FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(8) DEPOSITS--(CONTINUED)
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. Deposits in excess of $100,000 are not federally insured. 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.
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> <C> <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>
(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
MATURITY PERIOD RATE AMOUNT RATE AMOUNT RATE AMOUNT
------------------------- -------- ----------- -------- ----------- -------- -----------
<S> <C> <C> <C> <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
--- ----------- --- ----------- --- -----------
--- ----------- --- ----------- --- -----------
</TABLE>
------------
<TABLE>
<C> <S>
(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>
F-24
<PAGE>
PROGRESS FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(9) ADVANCES FROM THE FEDERAL HOME LOAN BANK--(CONTINUED)
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> <C> <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%
</TABLE>
------------
(1) Average interest rate is calculated by dividing the actual interest expense
for the period by the average outstanding balances for the period.
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.
(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
F-25
<PAGE>
PROGRESS FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(10) INCOME TAXES--(CONTINUED)
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> <C> <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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(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
-------- ------- --------- ----------- ----------
-------- ------- --------- ----------- ----------
</TABLE>
------------
(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.
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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(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:
<TABLE><CAPTION>
MARCH 31, 1995 DECEMBER 31, 1994
-------------- -----------------
<S> <C> <C>
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
-------------- -----------------
-------------- -----------------
</TABLE>
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.
(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
F-28
<PAGE>
PROGRESS FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(12) BENEFIT PLANS--(CONTINUED)
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.
(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.
F-29
<PAGE>
PROGRESS FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(13) RELATED PARTY TRANSACTIONS--(CONTINUED)
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,
respectively, 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, 1994, no shares were 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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(14) STOCK OPTIONS--(CONTINUED)
Changes in total options outstanding are as follows:
<TABLE><CAPTION>
MARCH 31, 1995
---------------------------
SHARES OPTION
UNDER PRICE
OPTION PER SHARE
------- ----------------
<S> <C> <C>
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
------- ----------------
------- ----------------
<CAPTION>
DECEMBER 31, 1994
---------------------------
SHARES OPTION
UNDER PRICE
OPTION PER SHARE
------- ----------------
<S> <C> <C>
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
------- ----------------
------- ----------------
<CAPTION>
DECEMBER 31, 1993
---------------------------
SHARES OPTION
UNDER PRICE
OPTION PER SHARE
------- ----------------
<S> <C> <C>
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
------- ----------------
------- ----------------
<CAPTION>
DECEMBER 31, 1992
---------------------------
SHARES OPTION
UNDER PRICE
OPTION PER SHARE
------- ----------------
<S> <C> <C>
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
------- ----------------
------- ----------------
</TABLE>
F-31
<PAGE>
PROGRESS FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(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:
<TABLE><CAPTION>
MARCH 31, 1995
--------------------------------------------------------------
TANGIBLE CORE RISK-BASED
CAPITAL % CAPITAL % CAPITAL %
-------- ------- ------- ----- ---------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
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%
-------- ------- ------- ----- ---------- -----
-------- ------- ------- ----- ---------- -----
</TABLE>
<TABLE><CAPTION>
DECEMBER 31, 1994
--------------------------------------------------------------
TANGIBLE CORE RISK-BASED
CAPITAL % CAPITAL % CAPITAL %
-------- ------- ------- ----- ---------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
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%
-------- ------- ------- ----- ---------- -----
-------- ------- ------- ----- ---------- -----
</TABLE>
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
F-33
<PAGE>
PROGRESS FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(15) RECENT REGULATIONS--(CONTINUED)
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>
CONTRACT OR
NOTIONAL AMOUNT
-----------------------------------
MARCH 31, 1995 DECEMBER 31, 1994
-------------- -----------------
(DOLLARS IN THOUSANDS)
<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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(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
F-35
<PAGE>
PROGRESS FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(16) FINANCIAL INSTRUMENTS--(CONTINUED)
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.
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.
F-36
<PAGE>
PROGRESS FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(16) FINANCIAL INSTRUMENTS--(CONTINUED)
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-37
<PAGE>
PROGRESS FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(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>
F-38
<PAGE>
PROGRESS FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(17) SELECTED QUARTERLY CONSOLIDATED FINANCIAL DATA (UNAUDITED)--(CONTINUED)
<TABLE><CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER
SHARE DATA)
---------------------------------
SEPT. 30, JUN. 30, MAR. 31,
1993 1993 1993
--------- -------- --------
<S> <C> <C> <C>
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
--------- -------- --------
--------- -------- --------
</TABLE>
F-39
<PAGE>
PROGRESS FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(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............ 13,729,005 14,477,440 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 FOR THE YEARS ENDED
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 $ 44,723 $(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>
F-40
<PAGE>
PROGRESS FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(18) CONDENSED FINANCIAL INFORMATION OF PROGRESS FINANCIAL CORPORATION
(PARENT COMPANY ONLY)--(CONTINUED)
Under a tax-sharing arrangement between the Company and the Bank, income tax
expense (benefit) is recorded on the books of the Bank.
<TABLE><CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS
-------------------------------------------------------------
FOR THE THREE
MONTHS FOR THE YEARS ENDED
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 investing
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 investing
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.
F-41
<PAGE>
PROGRESS FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(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, which is expected to be
accounted for under the pooling of interests method, requires approval from the
stockholders and regulatory bodies. As of March 31, 1995 no merger related costs
have been incurred.
F-42
<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, 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.
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
......................................
Deloitte & Touche, LLP
Philadelphia, Pennsylvania
January 27, 1995
S-1
<PAGE>
ROXBOROUGH-MANAYUNK FEDERAL SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE><CAPTION>
MARCH 31, DECEMBER 31, DECEMBER 31,
1995 1994 1993
-------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
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
-------------- ------------ ------------
-------------- ------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
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
-------------- ------------ ------------
Commitments and Contingencies
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-2
<PAGE>
ROXBOROUGH-MANAYUNK FEDERAL SAVINGS BANK AND SUBSIDIARIES AND
ROXBOROUGH-MANAYUNK FEDERAL SAVINGS AND LOAN ASSOCIATION AND
SUBSIDIARIES ("PREDECESSOR ASSOCIATION")
CONSOLIDATED STATEMENTS OF INCOME
<TABLE><CAPTION>
THREE-MONTH PERIOD YEARS ENDED DECEMBER 31,
ENDED -------------------------------------
MARCH 31, PREDECESSOR
----------------------- ASSOCIATION
1995 1994 1994 1993 1992
---------- ---------- ---------- ---------- -----------
(UNAUDITED)
<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-3
<PAGE>
ROXBOROUGH-MANAYUNK FEDERAL SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE><CAPTION>
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...................... $ 15,117,313 $ 15,117,313
Net Income................ 1,772,042 1,772,042
Sale of 200,000 Shares of
Common Stock, $1 par
value (net of costs of
$239,925)............... $ 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 (1,515,000) (100,000)
Capitalization of retained
earnings to additional
paid-in capital......... 15,374,355 (15,374,355)
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
Issuance of shares in
connection with
management plan
(unaudited)............. 6,000 63,000 69,000
Principal payments made by
Employee Stock Option
Plan (unaudited)........ 6,768 6,768
---------- ----------- --------- ----------- -------------- ------------ -------------
Balance, March 31, 1995
(unaudited)............. $1,621,000 $16,997,430 $ (83,842) $ (36,000) $ (525,315) $ 5,007,942 $ 22,981,215
---------- ----------- --------- ----------- -------------- ------------ -------------
---------- ----------- --------- ----------- -------------- ------------ -------------
</TABLE>
See Notes to Consolidated Financial Statements
S-4
<PAGE>
ROXBOROUGH-MANAYUNK FEDERAL SAVINGS BANK AND SUBSIDIARIES AND
ROXBOROUGH-MANAYUNK FEDERAL SAVINGS AND LOAN ASSOCIATION AND
SUBSIDIARIES ("PREDECESSOR ASSOCIATION")
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE><CAPTION>
YEARS ENDED DECEMBER 31,
THREE-MONTH PERIOD ENDED ------------------------------------------
MARCH 31, PREDECESSOR
-------------------------- ASSOCIATION
1995 1994 1994 1993 1992
----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
OPERATING ACTIVITIES:
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.................... 307,325 389,041 (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............... 2,942,237 5,891,877 20,105,812 22,791,609 24,150,235
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
----------- ------------ ------------ ------------ ------------
Net cash used in (provided by)
investing activities........ 24,437,589 (587,868) (13,055,081) (16,486,556) (22,827,570)
----------- ------------ ------------ ------------ ------------
</TABLE>
S-5
<PAGE>
ROXBOROUGH-MANAYUNK FEDERAL SAVINGS BANK AND SUBSIDIARIES AND
ROXBOROUGH-MANAYUNK FEDERAL SAVINGS AND LOAN ASSOCIATION AND
SUBSIDIARIES ("PREDECESSOR ASSOCIATION")
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
<TABLE><CAPTION>
YEARS ENDED DECEMBER 31,
THREE-MONTH PERIOD ENDED ------------------------------------------
MARCH 31, PREDECESSOR
-------------------------- ASSOCIATION
1995 1994 1994 1993 1992
----------- ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
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 DISCLOSURES:
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 1,174,000 965,000
Transfer of mortgage-backed
securities to mortgage-backed
securities available for sale.... 29,137,133
Non-Cash Transfers from Loans to
Real Estate Owned................ 31,156 -- 251,674 67,900 196,183
</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 ENDED 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.
Ridge Service Corporation is currently inactive. Montgomery Service Corporation
manages a small commercial real estate property.
Cash and Cash Equivalents--The Bank considers all highly liquid investments
with an original maturity of three months or less to be cash equivalents.
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.
S-7
<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--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
AND (UNAUDITED) FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 1995 AND 1994
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
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.
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 Bank's financial condition or results of operations based on the
Bank's current loan portfolio.
Real Estate Acquired Through Foreclosure--Real estate acquired through
foreclosure is carried at the lower of fair value or balance of the loan on the
property at date of acquisition less estimated selling costs. Costs relating to
the development and improvement of property are capitalized, and those relating
to holding the property are charged to expense.
S-8
<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--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
AND (UNAUDITED) FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 1995 AND 1994
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
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.
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 considering prepayments using the interest method.
Unearned Discounts and Premiums--Unearned discounts and premiums are
accreted over the expected average lives of the loans purchased using the
interest method.
Income Taxes--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>
ROXBOROUGH-MANAYUNK FEDERAL SAVINGS BANK AND SUBSIDIARIES AND
ROXBOROUGH-MANAYUNK FEDERAL SAVINGS AND LOAN ASSOCIATION AND
SUBSIDIARIES ("PREDECESSOR ASSOCIATION")
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
AND (UNAUDITED) FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 1995 AND 1994
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 APPROXIMATE
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES 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>
<TABLE><CAPTION>
HELD TO MATURITY DECEMBER 31, 1994
------------------------------------------------------
GROSS GROSS APPROXIMATE
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES 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>
S-10
<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--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
AND (UNAUDITED) FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 1995 AND 1994
3. INVESTMENTS--(CONTINUED)
<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>
<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
1 to 5 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
--------------------------
AMORTIZED APPROXIMATE
COST 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-11
<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--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
AND (UNAUDITED) FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 1995 AND 1994
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-12
<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--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
AND (UNAUDITED) FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 1995 AND 1994
4. MORTGAGE-BACKED SECURITIES AVAILABLE FOR SALE--(CONTINUED)
Proceeds from the sale of mortgage-backed securities during the three-month
period ended March 31, 1995 were $20,676,552 resulting in a gross 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 gross
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, 1993
1995 1994 -
------------ -----------
<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.
S-13
<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--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
AND (UNAUDITED) FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 1995 AND 1994
5. LOANS RECEIVABLE--(CONTINUED)
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 and 1994, the Bank was servicing loans for
others amounting to $3,528,416 and $4,290,633, respectively. Servicing loans for
others generally consists of collecting mortgage payments, maintaining escrow
accounts, disbursing payments to investors and foreclosure processing. Loan
servicing income is recorded on the accrual basis and includes servicing fees
from investors and certain charges collected from borrowers, such as late
payment fees. In connection with these loans serviced for others, the 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
$894,000 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.
S-14
<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--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
AND (UNAUDITED) FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 1995 AND 1994
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>
7. OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment are summarized by major classification as
follows:
<TABLE><CAPTION>
DECEMBER 31,
MARCH 31, --------------------------
1995 1994 1993
----------- ----------- -----------
<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>
DECEMBER 31,
MARCH 31, --------------------------------------------------
1995 1994 1993
----------------------- ----------------------- -----------------------
WEIGHTED WEIGHTED WEIGHTED
INTEREST INTEREST INTEREST
AMOUNT RATE AMOUNT RATE AMOUNT RATE
------------ -------- ------------ -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
NOW accounts................ $ 14,738,000 1.85% $ 15,499,000 2.02% $ 13,787,000 2.04%
Money Market Demand
accounts.................. 11,936,000 4.43 10,285,000 2.53 9,821,000 4.22
Passbook accounts........... 110,648,712 3.78 115,681,534 3.02 126,574,737 3.73
Certificate accounts........ 101,716,000 4.79 99,765,000 4.21 94,123,000 4.49
------------ -------- ------------ -------- ------------ --------
Total................. $239,038,712 4.12% $241,230,534 3.40% $244,305,737 3.96%
------------ -------- ------------ -------- ------------ --------
------------ -------- ------------ -------- ------------ --------
</TABLE>
S-15
<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--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
AND (UNAUDITED) FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 1995 AND 1994
8. DEPOSITS--(CONTINUED)
At December 31, 1994 and 1993, the Bank had deposits of $100,000 or greater
which were not federally insured, 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>
DECEMBER 31,
MARCH 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>
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
S-16
<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--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
AND (UNAUDITED) FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 1995 AND 1994
10. INCOME TAXES--(CONTINUED)
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 at 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:
<TABLE><CAPTION>
FEDERAL STATE TOTAL
---------- -------- ----------
<S> <C> <C> <C>
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
</TABLE>
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>
THREE-MONTH PERIOD ENDED MARCH 31, YEAR ENDED DECEMBER 31,
-------------------------------------- ------------------------------------------------------
PREDECESSOR
ASSOCIATION
1995 1994 1994 1993 1992
----------------- ----------------- ------------------- ------------------- --------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT
-------- ------- -------- ------- ---------- ------- ---------- ------- --------
<S> <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
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)
Special bad debt
deduction.................. (72,120)
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
Other....................... (13,488) (1.6) 14,939 2.9 (33,191) (1.1) (60,853) (1.7) 26,062
-------- ------- -------- ------- ---------- ------- ---------- ------- --------
Total.................. $293,400 36.3% $207,613 40.2% $1,189,823 38.4% $1,188,618 32.0% $840,821
-------- ------- -------- ------- ---------- ------- ---------- ------- --------
-------- ------- -------- ------- ---------- ------- ---------- ------- --------
<CAPTION>
PERCENT
-------
<S> <C>
Tax at federal tax rate..... 34.0%
Decrease resulting from
amortization of goodwill
premiums and discounts
relating to an
acquisition--net........... (0.8)
Special bad debt
deduction.................. (2.8)
State income tax expense,
net of federal income
tax........................
Provision for loan losses... 0.8
Other....................... 1.0
-------
Total.................. 32.2%
-------
-------
</TABLE>
S-17
<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--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
AND (UNAUDITED) FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 1995 AND 1994
10. INCOME TAXES--(CONTINUED)
Items that give rise to significant portions of the deferred tax accounts
are as follows:
<TABLE><CAPTION>
DECEMBER 31,
MARCH 31, -----------------------
1995 1994 1993
---------- ---------- ---------
<S> <C> <C> <C>
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
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
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.
At March 31, 1995, the Bank had the following capital ratios (percentages
relate to adjusted assets):
<TABLE><CAPTION>
CORE TANGIBLE RISK BASED
----------------- ----------------- -----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------- ------- ------- ------- ------- -------
(DOLLAR AMOUNTS IN THOUSANDS)
<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>
S-18
<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--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
AND (UNAUDITED) FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 1995 AND 1994
11. REGULATORY CAPITAL REQUIREMENTS--(CONTINUED)
At December 31, 1994, the Bank had the following capital ratios (percentages
relate to adjusted assets):
<TABLE><CAPTION>
CORE TANGIBLE RISK BASED
----------------- ----------------- -----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------- ------- ------- ------- ------- -------
(DOLLAR AMOUNTS IN THOUSANDS)
<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.
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.
S-19
<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--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
AND (UNAUDITED) FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 1995 AND 1994
12. PENSION AND PROFIT-SHARING PLANS--(CONTINUED)
The following table sets forth the plan's net periodic pension cost at
December 31, 1994, 1993 and 1992:
<TABLE><CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
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 deferral................................ (32,465) (17,444) (19,481)
-------- -------- --------
Net periodic pension cost.................................... $ 73,399 $ 73,304 $ 47,133
-------- -------- --------
-------- -------- --------
</TABLE>
<TABLE><CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
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)
---------- ----------
---------- ----------
</TABLE>
The weighted-average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligation 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. Information for the pension and profit-sharing plans was not available
for the periods ended March 31, 1995 and 1994.
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 OWNWERSHIP 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
S-20
<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--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
AND (UNAUDITED) FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 1995 AND 1994
13. EMPLOYEE STOCK OWNWERSHIP PLAN--(CONTINUED)
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 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
S-21
<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--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
AND (UNAUDITED) FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 1995 AND 1994
14. OTHER EMPLOYEE BENEFITS--(CONTINUED)
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 and $15,000 for the period ended March 31, 1995.
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>
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.
S-22
<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--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
AND (UNAUDITED) FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 1995 AND 1994
15. FAIR VALUE DISCLOSURE--(CONTINUED)
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. THE CONVERSION AND THE MERGER
On May 25, 1995, the Boards of Directors of FJF Financial and the Bank
adopted a Plan of Conversion (the "Plan") and FJF Financial, the Bank, the
Progress Financial Corporation (the "Company") and Progress Federal Savings Bank
("Progress") adopted an Agreement and Plan of Reorganization (the "Agreement"),
which documents were amended on August 7, 1995. Pursuant to the Plan and the
Agreement, (1) FJF Financial, which owns approximately 87.29% of the Bank, will
convert from the mutual form to a federal interim stock savings bank and the
interim institution will then simultaneously merge into the Bank, with the Bank
being the surviving entity; (2) Progress will then merge into the Bank, with the
Bank being the surviving entity; and (3) the outstanding shares of the Bank's
common stock (other than those held by FJF Financial, which will be cancelled)
will be converted into shares of common stock of the Company. The Company will
then offer for sale pursuant to the Plan additional shares equal to 87.29% of
the common shares of the Company to be issued in the Conversion and the Merger.
Consummation of the Plan is subject to (i) the approval of the members of the
Mutual Holding Company, (ii) the shareholders of the Bank and the Company, and
(iii) various regulatory agencies.
Pursuant to the Plan, shares of the Company's common stock are expected to
be offered initially for subscription by eligible members of FJF Financial,
eligible employee benefit plans of the Company and the Bank, and certain other
persons, including shareholders of the Bank and the Company, as of specified
dates subject to various subscription priorities as provided in the Plan. The
common stock will be sold at a price to be determined by the parties based upon
an appraisal to be made by an independent appraisal firm. The appraisal will be
directed by the average closing price of the Company's common stock to determine
the number of shares to be issued. Any stock not purchased in the subscription
offering will be sold in a community offering to be commenced simultaneously
with the subscription offering or, if necessary, in a syndicated community
offering.
The Plan provides that when the conversion is completed, a "Liquidation
Account" will be established in an amount equal to the greater of (1) the
retained earnings of the Bank as of June 30, 1992, the date of the latest
statement of financial condition contained in the final offering circular
utilized in the formation of FJF Financial or (2) 87.29% of the Bank's total
shareholders' equity as reflected in its latest statement of financial condition
in the final prospectus utilized in the Conversion
S-23
<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--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
AND (UNAUDITED) FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 1995 AND 1994
16. THE CONVERSION AND THE MERGER--(CONTINUED)
and the Merger, plus the amount of dividends waived by FJF Financial. The
Liquidation Account is established to provide a limited priority claim to the
assets of the Bank to qualifying depositors as of specified dates (Eligible
Account Holders and Supplemental Eligible Account Holders) who continue to
maintain deposits in the Bank after the Conversion and the Merger. In the
unlikely event of a complete liquidation of the Bank, and only in such an event,
Eligible Account Holders and Supplemental Eligible Account Holders would receive
from the Liquidation Account a liquidation distribution based on their
proportionate share of the then total remaining qualifying deposits.
Current regulations allow the Bank to pay dividends on its stock after the
Conversion and the Merger if its regulatory capital would not thereby be reduced
below the amount then required for the aforementioned Liquidation Account. Also,
capital distribution regulations limit the Bank's ability to make capital
distributions which include dividends, stock redemptions or repurchases,
cash-out mergers, interest payments on certain convertible debt, and other
transactions charged to the capital account based on their capital level and
supervisory condition. Federal regulations also preclude (i) any repurchase of
the stock of the Company for one year after the conversion (unless otherwise
approved by the OTS), and (ii) any repurchase of the stock of the Company in the
second or third year after the conversion unless such repurchase is pursuant to
an offer made on a pro rata basis to all shareholders and with prior approval of
the Office of Thrift Supervision or pursuant to an open-market stock repurchase
program that complies with certain regulatory criteria including a limitation on
such purchases to not more than 5% of the stock of the Company, unless otherwise
approved by the Office of Thrift Supervision. The Bank has retained the services
of both a marketing firm and legal counsel for the specific purpose of
implementing the Plan. Costs relating to the conversion will be deferred and,
upon conversion, such costs and any additional costs will be charged against the
proceeds from the sale of stock. As of March 31, 1995, there were no deferred
costs related to the Conversion and the Merger. If the Conversion and the Merger
is not completed, these deferred costs will be charged to operations.
S-24
<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 . . . . . 26
Selected Consolidated Financial and Other
Data of Roxborough-Manayunk . . . . . 28
Selected Pro Forma Unaudited
Consolidated Financial Data
of the Company . . . . . . . . . . . 30
Summary of Recent Developments of the ____________________
Company . . . . . . . . . . . . . . . 32
Summary of Recent Developments of PROSPECTUS
Roxborough-Manayunk . . . . . . . . . 36 ____________________
Risk Factors . . . . . . . . . . . . . 39
Market Price for Company Common Stock
and Dividends . . . . . . . . . . . . 50
Use of Proceeds . . . . . . . . . . . . 52
Capitalization . . . . . . . . . . . . 54
Regulatory Capital . . . . . . . . . . 57
Pro Forma Unaudited Financial
Information . . . . . . . . . . . . . 59
Management's Discussion and Analysis of
Financial Condition and Results of
Operations of the Company . . . . . . 71
Business of the Company . . . . . . . . 92
Management's Discussion and Analysis of --------------------
Financial Condition and Results of Sandler O'Neill &
Operations of Roxborough-Manayunk . . 125 Partners, L.P.
Business of Roxborough-Manayunk . . . . 143
Regulation . . . . . . . . . . . . . . 171 --------------------
Taxation . . . . . . . . . . . . . . . 187
Management of the Company . . . . . . . 190
Managment of the Mutual August __, 1995
Holding Company . . . . . . . . . . . 199
Management of Roxborough-Manayunk . . . 200
Management of the Company and
Progress Bank Following the
Conversion and the Merger . . . . . . 213
The Conversion and the Merger . . . . 221
The Offerings . . . . . . . . . . . . . 244
Description of Capital Stock
of the Company . . . . . . . . . . . 263
Restrictions on Acquisition of the
Company and Progress Bank . . . . . . 264
Experts . . . . . . . . . . . . . . . . 273
Legal and Tax Opinions . . . . . . . . 274
Index to Consolidated Financial
Statements of the Company . . . . . . 275
Index to Consolidated Financial
Statements of Roxborough-Manayunk . . 276
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
Duplicating expenses . . . . . . . . . . . . . . . 10,000
Miscellaneous . . . . . . . . . . . . . . . . . . . 15,230
-------
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 *
1.2 Agency Agreement with Sandler
O'Neill & Partners, L.P. E-1
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 and amended
as of August 7, 1995 E-52
2.2 Plan of Conversion of FJF Financial,
M.H.C. and Roxborough-Manayunk Federal
Savings Bank E-108
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 E-144
8.1 Opinion of Malizi, Spidi, Sloane &
Fisch, P.C. regarding federal income
tax consequences E-146
8.2 Opinion of Drinker, Biddle & Reath
regarding Pennsylvania income tax
consequences E-159
8.3 Opinion of RP Financial, Inc. regarding
subscription rights E-164
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 *
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-167
23.5 Consent of Coopers & Lybrand L.L.P. E-169
23.6 Consent of KPMG Peat Marwick LLP E-171
23.7 Consent of Deloitte & Touche, LLP E-173
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-175
99.2 Order Form E-197
99.3 Transmittal letters to stockholders
and members E-204
99.4 Question and Answer Brochure E-218
_______________
* Previously filed.
** 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 Amended 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 7th
day of August 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
Amended Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
/s/ W. Kirk Wycoff Date: August 7, 1995
--------------------------------------
W. Kirk Wycoff
Chairman, President and
Chief Executive Officer
(principal executive officer)
/s/ Peter J. Meier Date: August 7, 1995
--------------------------------------
Peter J. Meier
Vice President and Corporate
Controller (principal accounting
officer)
/s/ William O. Daggett, Jr.* Date: August 7, 1995
------------------------------------
William O. Daggett, Jr.
Director
II - 7
<PAGE>
/s/ John E. F. Corson* Date: August 7, 1995
-----------------------------------
John E. F. Corson
Director
/s/ Donald F. U. Goebert* Date: August 7, 1995
-----------------------------------
Donald F. U. Goebert
Director
/s/ Joseph R. Klinger* Date: August 7, 1995
----------------------------------
Joseph R. Klinger
Director
/s/ Paul M. LaNoce* Date: August 7, 1995
-----------------------------------
Paul M. LaNoce
Director
/s/ A. John May, III* Date: August 7, 1995
-----------------------------------
A. John May, III
Director
/s/ William L. Mueller* Date: August 7, 1995
-----------------------------------
William L. Mueller
Director
/s/ Charles J. Tornetta* Date: August 7, 1995
-----------------------------------
Charles J. Tornetta
Director
----------
* By W. Kirk Wycoff as Attorney-in-fact.
II - 8
Exhibit 1.2
Agency Agreement with Sandler
O'Neill & Partners, L.P.
E - 1
<PAGE>
EXHIBIT 1.2
$32,200,000 of Common Stock, par value
$_____ per share
(subject to increase to up to $37,030,000 of Common Stock
in the event of an oversubscription)
PROGRESS FINANCIAL CORPORATION
(a Delaware corporation)
AGENCY AGREEMENT
August __, 1995
SANDLER O'NEILL & PARTNERS, L.P.
Two World Trade Center, 104th Floor
New York, New York 10048
Ladies and Gentlemen:
Progress Financial Corporation, a Delaware corporation (the "Company")
and FJF Financial, M.H.C., a federally chartered mutual holding company (the
"Mutual Holding Company"), hereby confirm their agreement with Sandler O'Neill &
Partners, L.P. ("Sandler O'Neill" or the "Agent") with respect to the offer and
sale by the Company of $32,200,000 (subject to increase to up to $37,030,000 in
the event of an oversubscription) of the Company's Common Stock, par value $0.01
per share (the "Common Stock"). The shares of Common Stock to be sold by the
Company are hereinafter called the "Securities."
The Securities are being offered in accordance with a Plan of
Conversion and related Plan of Merger (the "Plan") adopted by the Boards of
Directors of the Mutual Holding Company and its wholly owned subsidiary,
Roxborough-Manayunk Federal Savings Bank ("Roxborough-Manayunk") and an
Agreement and Plan of Reorganization (the "Reorganization Agreement") adopted by
the Boards of Directors of the Mutual Holding Company, Roxborough-Manayunk, the
Company and the Company's wholly owned subsidiary, Progress Federal Savings Bank
("Progress"). Pursuant to the Plan and the Reorganization Agreement, the Mutual
Holding Company will convert to stock form and merge with Roxborough-Manayunk,
which will then merge with Progress. Pursuant to the Plan, the Company is
offering rights to subscribe for the Securities in a subscription offering (the
"Subscription Offering") to certain of Roxborough-Manayunk's depositors and
borrowers, to an employee stock ownership plan of the Company (the "ESOP") and
to
E - 2
<PAGE>
-2-
stockholders of Roxborough-Manayunk and the Company as of certain record dates.
To the extent Securities are not subscribed for in the Subscription Offering,
such Securities may be offered to certain members of the general public, with
preference given to natural persons residing in the counties in which Progress'
and Roxborough-Manayunk's offices are located, in a direct community offering
(the "Community Offering" and together with the Subscription Offering, as each
may be extended or reopened from time to time, the "Subscription and Community
Offering") to be commenced concurrently with the Subscription Offering. It is
currently anticipated by the Company that any Securities not subscribed for in
the Subscription and Community Offering will be offered, subject to Section 3
hereof, in a syndicated community offering (the "Syndicated Community
Offering"). The Subscription and Community Offering and the Syndicated
Community Offering are hereinafter referred to collectively as the "Offerings,"
and the conversion of the Mutual Holding Company from mutual to stock form, the
merger of the Mutual Holding Company into Roxborough-Manayunk, the subsequent
merger of Roxborough-Manayunk with Progress and the Offerings are hereinafter
referred to collectively as the "Reorganization." It is acknowledged that the
number of Securities to be sold in the Reorganization may be increased or
decreased as described in the Prospectus (as hereinafter defined). If the
number of Securities is increased or decreased in accordance with the Plan, the
term "Securities" shall mean such greater or lesser number, where applicable.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (No. 33-_____), including a
prospectus, for the registration of the Securities under the Securities Act of
1933, as amended (the "1933 Act"), has filed such amendments thereto, if any,
and such amended prospectuses as may have been required to the date hereof by
the Commission in order to declare such registration statement effective, and
will file such additional amendments thereto and such amended prospectuses and
prospectus supplements as may hereafter be required. Such registration statement
(as amended to date, if applicable, and as from time to time amended or
supplemented hereafter) and the prospectus constituting a part thereof
(including in each case all documents incorporated or deemed to be incorporated
by reference therein, if any, and the information, if any, deemed to be part
thereof pursuant to the rules and regulations of the Commission under the 1933
Act, as from time to time amended or supplemented pursuant to the 1933 Act or
otherwise (the "1933 Act Regulations")), are hereinafter referred to as the
"Registration Statement" and the "Prospectus," respectively, except that if any
revised prospectus shall be used by the Company in connection with the Subscrip-
tion and Community Offering or the Syndicated Community Offering which differs
from the Prospectus on file with the Commission at the time the Registration
Statement becomes effective (whether or not such revised prospectus is required
to be filed by the Company pursuant to Rule 424(b) of the 1933 Act Regulations),
the term "Prospectus" shall refer to such revised prospectus from and after the
time it is first provided to the Agent for such use.
E - 3
<PAGE>
-3-
Concurrently with the execution of this Agreement, the Company is
delivering to the Agent copies of the Prospectus to be used in the Subscription
and Community Offering. Such Prospectus contains information with respect to
Progress, the Company, Roxborough-Manayunk, the Mutual Holding Company and the
Common Stock.
SECTION 1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
(a) The Company represents and warrants to the Agent as of the date hereof
as follows:
(i) The Registration Statement has been declared effective by the
Commission, no stop order has been issued with respect thereto and no
proceedings therefor have been initiated or, to the knowledge of the
Company, threatened by the Commission. At the time the Registration
Statement became effective and at the Closing Time referred to in Section 3
hereof, the Registration Statement complied and will comply in all material
respects with the requirements of the 1933 Act and the 1933 Act Regulations
and did not and will not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading. The Prospectus, at the date
hereof does not, and at the Closing Time referred to in Section 3 hereof
will not, include an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
provided, however, that the representations and warranties in this
subsection shall not apply to statements in or omissions from the
Registration Statement or Prospectus made in reliance upon and in
conformity with information with respect to the Agent furnished to the
Company in writing by the Agent expressly for use in the Registration
Statement or Prospectus (the "Agent Information," which the Company
acknowledges appears only in the sections captioned "The Offerings -
Syndicated Community Offering" and " - Marketing Arrangements" of the
Prospectus).
(ii) The Company has filed with the Office of Thrift Supervision,
Department of the Treasury (the "OTS") the Company's application for
approval of its acquisition of Roxborough-Manayunk (the "Holding Company
Application") on Form H-(e)3 promulgated under the savings and loan holding
company provisions of the Home Owners' Loan Act ("HOLA") and the
regulations promulgated thereunder. The Company has received written
notice from the OTS of its approval of the acquisition of Roxborough-
Manayunk, such approval remains in full force and effect and no order has
been issued by the OTS suspending or revoking such approval and no
proceedings therefor have been initiated or, to the knowledge of the
Company, threatened by the OTS. At the date of such approval, the Holding
Company Application complied in all material respects with the applicable
provisions of HOLA and the regulations promulgated thereunder.
(iii) The accountants who certified the financial statements and
supporting schedules of the Company included in the Registration Statement
have advised the
E - 4
<PAGE>
-4-
Company that they are independent public accountants within the meaning of
the Code of Ethics of the American Institute of Certified Public
Accountants; and such accountants are, with respect to the Company and each
of its subsidiaries, independent certified public accountants as required
by the 1933 Act and the 1933 Act Regulations.
(iv) The consolidated financial statements and the related notes
thereto included in the Registration Statement and the Prospectus present
fairly the consolidated financial position of the Company and its
subsidiaries as at the dates indicated and the results of operations,
retained earnings and cash flows for the periods specified and comply as to
form in all material respects with the applicable accounting requirements
of the 1933 Act Regulations; except as otherwise stated in the Registration
Statement, said financial statements have been prepared in conformity with
generally accepted accounting principles applied on a consistent basis; and
the supporting schedules and tables included in the Registration Statement
present fairly the information required to be stated therein.
(v) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, except as otherwise stated
therein (A) there has been no material adverse change in the financial
condition, results of operations, or business of the Company, Progress and
the PFC Subsidiaries (as defined below) taken as a whole, whether or not
arising in the ordinary course of business, and (B) except for transactions
specifically referred to or contemplated in the Prospectus, there have been
no transactions entered into by the Company, Progress or the PFC
Subsidiaries, other than those in the ordinary course of business, which
are material with respect to the Company, Progress and the PFC
Subsidiaries, taken as a whole.
(vi) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Delaware with
corporate power and authority to own, lease and operate its properties and
to conduct its business as described in the Prospectus and to enter into
and perform its obligations under this Agreement; the Company is duly
qualified as a foreign corporation to transact business and is in good
standing in the Commonwealth of Pennsylvania and in all other jurisdictions
in which such qualification is required, whether by reason of the ownership
or leasing of property or the conduct of business, except where the failure
to so qualify would not have a material adverse effect on the financial
condition, results of operations, business or prospects of the Company and
its subsidiaries, taken as a whole; the Company is qualified and registered
as a savings and loan holding company with the OTS pursuant to Part 584 of
Title 12 of the Code of Federal Regulations.
(vii) As of the date hereof, the Company has ________ authorized shares
of common stock, par value $.01 per share, of which ______ shares of Common
Stock are issued and outstanding, _____ authorized shares of serial
preferred stock of which no shares of preferred stock are issued and
outstanding, and warrants
E - 5
<PAGE>
-5-
outstanding to purchase _____ shares of Common Stock at a price of $_____
per share ("Warrants"); the outstanding shares of Common Stock and warrants
are validly issued and outstanding, fully paid and nonassessable, and
subject to no preemptive rights; upon consummation of the Conversion, the
authorized, issued and outstanding capital stock of the Company will be as
set forth in the Prospectus under "Capitalization" (except for subsequent
issuances, if any, pursuant to outstanding warrants, reservations,
agreements or employee benefit plans referred to in the Prospectus); at the
time of Reorganization, the Securities will have been duly authorized for
issuance and, when issued and delivered by the Company pursuant to the Plan
against payment of the consideration calculated as set forth in the Plan,
will be duly and validly issued and fully paid and non-assessable; the
terms and provisions of the Common Stock and the capital stock of the
Company conform to all statements relating thereto contained in the
Prospectus; the certificates representing the Securities will conform with
the requirements of Delaware law; and the issuance of the Securities is not
subject to preemptive or other similar rights.
(viii) Progress is a federally chartered savings bank with full
corporate power and authority to own, lease and operate its properties and
to conduct its business as described in the Prospectus; the Company,
Progress and the PFC Subsidiaries have obtained all licenses, permits and
other governmental authorizations currently required for the conduct of
their respective businesses, except where the failure to obtain such
licenses, permits or other governmental authorizations would not have a
material adverse effect on the financial condition, results of operations,
business or prospects of the Company, Progress and the PFC Subsidiaries,
taken as a whole; all such licenses, permits and other governmental
authorizations are in full force and effect and the Company, Progress and
the PFC Subsidiaries are in all material respects in compliance therewith;
neither the Company, Progress nor any of the PFC Subsidiaries has received
notice of any proceeding or action relating to the revocation or
modification of any such license, permit or other governmental
authorization which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, might have a material adverse
effect on the financial condition, results of operations, business or
prospects of the Company, Progress and the PFC Subsidiaries, taken as a
whole; and Progress is in good standing under the laws of the United States
and is qualified to do business in any jurisdiction in which the failure to
so qualify would have a material adverse effect on the financial condition,
results of operations, business or prospects of the Company, Progress and
the PFC Subsidiaries, taken as a whole.
(ix) Progress is a member in good standing of the Federal Home Loan
Bank of Pittsburgh; the deposit accounts of Progress are insured by the
Federal Deposit Insurance Corporation ("FDIC") up to the applicable limits
and, upon consummation of the Reorganization, the liquidation account for
the benefit of eligible account holders and supplemental eligible account
holders of Roxborough-Manayunk will be duly established in accordance with
the requirements of OTS regulations.
E - 6
<PAGE>
-6-
(x) Progress has ____ authorized shares of common stock, par value
$1.00 per share, and ____ authorized shares of serial preferred stock of
which ____ shares of common stock and no shares of preferred stock are
issued and outstanding; the outstanding shares of common stock of Progress
are validly issued and outstanding, fully paid and nonassessable; all of
the issued and outstanding common stock of Progress is owned beneficially
and of record by the Company free and clear of any security interest,
mortgage, pledge, lien, encumbrance, claim or equity.
(xi) The Company does not own or control, directly or indirectly, any
corporation, association or other entity other than the subsidiaries listed
in Exhibit 21 to the Annual Report on Form 10-K for the Company's most
recent fiscal year (excluding Progress, the "PFC Subsidiaries"); each of
the PFC Subsidiaries has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the jurisdiction of its
incorporation (except for Progress Realty Advisors, L.P., which has been
duly organized and is validly existing as a Pennsylvania limited
partnership), has full power and authority to own, lease and operate its
properties and to conduct its business as described in the Registration
Statement and Prospectus, and is duly qualified to transact business and is
in good standing in each jurisdiction in which the failure to so qualify
would have a material adverse effect on the financial condition, results of
operations, business or prospects of the Company, Progress and the PFC
Subsidiaries, taken as a whole; the activities of the PFC Subsidiaries are
permitted to subsidiaries of a federally chartered savings and loan
association by the rules, regulations, resolutions and practices of the
OTS; all of the issued and outstanding capital stock of the PFC
Subsidiaries that are corporations has been duly authorized and validly
issued, is fully paid and nonassessable and is owned by the Company,
directly or indirectly, free and clear of any security interest, mortgage,
pledge, lien, encumbrance, claim or equitable claim; the limited
partnership interests in Progress Realty Advisors, L.P. owned, directly or
indirectly, by the Company are owned free and clear of any security
interest, mortgage, pledge, lien, encumbrance, claim or equitable claim.
(xii) The Company has taken all corporate action necessary for it to
execute, deliver and perform this Agreement, and this Agreement has been
duly executed and delivered by, and is the valid and binding agreement of,
the Company, enforceable in accordance with its terms.
(xiii) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus and prior to the
Closing Time, except as otherwise may be indicated or contemplated therein,
none of the Company, Progress or the PFC Subsidiaries will have (A) issued
any securities or incurred any liability or obligation, direct or
contingent, for borrowed money, except borrowings in the ordinary course of
business from the same or similar sources indicated in the Prospectus, or
(B) entered into any transaction or series of transactions which is
material in light of the business of the Company, Progress and the PFC
Subsidiaries, taken as a whole, excluding the origination, purchase and
sale of loans or the
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<PAGE>
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purchase or sale of investment securities or mortgage-backed securities in
the ordinary course of business.
(xiv) No approval of any regulatory or supervisory or other public
authority is required in connection with the execution and delivery of this
Agreement or the issuance of the Securities which has not been obtained (a
copy of which has been delivered to the Agent) and as may be required under
the securities laws of various jurisdictions.
(xv) Neither the Company, Progress nor any of the PFC Subsidiaries is
in violation of its charter or bylaws or other organizational documents;
and neither the Company, Progress nor any of the PFC Subsidiaries is in
default (nor has any event occurred which, with notice or lapse of time or
both, would constitute a default) in the performance or observance of any
obligation, agreement, covenant or condition contained in any contract,
indenture, mortgage, loan agreement, note, lease or other instrument to
which the Company, Progress or any of the PFC Subsidiaries is a party or by
which it or any of them may be bound, or to which any of the property or
assets of the Company, Progress or any of the PFC Subsidiaries is subject,
except for such defaults that would not, individually or in the aggregate,
have a material adverse effect on the financial condition, results of
operations, business or prospects of the Company, Progress and the PFC
Subsidiaries, taken as a whole.
(xvi) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated herein do not and will not
conflict with or constitute a breach of, or default under, or result in the
creation or imposition of any lien, charge or encumbrance upon any property
or assets of the Company, Progress or the PFC Subsidiaries pursuant to, any
contract, indenture, mortgage, loan agreement, note, lease or other
instrument to which the Company, Progress or any of the Subsidiaries is a
party or by which it or any of them may be bound, or to which any of the
property or assets of the Company, Progress or the PFC Subsidiaries is
subject, except for such defaults that would not, individually or in the
aggregate, have a material adverse effect on the financial condition,
results of operations, business or prospects of the Company, Progress and
the PFC Subsidiaries, taken as whole, nor will such action result in any
violation of the provisions of the charter or bylaws or other
organizational documents of the Company, Progress or the PFC Subsidiaries,
or any applicable law, regulation or administrative or court decree.
(xvii) No labor dispute with the employees of the Company, Progress or
the PFC Subsidiaries exists or, to the knowledge of the Company, is
imminent; and the Company is not aware of any existing or imminent labor
disturbance by the employees of any of its principal suppliers or
contractors which might be expected to result in any material adverse
change in the financial condition, results of operations, business or
prospects of the Company, the Progress and the PFC Subsidiaries, taken as a
whole.
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(xviii) The Company, Progress and the PFC Subsidiaries have good and
marketable title to all properties and assets for which ownership is
material to the business of the Company, Progress or any of the PFC
Subsidiaries and to those properties and assets described in the Prospectus
as owned by them, free and clear of all liens, charges, encumbrances or
restrictions, except such as are described in the Prospectus or are not
material in relation to the business of the Company, Progress or the PFC
Subsidiaries, taken as a whole; and all of the leases and subleases
material to the business of the Company, Progress or the PFC Subsidiaries
taken as a whole under which the Company or its subsidiaries hold
properties, including those described in the Prospectus, are valid and
binding agreements of the Company, Progress or the PFC Subsidiaries,
enforceable in accordance with their terms.
(xix) The Company, Progress and the PFC Subsidiaries are not in
violation of any directive from the OTS or the FDIC to make any change in
the method of conducting their respective businesses; Progress and the PFC
Subsidiaries have conducted and are conducting their business so as to
comply with all applicable statutes, regulations and administrative and
court decrees (including, without limitation, all regulations, decisions,
directives and orders of the OTS or the FDIC) except in such respects as
would not have a material adverse effect upon the Company, Progress and the
PFC Subsidiaries, taken as a whole.
(xx) There is no action, suit or proceeding before or by any court or
governmental agency or body, domestic or foreign, now pending, or, to the
knowledge of the Company threatened, against or affecting the Company,
Progress or the PFC Subsidiaries (other than as disclosed in the
Registration Statement) which might result in any material adverse change
in the financial condition, results of operations, business or prospects of
the Company, Progress and the PFC Subsidiaries, taken as a whole, or which
might materially and adversely affect the properties or assets thereof or
which might materially and adversely affect the consummation of the
Reorganization; all pending legal or governmental proceedings to which the
Company, Progress or any of the PFC Subsidiaries is a party or of which any
of their respective property or assets is the subject which are not
described in the Registration Statement, including ordinary routine
litigation incidental to the business, are, in the aggregate, not material;
and there are no contracts or documents of the Company or any of its
subsidiaries which are required to be filed as exhibits to the Registration
Statement or the Holding Company Application which have not been so filed.
(xxi) The Company has obtained an opinion of its counsel, Elias, Matz,
Tiernan & Herrick, L.L.P., with respect to the legality of the Securities
issued and of Malizia, Spidi, Sloan and Fisch, P.C. with respect to the
federal income tax consequences of the Reorganization, copies of which are
filed as exhibits to the Registration Statement; all material aspects of
the aforesaid opinions are accurately summarized in the Prospectus; the
facts and representations upon which such opinions are based are truthful,
accurate and complete in all material respects, and
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none of the Company, Progress or the PFC Subsidiaries has taken or will
take any action inconsistent therewith.
(xxii) The Company has obtained an opinion of Drinker, Biddle & Reath,
with respect to the state income tax consequences of the Reorganization, a
copy of which is filed as an exhibit to the Registration Statement; all
material aspects of the aforesaid opinion are accurately summarized in the
Prospectus; the facts and representations upon which such opinions are
based are truthful, accurate and complete in all material respects, and
none of the Company, Progress, or the PFC Subsidiaries has taken or will
take any action inconsistent therewith.
(xxiii) The Company is not required to be registered under the Investment
Company Act of 1940, as amended.
(xxiv) All of the loans represented as assets on the most recent
financial statements or selected financial information of Progress included
in the Prospectus meet or are exempt from all requirements of federal,
state or local law pertaining to lending, including without limitation
truth in lending (including the requirements of Regulations Z and 12 C.F.R.
Part 226 and Section 563.99), real estate settlement procedures, consumer
credit protection, equal credit opportunity and all disclosure laws
applicable to such loans, except for violations which, if asserted, would
not result in a material adverse effect on the financial condition, results
of operations, business or prospects of the Company, Progress and the PFC
Subsidiaries, taken as a whole.
(xxv) To the knowledge of the Company, none of the Company, Progress or
any of the employees of the Company or Progress has made any payment of
funds of the Company or Progress as a loan for the purchase of the
Securities or made any other payment of funds prohibited by law, except for
such other prohibited payments of funds which would not result in a
material adverse change in the financial condition, results of operations,
business or prospects of the Company, Progress and the PFC Subsidiaries,
taken as a whole, and no funds have been set aside to be used for any
payment prohibited by law.
(xxvi) The Company, Progress and the PFC Subsidiaries are in compliance
in all material respects with the applicable financial recordkeeping and
reporting requirements of the Currency and Foreign Transaction Reporting
Act of 1970, as amended, and the rules and regulations thereunder.
(xxvii) None of the Company, Progress or any of the PFC Subsidiaries or
any properties owned or operated by the Company, Progress or any of the PFC
Subsidiaries is in violation of or liable under any Environmental Law (as
defined below), except for such violations or liabilities that,
individually or in the aggregate, would not have a material adverse effect
on the financial condition, results of operations, business or prospects of
the Company, Progress and the PFC Subsidiaries, taken as a whole. There
are no actions, suits or proceedings, or
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<PAGE>
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demands, claims, notices or investigations (including, without limitation,
notices, demand letters or requests for information from any environmental
agency) instituted or pending, or to the knowledge of the Company
threatened, relating to the liability of any property owned or operated by
the Company, Progress or any of the PFC Subsidiaries thereof, under any
Environmental Law. For purposes of this subsection, the term
"Environmental Law" means any federal, state, local or foreign law,
statute, ordinance, rule, regulation, code, license, permit, authorization,
approval, consent, order, judgment, decree, injunction or agreement with
any regulatory authority relating to (i) the protection, preservation or
restoration of the environment (including, without limitation, air, water,
vapor, surface water, groundwater, drinking water supply, surface soil,
subsurface soil, plant and animal life or any other natural resource),
and/or (ii) the use, storage, recycling, treatment, generation,
transportation, processing, handling, labeling, production, release or
disposal of any substance presently listed, defined, designated or
classified as hazardous, toxic, radioactive or dangerous, or otherwise
regulated, whether by type or by quantity, including any material
containing any such substance as a component.
(xxviii) The Company, Progress and the PFC Subsidiaries have filed all
federal, state and local tax returns required to be filed and have made
timely payments of all taxes shown as due and payable in respect of such
returns, and no deficiency has been asserted with respect thereto by any
taxing authority.
(xxix) The Company has received approval, subject to regulatory approval
to consummate the Offerings and issuance, to have the Securities quoted on
the National Market of the Nasdaq Stock Market, Inc. effective at the
Closing Time referred to in Section 3 hereof.
(b) Any certificate signed by any officer of the Company and delivered to
either of the Agent or counsel for the Agent shall be deemed a representation
and warranty by the Company to each as to the matters covered thereby.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE MUTUAL HOLDING
COMPANY.
(a) The Mutual Holding Company represents and warrants to the Agent as of
the date hereof as follows:
(i) At the time the Registration Statement became effective and at
the Closing Time referred to in Section 3 hereof, the Registration
Statement did not and will not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading. The Prospectus,
at the date hereof does not, and at the Closing Time referred to in Section
2 hereof will not, include an untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not
misleading; provided, however, that the representations and warranties in
this
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<PAGE>
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subsection shall apply only to statements in or omissions from the
Registration Statement or Prospectus with respect to the Mutual Holding
Company and Roxborough-Manayunk furnished to the Company by the Mutual
Holding Company or Roxborough-Manayunk expressly for use in the
Registration Statement or Prospectus.
(ii) Pursuant to the rules and regulations of the OTS governing the
conversion of federally chartered mutual holding companies to stock form
(the "Conversion Regulations"), the Mutual Holding Company has filed with
the OTS an application for conversion on Form AC, and has filed such
amendments thereto and supplementary materials as may have been required to
the date hereof (such application, as amended to date, if applicable, and
as from time to time amended or supplemented hereafter, is hereinafter
referred to as the "Conversion Application"), including copies of the
Mutual Holding Company's Proxy Statement, dated _______ __, 1995, relating
to the Reorganization (the "Proxy Statement"), and the Prospectus. The OTS
has, by letter dated ________ __, 1995, approved the Conversion
Application, such approval remains in full force and effect and no order
has been issued by the OTS suspending or revoking such approval and no
proceedings therefor have been initiated or, to the knowledge of the Mutual
Holding Company, threatened by the OTS. At the date of such approval and
at the Closing Time referred to in Section 3, the Conversion Application
complied and will comply in all material respects with the applicable
provisions of the Conversion Regulations.
(iii) At the time of their use, the Proxy Statement and any other proxy
solicitation materials will comply in all material respects with the
applicable provisions of the Conversion Regulations and will not contain an
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The Mutual
Holding Company will promptly file the Prospectus and any supplemental
sales literature with the OTS. The Prospectus and all supplemental sales
literature, as of the date the Registration Statement became effective and
at the Closing Time referred to in Section 3, complied and will comply in
all material respects with the applicable requirements of the Conversion
Regulations and, at or prior to the time of their first use, will have
received all required authorizations of the OTS for use in final form.
(iv) The OTS has not, by order or otherwise, prevented or suspended
the use of the Prospectus or any supplemental sales literature authorized
by the Company for use in connection with the Offerings.
(v) RP Financial, Inc., which prepared the valuation of the Mutual
Holding Company and Roxborough-Manayunk as part of the Reorganization, has
advised the Mutual Holding Company that it satisfies all requirements for
an appraiser set forth in the Conversion Regulations and any
interpretations or guidelines issued by the OTS with respect thereto.
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(vi) The accountants who certified the financial statements and
supporting schedules of Roxborough-Manayunk included in the Registration
Statement have advised the Mutual Holding Company and Roxborough-Manayunk
that they are independent public accountants within the meaning of the Code
of Ethics of the American Institute of Certified Public Accountants; and
such accountants are, with respect to Roxborough-Manayunk and each of its
subsidiaries, independent certified public accountants as required by the
1933 Act and the 1933 Act Regulations.
(vii) The consolidated financial statements and the related notes
thereto included in the Registration Statement and the Prospectus present
fairly the consolidated financial position of Roxborough-Manayunk and its
subsidiaries as at the dates indicated and the results of operations,
retained earnings and cash flows for the periods specified and comply as to
form in all material respects with the applicable accounting requirements
of the 1933 Act Regulations and the Conversion Regulations; except as
otherwise stated in the Registration Statement, said financial statements
have been prepared in conformity with generally accepted accounting
principles applied on a consistent basis; and the supporting schedules and
tables included in the Registration Statement present fairly the
information required to be stated therein.
(viii) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, except as otherwise stated
therein (A) there has been no material adverse change in the financial
condition, results of operations, business or prospects of Roxborough-
Manayunk and the MHC Subsidiaries (as defined below), taken as a whole,
whether or not arising in the ordinary course of business, and (B) except
for transactions specifically referred to or contemplated in the
Prospectus, there have been no transactions entered into by Roxborough-
Manayunk or the MHC Subsidiaries, other than those in the ordinary course
of business, which are material with respect to Roxborough-Manayunk and the
MHC Subsidiaries, taken as a whole.
(ix) The Mutual Holding Company has been duly incorporated and is
validly existing as a mutual holding company in good standing under the
laws of the United States with corporate power and authority to own, lease
and operate its properties and to conduct its business as described in the
Prospectus and to enter into and perform its obligations under this
Agreement; the Mutual Holding Company is qualified to do business in any
jurisdiction in which the failure to so quality would have a material
adverse effect on the financial condition, results of operations or
business of the Mutual Holding Company, Roxborough-Manayunk and its
subsidiaries, taken as a whole; the Mutual Holding Company is qualified and
registered as a savings and loan holding company with the OTS pursuant to
Part 584 of Title 12 of the Code of Federal Regulations.
(x) Roxborough-Manayunk is a federally chartered savings bank with
full corporate power and authority to own, lease and operate its properties
and to conduct its business as described in the Prospectus; Roxborough-
Manayunk and the
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MHC Subsidiaries (as defined below) have obtained all licenses, permits and
other governmental authorizations currently required for the conduct of
their respective businesses, except where the failure to obtain such
licenses, permits or other governmental authorizations would not have a
material adverse effect on the financial condition, results of operations,
business or prospects of the Mutual Holding Company, Roxborough-Manayunk
and the MHC Subsidiaries, taken as a whole; all such licenses, permits and
other governmental authorizations are in full force and effect and
Roxborough-Manayunk and the MHC Subsidiaries are in all material respects
in compliance therewith; neither Roxborough-Manayunk nor either of the MHC
Subsidiaries has received notice of any proceeding or action relating to
the revocation or modification of any such license, permit or other
governmental authorization which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, might have a
material adverse effect on the financial condition, results of operations,
business or prospects of Roxborough-Manayunk and the MHC Subsidiaries,
taken as a whole; and Roxborough-Manayunk is in good standing under the
laws of the United States and is qualified to do business in any
jurisdiction in which the failure to so qualify would have a material
adverse effect on the financial condition, results of operations or
business of Roxborough-Manayunk or the MHC Subsidiaries, taken as a whole.
(xi) Roxborough-Manayunk is a member in good standing of the Federal
Home Loan Bank of Pittsburgh; the deposit accounts of Roxborough-Manayunk
are insured by the FDIC up to the applicable limits.
(xii) Roxborough-Manayunk has _______ authorized shares of common
stock, par value $1.00 per share, and authorized shares of serial
---
preferred stock of which shares of common stock and no shares of
----
preferred stock are issued and outstanding; the outstanding shares of
common stock of Roxborough-Manayunk are validly issued and outstanding,
fully paid and nonassessable; ________ shares of Roxborough-Manayunk's
common stock are owned beneficially and of record by the Mutual Holding
Company free and clear of any security interest, mortgage, pledge, lien,
encumbrance, claim or equity.
(xiii) Except for Roxborough-Manayunk, the Mutual Holding Company does
not own or control, directly or indirectly, any corporation, association or
other entity other than Montgomery Service Corporation and Ridge Service
Corporation (together the "MHC Subsidiaries"); each of the MHC Subsidiaries
has been duly incorporated and is validly existing as a corporation in good
standing under the laws of the jurisdiction of its incorporation, has full
corporate power and authority to own, lease and operate its properties and
to conduct its business as described in the Registration Statement and
Prospectus, and is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure to so qualify would have
a material adverse effect on the financial condition, results of
operations, business or prospects of the Mutual Holding Company,
Roxborough-Manayunk and the MHC Subsidiaries, taken as a whole; the
activities of the MHC Subsidiaries are permitted to subsidiaries of a
federally chartered savings and loan association by the rules,
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<PAGE>
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regulations, resolutions and practices of the OTS; all of the issued and
outstanding capital stock of the MHC Subsidiaries has been duly authorized
and validly issued, is fully paid and nonassessable and is owned by
Roxborough-Manayunk, free and clear of any security interest, mortgage,
pledge, lien, encumbrance, claim or equitable claim.
(xiv) The Mutual Holding Company has taken all corporate action
necessary to execute, deliver and perform this Agreement, and this
Agreement has been duly executed and delivered by, and is the valid and
binding agreement of, the Mutual Holding Company enforceable in accordance
with its terms.
(xv) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus and prior to the
Closing Time, except as otherwise may be indicated or contemplated therein,
none of Roxborough-Manayunk or the MHC Subsidiaries will have (A) issued
any securities or incurred any liability or obligation, direct or
contingent, for borrowed money, except borrowings in the ordinary course of
business from the same or similar sources indicated in the Prospectus, or
(B) entered into any transaction or series of transactions which is
material in light of the business of Roxborough-Manayunk and the MHC
Subsidiaries, taken as a whole, excluding the origination, purchase and
sale of loans or the purchase or sale of investment securities or mortgage-
backed securities in the ordinary course of business.
(xvi) No approval of any regulatory or supervisory or other public
authority is required in connection with the execution and delivery of this
Agreement which has not been obtained (a copy of which has been delivered
to the Agent) and as may be required under the securities laws of various
jurisdictions.
(xvii) Neither Roxborough-Manayunk nor either of the MHC Subsidiaries is
in violation of its charter or bylaws; and neither Roxborough-Manayunk nor
either of the MHC Subsidiaries is in default (nor has any event occurred
which, with notice or lapse of time or both, would constitute a default) in
the performance or observance of any obligation, agreement, covenant or
condition contained in any contract, indenture, mortgage, loan agreement,
note, lease or other instrument to which Roxborough-Manayunk or either of
the MHC Subsidiaries is a party or by which it or any of them may be bound,
or to which any of the property or assets of Roxborough-Manayunk or either
of the MHC Subsidiaries is subject, except for such defaults that would
not, individually or in the aggregate, have a material adverse effect on
the financial condition, results of operations, business or prospects of
Roxborough-Manayunk and the MHC Subsidiaries, taken as a whole.
(xviii) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated herein do not and will not
conflict with or constitute a breach of, or default under, or result in the
creation or imposition of any lien, charge or encumbrance upon any property
or assets of the Mutual Holding Company, Roxborough-Manayunk or the MHC
Subsidiaries
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<PAGE>
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pursuant to, any contract, indenture, mortgage, loan agreement, note, lease
or other instrument to which Roxborough-Manayunk or either of the MHC
Subsidiaries is a party or by which it or any of them may be bound, or to
which any of the property or assets of Roxborough-Manayunk or either of the
MHC Subsidiaries is subject, except for such defaults that would not,
individually or in the aggregate, have a material adverse effect on the
financial condition, results of operations, business or prospects of
Roxborough-Manayunk and the MHC Subsidiaries, taken as whole, nor will such
action result in any violation of the provisions of the charter or bylaws
of Roxborough-Manayunk or the MHC Subsidiaries, or any applicable law,
regulation or administrative or court decree.
(xix) No labor dispute with the employees of Roxborough-Manayunk or the
MHC Subsidiaries exists or, to the knowledge of the Mutual Holding Company,
is imminent; and the Mutual Holding Company is not aware of any existing or
imminent labor disturbance by the employees of any of its principal
suppliers or contractors which might be expected to result in any material
adverse change in the financial condition, results of operations, business
or prospects of Roxborough-Manayunk and the MHC Subsidiaries, taken as a
whole.
(xx) Roxborough-Manayunk and the Subsidiary have good and marketable
title to all properties and assets for which ownership is material to the
business of Roxborough-Manayunk or the MHC Subsidiaries and to those
properties and assets described in the Prospectus as owned by them, free
and clear of all liens, charges, encumbrances or restrictions, except such
as are described in the Prospectus or are not material in relation to the
business of Roxborough-Manayunk or the MHC Subsidiaries, taken as a whole;
and all of the leases and subleases material to the business of
Roxborough-Manayunk or the MHC Subsidiaries taken as a whole under which
Roxborough-Manayunk or its subsidiaries hold properties, including those
described in the Prospectus, are valid and binding agreements of
Roxborough-Manayunk or the MHC Subsidiaries, enforceable in accordance with
their terms.
(xxi) Roxborough-Manayunk and the MHC Subsidiaries are not in violation
of any directive from the OTS or the FDIC to make any change in the method
of conducting their respective businesses; Roxborough-Manayunk and the MHC
Subsidiaries have conducted and are conducting their business so as to
comply with all applicable statutes, regulations and administrative and
court decrees (including, without limitation, all regulations, decisions,
directives and orders of the OTS or the FDIC) except in such respects as
would not have a material adverse effect upon Roxborough-Manayunk and the
MHC Subsidiaries, taken as a whole.
(xxii) There is no action, suit or proceeding before or by any court or
governmental agency or body, domestic or foreign, now pending, or, to the
knowledge of the Mutual Holding Company, threatened, against or affecting
Roxborough-Manayunk or the MHC Subsidiaries (other than as disclosed in the
Registration Statement) which might result in any material adverse change
in the financial condition, results of operations, business or prospects of
Roxborough-
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Manayunk and the MHC Subsidiaries, taken as a whole, or which might
materially and adversely affect the properties or assets thereof or which
might materially and adversely affect the consummation of the Conversion;
all pending legal or governmental proceedings to which Roxborough-Manayunk
or the MHC Subsidiaries is a party or of which any of their respective
property or assets is the subject which are not described in the
Registration Statement, including ordinary routine litigation incidental to
the business, are, in the aggregate, not material; and there are no
contracts or documents of Roxborough-Manayunk or any of its subsidiaries
which are required to be filed as exhibits to the Registration Statement or
the Conversion Application which have not been so filed.
(xxiii) Roxborough-Manayunk has obtained opinions of its counsel,
Malizia, Spidi, Sloane and Fisch, P.C., with respect to federal income tax
consequences of the Reorganization, a copy of which is filed as an exhibit
to the Registration Statement; all material aspects of the aforesaid
opinion are accurately summarized in the Prospectus; the facts and
representations upon which such opinions are based are truthful, accurate
and complete in all material respects, and none of the Mutual Holding
Company, Roxborough-Manayunk or the MHC Subsidiaries has not taken and will
not take any action inconsistent therewith.
(xxiv) Roxborough-Manayunk has obtained an opinion of Drinker, Biddle &
Reath, with respect to the state income tax consequences of the
Reorganization, a copy of which is filed as an exhibit to the Registration
Statement; all material aspects of the aforesaid opinions are accurately
summarized in the Prospectus; the facts and representations upon which such
opinions are based are truthful, accurate and complete in all material
respects, and none of Roxborough-Manayunk, the Mutual Holding Company or
the MHC Subsidiaries has taken or will take any action inconsistent
therewith.
(xxv) All of the loans represented as assets on the most recent
financial statements or selected financial information of Roxborough-
Manayunk included in the Prospectus meet or are exempt from all
requirements of federal, state or local law pertaining to lending,
including without limitation truth in lending (including the requirements
of Regulations Z and 12 C.F.R. Part 226 and Section 563.99), real estate
settlement procedures, consumer credit protection, equal credit opportunity
and all disclosure laws applicable to such loans, except for violations
which, if asserted, would not result in a material adverse effect on the
financial condition, results of operations, business or prospects of
Roxborough-Manayunk and the MHC Subsidiaries, taken as a whole.
(xxvi) To the knowledge of the Mutual Holding Company, none of
Roxborough-Manayunk or any of the employees of Roxborough-Manayunk has made
any payment of funds of Roxborough-Manayunk as a loan for the purchase of
the Securities or made any other payment of funds prohibited by law, except
for such other prohibited payments of funds which would not result in a
material adverse change in the financial condition, results of operations,
business or prospects of
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Roxborough-Manayunk and the MHC Subsidiaries, taken as a whole, and no
funds have been set aside to be used for any payment prohibited by law.
(xxvii) Roxborough-Manayunk and the MHC Subsidiaries are in compliance in
all material respects with the applicable financial recordkeeping and
reporting requirements of the Currency and Foreign Transaction Reporting
Act of 1970, as amended, and the rules and regulations thereunder.
(xxviii) Neither Roxborough-Manayunk nor either of the MHC Subsidiaries
nor any properties owned or operated by Roxborough-Manayunk or either of
the MHC Subsidiaries is in violation of or liable under any Environmental
Law (as defined below), except for such violations or liabilities that,
individually or in the aggregate, would not have a material adverse effect
on the financial condition, results of operations, business or prospects of
Roxborough-Manayunk and the MHC Subsidiaries, taken as a whole. There are
no actions, suits or proceedings, or demands, claims, or notices
(including, without limitation, notices, demand letters or requests for
information from any environmental agency) instituted or pending, or to the
knowledge of the Mutual Holding Company threatened, relating to the
liability of any property owned or operated by Roxborough-Manayunk or
either of the MHC Subsidiaries thereof, under any Environmental Law. For
purposes of this subsection, the term "Environmental Law" means any
federal, state, local or foreign law, statute, ordinance, rule, regulation,
code, license, permit, authorization, approval, consent, order, judgment,
decree, injunction or agreement with any regulatory authority relating to
(i) the protection, preservation or restoration of the environment
(including, without limitation, air, water, vapor, surface water,
groundwater, drinking water supply, surface soil, subsurface soil, plant
and animal life or any other natural resource), and/or (ii) the use,
storage, recycling, treatment, generation, transportation, processing,
handling, labeling, production, release or disposal of any substance
presently listed, defined, designated or classified as hazardous, toxic,
radioactive or dangerous, or otherwise regulated, whether by type or by
quantity, including any material containing any such substance as a
component.
(xxix) Roxborough-Manayunk and the MHC Subsidiaries have filed all
federal, state and local tax returns required to be filed and have made
timely payments of all taxes shown as due and payable in respect of such
returns, and no deficiency has been asserted with respect thereto by any
taxing authority.
(xxx) The records of depositors and borrowers of Roxborough-Manayunk
delivered to the Agent by Roxborough-Manayunk or its agents for use during
the Reorganization are reliable and accurate.
(b) Any certificate signed by any officer of the Company or the
Association and delivered to either of the Agent or counsel for the Agent shall
be deemed a representation and warranty by the Company or the Association to
each as to the matters covered thereby.
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SECTION 3. APPOINTMENT OF SANDLER O'NEILL; SALE AND DELIVERY OF THE
SECURITIES; CLOSING.
On the basis of the representations and warranties herein contained
and subject to the terms and conditions herein set forth, the Company and the
Mutual Holding Company hereby appoint Sandler O'Neill as their Agent to consult
with and advise the Company and the Mutual Holding Company, and to assist in the
solicitation of subscriptions and purchase orders for Securities on behalf of
the Company and the Mutual Holding Company, in connection with the Company's
sale of the Securities in the Subscription and Community Offering and the
Syndicated Community Offering. On the basis of the representations and
warranties herein contained, and subject to the terms and conditions herein set
forth, Sandler O'Neill accepts such appointment and agrees to use its best
efforts to assist the Company and the Mutual Holding Company with the
solicitation of subscriptions and purchase orders for Securities in accordance
with this Agreement; provided, however, that the Agent shall not be obligated to
take any action which is inconsistent with any applicable laws, regulations,
decisions or orders. The services to be rendered by Sandler O'Neill pursuant to
this appointment include the following: (i) consulting as to the securities
marketing implications of any aspect of the Reorganization; (ii) reviewing with
the Boards of Directors of the Company and the Mutual Holding Company the
independent appraiser's appraisal, particularly with regard to aspects of the
appraisal involving the methodologies employed; (iii) reviewing all offering
documents, including the Prospectus, stock order forms and related offering
materials (it being understood that preparation and filing of such documents is
the sole responsibility of the Company and the Mutual Holding Company and their
counsel); (iv) assisting in the design and implementation of a marketing
strategy for the Subscription and Community Offering; (v) assisting in obtaining
all requisite regulatory approvals; (vi) assisting management in preparing for
meetings with potential investors and broker-dealers; and (vii) providing such
other general advice and assistance as may be requested to promote the
successful completion of the Reorganization.
The appointment of the Agent hereunder shall terminate upon the
earliest to occur of (a) forty-five (45) days after the last day of the
Subscription and Community Offering, unless the Company, the Mutual Holding
Company and the Agent agree in writing to extend such period and the OTS agrees
to extend the period of time in which the Securities may be sold, (b) the
receipt and acceptance of subscriptions and purchase orders for all of the
Securities, or (c) the completion of the Syndicated Community Offering.
If any of the Securities remain available after the expiration of the
Subscription and Community Offering, at the request of the Company and the
Mutual Holding Company, Sandler O'Neill will seek to form a syndicate of
registered brokers or dealers ("Selected Dealers") to assist in the solicitation
of purchase orders of such Securities on a best efforts basis, subject to the
terms and conditions set forth in a selected dealers' agreement (the "Selected
Dealers' Agreement"), substantially in the form set forth in Exhibit A to this
Agreement. Sandler O'Neill will endeavor to limit the aggregate fees to be paid
by the Company to Selected Dealers under any such Selected Dealers' Agreement to
an amount competitive with gross underwriting discounts charged at such time for
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<PAGE>
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underwritings of comparable amounts of stock sold at comparable prices per share
in a similar market environment; provided, however, that the aggregate fees
payable to Sandler O'Neill and Selected Dealers shall not exceed 5.5% of the
aggregate Purchase Price of the Securities sold by such Selected Dealers.
Sandler O'Neill will endeavor to distribute the Securities among the Selected
Dealers in a fashion which best meets the distribution objectives of the Company
and the 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 Securities.
In the event the Company is unable to sell at least the Total Minimum
of Securities, as disclosed on the cover of the Prospectus, within the period
herein provided, this Agreement shall terminate and the Company shall refund to
any persons who have subscribed for any of the Securities the full amount which
it may have received from them, together with interest as provided in the
Prospectus, and no party to this Agreement shall have any obligation to the
others hereunder, except for the obligations of the Company and the Mutual
Holding Company as set forth in Sections 6, 8(a) and 9 hereof and the
obligations of the Agent as provided in Sections 8(b) and 9 hereof. Appropriate
arrangements for placing the funds received from subscriptions for Securities or
other offers to purchase Securities in special interest-bearing accounts with
Progress until all Securities are sold and paid for were made prior to the
commencement of the Subscription Offering, with provision for refund to the
purchasers as set forth above, or for delivery to the Company if all Securities
are sold.
If at least the Total Minimum of Securities, as disclosed on the cover
of the Prospectus, are sold, the Company agrees to issue or have issued the
Securities sold and to release for delivery certificates for such Securities at
the Closing Time against payment therefor by release of funds from the special
interest-bearing accounts referred to above. The closing shall be held at the
offices of ________________________, at 10:00 a.m., local time, or at such other
place and time as shall be agreed upon by the parties hereto, on a business day
to be agreed upon by the parties hereto. The Company shall notify the Agent by
telephone, confirmed in writing, when funds shall have been received for all the
Securities. Certificates for Securities shall be delivered directly to the
purchasers thereof in accordance with their directions. Notwithstanding the
foregoing, certificates for Securities purchased through Selected Dealers shall
be made available to the Agent for inspection at least 48 hours prior to the
Closing Time at such office as the Agent shall designate. The hour and date
upon which the Company shall release for delivery all of the Securities, in
accordance with the terms hereof, are herein called the "Closing Time."
The Company will pay any stock issue and transfer taxes which may be
payable with respect to the sale of the Securities.
In addition to reimbursement of the expenses specified in Section 6
hereof, the Agent will receive the following compensation for its services
hereunder:
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(a) a fee of two percent (2.0%) of the aggregate Purchase Price (as
defined in the Prospectus) of (i) all shares of Common Stock sold in the
Subscription Offering and (ii) shares sold in the Community Offering to
persons or entities who are depositors or borrowers of Progress as of the
record date for the meeting of the Company's shareholders to vote on the
Reorganization Agreement or who are otherwise referred by the directors or
executive officers of the Company or the Mutual Holding Company, excluding
in each case shares purchased by (1) any employee benefit plan of the
Company established for the benefit of its directors, officers and
employees, (2) any directors, officer or employee of the Company, the
Mutual Holding Company, Progress or Roxborough-Manayunk or members of their
immediate families, and (3) 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 or Section
20 of the Securities Exchange Act of 1934 (the "1934 Act") (Sandler O'Neill
and each such person or entity, a "Sandler Related Party"), with respect to
which no fee shall be payable;
(b) a fee of three percent (3.0) of the aggregate Purchase Price of
all shares of Common Stock otherwise sold in the Community Offering,
excluding shares purchased by (i) any employee benefit plan of the Company
established for the benefit of its directors, officers and employees, (ii)
any director, officer or employee of the Company, the Mutual Holding
Company, Progress or Roxborough-Manayunk or members of their immediate
families, and (iii) any Sandler Related Party, with respect to which no fee
shall be payable; and
(c) with respect to any Securities sold by an NASD member firm (other
than Sandler O'Neill) under the Selected Dealers' Agreement in the
Syndicated Community Offering, (i) the compensation payable to Selected
Dealers under any Selected Dealers' Agreement, (ii) any sponsoring dealer's
fees, and (iii) a management fee to Sandler O'Neill of no less than one
percent (1%) and not to exceed one and one-half percent (1.5%). Any fees
payable to Sandler O'Neill for Securities sold by Sandler O'Neill under any
such agreement shall be limited to an aggregate of three percent (3%) of
the aggregate Purchase Price of such Securities; 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.
All fees payable to the Agent hereunder shall be payable in
immediately available funds at Closing Time, or upon the termination of this
Agreement, as the case may be. In recognition of the long lead times involved
in the conversion process, the Association agrees to make advance payments to
the Agent in the aggregate amount of $50,000, $25,000 of which was paid upon
execution of the engagement letter, dated June 14, 1995, and the remaining
$25,000 of which shall be payable upon execution hereof, which shall be credited
against any fees payable under this Section.
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 the Company pursuant to which Sandler O'Neill acted as financial
advisor to the Company
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in connection with its consideration of a business combination involving the
Company and the Mutual Holding Company, 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.
SECTION 4. COVENANTS OF THE COMPANY. The Company covenants with the
Agent as follows:
(a) The Company will prepare and file such amendments or supplements to
the Registration Statement, the Prospectus and the Holding Company Application
as may hereafter be required by the 1933 Act Regulations or applicable OTS
regulations or as may hereafter be reasonably requested by the Agent. Following
completion of the Subscription and Community Offering, in the event of a
Syndicated Community Offering, the Company will (i) promptly prepare and file
with the Commission a post-effective amendment to the Registration Statement
relating to the results of the Subscription and Community Offering, any
additional information with respect to the proposed plan of distribution and any
revised pricing information or (ii) if no such post-effective amendment is
required, will file with, or mail for filing to, the Commission a prospectus or
prospectus supplement containing information relating to the results of the
Subscription and Community Offering and pricing information pursuant to Rule
424(c) of the 1933 Act Regulations, in either case in a form acceptable to the
Agent. The Company will notify the Agent immediately, and confirm the notice in
writing, (i) of the effectiveness of any post-effective amendment of the
Registration Statement, the filing of any supplement to the Prospectus and the
filing of any amendment to the Holding Company Application, (ii) of the receipt
of any comments from the OTS or the Commission with respect to the transactions
contemplated by this Agreement or the Plan, (iii) of any request by the
Commission or the OTS for any amendment to the Registration Statement or the
Holding Company Application or any amendment or supplement to the Prospectus or
for additional information, (iv) of the issuance by the OTS of any order
suspending the Offerings or the use of the Prospectus or the initiation of any
proceedings for that purpose, (v) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose, and (vi) of the receipt of any
notice with respect to the suspension of any qualification of the Securities for
offering or sale in any jurisdiction. The Company will make every reasonable
effort to prevent the issuance of any stop order and, if any stop order is
issued, to obtain the lifting thereof at the earliest possible moment.
(b) The Company will give the Agent notice of its intention to file or
prepare any amendment to the Holding Company Application or Registration
Statement (including any post-effective amendment) or any amendment or
supplement to the Prospectus (including any revised prospectus which the Company
proposes for use in connection with the Syndicated Community Offering of the
Securities which differs from the prospectus on file at the Commission at the
time the Registration Statement becomes effective, whether or not such revised
prospectus is required to be filed pursuant to Rule 424(b) of the 1933 Act
Regulations), will furnish the Agent with copies of any such amendment or
supplement a reasonable amount of time prior to such proposed filing or use, as
the case may be, and will
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not file any such amendment or supplement or use any such prospectus to which
the Agent or counsel for the Agent may reasonably object.
(c) The Company will deliver to the Agent as many signed copies and as
many conformed copies of the Holding Company Application and the Registration
Statement as originally filed and of each amendment thereto (including exhibits
filed therewith or incorporated by reference therein) as the Agent may
reasonably request, and from time to time such number of copies of the
Prospectus as the Agent may reasonably request.
(d) During the period when the Prospectus is required to be delivered, the
Company will comply, at its own expense, with all requirements imposed upon it
by the OTS, by the applicable OTS regulations, as from time to time in force,
and by the 1933 Act, the 1933 Act Regulations, the 1934 Act and the rules and
regulations of the Commission promulgated thereunder, including, without
limitation, Rule 10b-6 under the 1934 Act, so far as necessary to permit the
continuance of sales or dealing in shares of Common Stock during such period in
accordance with the provisions hereof and the Prospectus.
(e) If any event or circumstance shall occur as a result of which it is
necessary, in the opinion of counsel for the Agent, to amend or supplement the
Prospectus in order to make the Prospectus not misleading in the light of the
circumstances existing at the time it is delivered to a purchaser, the Company
will forthwith amend or supplement the Prospectus (in form and substance
satisfactory to counsel for the Agent) so that, as so amended or supplemented,
the Prospectus will not include an untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements therein, in
the light of the circumstances existing at the time it is delivered to a
purchaser, not misleading, and the Company will furnish to the Agent a
reasonable number of copies of such amendment or supplement. For the purpose of
this subsection, the Company will furnish such information with respect to
itself as the Agent may from time to time reasonably request.
(f) The Company will take all necessary action, in cooperation with the
Agent, to qualify the Securities for offering and sale under the applicable
securities laws of such states of the United States and other jurisdictions as
the Conversion Regulations may require and as the Agent, the Company and the
Mutual Holding Company have agreed; provided, however, that the Company shall
not be obligated to file any general consent to service of process or to qualify
as a foreign corporation in any jurisdiction in which it is not so qualified.
In each jurisdiction in which the Securities have been so qualified, the Company
will file such statements and reports as may be required by the laws of such
jurisdiction to continue such qualification in effect for a period of not less
than one year from the effective date of the Registration Statement.
(g) The Company authorizes Sandler O'Neill and any Selected Dealers to act
as agent of the Company in distributing the Prospectus to persons entitled to
receive subscription rights and other persons to be offered Securities having
record addresses in the states or jurisdictions set forth in a survey of the
securities or "blue sky" laws of the various jurisdictions in which the
Offerings will be made (the "Blue Sky Survey").
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(h) The Company will make generally available to its security holders as
soon as practicable, but not later than 60 days after the close of the period
covered thereby, an earnings statement (in compliance with the provisions of
Rule 158 of the 1933 Act Regulations) covering a twelve month period beginning
not later than the first day of the Company's fiscal quarter next following the
"effective date" (as defined in said Rule 158) of the Registration Statement.
(i) During the period ending on the third anniversary of the expiration of
the fiscal year during which the closing of the transactions contemplated hereby
occurs, the Company will furnish to its stockholders as soon as practicable
after the end of each such fiscal year an annual report (including consolidated
statements of financial condition and consolidated statements of income,
stockholders' equity and cash flows of the Company, certified by independent
public accountants) and, as soon as practicable after the end of each of the
first three quarters of each fiscal year (beginning with the fiscal quarter
ending after the effective date of the Registration Statement), consolidated
summary financial information of the Company for such quarter in reasonable
detail. In addition, such annual report and quarterly consolidated summary
financial information shall be made public through the issuance of appropriate
press releases at the same time or prior to the time of the furnishing thereof
to stockholders of the Company.
(j) During the period ending on the third anniversary of the expiration of
the fiscal year during which the closing of the transactions contemplated hereby
occurs, the Company will furnish to the Agent (i) as soon as available, a copy
of each report or other document of the Company furnished generally to
stockholders of the Company or furnished to or filed with the Commission under
the 1934 Act or any national securities exchange or system on which any class of
securities of the Company is listed, and (ii) from time to time, such other
information concerning the Company as the Agent may reasonably request.
(k) The Company will conduct the Reorganization in all material respects
in accordance with the Plan, the Reorganization Agreement, the Conversion
Regulations and all other applicable regulations, decisions and orders
thereunder, including all applicable terms, requirements and conditions
precedent to the Reorganization imposed upon the Company by the OTS.
(l) Each of the Company and Progress will use the net proceeds received by
it from the sale of the Securities in the manner specified in the Prospectus
under "Use of Proceeds."
(m) The Company will file with the Commission such reports on Form SR as
may be required pursuant to Rule 463 of the 1933 Act Regulations.
(n) The Company will maintain the effectiveness of its registration under
Section 12(g) of the 1934 Act for not less than three years from the date of the
Closing. The Company will file with the Nasdaq Stock Market, Inc. all documents
and notices required by the Nasdaq National Market of companies that have issued
securities that are traded in
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the over-the-counter market and quotations for which are reported by the Nasdaq
National Market.
(o) During the period beginning on the date hereof and ending on the later
of the third anniversary of the Closing Time or the date on which the Agent
receives full payment in satisfaction of any claim for indemnification or
contribution to which it may be entitled pursuant to Sections 8 or 9,
respectively, neither the Company nor Progress shall, without the prior written
consent of the Agent, which consent shall not be unreasonably withheld, take or
permit to be taken any action that could result in the common stock of Progress
becoming subject to any security interest, mortgage, pledge, lien or
encumbrance.
(p) The Company will take such actions and furnish such information as are
reasonably requested by the Agent in order for the Agent to ensure compliance
with the National Association of Securities Dealers, Inc.'s "Interpretation
Relating to Free-Riding and Withholding."
(q) The Company will not sell or issue, contract to sell or otherwise
dispose of, for a period of 180 days after the Closing Time, without the Agent's
prior written consent, any shares of Common Stock other than the Securities or
other than in connection with any employee benefit plan or arrangement described
in the Prospectus.
SECTION 5. COVENANTS OF THE MUTUAL HOLDING COMPANY. The Mutual
Holding Company covenants with the Agent as follows:
(a) The Mutual Holding Company will prepare and file such amendments or
supplements to the Conversion Application and the Proxy Statement as may
hereafter be required by the Conversion Regulations or as may hereafter be
reasonably requested by the Agent. The Mutual Holding Company will notify the
Agent immediately, and confirm the notice in writing, (i) of the filing of any
amendment to the Conversion Application, (ii) of the receipt of any comments
from the OTS with respect to the transactions contemplated by this Agreement or
the Plan, (iii) of any request by the OTS for any amendment to the Conversion
Application or for additional information, and (iv) of the issuance by the OTS
of any order suspending the Offerings or the use of the Prospectus or the
initiation of any proceedings for that purpose. The Mutual Holding Company will
furnish the Agent with copies of any such amendment a reasonable amount of time
prior to such proposed filing and will not file any such amendment to which the
Agent or counsel for the Agent may reasonably object.
(b) The Mutual Holding Company will deliver to the Agent as many signed
copies and as many conformed copies of the Conversion Application as originally
filed and of each amendment thereto (including exhibits filed therewith or
incorporated by reference therein) as the Agent may reasonably request.
(c) During the period when the Prospectus is required to be delivered, the
Mutual Holding Company and Roxborough-Manayunk will comply, at their own
expense, with all requirements imposed upon them by the OTS, by the applicable
Conversion Regulations,
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as from time to time in force, and by the 1933 Act, the 1933 Act Regulations,
the Securities Exchange Act of 1934 (the "1934 Act") and the rules and
regulations of the Commission promulgated thereunder, including, without
limitation, Rule 10b-6 under the 1934 Act, so far as necessary to permit the
continuance of sales or dealing in shares of Common Stock during such period in
accordance with the provisions hereof and the Prospectus.
(d) If any event or circumstance shall occur as a result of which it is
necessary, in the opinion of counsel for the Agent, to amend or supplement the
Prospectus in order to make the Prospectus not misleading in the light of the
circumstances existing at the time it is delivered to a purchaser, the Mutual
Holding Company will furnish to the Company such information with respect to
itself and Roxborough-Manayunk as the Agent may from time to time reasonably
request so that the Company may amend or supplement the Prospectus (in form and
substance satisfactory to counsel for the Agent) so that, as so amended or
supplemented, the Prospectus will not include an untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances existing at the time it is delivered
to a purchaser, not misleading.
(e) The Mutual Holding Company authorizes Sandler O'Neill and any Selected
Dealers to act as agent of Roxborough-Manayunk in distributing the Prospectus to
persons entitled to receive subscription rights and other persons to be offered
Securities having record addresses in the states or jurisdictions set forth in a
survey of the securities or "blue sky" laws of the various jurisdictions in
which the Offerings will be made (the "Blue Sky Survey").
(f) The Mutual Holding Company will conduct the Reorganization in all
material respects in accordance with the Plan, the Reorganization Agreement, the
Conversion Regulations and all other applicable regulations, decisions and
orders thereunder, including all applicable terms, requirements and conditions
precedent to the Conversion imposed upon Roxborough-Manayunk the OTS.
(g) During the period beginning on the date hereof and ending at the
Closing Time, the Mutual Holding Company shall not, without the prior written
consent of the Agent, which consent shall not be unreasonably withheld, take or
permit to be taken any action that could result in the common stock of
Roxborough-Manayunk owned by it becoming subject to any security interest,
mortgage, pledge, lien or encumbrance.
(h) The Mutual Holding Company will take such actions and furnish such
information as are reasonably requested by the Agent in order for the Agent to
ensure compliance with the National Association of Securities Dealers, Inc.'s
"Interpretation Relating to Free-Riding and Withholding."
SECTION 6. PAYMENT OF EXPENSES. The Company and the Mutual Holding
Company jointly and severally agree to pay all expenses incident to the
performance of their obligations under this Agreement, including but not limited
to (i) the cost of obtaining all
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securities and bank regulatory approvals, (ii) the printing and filing of the
Registration Statement as originally filed and of each amendment thereto, (iii)
the preparation, issuance and delivery of the certificates for the Securities to
the purchasers in the Offerings, (iv) the fees and disbursements of the
Company's and the Mutual Holding Company's respective counsel, accountants,
conversion agent and other advisors, (v) the qualification of the Securities
under securities laws in accordance with the provisions of Section 4(f) hereof,
including filing fees and the fees and disbursements of counsel in connection
therewith and in connection with the preparation of the Blue Sky Survey, (vi)
the printing and delivery to the Agent of copies of the Registration Statement
as originally filed and of each amendment thereto and the printing and delivery
of the Prospectus and any amendments or supplements thereto to the purchasers in
the Offerings and the Agent, (vii) the printing and delivery to the Agent of
copies of a Blue Sky Survey and (viii) the fees and expenses incurred in
connection with the listing of the Securities on the Nasdaq National Market. In
the event the Agent incurs any such fees and expenses on behalf of the Company
and the Mutual Holding Company, the Company and the Mutual Holding Company will
reimburse the Agent for such fees and expenses whether or not the Conversion is
consummated; provided, however, that the Agent shall not incur any expense in
excess of $2,500 on behalf of the Company and the Mutual Holding Company
pursuant to this Section without the prior approval of the Company or the Mutual
Holding Company.
The Company and the Mutual Holding Company jointly and severally agree
to pay certain expenses incident to the performance of the Agent's obligations
under this Agreement, including (i) the filing fees paid or incurred by the
Agent in connection with all filings with the National Association of Securities
Dealers, Inc., and (ii) all reasonable out-of-pocket expenses incurred by the
Agent relating to the Offerings, including, without limitation, advertising,
promotional, syndication and travel expenses and fees and expenses of the
Agent's counsel, up to an aggregate of $65,000. All fees and expenses to which
the Agent is entitled to reimbursement under this paragraph of this Section 6
shall be due and payable upon receipt by the Company or the Mutual Holding
Company of a written accounting therefor setting forth in reasonable detail the
expenses incurred by the Agent.
SECTION 7. CONDITIONS OF AGENT'S OBLIGATIONS. The Company, the Mutual
Holding Company and the Agent agree that the issuance and sale of the Securities
and all obligations of the Agent hereunder are subject to the accuracy of the
representations and warranties of the Company and the Mutual Holding Company
herein contained as of the date hereof and the Closing Time, to the accuracy of
the statements of officers and directors of the Company and the Mutual Holding
Company made pursuant to the provisions hereof, to the performance by the
Company and the Mutual Holding Company of their obligations hereunder, and to
the following further conditions:
(a) No stop order suspending the effectiveness of the Registration
Statement shall have been issued under the 1933 Act or proceedings therefor
initiated or threatened by the Commission, no order suspending the Offerings or
authorization for final use of the Prospectus shall have been issued or
proceedings therefor initiated or threatened by the
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OTS and no order suspending the sale of the Securities in any jurisdiction shall
have been issued.
(b) At Closing Time, the Agent shall have received:
(1) The favorable opinion, dated as of Closing Time, of Elias, Matz,
Tiernan & Herrick, L.L.P., counsel for the Company, in form and substance
satisfactory to counsel for the Agent, to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware.
(ii) The Company has full corporate power and authority to own,
lease and operate its properties and to conduct its business as
described in the Registration Statement and Prospectus and to enter
into and perform its obligations under this Agreement.
(iii) The Company is duly qualified as a foreign corporation to
transact business and is in good standing in the Commonwealth of
Pennsylvania and in each other jurisdiction in which the failure to so
qualify would have a material adverse effect upon the financial
condition, results of operations or business of the Company.
(iv) The Company is a registered savings and loan holding company
under the Home Owners' Loan Act.
(v) The outstanding shares of capital stock of the Company have
been duly authorized, are validly issued, fully paid and nonassessable
and are subject to no preemptive rights; upon consummation of the
Reorganization, the authorized, issued and outstanding capital stock
of the Company will be as set forth in the Prospectus under
"Capitalization".
(vi) The Securities have been duly and validly authorized for
issuance and sale and, when issued and delivered by the Company
pursuant to the Plan against payment of the consideration calculated
as set forth in the Plan, will be duly and validly issued and fully
paid and non-assessable.
(vii) The issuance of the Securities is not subject to preemptive
or other similar rights arising by operation of law or, to the best of
such counsel's knowledge and information, otherwise.
(viii) Progress has been at all times since the date hereof and
prior to the Closing Time duly organized and is validly existing under
the laws of the United States of America as a federally chartered
savings bank.
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(ix) Progress has full corporate power and authority to own,
lease and operate its properties and to conduct its business as
described in the Registration Statement and the Prospectus.
(x) Progress is duly qualified as a foreign corporation in each
jurisdiction in which the failure to so qualify would have a material
adverse effect upon the financial condition, results of operations or
business of Progress.
(xi) The outstanding shares of capital stock of Progress have
been duly authorized, are validly issued, fully paid and nonassessable
and are owned directly by the Company free and clear of any security
interest, mortgage, pledge, lien, encumbrance or claim.
(xii) Progress is a member of the Federal Home Loan Bank of
Pittsburgh and the deposit accounts of Progress are insured by the
FDIC up to the applicable limits.
(xiii) Each of the PFC Subsidiaries, except for Progress Realty
Advisors, L.P., has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the jurisdiction of
its incorporation, has full corporate power and authority to own,
lease and operate its properties and to conduct its business as
described in the Registration Statement and is duly qualified as a
foreign corporation to transact business and is in good standing in
each jurisdiction in which the failure to so qualify would have a
material adverse effect upon the financial condition, results of
operations or business of the Company and its subsidiaries, taken as a
whole; Progress Realty Advisors, L.P. has been duly organized and is
validly existing as a Pennsylvania limited partnership and has full
power and authority to own, lease and operate its properties and to
conduct its business as described in the Registration Statement; the
activities of the PFC Subsidiaries are permitted to subsidiaries of a
savings association holding company and of a federally chartered
savings and loan association by the rules, regulations, resolutions
and practices of the OTS; all of the issued and outstanding capital
stock of each such subsidiary that is a corporation has been duly
authorized and validly issued, is fully paid and non-assessable and is
owned directly or indirectly by the Company free and clear of any
security interest, mortgage, pledge, lien, encumbrance or claim; the
limited partnership interests of Progress Realty Advisors, L.P. owned,
directly or indirectly, by the Company are owned free and clear of any
security interest, mortgage, pledge, lien, encumbrance or claim.
(xiv) Upon consummation of the Reorganization, all of the issued
and outstanding capital stock of Progress Bank, as the resulting
institution in the merger of Progress and Roxborough-Manayunk, will be
duly authorized and validly issued and fully paid and nonassessable,
and all such capital stock
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will be owned of record, and to the best of such counsel's knowledge,
beneficially, by the Company free and clear of any security interest,
mortgage, pledge, lien, encumbrance, claim or equity.
(xv) The OTS has duly approved the Holding Company Application
and no action is pending or, to the best of such counsel's knowledge,
threatened respecting the Holding Company Application or the
acquisition by the Company of all of Roxborough-Manayunk's issued and
outstanding capital stock; the Holding Company Application complies as
to form in all material respects with all applicable requirements of
the OTS, to best of such counsel's knowledge, includes all documents
required to be filed as exhibits thereto, and is complete in all
material respects, excluding the Prospectus and any related marketing
materials filed as a part of the Holding Company Application as to
which no opinion need be given.
(xvi) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly
and validly authorized by all necessary action on the part of the
Company, and this Agreement constitutes the legal, valid and binding
agreement of the Company, enforceable in accordance with its terms,
except as rights to indemnity and contribution hereunder may be
limited under applicable law (it being understood that such counsel
may avail itself of customary exceptions concerning the effect of
bankruptcy, insolvency or similar laws and the availability of
equitable remedies).
(xvii) To the best of such counsel's knowledge, the execution and
delivery of this Agreement, the incurrence of the obligations herein
set forth and the consummation of the transactions contemplated herein
will not conflict with or constitute a breach of, or default under,
and no event has occurred which, with notice or lapse of time or both,
would constitute a default under, or result in the creation or
imposition of any lien, charge or encumbrance, that, individually or
in the aggregate, would have a material adverse effect on the
financial condition, results of operations or business of the Company
and its subsidiaries, taken as a whole, upon any property or assets of
the Company or its subsidiaries, pursuant to any contract, indenture,
mortgage, loan agreement, note, lease or other instrument to which the
Company or its subsidiaries is a party or by which any of them may be
bound, or to which any of the property or assets of the Company or its
subsidiaries is subject, nor will such execution or delivery result in
any violation of the provisions of the charter or by-laws of the
Company or its subsidiaries.
(xviii) The Registration Statement is effective under the 1933 Act
and, to the best of such counsel's knowledge, no stop order suspending
the effectiveness of the Registration Statement has been issued under
the 1933 Act or proceedings therefor initiated or threatened by the
Commission.
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(xix) No further approval, authorization, consent or other order
of any public board or body is required in connection with the
execution and delivery of this Agreement, the issuance of the
Securities and the consummation of the Reorganization, except as may
be required under the securities or Blue Sky laws of various
jurisdictions as to which no opinion need be rendered.
(xx) At the time the Registration Statement became effective, the
Registration Statement (other than the financial statements, appraisal
and statistical data included therein, as to which no opinion need be
rendered) complied as to form in all material respects with the
requirements of the 1933 Act and the 1933 Act Regulations.
(xxi) The Common Stock conforms to the description thereof
contained in the Prospectus, and the form of certificate used to
evidence the Common Stock is in due and proper form and complies with
all applicable statutory requirements.
(xxii) There are no legal or governmental proceedings pending or,
to the best of such counsel's knowledge, threatened against or
affecting the Company or its subsidiaries which are required,
individually or in the aggregate, to be disclosed in the Registration
Statement and Prospectus, other than those disclosed therein.
(xxiii) The information in the Prospectus describing the liquidation
account under the caption "The Conversion and the Merger - Liquidation
Rights" and "- Effects of the Conversion and the Merger - Effect on
Liquidation Rights," and under "Risk Factors - Recapitalization of
SAIF and Effect of Reduction in BIF Premiums," "- Anti-takeover
Provisions," "-Regulation," " - Possible Adverse Income Tax
Consequences of the Distribution of Subscription Rights," "Market
Price for Company Common Stock and Dividends - Dividends," "Taxation -
Federal Taxation", "Regulation," "The Conversion and the Merger," "The
Offerings," "Restrictions on Acquisition of the Company and Progress
Bank" and "Description of Capital Stock of the Company" to the extent
that it constitutes matters of law, summaries of legal matters,
documents or proceedings, or legal conclusions, is complete in all
material respects.
(xxiv) To the best of such counsel's knowledge, there are no
contracts, indentures, mortgages, loan agreements, notes, leases or
other instruments to which the Company or Progress is a party required
to be described or referred to in the Registration Statement or to be
filed as exhibits thereto other than those described or referred to
therein or filed as exhibits thereto and the descriptions thereof or
references thereto are correct.
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(xxv) The Reorganization Agreement has been duly authorized by the
Boards of Directors of the Company and Progress and, to the best of
such counsel's knowledge and information, the OTS's approval of the
Reorganization Agreement remains in full force and effect; to the best
of such counsel's knowledge, the Company has conducted the
Reorganization in all material respects in accordance with applicable
requirements of the Plan, the Reorganization Agreement, the Conversion
Regulations and all other applicable regulations, decisions and orders
thereunder, including all material applicable terms, conditions,
requirements and conditions precedent to the Reorganization imposed
upon the Company and Progress by the OTS and, to the best of such
counsel's knowledge, no order has been issued by the OTS to suspend
the Offerings and no action for such purpose has been instituted or
threatened by the OTS; and, to the best of such counsel's knowledge,
no person has sought to obtain review of the final action of the OTS
in approving the Reorganization Agreement.
(xxvi) To the best of such counsel's knowledge and information, the
Company and its subsidiaries have obtained all licenses, permits and
other governmental approvals and authorizations currently required for
the conduct of their respective businesses as described in the
Registration Statement and Prospectus, except for such licenses,
permits, approvals or authorizations of which the failure to have
would not result in a material adverse change in the financial
condition, results of operations or the business of the Company and
its subsidiaries, taken as a whole, and all such licenses, permits and
other governmental authorizations are in full force and effect, and
the Company and its subsidiaries are in all material respects
complying therewith.
(xxvii) Neither the Company nor Progress is in violation of its
charter nor, to the best of such counsel's knowledge, in default (nor
has any event occurred which, with notice or lapse of time or both,
would constitute a default) in the performance or observance of any
obligation, agreement, covenant or condition contained in any
contract, indenture, mortgage, loan agreement, note, lease or other
instrument to which the Company or its subsidiaries is a party or by
which the Company or its subsidiaries or any of their property may be
bound (in any respect that would have a material adverse effect upon
the financial condition, results of operations or business of the
Company and its subsidiaries, taken as a whole).
(2) The favorable opinion, dated as of Closing Time, of Malizia,
Spidi, Sloane and Fisch, P.C., counsel for the Mutual Holding Company, in
form and substance satisfactory to counsel for the Agent, to the effect
that:
(i) The Mutual Holding Company has been duly incorporated and is
validly existing under the laws of the United States of America as a
federally chartered mutual holding company.
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(ii) The Mutual Holding Company has full corporate power and
authority to own, lease and operate its properties and to conduct its
business as described in the Registration Statement and Prospectus and
to enter into and perform its obligations under this Agreement.
(iii) The Mutual Holding Company is duly qualified as a foreign
corporation in each jurisdiction in which the failure to so qualify
would have a material adverse effect on the financial condition,
results of operations or business of the Mutual Holding Company.
(iv) The Mutual Holding Company is a registered savings and loan
holding company under the Home Owners' Loan Act.
(v) Roxborough-Manayunk has been at all times since the date
hereof and prior to the Closing Time duly organized and is validly
existing under the laws of the United States of America as a federally
chartered savings bank.
(vi) Roxborough-Manayunk has full corporate power and authority
to own, lease and operate its properties and to conduct its business
as described in the Registration Statement and the Prospectus.
(vii) Roxborough-Manayunk is duly qualified as a foreign
corporation in each jurisdiction in which the failure to so qualify
would have a material adverse effect upon the financial condition,
results of operations or business of the Roxborough-Manayunk.
(viii) The outstanding shares of capital stock of Roxborough-
Manayunk have been duly authorized, are validly issued, fully paid and
nonassessable; the Mutual Holding Company directly owns shares
-----
of the common stock, par value $1.00 per share, of Roxborough-Manayunk
free and clear of any security interest, mortgage, pledge, lien,
encumbrance or claim.
(ix) Roxborough-Manayunk is a member of the Federal Home Loan
Bank of Pittsburgh and the deposit accounts of Roxborough-Manayunk are
insured by the FDIC up to the applicable limits.
(x) Each of the MHC Subsidiaries has been duly incorporated and
is validly existing as a corporation in good standing under the laws
of the jurisdiction of its incorporation, has full corporate power and
authority to own, lease and operate its properties and to conduct its
business as described in the Registration Statement and is duly
qualified as a foreign corporation to transact business and is in good
standing in each jurisdiction in which the failure to so qualify would
have a material adverse effect upon the financial condition, results
of operations or business of the Mutual Holding Company, Roxborough-
Manayunk and the MHC Subsidiaries, taken as a whole; the
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activities of the MHC Subsidiaries as described in the Prospectus are
permitted to subsidiaries of a savings association holding company and
of a federally chartered savings and loan association by the rules,
regulations, resolutions and practices of the OTS; all of the issued
and outstanding capital stock of the MHC Subsidiaries has been duly
authorized and validly issued, is fully paid and non-assessable and is
owned directly by Roxborough-Manayunk free and clear of any security
interest, mortgage, pledge, lien, encumbrance or claim.
(xi) The OTS has duly approved the Conversion Application and, no
action is pending or, to the best of such counsel's knowledge,
threatened respecting the Conversion Application or the acquisition by
the Company of all of Roxborough-Manayunk's issued and outstanding
capital stock; the Conversion Application complies as to form in all
material respects with the Conversion Regulations and all other
applicable requirements of the OTS, to best of such counsel's
knowledge, includes all documents required to be filed as exhibits
thereto, and is complete in all material respects, excluding the
Prospectus and any related marketing materials filed as a part of the
Conversion Application as to which no opinion need be given.
(xii) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly
and validly authorized by all necessary action on the part of the
Mutual Holding Company, and this Agreement constitutes the legal,
valid and binding agreement of the Mutual Holding Company, enforceable
in accordance with its terms, except as rights to indemnity and
contribution hereunder may be limited under applicable law (it being
understood that such counsel may avail itself of customary exceptions
concerning the effect of bankruptcy, insolvency or similar laws and
the availability of equitable remedies).
(xiii) To the best of such counsel's knowledge, the execution and
delivery of this Agreement, its incurrence of the obligations herein
set forth and the consummation of the transactions contemplated herein
will not conflict with or constitute a breach of, or default under,
and no event has occurred which, with notice or lapse of time or both,
would constitute a default under, or result in the creation or
imposition of any lien, charge or encumbrance, that, individually or
in aggregate, would have a material adverse effect on the financial
condition, results of operations or business of the Mutual Holding
Company, Roxborough-Manayunk and its subsidiaries, taken as a whole,
upon any property or assets of the Mutual Holding Company, Roxborough-
Manayunk or its subsidiaries pursuant to any contract, indenture,
mortgage, loan agreement, note, lease or other instrument to which the
Mutual Holding Company, Roxborough-Manayunk or its subsidiaries is a
party or by which any of them may be bound, or to which any of the
property or assets of the Mutual Holding Company, Roxborough-Manayunk
or its subsidiaries is subject, nor will such execution or delivery
result in any
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violation of the provisions of the charter or by-laws of the Mutual
Holding Company, Roxborough-Manayunk or its subsidiaries.
(xiv) The Prospectus has been duly authorized by the OTS for final
use pursuant to the Conversion Regulations and, to the best of such
counsel's knowledge, no action has been taken, or is pending or
threatened, by the OTS to revoke such authorization.
(xv) No further approval, authorization, consent or other order
of any public board or body is required in connection with the
execution and delivery of this Agreement, the issuance of the
Securities and the consummation of the Reorganization, except as may
be required under the securities or Blue Sky laws of various
jurisdictions as to which no opinion need be rendered.
(xvi) There are no legal or governmental proceedings pending or,
to the best of such counsel's knowledge, threatened against or
affecting the Mutual Holding Company, Roxborough-Manayunk or its
subsidiaries which are required, individually or in the aggregate, to
be disclosed in the Registration Statement and Prospectus, other than
those disclosed therein.
(xvii) To the best of such counsel's knowledge, there are no
contracts, indentures, mortgages, loan agreements, notes, leases or
other instruments to which the Mutual Holding Company or Roxborough-
Manayunk is a party required to be described or referred to in the
Registration Statement or to be filed as exhibits thereto other than
those described or referred to therein or filed as exhibits thereto.
(xviii) The Plan and the Reorganization Agreement have been duly
authorized by the Boards of Directors of the Mutual Holding Company
and Roxborough-Manayunk and the OTS's approval of the Plan and the
Reorganization Agreement remains in full force and effect; to the best
of such counsel's knowledge, the Mutual Holding Company and
Roxborough-Manayunk have conducted the Reorganization in all respects
in accordance with applicable requirements of the Plan, the
Reorganization Agreement, the Conversion Regulations and all other
applicable regulations, decisions and orders thereunder, including all
applicable terms, conditions, requirements and conditions precedent to
the Reorganization imposed upon the Mutual Holding Company and
Roxborough-Manayunk by the OTS and no order has been issued by the OTS
to suspend the Offerings and no action for such purpose has been
instituted or, to the best of such counsel's knowledge, threatened by
the OTS; and, to the best of such counsel's knowledge, no person has
sought to obtain review of the final action of the OTS in approving
the Plan and the Reorganization Agreement.
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(xix) To the best of such counsel's knowledge and information, the
Mutual Holding Company, Roxborough-Manayunk and its subsidiaries have
obtained all licenses, permits and other governmental approvals and
authorizations currently required for the conduct of their respective
businesses as described in the Registration Statement and Prospectus,
except for such licenses, permits, approvals or authorizations of
which the failure to have would not result in a material adverse
change in the financial condition, results of operations or the
business of the Mutual Holding Company, Roxborough-Manayunk and its
subsidiaries, taken as a whole, and all such licenses, permits and
other governmental authorizations are in full force and effect, and
the Mutual Holding Company, Roxborough-Manayunk and its subsidiaries
are in all material respects complying therewith.
(xx) Neither the Mutual Holding Company or Roxborough-Manayunk is
in violation of its charter nor, to the best of such counsel's
knowledge, in default (nor has any event occurred which, with notice
or lapse of time or both, would constitute a default) in the
performance or observance of any obligation, agreement, covenant or
condition contained in any contract, indenture, mortgage, loan
agreement, note, lease or other instrument to which the Mutual Holding
Company, Roxborough-Manayunk or its subsidiaries is a party or by
which the Mutual Holding Company, Roxborough-Manayunk or its
Subsidiaries or any of their property may be bound (in any respect
that would have a material adverse effect upon the financial
condition, results of operations or business of the Mutual Holding
Company, Roxborough-Manayunk and its subsidiaries, taken as a whole).
(3) The favorable opinion, dated as of Closing Time, of Breyer &
Aguggia, counsel for the Agent, with respect to the matters set forth in
Section 7(b)(1)(i), (v), (vi), (vii) (solely as to preemptive rights
arising by operation of law), (xvi), (xix) and (x), 7(b)(2)(i) and (xii)
and such other matters as the Agent may reasonably require.
(4) In giving their opinions required by subsections (b)(l), (b)(2)
and (b)(3), respectively, of this Section, Elias, Matz, Tiernan & Herrick,
L.L.P., Malizia, Spidi, Sloan and Fisch, P.C. and Breyer & Aguggia shall
each additionally state that nothing has come to their attention that would
lead them to believe that the Registration Statement (except for the
appraisal, financial statements and schedules and other financial or
statistical data included therein, as to which counsel need make no
statement), at the time it became effective, contained an untrue statement
of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading
or that the Prospectus (except for the appraisal, financial statements and
schedules and other financial or statistical data included therein, as to
which counsel need make no statement), at the time the Registration
Statement became effective or at Closing Time, included an untrue statement
of a material fact or omitted to state a material fact necessary in order
to make the statements therein, in the light of the circumstances under
which they were made, not misleading. In giving their opinions, Elias,
Matz, Tiernan &
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Herrick, L.L.P., Malizia, Spidi, Sloan and Fisch, P.C. and Breyer & Aguggia
may rely as to matters of fact on certificates of officers and directors of
the Company and the Mutual Holding Company and certificates of public
officials, and as to matters of Pennsylvania law and Delaware law upon the
opinions of local counsel reasonably satisfactory to the Agent, which
opinions shall be in form and substance satisfactory to the Agent, and
Breyer & Aguggia may also rely as to certain matters on the opinions of
Elias, Matz, Tiernan & Herrick, L.L.P., and Malizia, Spidi, Sloan and
Fisch, P.C.
(c) At the Closing Time referred to in Section 3, the Company and the
Association will have completed in all material respects the conditions
precedent to the Reorganization in accordance with the Plan, the Reorganization
Agreement, the applicable Conversion Regulations and all other applicable laws,
regulations, decisions and orders, including all terms, conditions, requirements
and provisions precedent to the Reorganization imposed upon the Company,
Progress, the Mutual Holding Company or Roxborough-Manayunk by the OTS, the
FDIC, or any other regulatory authority other than those which the OTS or the
FDIC permit to be completed after the Reorganization.
(d) At Closing Time, there shall not have been, since the date hereof or
since the respective dates as of which information is given in the Registration
Statement and the Prospectus, any material adverse change in the financial
condition, results of operations, business or prospects of the Company and its
subsidiaries, taken as a whole, whether or not arising in the ordinary course of
business, and the Agent shall have received a certificate of the President and
Chief Executive Officer of the Company and the chief financial or chief
accounting officer of the Company, dated as of Closing Time, to the effect that
(i) there has been no such material adverse change, (ii) there shall have been
no material transaction entered into by the Company or its subsidiaries from the
latest date as of which the financial condition of the Company as set forth in
the Registration Statement and the Prospectus other than transactions referred
to or contemplated therein and transactions in the ordinary course of business,
(iii) neither the Company nor Progress shall have received from the OTS any
directive (oral or written) to make any change in the method of conducting its
business with which it has not complied (which directive, if any, shall have
been disclosed to the Agent) or which materially and adversely would affect the
financial condition, results of operations, business or prospects of the Company
and its subsidiaries taken as a whole, (iv) the representations and warranties
in Section 1 hereof are true and correct with the same force and effect as
though expressly made at and as of the Closing Time, (v) the Company has
complied with all agreements and satisfied all conditions on its part to be
performed or satisfied at or prior to Closing Time, (vi) no stop order
suspending the effectiveness of the Registration Statement has been issued and
no proceedings for that purpose have been initiated or threatened by the
Commission and (vii) no order suspending the Offerings or the authorization for
final use of the Prospectus has been issued and no proceedings for that purpose
have been initiated or threatened by the OTS or the FDIC and no person has
sought to obtain regulatory or judicial review of the action of the OTS in
approving the Reorganization Agreement in accordance with OTS regulations.
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(e) At Closing Time, there shall not have been, since the date hereof or
since the respective dates as of which information is given in the Registration
Statement and the Prospectus, any material adverse change in the financial
condition, results of operations, business or prospects of the Mutual Holding
Company, Roxborough-Manayunk and its subsidiaries, taken as a whole, whether or
not arising in the ordinary course of business, and the Agent shall have
received a certificate of the President and Chief Executive Officer of the
Mutual Holding Company and the chief financial or chief accounting officer of
the Mutual Holding Company, dated as of Closing Time, to the effect that (i)
there has been no such material adverse change, (ii) there shall have been no
material transaction entered into by the Mutual Holding Company, Roxborough-
Manayunk or its subsidiaries from the latest date as of which the financial
condition of Roxborough-Manayunk as set forth in the Registration Statement and
the Prospectus other than transactions referred to or contemplated therein and
transactions in the ordinary course of business, (iii) neither the Mutual
Holding Company nor Roxborough-Manayunk shall have received from the OTS any
directive (oral or written) to make any material change in the method of
conducting its business with which it has not complied (which directive, if any,
shall have been disclosed to the Agent) or which materially and adversely would
affect the financial condition, results of operations, business or prospects of
the Mutual Holding Company, Roxborough-Manayunk and its subsidiaries taken as a
whole, (iv) the representations and warranties in Section 2 hereof are true and
correct with the same force and effect as though expressly made at and as of the
Closing Time, (v) the Mutual Holding Company has complied with all agreements
and satisfied all conditions on its part to be performed or satisfied at or
prior to Closing Time, and (vi) no order suspending the Offerings or the
authorization for final use of the Prospectus has been issued and no proceedings
for that purpose have been initiated or threatened by the OTS or the FDIC and no
person has sought to obtain regulatory or judicial review of the action of the
OTS in approving the Plan in accordance with the Conversion Regulations.
(f) At the time of the execution of this Agreement, the Agent shall have
received from Coopers and Lybrand L.L.P. a letter dated such date, in form and
substance satisfactory to the Agent, to the effect that (i) they are independent
certified public accountants with respect to the Company and its subsidiaries
within the meaning of the 1933 Act, the 1933 Act Regulations and the Conversion
Regulations; (ii) it is their opinion that the consolidated financial statements
and supporting schedules included in the Registration Statement and covered by
their opinions therein comply as to form in all material respects with the
applicable accounting requirements of the 1933 Act, the 1933 Act Regulations and
the OTS Regulations; (iii) based upon procedures as agreed upon by the Agent and
Coopers and Lybrand L.L.P. and set forth in detail in such letter, nothing has
come to their attention which causes them to believe that (A) the unaudited
financial statements and supporting schedules of the Company included in the
Registration Statement do not comply as to form in all material respects with
the applicable accounting requirements of the 1933 Act, the 1933 Act Regulations
and the OTS Regulations or are not presented in conformity with generally
accepted accounting principles applied on a basis substantially consistent with
that of the audited financial statements included in the Registration Statement
and the Prospectus, (B) the unaudited amounts included under the caption "Recent
Developments" in the Registration Statement do not agree with the amounts set
forth in the unaudited
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consolidated financial statements as of and for the dates and periods presented
under such caption or such unaudited amounts were not determined on a basis
substantially consistent with that of the audited financial statements included
in the Registration Statement and the Prospectus, (C) at a specified date not
more than five days prior to the date of this Agreement, there has been any
increase in the consolidated long term or short term debt of the Company or any
decrease in consolidated total assets, allowance for loan losses, total savings
deposits or equity of the Company, in each case as compared with the amounts
shown in the March 31, 1995 balance sheet included in the Registration Statement
or, (D) during the period from March 31, 1995 to a specified date not more than
five days prior to the date of this Agreement, there were any decreases, as
compared with the corresponding period in the preceding year, in net interest
income, net interest income after provision for loan losses, or net income of
the Company, except in all instances for increases or decreases which the
Registration Statement and the Prospectus disclose have occurred or may occur;
and (iv) in addition to the examination referred to in their opinions and the
procedures referred to in clause (iii) above, they have carried out certain
specified procedures, not constituting an audit, with respect to certain
amounts, percentages and financial information which are included in the
Registration Statement and Prospectus and which are specified by the Agent, and
have found such amounts, percentages and financial information to be in
agreement with the relevant accounting, financial and other records of the
Company and its subsidiaries identified in such letter.
(g) At the time of the execution of this Agreement, the Agent shall have
received from Deloitte & Touche LLP a letter dated such date, in form and
substance satisfactory to the Agent, to the effect that (i) they are independent
certified public accountants with respect to Roxborough-Manayunk and its
subsidiaries within the meaning of the 1933 Act, the 1933 Act Regulations and
the Conversion Regulations; (ii) it is their opinion that the consolidated
financial statements and supporting schedules included in the Registration
Statement and covered by their opinions therein comply as to form in all
material respects with the applicable accounting requirements of the 1933 Act,
the 1933 Act Regulations and the OTS Regulations; (iii) based upon procedures as
agreed upon by the Agent and Deloitte & Touche LLP and set forth in detail in
such letter, nothing has come to their attention which causes them to believe
that (A) the unaudited financial statements and supporting schedules of
Roxborough-Manayunk included in the Registration Statement do not comply as to
form in all material respects with the applicable accounting requirements of the
1933 Act, the 1933 Act Regulations and the OTS Regulations or are not presented
in conformity with generally accepted accounting principles applied on a basis
substantially consistent with that of the audited financial statements included
in the Registration Statement and the Prospectus, (B) the unaudited amounts
included under the caption "Recent Developments" in the Registration Statement
do not agree with the amounts set forth in the unaudited consolidated financial
statements as of and for the dates and periods presented under such caption or
such unaudited amounts were not determined on a basis substantially consistent
with that of the audited financial statements included in the Registration
Statement and the Prospectus, (C) at a specified date not more than five days
prior to the date of this Agreement, there has been any increase in the
consolidated long term or short term debt Roxborough-Manayunk or any decrease in
consolidated total assets, allowance for loan losses, total savings deposits or
equity Roxborough-Manayunk, in each
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case as compared with the amounts shown in the March 31, 1995 balance sheet
included in the Registration Statement or, (D) during the period from March 31,
1995 to a specified date not more than five days prior to the date of this
Agreement, there were any decreases, as compared with the corresponding period
in the preceding year, in net interest income, net interest income after
provision for loan losses, or net income of Roxborough-Manayunk, except in all
instances for increases or decreases which the Registration Statement and the
Prospectus disclose have occurred or may occur; and (iv) in addition to the
examination referred to in their opinions and the procedures referred to in
clause (iii) above, they have carried out certain specified procedures, not
constituting an audit, with respect to certain amounts, percentages and
financial information which are included in the Registration Statement and
Prospectus and which are specified by the Agent, and have found such amounts,
percentages and financial information to be in agreement with the relevant
accounting, financial and other records of the Roxborough-Manayunk and its
subsidiaries identified in such letter.
(h) At Closing Time, the Agent shall have received from Coopers and
Lybrand L.L.P. a letter, dated as of Closing Time, to the effect that they
reaffirm their statements made in the letter furnished pursuant to subsection
(f) of this Section, except that the specified date referred to shall be a date
not more than five days prior to Closing Time.
(i) At Closing Time, the Agent shall have received from Deloitte & Touche
LLP a letter, dated as of Closing Time, to the effect that they reaffirm their
statements made in the letter furnished pursuant to subsection (g) of this
Section, except that the specified date referred to shall be a date not more
than five days prior to Closing Time.
(j) At Closing Time, the Securities shall have been approved for listing
on the Nasdaq National Market upon notice of issuance.
(k) At Closing Time, the Agent shall have received a letter from RP
Financial, Inc., dated as of the Closing Time, confirming its appraisal.
(l) At Closing Time, counsel for the Agent shall have been furnished with
such documents and opinions as they may require for the purpose of enabling them
to pass upon the issuance and sale of the Securities as herein contemplated and
related proceedings, or in order to evidence the accuracy of any of the
representations or warranties, or the fulfillment of any of the conditions,
herein contained; and all proceedings taken by the Company and the Mutual
Holding Company in connection with the issuance and sale of the Securities as
herein contemplated shall be satisfactory in form and substance to the Agent and
counsel for the Agent.
(m) At any time prior to Closing Time, (i) there shall not have occurred
any material adverse change in the financial markets in the United States or
elsewhere or any outbreak of hostilities or escalation thereof or other calamity
or crisis the effects of which, in the judgment of the Agent, are so material
and adverse as to make it impracticable to market the Securities or to enforce
contracts, including subscriptions or orders, for the sale
E - 40
<PAGE>
-40-
of the Securities, and (ii) trading generally on either the American Stock
Exchange or the New York Stock Exchange shall not have been suspended, and
minimum or maximum prices for trading shall not have been fixed, or maximum
ranges for prices for securities have been required, by either of said Exchanges
or by order of the Commission or any other governmental authority, and a banking
moratorium shall not have been declared by either Federal or Pennsylvania
authorities.
SECTION 8. INDEMNIFICATION.
(a) The Company and the Mutual Holding Company, jointly and severally,
agree to indemnify and hold harmless the Agent, each person, if any, who
controls the Agent, within the meaning of Section 15 of the 1933 Act or Section
20 of the 1934 Act, and its respective partners, directors, officers, employees
and agents as follows:
(i) from and against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, related to or arising out of the
Reorganization or any action taken by the Agent where acting as agent of
the Company and the Mutual Holding Company or otherwise as described in
Section 3 hereof; provided, however, that this indemnity agreement shall
not apply to any loss, liability, claim, damage or expense found in a final
judgment by a court of competent jurisdiction to have resulted primarily
from the bad faith, willful misconduct or gross negligence of the Agent;
(ii) from and against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, related to or arising out of any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement (or any amendment thereto), or the omission or
alleged omission therefrom of a material fact required to be stated therein
or necessary to make the statements therein not misleading or arising out
of any untrue statement or alleged untrue statement of a material fact
contained in the Prospectus (or any amendment or supplement thereto) or the
omission or alleged omission therefrom of a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading;
(iii) from and against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount paid
in settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever described in clauses (i) or (ii) above, if such settlement is
effected with the written consent of the Company or the Mutual Holding
Company, which consent shall not be unreasonably withheld; and
(iv) from and against any and all expense whatsoever, as incurred
(including, subject to Section 8(c) hereof, the fees and disbursements of
counsel chosen by the Agent), reasonably incurred in investigating,
preparing or defending against any litigation, or any investigation,
proceeding or inquiry by any governmental agency or body, commenced or
threatened, or any pending or threatened claim
E - 41
<PAGE>
-41-
whatsoever described in clauses (i) or (ii) above, to the extent that any
such expense is not paid under (i), (ii) or (iii) above;
provided, however, that the indemnification provided for in this paragraph (a)
shall not apply to any loss, liability, claim, damage or expense to the extent
arising out of any untrue statement or alleged untrue statement of a material
fact or omission or alleged omission of a material fact required to be stated
therein or necessary to make not misleading any statements contained in the
Registration Statement (or any amendment thereto) or the Prospectus (or any
amendment or supplement thereto) made in reliance upon and in conformity with
the Agent Information.
(b) The Agent agrees to indemnify and hold harmless the Company, the
Mutual Holding Company, their directors and trustees, each of the officers of
the Company who signed the Registration Statement, and each person, if any, who
controls the Company or the Mutual Holding Company within the meaning of Section
15 of the 1933 Act or Section 20 of the 1934 Act against any and all loss,
liability, claim, damage and expense described in the indemnity contained in
subsection (a) of this Section, as incurred, but only with respect to untrue
statements or alleged untrue statements of a material fact or omissions or
alleged omissions of a material fact, made in the Registration Statement (or any
amendment thereto) or the Prospectus (or any amendment or supplement thereto) in
reliance upon and in conformity with the Agent Information.
(c) Each indemnified party shall give notice as promptly as reasonably
practicable to each indemnifying party of any action commenced against it in
respect of which indemnity may be sought hereunder, but failure to so notify an
indemnifying party shall not relieve such indemnifying party from any liability
which it may have otherwise than on account of this indemnity agreement. An
indemnifying party may participate at its own expense in the defense of any such
action. In no event shall the indemnifying parties be liable for fees and
expenses of more than one counsel (in addition to no more than one local counsel
in each separate jurisdiction in which any action or proceedings is commenced)
separate from their own counsel for all indemnified parties in connection with
any one action or separate but similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances.
(d) The Company and the Mutual Holding Company also agree that the Agent
shall not have any liability (whether direct or indirect, in contract or tort or
otherwise) to the Mutual Holding Company, Roxborough-Manayunk, its security
holders, the Company, its security holders, Progress or the Mutual Holding
Company's or the Company's creditors relating to or arising out of the
engagement of the Agent pursuant to, or the performance by the Agent of the
services contemplated by, this Agreement, except to the extent that any loss,
claim, damage or liability is found in a final judgment by a court to have
resulted primarily from the Agent's bad faith, willful misconduct or gross
negligence.
(e) In addition to, and without limiting, the provisions of Section
(8)(a)(iv) hereof, in the event that any Agent, any person, if any, who controls
the Agent within the meaning of Section 15 of the 1933 Act or Section 20 of the
1934 Act or any of its partners, directors,
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<PAGE>
-42-
officers, employees or agents is requested or required to appear as a witness or
otherwise gives testimony in any action, proceeding, investigation or inquiry
brought by or on behalf of or against the Company or the Mutual Holding Company
or any of its respective affiliates or any participant in the transactions
contemplated hereby in which the Agent or such person or agent is not named as a
defendant or subject to an investigation or inquiry, the Company and the Mutual
Holding Company jointly and severally agree to reimburse the Agent for all
reasonable and necessary out-of-pocket expenses incurred by it in connection
with preparing or appearing as a witness or otherwise giving testimony and to
compensate the Agent in an amount to be mutually agreed upon.
SECTION 9. CONTRIBUTION. In order to provide for just and equitable
contribution in circumstances in which the indemnity agreement provided for in
Section 8 hereof is for any reason held to be unenforceable by the indemnified
parties although applicable in accordance with its terms, the Company, the
Mutual Holding Company and the Agent shall contribute to the aggregate losses,
liabilities, claims, damages and expenses of the nature contemplated by said
indemnity agreement incurred by the Company or the Mutual Holding Company and
the Agent, as incurred, in such proportions (i) that the Agent is responsible
for that portion represented by the percentage that the maximum aggregate
marketing fees appearing on the cover page of the Prospectus bears to the
maximum aggregate gross proceeds appearing thereon and the Company and the
Mutual Holding Company are jointly and severally responsible for the balance or
(ii) if, but only if, the allocation provided for in clause (i) is for any
reason held unenforceable, in such proportion as is appropriate to reflect not
only the relative benefits to the Company and the Mutual Holding Company on the
one hand and the Agent on the other, as reflected in clause (i), but also the
relative fault of the Company and the Mutual Holding Company on the one hand and
the Agent on the other (relative fault shall be determined by reference to,
among other things, whether the untrue statement of a material fact or omission
to state a material fact relates to information supplied by the Company and
Mutual Holding Company or the Agent and the parties relative intent, knowledge,
and access to information), as well as any other relevant equitable
considerations; provided, however, that no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section, each person, if any, who
controls the Agent within the meaning of Section 15 of the 1933 Act or Section
20 of the 1934 Act shall have the same rights to contribution as the Agent, and
each director of the Company, each director of the Mutual Holding Company, each
officer of the Company who signed the Registration Statement, and each person,
if any, who controls the Company or the Mutual Holding Company within the
meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have
the same rights to contribution as the Company and the Mutual Holding Company.
Notwithstanding anything to the contrary set forth herein, to the extent
permitted by applicable law, in no event shall the Agent be required to
contribute an aggregate amount in excess of the aggregate marketing fees to
which the Agent is entitled and actually paid pursuant to this Agreement.
SECTION 10. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE
DELIVERY. All representations, warranties and agreements contained in this
Agreement, or
E - 43
<PAGE>
-43-
contained in certificates of officers of the Company or the Mutual Holding
Company submitted pursuant hereto, shall remain operative and in full force and
effect, regardless of any investigation made by or on behalf of the Agent or any
controlling person, or by or on behalf of the Company or the Mutual Holding
Company, and shall survive delivery of the Securities.
SECTION 11. TERMINATION OF AGREEMENT.
(a) The Agent may terminate this Agreement, by notice to the Company and
the Mutual Holding Company, at any time at or prior to Closing Time (i) if there
has been, since the date of this Agreement or since the respective dates as of
which information is given in the Registration Statement, any material adverse
change in the condition, financial or otherwise, or in the earnings, business
affairs or business prospects of the Company and its subsidiaries, taken as a
whole, or the Mutual Holding Company, Roxborough-Manayunk and its subsidiaries,
taken as a whole, whether or not arising in the ordinary course of business, or
(ii) if there has occurred any material adverse change in the financial markets
in the United States or elsewhere or any outbreak of hostilities or escalation
thereof or other calamity or crisis the effects of which, in the judgment of the
Agent, are so material and adverse as to make it impracticable to market the
Securities or to enforce contracts, including subscriptions or orders, for the
sale of the Securities, (iii) or if trading generally on either the American
Stock Exchange or the New York Stock Exchange has been suspended, or minimum or
maximum prices for trading have been fixed, or maximum ranges for prices for
securities have been required, by either of said Exchanges or by order of the
Commission or any other governmental authority, or if a banking moratorium has
been declared by either Federal or Pennsylvania authorities, (iv) if any
condition specified in Section 7 shall not have been fulfilled when and as
required to be fulfilled; (v) if there shall have been such material adverse
change in the condition or prospects of the Company, Progress, the Mutual
Holding Company or Roxborough-Manayunk or the prospective market for the
Company's securities as in the Agent's good faith opinion would make it
inadvisable to proceed with the offering, sale or delivery of the Securities;
(vi) if in the Agent's good faith opinion, the price for the Securities
established by RP Financial, Inc. is not reasonable or equitable under then
prevailing market conditions; or (vii) if the Reorganization is not consummated
prior to May 31, 1996.
(b) If this Agreement is terminated pursuant to this Section, such
termination shall be without liability of any party to any other party except
that the provisions of Section 6 relating to reimbursement of expenses and the
provisions of Sections 8 and 9 hereof shall survive any termination of this
Agreement.
SECTION 12. NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the Agent
shall be directed to the Agent at Two World Trade Center, 104th Floor, New York,
New York 10048, attention of Catherine A. Lawton, Principal, with a copy to John
F. Breyer, Jr., Esq., Breyer & Aguggia, 601 13th Street, N.W., Suite 1120 South,
Washington, D.C. 20005; notices to the Company shall be directed to 600 West
Germantown Pike, Plymouth Meeting, Pennsylvania 19462,
E - 44
<PAGE>
-44-
attention of W. Kirk Wycoff, President and Chief Executive Officer, with a copy
to Raymond A. Tiernan, Esq., Elias, Matz, Tiernan & Herrick, L.L.P., The Walker
Building, 12th Floor, 734 15th Street, N.W., Washington, D.C. 20005; notices to
the Mutual Holding Company shall be directed to 6060 Ridge Avenue, Philadelphia,
Pennsylvania 19128, attention of John F. McGill, President, with a copy to
Samuel J. Malizia, Esq., Malizia, Spidi, Sloane and Fisch, P.C., 1301 K Street,
N.W., Suite 700 East, Washington, D.C. 20005.
SECTION 13. PARTIES. This Agreement shall inure to the benefit of and
be binding upon the Agent, the Company and the Mutual Holding Company and their
respective successors, including Progress Bank as the successor to the Mutual
Holding Company following the merger of the Mutual Holding Company with
Roxborough-Manayunk and the subsequent merger of Roxborough-Manayunk with
Progress. Nothing expressed or mentioned in this Agreement is intended or shall
be construed to give any person, firm or corporation, other than the Agent, the
Company and the Mutual Holding Company and their respective successors and the
controlling persons and officers and directors referred to in Sections 8 and 9
and their heirs and legal representatives, any legal or equitable right, remedy
or claim under or in respect of this Agreement or any provision herein or
therein contained. This Agreement and all conditions and provisions hereof and
thereof are intended to be for the sole and exclusive benefit of the Agent, the
Company and the Mutual Holding Company and their respective successors, and said
controlling persons and officers and directors and their heirs and legal
representatives, and for the benefit of no other person, firm or corporation.
SECTION 14. ENTIRE AGREEMENT; AMENDMENT. This Agreement represents
the entire understanding of the parties hereto with reference to the
transactions contemplated hereby and supersedes any and all other oral or
written agreements heretofore made. No waiver, amendment or other modification
of this Agreement shall be effective unless in writing and signed by the parties
hereto.
SECTION 15. GOVERNING LAW AND TIME. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York applicable
to agreements made and to be performed in said State without regard to the
conflicts of laws provisions thereof. Specified times of day refer to Eastern
time.
SECTION 16. SEVERABILITY. Any term or provision of this Agreement
which is invalid or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement or affecting the validity or enforceability of
any of the terms or provisions of this Agreement in any other jurisdiction. If
any provision of this Agreement is so broad as to be unenforceable, the
provision shall be interpreted to be only so broad as is enforceable.
SECTION 17. HEADINGS. Sections headings are not to be considered part
of this Agreement, are for convenience and reference only, and are not to be
deemed to be full or accurate descriptions of the contents of any paragraph or
subparagraph.
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<PAGE>
-45-
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
between the Agent, the Company and the Mutual Holding Company in accordance with
its terms.
Very truly yours,
PROGRESS FINANCIAL CORPORATION
By:
-----------------------------------------------
W. Kirk Wycoff
President and Chief Executive Officer
FJF Financial, M.H.C.
By:
----------------------------------------------
John F. McGill
President and Chief Executive Officer
CONFIRMED AND ACCEPTED,
as of the date first above written:
Sandler O'Neill & Partners, L.P.
By: Sandler O'Neill & Partners Corp.,
the sole general partner
By:
---------------------------
Catherine A. Lawton
Vice President
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<PAGE>
Progress Financial Corporation
Shares
--------------
(Maximum Offered in Conversion)
Common Stock
(Par Value $______ Per Share)
SELECTED DEALER'S AGREEMENT
, 1995
---------------
We have agreed to assist Progress Financial Corporation (the "Company") in
connection with the offer and sale of shares (the "Shares") of Common Stock, par
value $_____ per share, of the Company, to be issued in connection with the
conversion of FJF Financial, M.H.C., a federally chartered mutual holding
company from mutual to stock form and the merger of Roxborough-Manayunk Federal
Savings Bank ("Roxborough-Manayunk") with Progress Federal Savings Bank
("Progress"). The Company, in connection with its plan to effect such
conversion and merger, offered _________ Shares for subscription by certain
depositors and borrowers of Roxborough-Manayunk, an employee stock ownership
plan of stockholders of Roxborough-Manayunk and the Company as of certain record
dates, in a subscription offering, and certain members of the general public in
a concurrent direct community offering. The Shares which were not subscribed
for pursuant to such subscription and direct community offerings are being
offered to the public in a syndicated community offering (the "Syndicated
Community Offering") in accordance with the rules of the Office of Thrift
Supervision ("OTS"). The Shares, the bases on which the number of Shares to be
issued may change, and certain of the terms on which they are being offered are
more fully described in the enclosed Prospectus (the "Prospectus").
We are offering to Selected Dealers (of which you are one) the opportunity
to participate in the solicitation of offers to buy the Shares in the Syndicated
Community Offering and we will pay you a fee in the amount of ___________
percent (______%) of the dollar amount of the Shares sold on behalf of the
Company by you. The number of Shares sold by you shall be determined based on
the authorized designation of your firm on the order form or forms for such
Shares accompanying the funds transmitted for payment therefor (whether in the
form of a check payable to the Company or a withdrawal from an existing account
at Roxborough-Manayunk or Progress) to the special account established by the
Company for the purpose of holding such funds. It is understood, of course,
that payment of your fee will be made only out of compensation received by us
for the Shares sold on behalf of the Company by you, as evidenced in accordance
with the preceding sentence. The Company has requested us to invite you to
become a "Sponsoring Dealer," that is, a Selected Dealer who solicits offers
which result in the sale on behalf of the Company of at least ________ Shares.
You may become a Sponsoring Dealer (subject to your fulfillment of the
requirement in the preceding sentence) by checking the box on the confirmation
at the end of this letter. If you become a Sponsoring Dealer, you shall be
entitled to an additional fee in the amount of ______ percent (_____%) of the
dollar
E - 47
<PAGE>
-2-
amount of the Shares sold on behalf of the Company by you as evidenced in the
manner set forth above.
Each order form for the purchase of Shares must set forth the identity,
---- --------
address and tax identification number of each person ordering Shares regardless
------- --- -------------- ------
of whether the Shares will be registered in street name or in the purchaser's
name. Such order form should clearly identify your firm.
As soon as practicable after all the Shares are sold, we will remit to you,
out of our compensation as provided above, the fees to which you are entitled
hereunder, including your Sponsoring Dealer fee.
This offer is made subject to the terms and conditions herein set forth and
is made only to Selected Dealers which are (i) members in good standing of the
National Association of Securities Dealers, Inc. ("NASD") which agree to comply
with all applicable rules of the NASD, including, without limitation, the NASD's
Interpretation With Respect to Free-Riding and Withholding and Section 24 of
Article III of the NASD's Rules of Fair Practice, or (ii) foreign dealers not
eligible for membership in the NASD which agree (A) not to sell any Shares
within the United States, its territories or possessions or to persons who are
citizens thereof or resident therein and (B) in making other sales to comply
with the above-mentioned NASD Interpretation, Sections 8, 24 and 36 of the
above-mentioned Article III as if they were NASD members and Section 25 of such
Article III as it applies to non-member brokers or dealers in a foreign country.
Orders for Shares will be strictly subject to confirmation and we, acting
on behalf of the Company, reserve the right in our absolute discretion to reject
any order in whole or in part, to accept or reject orders in the order of their
receipt or otherwise, and to allot. Neither you nor any other person is
authorized by the Company or by us to give any information or make any
representations other than those contained in the Prospectus in connection with
the sale of any of the Shares. No Selected Dealer is authorized to act as agent
for us when soliciting offers to buy the Shares from the public or otherwise.
No Selected Dealer shall engage in any stabilizing (as defined in Rule 10b-7
promulgated under the Securities Exchange Act of 1934) with respect to the
Company's Common Stock during the offering.
We and each Selected Dealer assisting in selling Shares pursuant hereto
agree to comply with the applicable requirements of the Securities Exchange Act
of 1934 and applicable rules and regulations issued by the Federal Reserve Board
and the OTS. In addition, we and each Selected Dealer confirm that the
Securities and Exchange Commission interprets Rule 15c2-8 promulgated under the
Securities Exchange Act of 1934 as requiring that a prospectus be supplied to
each person who is expected to receive a confirmation of sale 48 hours prior to
delivery of such person's order form.
We and each Selected Dealer further agree to the extent that our customers
desire to pay for Shares with funds held by or to be deposited with us, in
accordance with the interpretation of the Securities and Exchange Commission of
Rule 15c2-4 promulgated under the Securities Exchange Act of 1934 either (a)
upon receipt of an executed order form or direction to execute an order form on
behalf of a customer to forward the
E - 48
<PAGE>
-3-
syndicated community offering price for the Shares ordered on or before 12:00
p.m. on the business day following receipt or execution of an order form by us
to the Company for deposit in a segregated account or (b) to solicit indications
of interest in which event (i) we will subsequently contact any customers
indicating interest to confirm the interest and give instructions to execute and
return an order form or to receive authorization to execute an order form on
their behalf, (ii) we will mail acknowledgements of receipt of orders to each
customer confirming interest on the business day following such confirmation,
(iii) we will debit accounts of such customers on the third business day (the
"debit date") following receipt of the confirmation referred to in (i) and (iv)
we will forward completed order forms together with such funds to the Company on
or before 12:00 p.m. on the next business day following the debit date for
deposit in a segregated account. We acknowledge that if the procedure in (b) is
adopted, our customer's funds are not required to be in their accounts until the
debit date. We and each Selected Dealer further acknowledge that, in order to
use the foregoing "sweep arrangements," we comply with the net capital
requirements for broker/dealers under Rule 15c3-1(a)(1) of the Securities
Exchange Act of 1934.
Unless earlier terminated by us, this Agreement shall terminate 45 full
business days after the date hereof, but may be extended by us for an additional
period or periods not exceeding 30 full business days in the aggregate. We may
terminate this Agreement or any provisions hereof at any time by written or
telegraphic notice to you. Of course, our obligations hereunder are subject to
the successful completion of the offering, including the sale of all of the
Shares.
You agree that at any time or times prior to the termination of this
Agreement you will, upon our request, report to us the number of Shares sold on
behalf of the Company by you under this Agreement.
We shall have full authority to take such actions as we may deem advisable
in respect to all matters pertaining to the offering. We shall be under no
liability to you except for lack of good faith and for obligations expressly
assumed by us in this Agreement.
Upon application to us, we will inform you as to the states in which we
believe the Shares have been qualified for sale under, or are exempt from the
requirements of, the respective blue sky laws of such states, but we assume no
responsibility or obligation as to your rights to sell Shares in any state.
Additional copies of the Prospectus and any supplements thereto will be
supplied in reasonable quantities upon request.
Any notice from us to you shall be deemed to have been duly given if
mailed, telephoned or telegraphed to you at the address to which this Agreement
is mailed.
This Agreement shall be construed in accordance with the laws of New York.
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<PAGE>
-4-
Please confirm your agreement hereto by signing and returning the
confirmation accompanying this letter at once to us at Sandler O'Neill &
Partners, L.P., Two World Trade Center, 104th Floor, New York, New York 10048.
The enclosed duplicate copy will evidence the agreement between us.
Very truly yours,
SANDLER O'NEILL & PARTNERS, L.P.
By:
--------------------------------
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<PAGE>
Sandler O'Neill & Partners, L.P.
Two World Trade Center - 104th Floor
New York, New York 10048
Re: (Name of Issuer)
----------------
We hereby confirm our agreement to all the terms and conditions stated in
the foregoing letter. We acknowledge receipt of the Prospectus relating to the
Shares and we further state that in agreeing thereto we have relied upon the
Prospectus and no other statement whatsoever, written or oral. We confirm that
we are (i) a member in good standing of the National Association of Securities
Dealers, Inc. ("NASD"), which agrees to comply with all applicable rules of the
NASD, including, without limitation, the NASD's Interpretation With Respect to
Free-Riding and Withholding and Section 24 of Article III of the NASD's Rules of
Fair Practice, or (ii) a foreign dealer not eligible for membership in the NASD
which agrees (A) not to sell any Shares within the United States, its
territories or possessions or to persons who are citizens thereof or resident
therein and (B) in making other sales to comply with the above-mentioned NASD
Interpretation, Sections 8, 24 and 26 of the above-mentioned Article III as if
they were NASD members and Section 25 of such Article III as it applies to a
non-member broker or dealer in a foreign country.
[ ] We wish to become a "Sponsoring Dealer."
-----------------------------------
(Please print or type name of firm)
-----------------------------------
(Authorized Representative)
Dated:
-----------------
E - 51
EXHIBIT 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 as of May 24, 1995
and Amended as of August 7, 1995
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<PAGE>
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 as of May 24, 1995
and Amended as of August 7, 1995
E - 53
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Agreement") is dated as of
May 24, 1995 and amended as of August 7, 1995, by and among Progress Financial
Corporation (the "Corporation"), a Delaware corporation, Progress Federal
Savings Bank ("Progress"), a federally chartered stock savings bank and wholly
owned subsidiary of the Corporation, FJF Financial, M.H.C. (the "Mutual Holding
Company"), a federally chartered mutual holding company, and Roxborough-Manayunk
Federal Savings Bank ("Roxborough-Manayunk"), a federally-chartered stock
savings bank and majority-owned subsidiary of the Mutual Holding Company.
RECITALS
WHEREAS, the Board of Directors of the Mutual Holding Company and
Roxborough-Manayunk believe that a conversion of the Mutual Holding Company from
the mutual form to a federal interim stock savings bank and the reorganization
of Roxborough-Manayunk pursuant to this Agreement is in the best interests of
the Mutual Holding Company and Roxborough-Manayunk, as well as the best
interests of their respective members and stockholders;
WHEREAS, the Board of Directors of the Mutual Holding Company has
determined that this Agreement and the related Plan of Conversion equitably
provide for the interests of its members through the granting of subscription
rights and the establishment of a liquidation account;
WHEREAS, the conversion of the Mutual Holding Company from the mutual form
to a federal interim stock savings bank and the reorganization of Roxborough-
Manayunk described herein will result in the formation of a stock holding
company, which is a more common structure and form of ownership than a mutual
holding company;
WHEREAS, for the reasons discussed above, the Boards of Directors of the
Mutual Holding Company and Roxborough-Manayunk have resolved that it is in the
best interests of their respective companies for the Mutual Holding Company to
convert from the mutual form to a federal interim stock savings bank to be known
as "FJF Financial Interim Federal Savings Bank" ("Interim") and to have Interim
simultaneously merge with and into Roxborough-Manayunk (the "Conversion");
WHEREAS, for the reasons discussed above, the Boards of Directors of the
Corporation, Progress, the Mutual Holding Company and Roxborough-Manayunk have
resolved that it is in the best interests of their respective companies for
Roxborough-Manayunk to combine with Progress immediately subsequent to the
Conversion (the "Reorganization");
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants, representations, warranties and agreements herein contained, the
Corporation, Progress, the Mutual Holding Company and Roxborough-Manayunk do
hereby mutually agree, intending to be legally bound, as follows:
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ARTICLE I
THE REORGANIZATION
1.01 The Reorganization.
(a) Subject to the provisions and conditions herein specified and the
receipt of all required regulatory approvals, the Mutual Holding Company shall
convert from the federal mutual form of organization to a federal interim stock
savings bank and Interim will then simultaneously merge with and into
Roxborough-Manayunk, with Roxborough-Manayunk to be the resulting institution in
accordance with the applicable provisions of the regulations of the Office of
Thrift Supervision ("OTS"). Immediately subsequent to the consummation of the
Conversion, Roxborough-Manayunk shall combine with Progress by means of a
merger, with Roxborough-Manayunk to be the resulting institution and all of the
capital stock of Roxborough-Manayunk to be owned by the Corporation.
(b) In connection with the Conversion and the Reorganization, each share
of common stock, par value $1.00 per share, of Roxborough-Manayunk ("Roxborough-
Manayunk Common Stock") outstanding immediately prior to the Closing Date (as
defined below) (other than shares as to which dissenters' rights have been
asserted and duly perfected in accordance with federal law and other than shares
of Roxborough-Manayunk Common Stock held by the Mutual Holding Company which
will be cancelled in the Conversion), shall, by virtue of the Conversion and the
Reorganization and without any further action by the holder thereof, be
converted into and represent the right to receive shares of common stock of the
Corporation, par value $1.00 per share ("Corporation Common Stock") (the
"Exchange Shares") at an exchange ratio (the "Exchange Ratio") which shall be
determined as part of the independent appraisal of the Mutual Holding Company,
Roxborough-Manayunk, the Corporation and Progress and which shall be completed
in accordance with OTS regulations. In addition, in connection with the
Conversion and the Reorganization, all outstanding options to purchase shares of
Roxborough-Manayunk Common Stock (which are identified in Section 3.02(b)
hereof) which are not exercised between the date hereof and immediately prior to
the Closing Date (as defined below) shall, by virtue of the Conversion and the
Reorganization and without any further action by the holder thereof, be
converted based upon the Exchange Ratio into options to purchase shares of
Corporation Common Stock. A detailed discussion of the independent appraisal is
set forth in the Plan of Conversion ("Plan of Conversion") adopted by the Mutual
Holding Company and Roxborough-Manayunk and attached hereto as Exhibit A and the
Plan of Merger ("Plan") adopted by the Corporation, Progress and Roxborough-
Manayunk and attached hereto as Exhibit B.
(c) In connection with the Conversion and the Reorganization, additional
shares of Corporation Common Stock (the "Conversion Stock") will be offered and
sold in accordance with OTS regulations to, among others, certain depositors and
borrowers of Roxborough-Manayunk as of specified record dates, certain tax-
qualified employee benefit
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plans of Roxborough-Manayunk, stockholders of Roxborough-Manayunk and the
Corporation and certain members of the general public (the "Conversion
Offering). The aggregate price, per share price and number of shares of
Conversion Stock to be issued in the Conversion Offering shall be determined in
accordance with the independent appraisal described above and the Plan of
Conversion.
1.02 Approval by Boards of Directors. At least two-thirds of each of the
respective Boards of Directors of the Corporation, Progress, the Mutual Holding
Company and Roxborough-Manayunk shall approve this Agreement and at least two-
thirds of each of the respective Boards of Directors of the Corporation,
Progress and Roxborough-Manayunk shall approve the Plan. At least two-thirds of
each of the respective Boards of Directors of the Mutual Holding Company and
Roxborough-Manayunk shall approve the Plan of Conversion.
1.03 Regulatory Applications. The Corporation, Progress, the Mutual
Holding Company and Roxborough-Manayunk shall cause to be prepared and filed all
required applications with government agencies which are necessary for
consummation of the Conversion and the Reorganization, including, without
limitation: (i) an Application for Conversion on Form AC to be filed with the
OTS, (ii) a Holding Company Application to be filed with the OTS, which shall
include as an exhibit thereto a Merger Application, (iii) a registration
statement with respect to the Conversion Stock and the Exchange Shares to be
issued as a result of the Conversion and the Reorganization to be filed with the
Securities and Exchange Commission ("SEC") (the "Registration Statement"), (iv)
an application to be filed with the Nasdaq (or other exchange) in order to list
the Conversion Stock and the Exchange Shares to be issued in connection with the
Conversion and the Reorganization, and (v) appropriate filings under the
securities/blue sky laws of the various states. These applications shall be in
such forms as may be prescribed by the respective regulatory authorities and
shall contain such information as they may require.
1.04 Solicitation of Stockholders and Members. Upon approval of the
Application for Conversion by the OTS and the declaration of effectiveness of
the Registration Statement by the SEC, this Agreement, the Plan and the Plan of
Conversion shall be submitted to the stockholders of Roxborough-Manayunk for
their approval and this Agreement and the Plan shall be submitted to the
stockholders of the Corporation. The Agreement, the Plan and the Plan of
Conversion must be approved by the holders of at least two-thirds of the
outstanding Roxborough-Manayunk Common Stock and by at least a majority of such
Roxborough-Manayunk Common Stock not held by the Mutual Holding Company, in each
case as of the voting record date established for determining the eligibility of
such stockholders to vote at a meeting of stockholders duly called therefor.
This Agreement and the Plan of Conversion will also be submitted to the members
of the Mutual Holding Company for their approval and will be subject to approval
by at least a majority of the total votes eligible to be cast by the members of
the Mutual Holding Company at a meeting of members duly called therefor. The
Corporation, in its capacity as the sole stockholder of Progress, will approve
this Agreement and the Plan.
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1.05 Closing and Closing Date of the Conversion and the Reorganization.
The closing of the Conversion and the Reorganization ("Closing") shall take
place at either the home office of Roxborough-Manayunk or the home office of the
Corporation, or at such other location as the parties hereto may agree, within
15 business days after the satisfaction or waiver by the appropriate party of
all of the conditions set forth herein ("Closing Date"), but in no event later
than March 31, 1996, unless all of the parties hereto otherwise agree in
writing. The Conversion and Reorganization shall become effective on the
Closing Date, which shall be the date upon which the last of the following
occurs:
(i) all required regulatory approvals shall have been received in
connection with the Conversion of the Mutual Holding Company from the
federal mutual form of organization to a federal interim stock savings
bank and the simultaneous merger of Interim with and into Roxborough-
Manayunk;
(ii) all required regulatory approvals shall have been received in
connection with the merger of Progress with and into Roxborough-
Manayunk and all waiting periods with respect thereto shall have
expired;
(iii) all required regulatory approvals shall have been received by the
Corporation in connection with the acquisition of Roxborough-
Manayunk by virtue of the Reorganization and the issuance of the
Conversion Stock and the Exchange Shares in connection therewith,
and no stop order proceeding shall have been initiated, pending
or threatened with respect thereto;
(iv) all shares of Conversion Stock required to be sold under the Plan of
Conversion shall have been sold;
(v) the approval of this Agreement, the Plan and the Plan of Conversion by
the requisite vote of the stockholders of Roxborough-Manayunk, and the
approval of this Agreement and the Plan of Conversion by the requisite
vote of the members of the Mutual Holding Company shall have been
received;
(vi) the approval of this Agreement and the Plan by the Corporation as the
sole stockholder of Progress and by the stockholders of the
Corporation shall have been received;
(vii) all representations, warranties, covenants and conditions set
forth in this Agreement shall have been complied with or
otherwise satisfied in all material respects, unless waived in
writing by the parties hereto entitled to the benefit thereof;
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(viii) properly executed Articles of Combination with respect to the
merger of Interim with and into Roxborough-Manayunk shall have
been filed with the OTS and endorsed by such agency in accordance
with the requirements of 12 C.F.R. Sec.552.13(j); and
(ix) properly executed Articles of Combination with respect to the merger
of Progress with and into Roxborough-Manayunk shall have been filed
with the OTS and endorsed by such agency in accordance with the
requirements of 12 C.F.R. Sec.552.13(j).
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE CORPORATION AND PROGRESS
References to "Progress Disclosure Schedules" shall mean all of
the disclosure schedules required by this Article II dated as of the date hereof
and referenced to the specific sections and subsections of Article II of this
Agreement, which have been delivered on the date hereof by the Corporation and
Progress to the Mutual Holding Company and Roxborough-Manayunk. The Corporation
and Progress hereby represent and warrant to the Mutual Holding Company and
Roxborough-Manayunk as follows:
2.01 Corporate Organization.
(a) The Corporation is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. The
Corporation has the corporate power and authority to own or lease all of its
properties and assets and to carry on its business as it is now being conducted,
and is duly licensed or qualified to do business and is in good standing in each
jurisdiction in which the nature of the business conducted by it or the
character or location of the properties and assets owned or leased by it makes
such licensing or qualification necessary, except where the failure to be so
licensed, qualified or in good standing would not have a material adverse effect
on the business, operations, assets or financial condition of the Corporation,
Progress and the Progress Subsidiaries (as defined below) taken as a whole.
Except as set forth in Progress Disclosure Schedule 2.01(a) and except for
Progress and the Progress Subsidiaries (as defined below), the Corporation does
not own or control, directly or indirectly, a greater than 5% equity interest in
any corporation, company, association, partnership, joint venture or other
entity.
(b) Progress is a federally chartered savings bank duly
organized and validly existing in stock form and in good standing under the laws
of the United States. All eligible accounts of depositors issued by Progress
are insured by the Savings Association Insurance Fund ("SAIF"), which is
administered by the Federal Deposit Insurance Corporation ("FDIC"), to the
fullest extent permitted by law. Progress has the corporate power and authority
to own or lease all of its properties and assets and to carry on its business as
it is
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now being conducted, and is duly licensed or qualified to do business and is in
good standing in each jurisdiction in which the nature of the business conducted
by it or the character or location of the properties and assets owned or leased
by it makes such licensing or qualification necessary, except where the failure
to be so licensed, qualified or in good standing would not have a material
adverse effect on the business, operations, assets or financial condition of the
Corporation, Progress and the Progress Subsidiaries (as defined below) taken as
a whole. Except as set forth in Progress Disclosure Schedule 2.01(b) and except
for the Progress Subsidiaries (as defined below), Progress does not own or
control, directly or indirectly, a greater than 5% equity interest in any
corporation, company, association, partnership, joint venture or other entity.
(c) With the exception of Progress, and except as disclosed in
Progress Disclosure Schedule 2.01(c), the only direct or indirect subsidiaries
of the Corporation are Eagle Service Corporation, Pilot Financial Corporation,
Dolphin Service Corporation, PFSB, Inc., Pelham Bay Professional Center, Inc.,
RabPub, Inc., Faraway, Inc., Diversified Investment Services Corporation, Fox
Acquiring, Inc. and Progress Realty Advisors, Inc. (the "Progress
Subsidiaries"). Each of the Progress Subsidiaries is duly organized, validly
existing and in good standing under the laws of its respective jurisdiction of
incorporation, has the corporate power and authority to own or lease all of its
properties and assets and to conduct its business as it is now being conducted,
and is duly licensed or qualified to do business and is in good standing in each
jurisdiction in which the nature of the business conducted by it or the
character or location of the properties and assets owned or leased by it makes
such licensing or qualification necessary, except where the failure to be so
licensed, qualified or in good standing would not have a material adverse effect
on the business, operations, assets or financial condition of the Corporation,
Progress and the Progress Subsidiaries taken as a whole.
2.02 Capitalization. The authorized capital stock of the
Corporation consists of 6,000,000 shares of Corporation Common Stock and
1,000,000 shares of preferred stock, par value $.01 per share. As of the date
hereof, there were 3,280,000 shares of Corporation Common Stock issued and
outstanding, and there were no shares of preferred stock issued and outstanding.
All issued and outstanding shares of Corporation Common Stock, and all issued
and outstanding shares of capital stock of Progress and the Progress
Subsidiaries, have been duly authorized and validly issued and are fully paid,
nonassessable and free of preemptive rights. All of the outstanding shares of
capital stock of Progress and the Progress Subsidiaries are owned, directly or
indirectly, by the Corporation free and clear of any material liens,
encumbrances, charges, restrictions or rights of third parties of any kind
whatsoever, and, except for warrants to purchase 300,000 shares of Corporation
Common Stock and options to purchase 236,750 shares of Corporation Common Stock
which have been granted pursuant to either the Corporation's Key Employee Stock
Compensation Program, as amended, 1993 Stock Incentive Plan or 1993 Directors'
Stock Option Plan, and which are outstanding as of the date hereof, none of the
Corporation, Progress or any of the Progress Subsidiaries has or is bound by any
outstanding subscriptions, options, warrants, calls, commitments or agreements
of any character calling for the transfer, purchase or
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issuance of any shares of capital stock of the Corporation, Progress or any of
the Progress Subsidiaries or any securities representing the right to purchase
or otherwise receive any shares of such capital stock or any securities
convertible into or representing the right to purchase or subscribe for any such
stock.
2.03 Authority; No Violation.
(a) The Corporation and Progress have full corporate power and
authority to execute and deliver this Agreement and the Plan and, subject to the
requisite approval of the stockholders of the Corporation, if required, and of
federal and state regulatory authorities (including, without limitation, the
SEC, the OTS and various state securities commissions), to consummate the
Reorganization and to carry out their respective obligations hereunder and
thereunder. The execution and delivery of this Agreement and the Plan, and the
consummation of the Reorganization and the other transactions contemplated
hereby and thereby, have been duly authorized by the Boards of Directors of the
Corporation and Progress, and this Agreement and the Plan constitute valid and
legally binding obligations of the Corporation and Progress enforceable in
accordance with their terms, except as limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
creditors' rights generally, and except that the availability of equitable
remedies (including, without limitation, specific performance) is within the
discretion of the appropriate court.
(b) Neither the execution and delivery of this Agreement and the
Plan by the Corporation and Progress, nor the consummation by the Corporation
and Progress of the transactions contemplated hereby and thereby in accordance
with the terms hereof and thereof, nor compliance by the Corporation and
Progress with any of the terms or provisions hereof or thereof, will (i) violate
any provision of the respective certificate of incorporation, charter, bylaws or
other governing instrument of the Corporation, Progress or any of the Progress
Subsidiaries, (ii) violate any statute, code, ordinance, rule, regulation,
judgment, order, writ, decree or injunction applicable to the Corporation,
Progress or any of the Progress Subsidiaries or any of their respective
properties or assets, or (iii) except as disclosed in Progress Disclosure
Schedule 2.03(b), violate, conflict with, result in a breach of any provisions
of, constitute a default (or an event which, with notice or lapse of time, or
both, would constitute a default) under, result in the termination of,
accelerate the performance required by, or result in the creation of any lien,
security interest, charge or other encumbrance upon any of the respective
properties or assets of the Corporation, Progress or any of the Progress
Subsidiaries under any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, deed of trust, license, lease, agreement or other
instrument or obligation to which the Corporation, Progress or any of the
Progress Subsidiaries is a party, or by which they or any of their respective
properties or assets may be bound or affected, except, with respect to clauses
(ii) and (iii) above, such as individually or in the aggregate will not have a
material adverse effect on the business, operations, assets or financial
condition of the Corporation, Progress and the Progress Subsidiaries taken as a
whole and which will not prevent or delay the consummation of the transactions
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contemplated by this Agreement and the Plan. Except for consents and approvals
of, or filings or registrations with, or notices required by, the SEC, the OTS
and state securities commissions, or as may be set forth in Progress Disclosure
Schedule 2.03(b), no consents or approvals of, or filings or registrations with,
or notices to any third party or any public body or authority are necessary on
behalf of the Corporation or Progress in connection with (a) the execution and
delivery by the Corporation and Progress of this Agreement and the Plan and (b)
the consummation by the Corporation and Progress of the Reorganization and the
other transactions contemplated by this Agreement and the Plan.
2.04 Financial Statements.
(a) The Corporation has previously delivered or made available
to the Mutual Holding Company and Roxborough-Manayunk accurate and complete
copies of the consolidated statements of financial condition of the Corporation
as of December 31, 1994 and 1993, and the related consolidated statements of
operations, stockholders' equity and cash flows for the years ended December 31,
1994, 1993 and 1992, in each case accompanied by the audit reports of Coopers &
Lybrand L.L.P. (with respect to 1994 and 1993) and KPMG Peat Marwick (with
respect to 1992), independent public accountants with respect to the
Corporation. The consolidated statements of financial condition of the
Corporation referred to herein (including the related notes, where applicable),
as well as the consolidated financial statements of the Corporation to be
delivered pursuant to Section 4.04 hereof, fairly present or will fairly
present, as the case may be, the consolidated financial condition of the
Corporation as of the respective dates set forth therein, and the related
consolidated statements of operations, stockholders' equity and cash flows
(including the related notes, where applicable) fairly present or will fairly
present, as the case may be, the consolidated results of operations,
stockholders' equity and cash flows of the Corporation for the respective
periods or as of the respective dates set forth therein, it being understood
that the Corporation's interim financial statements are not audited, are not
prepared with related notes and are subject to normal year-end adjustments.
(b) Each of the financial statements referred to in Section 2.04
(including the related notes, where applicable) has been or will be, as the case
may be, prepared in accordance with generally accepted accounting principles
consistently applied during the periods involved. The audits of the Corporation
have been conducted in accordance with generally accepted auditing standards.
The books and records of the Corporation, Progress and the Progress Subsidiaries
are being maintained in material compliance with applicable legal and accounting
requirements and reflect only actual transactions.
(c) Except to the extent reflected, disclosed or provided for in
the consolidated financial statements referred to above or the notes thereto,
and for liabilities incurred since December 31, 1994 in the ordinary course of
business and consistent with prudent banking practice, none of the Corporation,
Progress or any of the Progress Subsidiaries has any liabilities, whether
absolute, accrued, contingent or otherwise, material to the business,
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operations, assets or financial condition of the Corporation, Progress and the
Progress Subsidiaries taken as a whole.
2.05 Absence of Certain Changes or Events.
(a) Except as set forth in Progress Disclosure Schedule 2.05(a),
there has not been any material adverse change in the business, operations,
assets or financial condition of the Corporation, Progress and the Progress
Subsidiaries taken as a whole since December 31, 1994 and no fact or condition
exists which the Corporation or Progress believes will cause such a material
adverse change in the future.
(b) Except as set forth in Progress Disclosure Schedule 2.05(b),
neither the Corporation, Progress nor any of the Progress Subsidiaries has taken
or permitted any of the actions set forth in Section 4.02 hereof between
December 31, 1994 and the date hereof.
2.06 Legal Proceedings. Except as set forth in Progress
Disclosure Schedule 2.06, there are no judicial, administrative, arbitral or
other actions, suits, proceedings or investigations pending or, to the
Corporation's and Progress' knowledge, threatened, which might result in any
materially adverse change in the condition (financial or otherwise), properties,
assets, business or operations of the Corporation, Progress and the Progress
Subsidiaries taken as a whole, or which seek to invalidate or enjoin this
Agreement or the Plan or any action taken or to be taken in connection herewith
or therewith. To the best of the Corporation's and Progress' knowledge, there
is no reasonable basis for any other proceeding, claim, action or governmental
investigation against the Corporation, Progress or any of the Progress
Subsidiaries, except such proceedings, claims, actions or governmental
investigations which in the good faith judgment of the Corporation and Progress
will not have a material adverse effect on the business, operations, assets or
financial condition of the Corporation, Progress and the Progress Subsidiaries
taken as a whole. Except as set forth in Progress Disclosure Schedule 2.06,
none of the Corporation, Progress nor any of the Progress Subsidiaries is a
party to any order, judgment or decree which materially adversely affects the
business, operations, properties, assets or financial condition of the
Corporation, Progress and the Progress Subsidiaries taken as a whole.
2.07 Progress Information. None of the information relating to
the Corporation, Progress and the Progress Subsidiaries to be contained in (i)
the Registration Statement, as amended or supplemented, to be filed in
connection with the issuance of shares of Corporation Common Stock pursuant to
the Conversion and the Reorganization, will, at the time the Registration
Statement becomes effective, contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading, and (ii) the
prospectus or prospectuses which the Corporation shall utilize for offering the
Conversion Stock and the Exchange Shares in connection with the Conversion and
the Reorganization, the proxy statement which
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the Corporation shall utilize to seek the approval of its stockholders of the
transactions contemplated hereby, the proxy statement which Roxborough-Manayunk
shall utilize to seek the approval of its stockholders of the transactions
contemplated hereby, and the proxy statement which the Mutual Holding Company
shall utilize to seek the approval of its members of the transactions
contemplated hereby (which proxy statements and prospectuses, whether they
constitute one document or two or more documents, are collectively referred to
herein as the "Prospectus/Proxy Statement"), as of the date of the
Prospectus/Proxy Statement and up to and including the date(s) of the meetings
of stockholders/members to which such Prospectus/Proxy Statement relates, will
contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, provided that information as of a later
date shall be deemed to modify information as of an earlier date.
2.08 Compliance with Applicable Law. The Corporation, Progress
and each of the Progress Subsidiaries holds, and have at all times held, all
material licenses, franchises, permits and authorizations necessary for the
lawful conduct of their respective business under and pursuant to each, and have
complied with and are not in default in any material respect under any,
applicable law, statute, order, rule, regulation, policy and/or guideline of any
federal, state or local governmental authority relating to the Corporation,
Progress or any of the Progress Subsidiaries (other than where such default or
noncompliance will not result in a material adverse effect on the business,
operations, assets or financial condition of the Corporation, Progress and the
Progress Subsidiaries taken as a whole), and none of the Corporation, Progress
nor any of the Progress Subsidiaries has received notice of any violation of, or
know of any violations of, any of the above.
2.09 Certain Contracts.
(a) Except as disclosed in Progress Disclosure Schedule 2.09(a),
neither the Corporation, Progress nor any of the Progress Subsidiaries is a
party to, is bound or affected by, receives, or is obligated to pay benefits
under, (i) any agreement, arrangement or commitment, including without
limitation, any agreement, indenture or other instrument relating to the
borrowing of money by the Corporation, Progress or any Progress Subsidiary or
the guarantee by the Corporation, Progress or any Progress Subsidiary of any
obligation, (ii) any agreement, arrangement or commitment relating to the
employment of a consultant or the employment, election or retention in office of
any present or former director or officer of the Corporation, Progress or any
Progress Subsidiary, (iii) any contract, agreement or understanding with a labor
union, (iv) any agreement, arrangement or understanding pursuant to which any
payment (whether of severance pay or otherwise) became or may become due to any
director, officer or employee of the Corporation, Progress or any of the
Progress Subsidiaries upon execution of this Agreement or upon or following
consummation of the transactions contemplated by this Agreement (either alone or
in connection with the occurrence of any additional acts or events), (v) any
agreement, arrangement or understanding to which the Corporation, Progress or
any of the Progress Subsidiaries is a party or by which any of the same is bound
which limits the ability of the Corporation, Progress or any of the Progress
Subsidiaries to compete in any line of business or with any
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person, (vi) any assistance agreement, supervisory agreement, memorandum of
understanding, consent order, cease and desist order or condition of any
regulatory order or decree with or by the OTS, the FDIC, or any other regulatory
agency, (vii) any other agreement, arrangement or understanding which would be
required to be filed as an exhibit to the Corporation's Annual Report on Form
10-K under the Securities Exchange Act of 1934, as amended ("Exchange Act"), and
which has not been so filed, or (viii) any other agreement, arrangement or
understanding to which the Corporation, Progress or any Progress Subsidiary is a
party and which is material to the business, operations, assets or financial
condition of the Corporation, Progress and the Progress Subsidiaries taken as a
whole (excluding loan agreements or agreements relating to deposit accounts), in
each of the foregoing cases whether written or oral.
(b) Except as disclosed in Progress Disclosure Schedule 2.09(b),
none of the Corporation, Progress nor any Progress Subsidiary is in default or
in non-compliance, which default or non-compliance would have a material adverse
effect on the business, operations, assets or financial condition of the
Corporation, Progress and the Progress Subsidiaries taken as a whole or the
transactions contemplated hereby, under any contract, agreement, commitment,
arrangement, lease, insurance policy or other instrument to which it is a party
or by which its assets, business or operations may be bound or affected, whether
entered into in the ordinary course of business or otherwise and whether written
or oral, and there has not occurred any event that with the lapse of time or the
giving of notice, or both, would constitute such a default or non-compliance.
2.10 Properties. All real and personal property owned by the
Corporation, Progress or any of the Progress Subsidiaries or presently used by
any of them in their respective business is in an adequate condition (ordinary
wear and tear excepted) and is sufficient to carry on the business of the
Corporation, Progress and the Progress Subsidiaries in the ordinary course of
business consistent with their past practices. The Corporation, Progress and
the Progress Subsidiaries have good and, as to owned real property, marketable
title to all material assets and properties, whether real or personal, tangible
or intangible, reflected in the Corporation's consolidated statement of
financial condition as of December 31, 1994, or owned and acquired subsequent
thereto (except to the extent that such assets and properties have been disposed
of for fair value in the ordinary course of business since December 31, 1994),
subject to no encumbrances, liens, mortgages, security interests or pledges,
except (i) those items that secure liabilities that are reflected in said
consolidated statement of financial condition or the notes thereto or have been
incurred in the ordinary course of business after the date of such consolidated
statement of financial condition, (ii) statutory liens for amounts not yet
delinquent or which are being contested in good faith, (iii) such encumbrances,
liens, mortgages, security interests, pledges and title imperfections that are
not in the aggregate material to the business, operations, assets or financial
condition of the Corporation, Progress and the Progress Subsidiaries taken as a
whole, and (iv) with respect to owned real property, title imperfections noted
in title reports prior to the date hereof. The Corporation, Progress and the
Progress Subsidiaries as lessees have the right under valid and subsisting
leases to occupy, use, possess and control all
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property leased by them in all material respects as presently occupied, used,
possessed and controlled by the Corporation, Progress and the Progress
Subsidiaries and the consummation of the transactions contemplated hereby and by
the Plan and the Plan of Conversion will not affect any such right.
2.11 Employee Benefit Plans. Except as disclosed in Progress
Disclosure Schedule 2.11, none of the Corporation, Progress nor any of the
Progress Subsidiaries maintains or contributes to any "employee benefit plan,"
as such term is defined in Section 3 of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), any "employee welfare benefit plan" or
"multi-employer plan," as such terms are defined in Section 3 of ERISA, stock
option plan, stock purchase plan, deferred compensation plan, severance plan,
bonus plan, or other similar employee benefit plan, program or arrangement
(collectively, the "Progress Benefit Plans"). The Corporation and Progress will
make available to the Mutual Holding Company and Roxborough-Manayunk a true and
correct copy of (a) each Progress Benefit Plan, (b) the most recent annual
report (Form 5500) filed with the Internal Revenue Service ("IRS") with respect
to each Progress Benefit Plan, if applicable, (c) each trust agreement and group
annuity contract, if any, relating to such Progress Benefit Plan and (d) the
most recent actuarial report or valuation relating to a Progress Benefit Plan
subject to Title IV of ERISA.
2.12 Tax Matters.
(a) Each of the Corporation and Progress have duly filed (and
until the Closing Date will so file) all returns, declarations, reports,
information returns and statements ("Returns") required to be filed or sent by
or with respect to them in respect of any Taxes (as hereinafter defined), and
has duly paid (and until the Closing Date will so pay) all Taxes due and payable
other than Taxes or other charges which (i) are being contested in good faith
(and disclosed in writing to the Mutual Holding Company and Roxborough-Manayunk)
and (ii) have not finally been determined. The Corporation and Progress have
accrued (and until the Closing Date will accrue) on their books and records
amounts that are adequate for the payment of all Taxes not yet due and payable,
whether or not disputed, accrued or applicable. Except as set forth in Progress
Disclosure Schedule 2.12(a), the federal income tax returns of the Corporation
and Progress have been examined by the IRS (or are closed to examination due to
the expiration of the applicable statute of limitations) and no deficiencies
were asserted as a result of such examinations which have not been resolved and
paid in full. Except as set forth in Progress Disclosure Schedule 2.12(a), the
Commonwealth of Pennsylvania income tax returns of the Corporation and Progress
have been examined by the Commonwealth of Pennsylvania taxing authorities (or
are closed to examination due to the expiration of the statute of limitations)
and no deficiencies were asserted as a result of such examinations which have
not been resolved and paid in full. There are no audits or administrative or
court proceedings presently pending nor any other disputes pending with respect
to, or claims asserted for, Taxes or assessments upon the Corporation or
Progress, nor has the Corporation or Progress given any currently
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outstanding waivers of comparable consents regarding the application of the
statute of limitations with respect to any Taxes or Returns.
(b) Except as set forth in Progress Disclosure Schedule 2.12(b),
the Corporation and Progress (i) have not requested any extension of time within
which to file any Return which Return has not since been filed, (ii) is not a
party to any agreement providing for the allocation or sharing of Taxes, (iii)
is not required to include in income any adjustment pursuant to Section 481(a)
of the Internal Revenue Code of 1986, as amended ("Code"), by reason of a
voluntary change in accounting method initiated by the Corporation or Progress
(nor does the Corporation or Progress have any knowledge that the IRS has
proposed any such adjustment or change of accounting method) or (iv) have not
filed a consent pursuant to Section 341(f) of the Code or agreed to have Section
341(f)(2) of the Code apply.
(c) For purposes of this Agreement, "Taxes" shall mean all
taxes, charges, fees, levies or other assessments, including, without
limitation, all net income, gross income, gross receipts, sales, use, ad
valorem, transfer, franchise, profits, license, withholding, payroll, employment
(including withholding, payroll and employment taxes required to be withheld
with respect to income paid to employees), excise, estimated, severance, stamp,
occupation, property or other taxes, customs duties, fees, assessments or
charges of any kind whatsoever, together with any interest and any penalties,
additions to tax or additional amounts imposed by any taxing authority (domestic
or foreign).
2.13 Securities Documents and Regulatory Reports.
(a) The Corporation has previously delivered or made available
to the Mutual Holding Company and Roxborough-Manayunk a complete copy of each
final registration statement, prospectus, annual, quarterly or current report
and definitive proxy statement or other communication (other than general
advertising materials) filed pursuant to the Securities Act of 1933, as amended
("Securities Act"), or the Exchange Act, or mailed by the Corporation to its
stockholders as a class since December 31, 1991, and to the Corporation's and
Progress' knowledge, each such final registration statement, prospectus, annual,
quarterly or current report and definitive proxy statement or other
communication, as of its date, complied in all material respects with all
applicable statutes, rules and regulations and did not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements made therein, in
light of the circumstances under which they were made, not misleading; provided
that information as of a later date shall be deemed to modify information as of
an earlier date.
(b) The Corporation, Progress and the Progress Subsidiaries have
duly filed with the OTS, the FDIC and all other applicable regulatory
authorities in correct form the monthly, quarterly and annual regulatory reports
required to be filed under applicable laws and regulations, and the Corporation
and Progress have delivered or made available to the Mutual Holding Company and
Roxborough-Manayunk accurate and complete copies of such reports.
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2.14 Environmental Matters. Neither the Corporation, Progress
nor any of the Progress Subsidiaries has received any written notice, citation,
claim, assessment, proposed assessment or demand for abatement alleging that the
Corporation, Progress or any of the Progress Subsidiaries (either directly or as
a successor-in-interest in connection with the enforcement of remedies to
realize the value of properties serving as collateral for outstanding loans) is
responsible for the correction or clean-up of any condition resulting from the
violation of any law, ordinance or other governmental regulation regarding
environmental health matters material to the business, operations, assets or
financial condition of the Corporation, Progress and the Progress Subsidiaries
taken as a whole. Neither the Corporation, Progress nor any of the Progress
Subsidiaries has knowledge that any toxic or hazardous substances or materials
have been emitted, generated, disposed of or stored on any property owned or
operated by the Corporation, Progress or any of the Progress Subsidiaries in any
manner that violates or, after the lapse of time may violate, any presently
existing federal, state or local law or regulation governing or pertaining to
such substances and materials, the violation of which could have a material
adverse effect on the business, operations, assets or financial condition of the
Corporation, Progress and the Progress Subsidiaries taken as a whole.
2.15 Broker's Fees. Except as disclosed in Progress Disclosure
Schedule 2.15, none of the Corporation, Progress, the Progress Subsidiaries nor
any of the respective officers or directors of such companies has employed any
broker, finder, investment banker or financial advisor or incurred any liability
for any broker's, finder's, investment banker's or financial advisor's fees or
commissions in connection with any of the transactions contemplated by this
Agreement, the Plan or the Plan of Conversion.
2.16 Community Reinvestment Act Compliance. Progress is in
substantial compliance with the applicable provisions of the Community
Reinvestment Act of 1977, as amended, and the regulations promulgated
thereunder. As of the date of this Agreement, Progress has not been advised of
the existence of any fact or circumstance or set of facts or circumstances
which, if true, would cause Progress to fail to be in substantial compliance
with such provisions.
2.17 Allowance for Loan Losses and Real Estate Owned. The
allowance for loan losses reflected on the Corporation's consolidated statements
of financial condition included in the consolidated financial statements
referred to in Section 2.04 hereof is, or will be in the case of subsequently
delivered financial statements, as the case may be, in the opinion of the
Corporation's management adequate in all material respects as of their
respective dates under the requirements of generally accepted accounting
principles to provide for reasonably anticipated losses on outstanding loans net
of recoveries. Except as disclosed in Progress Disclosure Schedule 2.17, the
real estate owned reflected on the consolidated statements of financial
condition included in the consolidated financial statements referred to in
Section 2.04 hereof is, or will be in the case of subsequently delivered
financial statements, as the case may be, carried at the lower of cost or fair
value, or the lower of cost or net realizable value, as required by generally
accepted accounting principles.
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2.18 Untrue Statements and Omissions. No warranty or
representation by the Corporation or Progress in this Agreement or any
explanation or statement of the Corporation or Progress in the Progress
Disclosure Schedules contains any untrue statement of a material fact or omits
to state a material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE MUTUAL HOLDING COMPANY AND ROXBOROUGH-MANAYUNK
References to "Roxborough-Manayunk Disclosure Schedules" shall
mean all of the disclosure schedules required by this Article III, dated as of
the date hereof and referenced to the specific sections and subsections of
Article III of this Agreement, which have been delivered on the date hereof by
the Mutual Holding Company and Roxborough-Manayunk to the Corporation and
Progress. The Mutual Holding Company and Roxborough-Manayunk hereby represent
and warrant to the Corporation and Progress as follows:
3.01 Corporate Organization.
(a) The Mutual Holding Company is a federally chartered mutual
holding company duly organized, validly existing and in good standing under the
laws of the United States. The Mutual Holding Company has the corporate power
and authority to own or lease all of its properties and assets and to carry on
its business as it is now being conducted, and is duly licensed or qualified to
do business and is in good standing in each jurisdiction in which the nature of
the business conducted by it or the character or location of the properties and
assets owned or leased by it makes such licensing or qualification necessary,
except where the failure to be so licensed, qualified or in good standing would
not have a material adverse effect on the business, operations, assets or
financial condition of the Mutual Holding Company, Roxborough-Manayunk and the
Roxborough-Manayunk Subsidiaries (as defined below) taken as a whole. Except as
set forth in Roxborough-Manayunk Disclosure Schedule 3.01(a) and except for
Roxborough-Manayunk and the Roxborough-Manayunk Subsidiaries (as defined below),
the Mutual Holding Company does not own or control, directly or indirectly, a
greater than 5% equity interest in any corporation, company, association,
partnership, joint venture or other entity.
(b) Roxborough-Manayunk is a federally chartered savings bank
duly organized and validly existing in stock form and in good standing under the
laws of the United States. All eligible accounts of depositors issued by
Roxborough-Manayunk are insured by the SAIF, which is administered by the FDIC,
to the fullest extent permitted by law. Roxborough-Manayunk has the corporate
power and authority to own or lease all of its properties and assets and to
carry on its business as it is now being conducted, and is duly licensed or
qualified to do business and is in good standing in each jurisdiction in which
the
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nature of the business conducted by it or the character or location of the
properties and assets owned or leased by it makes such licensing or
qualification necessary, except where the failure to be so licensed, qualified
or in good standing would not have a material adverse effect on the business,
operations, assets or financial condition of the Mutual Holding Company,
Roxborough-Manayunk and the Roxborough-Manayunk Subsidiaries (as defined below)
taken as a whole. Except as set forth in the Roxborough-Manayunk Disclosure
Schedule 3.01(b) and except for the Roxborough-Manayunk Subsidiaries (as defined
below), Roxborough-Manayunk does not own or control, directly or indirectly, a
greater than 5% equity interest in any corporation, company, association,
partnership, joint venture or other entity.
(c) The only direct or indirect subsidiaries of Roxborough-
Manayunk are Montgomery Service Corporation and Ridge Service Corporation (the
"Roxborough-Manayunk Subsidiaries"). Each of the Roxborough-Manayunk
Subsidiaries is duly organized, validly existing and in good standing under the
laws of the Commonwealth of Pennsylvania, has the corporate power and authority
to own or lease all of its properties and assets and to conduct its business as
it is now being conducted, and is duly licensed or qualified to do business and
is in good standing in each jurisdiction in which the nature of the business
conducted by it or the character or location of the properties and assets owned
or leased by it makes such licensing or qualification necessary, except where
the failure to be so licensed, qualified or in good standing would not have a
material adverse effect on the business, operations, assets or financial
condition of the Mutual Holding Company, Roxborough-Manayunk and the Roxborough-
Manayunk Subsidiaries taken as a whole.
3.02 Capitalization.
(a) As a mutual holding company, the Mutual Holding Company has
no shares of capital stock authorized, issued or outstanding, and, except as
provided herein and in the Plan of Conversion, the Mutual Holding Company does
not have and is not bound by any outstanding subscriptions, options, warrants,
calls, commitments or agreements of any character calling for the transfer,
purchase or issuance of any shares of its capital stock or any securities
representing the right to purchase or otherwise receive any shares of such
capital stock or any securities convertible into or representing the right to
purchase or subscribe for any such shares.
(b) The authorized capital stock of Roxborough-Manayunk consists
of 7,500,000 shares of Roxborough-Manayunk Common Stock and 2,500,000 shares of
preferred stock, no par value per share. As of the date hereof there were
1,621,000 shares of Roxborough-Manayunk Common Stock issued and outstanding,
including 1,415,000 shares of Roxborough-Manayunk Common Stock owned by the
Mutual Holding Company, and there were no shares of preferred stock issued and
outstanding. All issued and outstanding shares of Roxborough-Manayunk Common
Stock, and all issued and outstanding shares of capital stock of the Roxborough-
Manayunk Subsidiaries, have been duly authorized and validly issued and are
fully paid, nonassessable and free of preemptive rights. All of the 1,415,000
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shares of Roxborough-Manayunk Common Stock held by the Mutual Holding Company
are owned by the Mutual Holding Company free and clear of any liens,
encumbrances, charges, restrictions or rights of third parties of any kind
whatsoever. All of the outstanding shares of capital stock of the Roxborough-
Manayunk Subsidiaries are owned, directly or indirectly, by Roxborough-Manayunk
free and clear of any liens, encumbrances, charges, restrictions or rights of
third parties of any kind whatsoever, and, except for options to purchase 40,000
shares of Roxborough-Manayunk Common Stock which have been granted pursuant to
the Roxborough-Manayunk Federal Savings Bank 1992 Stock Option Plan and the
Roxborough-Manayunk Federal Savings Bank 1994 Stock Option Plan (collectively,
the "Roxborough-Manayunk Option Plans"), and which are outstanding as of the
date hereof, none of Roxborough-Manayunk or either of the Roxborough-Manayunk
Subsidiaries has or is bound by any outstanding subscriptions, options,
warrants, calls, commitments or agreements of any character calling for the
transfer, purchase or issuance of any shares of capital stock of Roxborough-
Manayunk or either of the Roxborough-Manayunk Subsidiaries or any securities
representing the right to purchase or otherwise receive any shares of such
capital stock or any securities convertible into or representing the right to
purchase or subscribe for any such stock.
3.03 Authority; No Violation.
(a) The Mutual Holding Company and Roxborough-Manayunk have full
corporate power and authority to execute and deliver this Agreement and the Plan
of Conversion and Roxborough-Manayunk has full corporate power and authority to
execute and deliver the Plan, and, subject to the requisite approval of the
members of the Mutual Holding Company, the stockholders of Roxborough-Manayunk
and the OTS, to consummate the Conversion and the Reorganization and to carry
out their respective obligations hereunder and thereunder. The execution and
delivery of this Agreement, the Plan and the Plan of Conversion, and the
consummation of the Conversion and the Reorganization and the other transactions
contemplated hereby and thereby, have been duly authorized by the Boards of
Directors of the Mutual Holding Company and Roxborough-Manayunk, and this
Agreement, the Plan and the Plan of Conversion constitute valid and legally
binding obligations of the Mutual Holding Company and Roxborough-Manayunk
enforceable in accordance with their terms, except as limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally, and except that the availability of
equitable remedies (including, without limitation, specific performance) is
within the discretion of the appropriate court.
(b) Neither the execution and delivery of this Agreement, the
Plan and the Plan of Conversion by the Mutual Holding Company and Roxborough-
Manayunk, nor the consummation by the Mutual Holding Company and Roxborough-
Manayunk of the transactions contemplated hereby and thereby in accordance with
the terms hereof and thereof, nor compliance by the Mutual Holding Company and
Roxborough-Manayunk with any of the terms or provisions hereof or thereof, will
(i) violate any provision of the respective charter, articles of incorporation,
bylaws or other governing instrument of the
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Mutual Holding Company, Roxborough-Manayunk or any of the Roxborough-Manayunk
Subsidiaries, (ii) violate any statute, code, ordinance, rule, regulation,
judgment, order, writ, decree or injunction applicable to the Mutual Holding
Company, Roxborough-Manayunk or any of the Roxborough-Manayunk Subsidiaries or
any of their respective properties or assets, or (iii) except as disclosed in
Roxborough-Manayunk Disclosure Schedule 3.03(b), violate, conflict with, result
in a breach of any provisions of, constitute a default (or an event which, with
notice or lapse of time, or both, would constitute a default) under, result in
the termination of, accelerate the performance required by, or result in the
creation of any lien, security interest, charge or other encumbrance upon any of
the respective properties or assets of the Mutual Holding Company, Roxborough-
Manayunk or any of the Roxborough-Manayunk Subsidiaries under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, deed of trust,
license, lease, agreement or other instrument or obligation to which the Mutual
Holding Company, Roxborough-Manayunk or any of the Roxborough-Manayunk
Subsidiaries is a party, or by which they or any of their respective properties
or assets may be bound or affected, except, with respect to clauses (ii) and
(iii) above, such as individually or in the aggregate will not have a material
adverse effect on the business, operations, assets or financial condition of the
Mutual Holding Company, Roxborough-Manayunk and the Roxborough-Manayunk
Subsidiaries taken as a whole and which will not prevent or delay the
consummation of the transactions contemplated by this Agreement, the Plan and
the Plan of Conversion. Except for consents and approvals of, or filings or
registrations with, or notices required by, the OTS, or as may be set forth in
Roxborough-Manayunk Disclosure Schedule 3.03(b), no consents or approvals of, or
filings or registrations with, or notices to any third party or any public body
or authority are necessary on behalf of the Mutual Holding Company or
Roxborough-Manayunk in connection with (a) the execution and delivery of this
Agreement and the Plan of Conversion by the Mutual Holding Company and this
Agreement, the Plan and the Plan of Conversion by Roxborough-Manayunk, and (b)
the consummation by the Mutual Holding Company and Roxborough-Manayunk of the
Conversion and the Reorganization and the other transactions contemplated by
this Agreement, the Plan and the Plan of Conversion.
3.04 Financial Statements.
(a) Roxborough-Manayunk has previously delivered or made
available to the Corporation and Progress accurate and complete copies of the
consolidated statements of financial condition of Roxborough-Manayunk as of
December 31, 1994 and 1993, and the related consolidated statements of income,
stockholders' equity and cash flows for the years ended December 31, 1994, 1993
and 1992, in each case accompanied by the audit report of Deloitte & Touche LLP,
independent public accountants with respect to Roxborough-Manayunk. The
consolidated statements of financial condition of Roxborough-Manayunk referred
to herein (including the related notes, where applicable), as well as the
consolidated financial statements of Roxborough-Manayunk to be delivered
pursuant to Section 4.04 hereof, fairly present or will fairly present, as the
case may be, the consolidated financial condition of Roxborough-Manayunk as of
the respective dates set forth therein, and the related consolidated statements
of income, stockholders' equity and cash flows
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(including the related notes, where applicable) fairly present or will fairly
present, as the case may be, the consolidated results of operations,
stockholders' equity and cash flows of Roxborough-Manayunk for the respective
periods or as of the respective dates set forth therein, it being understood
that Roxborough-Manayunk's interim financial statements are not audited, are not
prepared with related notes and are subject to normal year-end adjustments.
(b) Each of the consolidated financial statements referred to in
this Section 3.04 (including the related notes, where applicable) has been or
will be, as the case may be, prepared in accordance with generally accepted
accounting principles consistently applied during the periods involved. The
audits of Roxborough-Manayunk have been conducted in accordance with generally
accepted auditing standards. The books and records of the Mutual Holding
Company, Roxborough-Manayunk and the Roxborough-Manayunk Subsidiaries are being
maintained in material compliance with applicable legal and accounting
requirements and reflect only actual transactions.
(c) Except to the extent reflected, disclosed or provided for in
the consolidated financial statements referred to above or the notes thereto,
and for liabilities incurred since December 31, 1994 in the ordinary course of
business and consistent with prudent banking practice, none of the Mutual
Holding Company, Roxborough-Manayunk or any of the Roxborough-Manayunk
Subsidiaries has any liabilities, whether absolute, accrued, contingent or
otherwise, material to the business, operations, assets or financial condition
of the Mutual Holding Company, Roxborough-Manayunk and the Roxborough-Manayunk
Subsidiaries taken as a whole.
3.05 Absence of Certain Changes or Events.
(a) Except as set forth in Roxborough-Manayunk Disclosure
Schedule 3.05(a), there has not been any material adverse change in the
business, operations, assets or financial condition of the Mutual Holding
Company, Roxborough-Manayunk and the Roxborough-Manayunk Subsidiaries taken as a
whole since December 31, 1994 and no fact or condition exists which the Mutual
Holding Company or Roxborough-Manayunk believes will cause such a material
adverse change in the future.
(b) Except as set forth in Roxborough-Manayunk Disclosure
Schedule 3.05(b), neither the Mutual Holding Company, Roxborough-Manayunk nor
either of Roxborough-Manayunk Subsidiaries has taken or permitted any of the
actions set forth in Section 4.02 hereof between December 31, 1994 and the date
hereof.
3.06 Legal Proceedings. Except as set forth in Roxborough-
Manayunk Disclosure Schedule 3.06, there are no judicial, administrative,
arbitral or other actions, suits, proceedings or investigations pending or, to
the Mutual Holding Company's and Roxborough-Manayunk's knowledge, threatened,
which might result in any materially adverse change in the condition (financial
or otherwise), properties, assets, business or
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operations of the Mutual Holding Company, Roxborough-Manayunk and the
Roxborough-Manayunk Subsidiaries taken as a whole, or which seek to invalidate
or enjoin this Agreement, the Plan or the Plan of Conversion or any action taken
or to be taken in connection herewith or therewith. To the best of the Mutual
Holding Company's and Roxborough-Manayunk's knowledge, there is no reasonable
basis for any other proceeding, claim, action or governmental investigation
against the Mutual Holding Company, Roxborough-Manayunk or either of the
Roxborough-Manayunk Subsidiaries, except such proceedings, claims, actions or
governmental investigations which in the good faith judgment of the Mutual
Holding Company and Roxborough-Manayunk will not have a material adverse effect
on the business, operations, assets or financial condition of the Mutual Holding
Company, Roxborough-Manayunk and the Roxborough-Manayunk Subsidiaries taken as a
whole. Except as set forth in Roxborough-Manayunk Disclosure Schedule 3.06,
none of the Mutual Holding Company, Roxborough-Manayunk nor any of the
Roxborough-Manayunk Subsidiaries is a party to any order, judgment or decree
which materially adversely affects the business, operations, properties, assets
or financial condition of the Mutual Holding Company, Roxborough-Manayunk and
the Roxborough-Manayunk Subsidiaries taken as a whole.
3.07 Roxborough-Manayunk Information. None of the information
relating to the Mutual Holding Company, Roxborough-Manayunk and the Roxborough-
Manayunk Subsidiaries to be contained in (i) the Registration Statement, as
amended or supplemented, to be filed in connection with the issuance of shares
of Corporation Common Stock pursuant to the Conversion and the Reorganization,
will, at the time the Registration Statement becomes effective, contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading, and (ii) the Prospectus/Proxy Statement, as of the
date of the Prospectus/Proxy Statement and up to and including the date(s) of
the meetings of stockholders/members to which such Prospectus/Proxy Statement
relates, will contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, provided that
information as of a later date shall be deemed to modify information as of an
earlier date.
3.08 Compliance with Applicable Law. The Mutual Holding Company,
Roxborough-Manayunk and each of the Roxborough-Manayunk Subsidiaries holds, and
have at all times held, all material licenses, franchises, permits and
authorizations necessary for the lawful conduct of their respective business
under and pursuant to each, and have complied with and are not in default in any
material respect under any, applicable law, statute, order, rule, regulation,
policy and/or guideline of any federal, state or local governmental authority
relating to the Mutual Holding Company, Roxborough-Manayunk or any of the
Roxborough-Manayunk Subsidiaries (other than where such default or noncompliance
will not result in a material adverse effect on the business, operations, assets
or financial condition of the Mutual Holding Company, Roxborough-Manayunk and
the Roxborough-Manayunk Subsidiaries taken as a whole), and none of the Mutual
Holding
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Company, Roxborough-Manayunk nor any of the Roxborough-Manayunk Subsidiaries has
received notice of any violation of, or know of any violations of, any of the
above.
3.09 Certain Contracts.
(a) Except as disclosed in Roxborough-Manayunk Disclosure
Schedule 3.09(a), neither the Mutual Holding Company, Roxborough-Manayunk nor
any of the Roxborough-Manayunk Subsidiaries is a party to, is bound or affected
by, receives, or is obligated to pay benefits under, (i) any agreement,
arrangement or commitment, including without limitation, any agreement,
indenture or other instrument relating to the borrowing of money by the Mutual
Holding Company, Roxborough-Manayunk or any Roxborough-Manayunk Subsidiary or
the guarantee by the Mutual Holding Company, Roxborough-Manayunk or any
Roxborough-Manayunk Subsidiary of any obligation, (ii) any agreement,
arrangement or commitment relating to the employment of a consultant or the
employment, election or retention in office of any present or former director or
officer of the Mutual Holding Company, Roxborough-Manayunk or any Roxborough-
Manayunk Subsidiary, (iii) any contract, agreement or understanding with a labor
union, (iv) any agreement, arrangement or understanding pursuant to which any
payment (whether of severance pay or otherwise) became or may become due to any
director, officer of employee of the Mutual Holding Company, Roxborough-Manayunk
or any of the Roxborough-Manayunk Subsidiaries upon execution of this Agreement
or upon or following consummation of the transactions contemplated by this
Agreement (either alone or in connection with the occurrence of any additional
acts or events), (v) any agreement, arrangement or understanding to which the
Mutual Holding Company, Roxborough-Manayunk or any of the Roxborough-Manayunk
Subsidiaries is a party or by which any of the same is bound which limits the
ability of the Mutual Holding Company, Roxborough-Manayunk or any of the
Roxborough-Manayunk Subsidiaries to compete in any line of business or with any
person, (vi) any assistance agreement, supervisory agreement, memorandum of
understanding, consent order, cease and desist order or condition of any
regulatory order or decree with or by the OTS, the FDIC, or any other regulatory
agency, or (vii) any other agreement, arrangement or understanding to which the
Mutual Holding Company, Roxborough-Manayunk or any Roxborough-Manayunk
Subsidiary is a party and which is material to the business, operations, assets
or financial condition of the Mutual Holding Company, Roxborough-Manayunk and
the Roxborough-Manayunk Subsidiaries taken as a whole (excluding loan agreements
or agreements relating to deposit accounts), in each of the foregoing cases
whether written or oral.
(b) Except as disclosed in Roxborough-Manayunk Disclosure
Schedule 3.09(b), none of the Mutual Holding Company, Roxborough-Manayunk nor
any Roxborough-Manayunk Subsidiary is in default or in non-compliance, which
default or non-compliance would have a material adverse effect on the business,
operations, assets or financial condition of the Mutual Holding Company,
Roxborough-Manayunk and the Roxborough-Manayunk Subsidiaries taken as a whole or
the transactions contemplated hereby, under any contract, agreement, commitment,
arrangement, lease, insurance policy or other instrument
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to which it is a party or by which its assets, business or operations may be
bound or affected, whether entered into in the ordinary course of business or
otherwise and whether written or oral, and there has not occurred any event that
with the lapse of time or the giving of notice, or both, would constitute such a
default or non-compliance.
3.10 Properties. All real and personal property owned by the
Mutual Holding Company, Roxborough-Manayunk or any of the Roxborough-Manayunk
Subsidiaries or presently used by any of them in their respective business is in
an adequate condition (ordinary wear and tear excepted) and is sufficient to
carry on the business of the Mutual Holding Company, Roxborough-Manayunk and the
Roxborough-Manayunk Subsidiaries in the ordinary course of business consistent
with their past practices. The Mutual Holding Company, Roxborough-Manayunk and
the Roxborough-Manayunk Subsidiaries have good and, as to owned real property,
marketable title to all material assets and properties, whether real or
personal, tangible or intangible, reflected in Roxborough-Manayunk's
consolidated statement of financial condition as of December 31, 1994, or owned
and acquired subsequent thereto (except to the extent that such assets and
properties have been disposed of for fair value in the ordinary course of
business since December 31, 1994), subject to no encumbrances, liens, mortgages,
security interests or pledges, except (i) those items that secure liabilities
that are reflected in said consolidated statement of financial condition or the
notes thereto or have been incurred in the ordinary course of business after the
date of such consolidated statement of financial condition, (ii) statutory liens
for amounts not yet delinquent or which are being contested in good faith, (iii)
such encumbrances, liens, mortgages, security interests, pledges and title
imperfections that are not in the aggregate material to the business,
operations, assets or financial condition of the Mutual Holding Company,
Roxborough-Manayunk and the Roxborough-Manayunk Subsidiaries taken as a whole,
and (iv) with respect to owned real property, title imperfections noted in title
reports prior to the date hereof. The Mutual Holding Company, Roxborough-
Manayunk and the Roxborough-Manayunk Subsidiaries as lessees have the right
under valid and subsisting leases to occupy, use, possess and control all
property leased by them in all material respects as presently occupied, used,
possessed and controlled by the Mutual Holding Company, Roxborough-Manayunk and
the Roxborough-Manayunk Subsidiaries and the consummation of the transactions
contemplated hereby and by the Plan and the Plan of Conversion will not affect
any such right.
3.11 Employee Benefit Plans. Except as disclosed in Roxborough-
Manayunk Disclosure Schedule 3.11, none of the Mutual Holding Company,
Roxborough-Manayunk nor any of the Roxborough-Manayunk Subsidiaries maintains or
contributes to any "employee benefit plan", as such term is defined in Section 3
of ERISA, any "employee welfare benefit plan" or "multi-employer plan," as such
terms are defined in Section 3 of ERISA, stock option plan, stock purchase plan,
deferred compensation plan, severance plan, bonus plan, or other similar
employee benefit plan, program or arrangement (collectively, the "Roxborough-
Manayunk Benefit Plans"). The Mutual Holding Company and Roxborough-Manayunk
will make available to the Corporation and Progress a true and correct copy of
(a) each Roxborough-Manayunk Benefit Plan, (b) the most recent annual
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report (Form 5500) filed with the IRS with respect to each Roxborough-Manayunk
Benefit Plan, if applicable, (c) each trust agreement and group annuity
contract, if any, relating to such Roxborough-Manayunk Benefit Plan and (d) the
most recent actuarial report or valuation relating to a Roxborough-Manayunk
Benefit Plan subject to Title IV of ERISA.
3.12 Tax Matters.
(a) Each of the Mutual Holding Company and Roxborough-Manayunk
have duly filed (and until the Closing Date will so file) all Returns required
to be filed or sent by or with respect to them in respect of any Taxes, and has
duly paid (and until the Closing Date will so pay) all Taxes due and payable
other than Taxes or other charges which (i) are being contested in good faith
(and disclosed in writing to the Corporation and Progress) and (ii) have not
finally been determined. The Mutual Holding Company and Roxborough-Manayunk
have accrued (and until the Closing Date will accrue) on their books and records
amounts that are adequate for the payment of all Taxes not yet due and payable,
whether or not disputed, accrued or applicable. Except as set forth in
Roxborough-Manayunk Disclosure Schedule 3.12(a), the federal income tax returns
of the Mutual Holding Company and Roxborough-Manayunk have been examined by the
IRS (or are closed to examination due to the expiration of the applicable
statute of limitations) and no deficiencies were asserted as a result of such
examinations which have not been resolved and paid in full. Except as set forth
in Roxborough-Manayunk Disclosure Schedule 3.12(a), the Commonwealth of
Pennsylvania income tax returns of the Mutual Holding Company and Roxborough-
Manayunk have been examined by the Commonwealth of Pennsylvania taxing
authorities (or are closed to examination due to the expiration of the statute
of limitations) and no deficiencies were asserted as a result of such
examinations which have not been resolved and paid in full. There are no audits
or other administrative or court proceedings presently pending nor any other
disputes pending with respect to, or claims asserted for, Taxes or assessments
upon the Mutual Holding Company or Roxborough-Manayunk, nor has the Mutual
Holding Company or Roxborough-Manayunk given any currently outstanding waivers
or comparable consents regarding the application of the statute of limitations
with respect to any Taxes or Returns.
(b) Except as disclosed in Roxborough-Manayunk Disclosure
Schedule 3.12(b), the Mutual Holding Company and Roxborough-Manayunk (i) have
not requested any extension of time within which to file any Return which Return
has not since been filed, (ii) is not a party to any agreement providing for the
allocation or sharing of Taxes, (iii) is not required to include in income any
adjustment pursuant to Section 481(a) of the Code, by reason of a voluntary
change in accounting method initiated by the Mutual Holding Company or
Roxborough-Manayunk (nor does the Mutual Holding Company or Roxborough-Manayunk
have any knowledge that the IRS has proposed any such adjustment or change of
accounting method) or (iv) have not filed a consent pursuant to Section 341(f)
of the Code or agreed to have Section 341(f)(2) of the Code apply.
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3.13 Securities Documents and Regulatory Reports.
(a) Roxborough-Manayunk has previously delivered or made
available to the Corporation and Progress a complete copy of each final offering
circular, each annual or quarterly report and each proxy statement or other
communication (other than general advertising materials) mailed by Roxborough-
Manayunk to its stockholders as a class since December 31, 1991, and to
Roxborough-Manayunk's knowledge, each such offering circular, each annual or
quarterly report and each proxy statement or other communication, as of its
date, complied in all material respects with all applicable statutes, rules and
regulations and did not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements made therein, in light of the circumstances under which
they were made, not misleading; provided that information as of a later date
shall be deemed to modify information as of an earlier date.
(b) The Mutual Holding Company, Roxborough-Manayunk and the
Roxborough-Manayunk Subsidiaries have duly filed with the OTS, the FDIC and all
other applicable regulatory authorities in correct form the monthly, quarterly
and annual regulatory reports required to be filed under applicable laws and
regulations, and the Mutual Holding Company and Roxborough-Manayunk have
delivered or made available to the Corporation and Progress accurate and
complete copies of such reports.
3.14 Environmental Matters. Neither the Mutual Holding Company,
Roxborough-Manayunk nor either of the Roxborough-Manayunk Subsidiaries has
received any written notice, citation, claim, assessment, proposed assessment or
demand for abatement alleging that the Mutual Holding Company, Roxborough-
Manayunk or either of the Roxborough-Manayunk Subsidiaries (either directly or
as a successor-in-interest in connection with the enforcement of remedies to
realize the value of properties serving as collateral for outstanding loans) is
responsible for the correction or clean-up of any condition resulting from the
violation of any law, ordinance or other governmental regulation regarding
environmental health matters material to the business, operations, assets or
financial condition of the Mutual Holding Company, Roxborough-Manayunk and the
Roxborough-Manayunk Subsidiaries taken as a whole. Neither the Mutual Holding
Company, Roxborough-Manayunk, nor any of the Roxborough-Manayunk Subsidiaries
has knowledge that any toxic or hazardous substances or materials have been
emitted, generated, disposed of or stored on any property owned or operated by
the Mutual Holding Company, Roxborough-Manayunk or either of the Roxborough-
Manayunk Subsidiaries in any manner that violates or, after the lapse of time
may violate, any presently existing federal, state or local law or regulation
governing or pertaining to such substances and materials, the violation of which
could have a material adverse effect on the business, operations, assets or
financial condition of the Mutual Holding Company, Roxborough-Manayunk and the
Roxborough-Manayunk Subsidiaries taken as a whole.
3.15 Broker's Fees. Except as disclosed in Roxborough-Manayunk
Disclosure Schedule 3.15, none of the Mutual Holding Company, Roxborough-
Manayunk, the
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Roxborough-Manayunk Subsidiaries nor any of the respective officers or directors
of such companies has employed any broker, finder, investment banker or
financial advisor or incurred any liability for any broker's, finder's,
investment banker's or financial advisor's fees or commissions in connection
with any of the transactions contemplated by this Agreement, the Plan or the
Plan of Conversion.
3.16 Community Reinvestment Act Compliance. Roxborough-Manayunk
is in substantial compliance with the applicable provisions of the Community
Reinvestment Act of 1977, as amended, and the regulations promulgated
thereunder. As of the date of this Agreement, Roxborough-Manayunk has not been
advised of the existence of any fact or circumstance or set of facts or
circumstances which, if true, would cause Roxborough-Manayunk to fail to be in
substantial compliance with such provisions.
3.17 Allowance for Loan Losses and Real Estate Owned. The
allowance for loan losses reflected on Roxborough-Manayunk's consolidated
statements of financial condition included in the consolidated financial
statements referred to in Section 3.04 hereof is, or will be in the case of
subsequently delivered financial statements, as the case may be, in the opinion
of Roxborough-Manayunk's management adequate in all material respects as of
their respective dates under the requirements of generally accepted accounting
principles to provide for reasonably anticipated losses on outstanding loans net
of recoveries. The real estate owned reflected on the consolidated statements
of financial condition included in the consolidated financial statements
referred to in Section 3.04 hereof is, or will be in the case of subsequently
delivered financial statements, as the case may be, carried at the lower of cost
or fair value, or the lower of cost or net realizable value, as required by
generally accepted accounting principles.
3.18 Untrue Statements and Omissions. No warranty or
representation by the Mutual Holding Company or Roxborough-Manayunk in this
Agreement or any explanation or statement of the Mutual Holding Company or
Roxborough-Manayunk in the Roxborough Manayunk Disclosure Schedules contains any
untrue statement of a material fact or omits to state a material fact necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading.
ARTICLE IV
COVENANTS OF THE PARTIES
4.01 Conduct of the Business of the Parties. During the period
from the date of this Agreement to the Closing Date, 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 hereunder,
except with the prior written consent of the other party, which consent shall
not be unreasonably withheld. Each of the parties also shall use its best
efforts
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to (i) preserve its business organization and that of its subsidiaries intact,
(ii) keep available to itself and the Corporation and Progress (following
consummation of the Conversion and the Reorganization) the present services of
its employees and those of its subsidiaries and (iii) preserve for itself and
the Corporation and Progress (following consummation of the Conversion and the
Reorganization) the goodwill of its customers and those of its subsidiaries and
others with whom business relationships exist.
4.02 Negative Covenants. Each of the parties agrees that from
the date hereof to the Closing Date, except as otherwise approved by the other
parties in writing or as permitted or required by this Agreement, it will not,
nor will it permit any of its subsidiaries to:
(i) except as contemplated by this Agreement, the Plan and
the Plan of Conversion and except set forth in Progress Disclosure Schedule
4.02(i) and Roxborough-Manayunk Disclosure Schedule 4.02(i), change any
provision of its certificate of incorporation, charter or bylaws or any similar
governing documents;
(ii) except for the issuance of Corporation Common Stock
and/or Roxborough-Manayunk Common Stock pursuant to the present terms of
warrants and stock options which are outstanding as of the date hereof (and
identified in Sections 2.02 and 3.02 hereof) and except as contemplated by this
Agreement, the Plan and the Plan of Conversion, 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 Corporation, for regular quarterly cash dividends not in excess
of $.02 per share;
(iv) except as set forth in Progress Disclosure Schedule
4.02(iv) and Roxborough-Manayunk Disclosure Schedule 4.02(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 (it is expressly recognized that renewal of an employment agreement
pursuant to the terms thereof will not be considered an amendment and is
permitted); 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;
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(v) except as set forth in Progress Disclosure Schedule
4.02(v) and Roxborough-Manayunk Disclosure Schedule 4.02 (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)except as set forth in Progress Disclosure Schedule
4.02(vii) and Roxborough-Manayunk Disclosure Schedule 4.02(vii), acquire in any
manner whatsoever (other than to realize upon collateral for a defaulted 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 this
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 Corporation and Progress, which shall not be unreasonably
withheld); or
(xii)agree to do any of the foregoing.
4.03 No Solicitation. 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 to this Agreement) 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. Each party will
promptly communicate to the other parties
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the terms of any proposal which it may receive in respect of any such
Acquisition Transaction and shall 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.
4.04 Current Information. During the period from the date of
this Agreement to the Closing Date, each party to this Agreement shall cooperate
with each other party to this Agreement with respect to conveying information
regarding its business, operations, properties, assets and financial condition
and matters relating to the completion of the transactions contemplated herein.
As soon as reasonably available, but in no event more than 45 days after the end
of each calendar quarter (other than the last quarter of each calendar year)
ending after the date of this Agreement, the Corporation will deliver to the
Mutual Holding Company and Roxborough-Manayunk its quarterly report on Form 10-Q
under the Exchange Act and Roxborough-Manayunk will deliver to the Corporation
and Progress its unaudited financial statements for such calendar quarter, and,
as soon as reasonably available, but in no event more than 90 days after the end
of each calendar year commencing with the calendar year ending December 31,
1994, the Corporation will deliver to the Mutual Holding Company and Roxborough-
Manayunk its Annual Report on Form 10-K and Roxborough-Manayunk will deliver to
the Corporation and Progress its audited financial statements for the year then
ended.
4.05 Access to Properties and Records; Confidentiality.
(a) Each party hereto shall permit the other parties hereto
reasonable access to its properties and those of its subsidiaries, and shall
disclose and make available to the other parties hereto all books, papers and
records relating to the assets, stock, ownership, properties, operations,
obligations and liabilities of it and its subsidiaries, including, but not
limited to, all books of account (including the general ledger), tax records,
minute books of directors', stockholders' and/or members' meetings,
organizational documents, bylaws, material contracts and agreements, filings
with any regulatory authority, accountants' work papers, litigation files, plans
affecting employees, and any other business activities or prospects in which the
other party may have a reasonable interest. None of the parties nor their
subsidiaries shall be required to provide access to or to disclose information
where such access or disclosure would violate or prejudice the rights of any
customer, or would contravene any law, rule, regulation, order or judgment.
Each party will use its best efforts to obtain waivers of any such restriction
and in any event make appropriate substitute disclosure arrangements under
circumstances in which the restrictions of the preceding sentence apply.
(b) All information furnished by a party hereto to the other
parties previously in connection with the transactions contemplated by this
Agreement or pursuant hereto shall be treated as the sole property of the party
furnishing the information until consummation of the transactions contemplated
hereby and, if such transactions shall not occur, the party receiving the
information shall return to the party which furnished such information all
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documents or other materials containing, reflecting or referring to such
information, shall use its best efforts to keep confidential all such
information, and shall not directly or indirectly use such information for any
competitive or other commercial purposes. The obligation to keep such
information confidential shall continue for five years from the date the
proposed transactions are abandoned but shall not apply to (i) any information
which (a) the party receiving the information can establish by convincing
evidence was already in its possession prior to the disclosure thereof by the
party furnishing the information; (b) was then generally known to the public; or
(c) became known to the public through no fault of the party receiving the
information; or (ii) disclosures pursuant to a legal requirement or in
accordance with an order of a court of competent jurisdiction.
4.06 Regulatory Matters.
(a) The parties hereto will cooperate with each other and use
their best efforts to prepare all necessary documentation (including without
limitation the Registration Statement and the Prospectus/Proxy Statement), to
effect all necessary filings and to obtain all necessary permits, consents,
approvals and authorizations of all third parties and governmental bodies
necessary to consummate the transactions contemplated by this Agreement, the
Plan and the Plan of Conversion as soon as practicable. The parties shall each
have the right to review and approve in advance all information relating to the
other, as the case may be, and any of their respective subsidiaries, which
appears in any filing made with, or written material submitted to, any third
party or governmental body in connection with the transactions contemplated by
this Agreement, the Plan and the Plan of Conversion.
(b) Each of the parties will furnish each other with all
information concerning themselves, their subsidiaries, directors, officers and
stockholders/members (as the case may be) and such other matters as may be
necessary or advisable in connection with any statement or application made by
or on behalf of them, or any of their respective subsidiaries to any
governmental body in connection with the Conversion and the Reorganization and
the other transactions, applications or filings contemplated by this Agreement,
the Plan and the Plan of Conversion.
(c) Each of the parties will promptly furnish each other with
copies of written communications received by them or any of their respective
subsidiaries from, or delivered by any of the foregoing to, any governmental
body in connection with the Conversion and the Reorganization and the other
transactions, applications or filings contemplated by this Agreement, the Plan
and the Plan of Conversion.
4.07 Corporate Approvals.
(a) Each party will (i) take all steps (including, without
limitation, the preparation of the Registration Statement and Prospectus/Proxy
Statement in accordance with all applicable requirements) necessary to duly
call, give notice of, convene and hold a meeting
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of its stockholders/members (as the case may be) as soon as reasonably
practicable for the purposes of securing the necessary approvals of such
stockholders/members (as the case may be), (ii) recommend to its
stockholders/members (as the case may be) the approval of this Agreement, the
Plan and, in the case of the Mutual Holding Company and Roxborough-Manayunk, the
Plan of Conversion, and the transactions contemplated hereby and thereby, use
its best efforts to obtain, as promptly as practicable, such approvals, and
(iii) cooperate and consult with the other parties with respect to the foregoing
matters.
(b) Each director of the Corporation and Progress on the one
hand, and the Mutual Holding Company and Roxborough-Manayunk on the other hand,
agree to vote (in their capacities as stockholders and/or members, as the case
may be) in favor of the Conversion and the Reorganization and to not exercise
dissenters' rights with respect to the Conversion and the Reorganization.
4.08 Further Assurances. Subject to the terms and conditions
herein provided, each of the parties hereto agrees to use its best efforts to
take, or cause to be taken, all action and to do, or cause to be done, in a
timely manner all things necessary, proper or advisable under applicable laws
and regulations to satisfy the conditions to Closing and to consummate in a
timely manner and make effective the transactions contemplated by this
Agreement, the Plan and the Plan of Conversion. In case at any time after the
Closing Date any further action is necessary or desirable to carry out the
purposes of this Agreement, the proper officers and directors of each party to
this Agreement shall take all such necessary action.
4.09 Public Announcements. The parties hereto shall each approve
in advance the substance of and cooperate with each other in the development and
distribution of all news releases and other public information disclosures with
respect to this Agreement, the Plan and the Plan of Conversion or any of the
transactions contemplated hereby or thereby, except as may be otherwise required
by law or regulation or as to which the party releasing such information has
used its best efforts to discuss with the other party in advance.
4.10 Failure to Fulfill Conditions. In the event that any of the
parties hereto determines that a condition to its obligation to consummate the
transactions contemplated hereby cannot be fulfilled on or prior to December 31,
1995, and that it will not waive that condition, it shall promptly notify the
other parties hereto. Each party will promptly inform the other parties hereto
of any facts applicable to it, or its respective directors or officers, that
would be likely to prevent or materially delay approval of the transactions
contemplated by this Agreement, the Plan or the Plan of Conversion by any
governmental authority or which would otherwise prevent or materially delay
completion of the transactions contemplated hereby or thereby.
4.11 Disclosure Supplements. From time to time prior to the
Closing Date, each party hereto will promptly supplement or amend its respective
Disclosure Schedules delivered pursuant hereto with respect to any matter
hereafter arising which, if existing,
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occurring or known at the date of this Agreement, would have been required to be
set forth or described in such Disclosure Schedules or which is necessary to
correct any information in such Disclosure Schedules which has been rendered
materially inaccurate thereby. For the purpose of determining satisfaction of
the conditions set forth in Article V, no supplement or amendment to such
Disclosure Schedules shall correct or cure any representation or warranty made
in this Agreement, the Disclosure Schedules or any supplement or amendment
thereto, which was untrue on the date of execution of this Agreement or, if
later, when made, but shall permit each party hereto to disclose facts or events
occurring or first coming to the attention of a party after the date hereof as
necessary to maintain the truthfulness of any representation or warranty.
4.12 Certain Post-Reorganization Agreements
The parties hereto agree to the following arrangements following
the Closing Date:
(a) Name of Surviving Bank. Upon consummation of the Conversion
and the Reorganization, Roxborough-Manayunk, the surviving corporation of the
merger of Progress with and into Roxborough-Manayunk (the "Surviving Bank"),
shall change its name to "Progress Bank, F.S.B."
(b) Board of Directors of the Corporation. Effective as of the
Closing Date, the Board of Directors of the Corporation shall consist of 12
members, six of whom shall have been designated from the current Board of
Directors of Roxborough-Manayunk by such Board (the "Roxborough-Manayunk
Directors") and six of whom shall have been designated from the current Board of
Directors of the Corporation by such Board (the "Progress Directors"). The
directors shall be divided into three classes with three-year terms which expire
on a staggered basis. Roxborough-Manayunk and the Corporation shall each
designate an equal number of persons to serve in each of the three classes, to
the extent possible, and, to the extent necessary, the Corporation shall amend
its Bylaws in order to permit such designated persons to serve as directors.
The names and residence addresses of those persons who shall constitute the
initial Board of Directors of the Corporation following the Closing Date are set
forth in Exhibit C hereto. If any director designated by Roxborough-Manayunk or
the Corporation to serve as a director of the Corporation 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 Corporation shall designate
another director if such director is a Progress Director. For a period of three
years from the Closing Date, in the event that any of the directors of the
Corporation 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
Corporation will appoint such individual to serve for the remaining term.
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(c) Board of Directors of Roxborough-Manayunk. Effective as of
the Closing Date, the Board of Directors of Roxborough-Manayunk shall consist of
16 members, eight of whom shall have been designated by the Roxborough-Manayunk
Directors and eight of whom shall have been designated by the Progress
Directors. The directors shall be divided into three classes with three-year
terms which expire on a staggered basis. Roxborough-Manayunk and Progress shall
each designate an equal number of persons to serve in each of the three classes,
to the extent possible. The names and residence addresses of those persons who
shall constitute the initial Board of Directors of Roxborough-Manayunk following
the Closing Date are set forth in Exhibit D hereto. If any director designated
by Roxborough-Manayunk or Progress to serve as a director of Roxborough-Manayunk
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
Progress shall designate another director if such director is a Progress
Director. For a period of three years from the Closing Date, in the event that
any of the directors of Roxborough-Manayunk 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 Roxborough-Manayunk will appoint such individual to serve for
the remaining term.
(d) Nominating Committee of the Corporation and Roxborough-
Manayunk. Effective as of the Closing Date, the Nominating Committee of the
Board of Directors of the Corporation and the Nominating Committee of the Board
of Directors of Roxborough-Manayunk shall each consist of six persons, three of
whom shall be designated by Roxborough-Manayunk and three of whom shall be
designated by the Corporation. The Nominating Committees shall be authorized to
nominate persons for election to the respective Boards of Directors of the
Corporation and Roxborough-Manayunk. The names and residence addresses of those
persons who shall constitute the initial Nominating Committee of the Board of
Directors of the Corporation and the Board of Directors of Roxborough-Manayunk
following the Closing Date are set forth in Exhibit E hereto. If any person
designated by Roxborough-Manayunk or the Corporation 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 Corporation shall designate another director if such director
is a Progress Director. For a period of three years from the Closing Date, in
the event that any of the members of the Nominating Committees of the
Corporation or Roxborough-Manayunk 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.
(e) Executive Officers of the Corporation and Roxborough-
Manayunk. Effective as of the Closing Date, John F. McGill, Sr. shall serve as
Chairman of the Board of
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Directors of the Corporation and Chairman of the Board of Directors of
Roxborough-Manayunk and W. Kirk Wycoff shall serve as President and Chief
Executive Officer of the Corporation and President and Chief Executive Officer
of Roxborough-Manayunk. In addition, for a period of three years from the
Closing Date, the Boards of Directors of the Corporation and Roxborough-Manayunk
shall each agree to elect John F. McGill, Sr. 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, Sr. shall be
appointed as an ex-officio member of each committee of the Boards of Directors
of the Corporation and Roxborough-Manayunk 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 this Section 4.12(d)
shall prohibit the Corporation or Roxborough-Manayunk from terminating Messrs.
McGill and Wycoff in the event there exists just cause for termination. For
purposes of this 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. The
names and titles of the initial executive officers of the Corporation and
Roxborough-Manayunk following the Closing Date are set forth in Exhibit F
hereto.
(f) Employees of the Corporation and Roxborough-Manayunk.
Subject to the continuing discretion and judgment of the Board of Directors of
the Surviving Bank following the Closing Date, the Surviving Bank shall offer to
employ all of the employees of Roxborough-Manayunk and the Roxborough-Manayunk
Subsidiaries and Progress and the Progress Subsidiaries who are in the employ of
Roxborough-Manayunk or the Roxborough-Manayunk Subsidiaries and Progress or the
Progress Subsidiaries at the Closing Date. Each person employed by Roxborough-
Manayunk or a Roxborough-Manayunk Subsidiary and Progress or a Progress
Subsidiary prior to the Closing Date who becomes an employee of the Surviving
Bank or a subsidiary thereof following the Closing Date (each a "Continued
Employee") shall be entitled, as an employee of the Surviving Bank or a
subsidiary thereof, to participate in such employee benefit plans as may be in
effect generally for employees of the Surviving Bank and subsidiaries thereof
from time to time. Continued Employees will be eligible to participate on the
same basis as similarly situated employees of the Surviving 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
Corporation (or its subsidiaries) employee benefit plans.
(g) Stock Compensation Plans.
(i) Effective as of the Closing Date, the Corporation shall
adopt a new employee stock ownership plan ("ESOP") which shall be for the
benefit of the employees of the Corporation and its subsidiaries following the
Closing Date. In connection with the
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Conversion and the Reorganization, the ESOP shall purchase the maximum amount of
shares of Corporation Common Stock permissible under OTS regulations.
(ii) Following the Closing Date, the Corporation shall, as
soon as permissible under OTS regulations, adopt and implement a stock option
plan for directors, officers and employees of the Corporation and its
subsidiaries ("Option Plan") and a recognition plan for officers, directors and
employees of the Corporation and its subsidiaries ("Recognition Plan"), subject
to the rules and regulations of the OTS. Such plans shall provide for the
allocation of the maximum number of shares of Corporation Common Stock appointed
as an ex-officio member of each committee of the Boards of Directors of the
Corporation and Roxborough-Manayunk 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 this Section 4.12(d)
shall prohibit the Corporation or Roxborough-Manayunk from terminating Messrs.
McGill and Wycoff in the event there exists just cause for termination. For
purposes of this 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 Corporation and Roxborough-Manayunk. In
addition, Mr. Wycoff, as President and Chief Executive Officer of the
Corporation and Roxborough-Manayunk, shall be authorized to appoint one other
individual as Chief Operating Officer of the Corporation and Roxborough-Manayunk
following consummation of the Conversion and the Reorganization. The names and
titles of the initial executive officers of the Corporation and Roxborough-
Manayunk following the Closing Date are set forth in Exhibit F hereto.
(f) Employees of the Corporation and Roxborough-Manayunk.
Subject to the continuing discretion and judgment of the Board of Directors of
the Surviving Bank following the Closing Date, the Surviving Bank shall offer to
employ all of the employees of Roxborough-Manayunk and the Roxborough-Manayunk
Subsidiaries and Progress and the Progress Subsidiaries who are in the employ of
Roxborough-Manayunk or the Roxborough-Manayunk Subsidiaries and Progress or the
Progress Subsidiaries at the Closing Date. Each person employed by Roxborough-
Manayunk or a Roxborough-Manayunk Subsidiary and Progress or a Progress
Subsidiary prior to the Closing Date who becomes an employee of the Surviving
Bank or a subsidiary thereof following the Closing Date (each a "Continued
Employee") shall be entitled, as an employee of the Surviving Bank or a
subsidiary thereof, to participate in such employee benefit plans as may be in
effect generally for employees of the Surviving Bank and subsidiaries thereof
from time to time. Continued Employees will be eligible to participate on the
same basis as similarly situated employees of the Surviving 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
Corporation (or its subsidiaries) employee benefit plans.
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(g) Stock Compensation Plans.
(i) Effective as of the Closing Date, the Corporation shall
adopt a new employee stock ownership plan ("ESOP") which shall be for the
benefit of the employees of the Corporation and its subsidiaries following the
Closing Date. In connection with the Conversion and the Reorganization, the
ESOP shall purchase the maximum amount of shares of Corporation Common Stock
permissible under OTS regulations.
(ii) Following the Closing Date, the Corporation shall, as
soon as permissible under OTS regulations, adopt and implement a stock option
plan for directors, officers and employees of the Corporation and its
subsidiaries ("Option Plan") and a recognition plan for officers, directors and
employees of the Corporation and its subsidiaries ("Recognition Plan"), subject
to the rules and regulations of the OTS. Such plans shall provide for the
allocation of the maximum number of shares of Corporation Common Stock
permissible under OTS regulations (i.e., 8.5% and 3.5% of the Conversion Stock
with respect to the Option Plan and the Recognition Plan, respectively). The
Corporation shall set aside 72% of the total number of shares of Corporation
Common Stock reserved under the Option Plan and 100% of the total number of
shares of Corporation Common Stock reserved under the Recognition Plan for the
benefit of the officers, directors and employees of Roxborough-Manayunk. At or
prior to the Closing Date, the Board of Directors of Roxborough-Manayunk shall
determine the allocation of initial awards of stock options pursuant to the
Option Plan and stock grants pursuant to the Recognition Plan designated for the
benefit of the directors, officers and employees of Roxborough-Manayunk. The
administering committee of the Board of Directors of the Corporation shall make
such grants, subject to the receipt of OTS and stockholder approvals. The
remainder of the shares available for grant under the Option Plan shall be
available for grant to all employees, officers and directors of the Corporation
and its subsidiaries following the Closing Date. In addition, the Corporation
will use its best efforts to (i) obtain stockholder approval of the Option Plan
and Recognition Plan within one year of the Closing Date, (ii) reserve for
issuance a sufficient number of shares of Corporation Common Stock for delivery
pursuant to awards granted under such plans, and (iii) file a registration
statement on Form S-3 or Form S-8, as the case may be (or on any successor or
other appropriate form), with respect to the shares of Corporation Common Stock
subject to awards under such plans and maintain the effectiveness of such
registration statement or registration statements (and maintain the current
status of the prospectus or prospectuses contained therein) for so long as
awards under such plans remain outstanding and it is required to do so by
applicable laws and regulations.
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ARTICLE V
CLOSING CONDITIONS
5.01 Conditions to Each Party's Obligations under this
Agreement. The respective obligations of each party under this Agreement to
consummate the Reorganization shall be subject to the fulfillment at or prior to
the Closing Date of the following conditions:
(i) Each of the matters required by Section 1.05 (i)-(ix) hereof
shall have been received, performed or satisfied;
(ii) Neither the Corporation, Progress, the Mutual Holding
Company nor Roxborough-Manayunk shall be subject to any order, decree or
injunction of a court or agency of competent jurisdiction which enjoins or
prohibits the consummation of the Conversion and/or the Reorganization; and
(iii) The parties shall have received either a private letter
ruling from the IRS or an opinion of counsel selected by the parties to the
effect that the transactions contemplated by the Agreement qualify as a
reorganization within the meaning of Section 368 of the Code.
5.02 Conditions to the Obligations of the Corporation and
Progress under this Agreement. The obligations of the Corporation and Progress
under this Agreement shall be further subject to the satisfaction, at or prior
to the Closing Date, of the following conditions, any one or more of which may
be waived by the Corporation and Progress:
(a) Each of the covenants and obligations of the Mutual Holding
Company and Roxborough-Manayunk required to be performed by them at or prior to
the Closing Date pursuant to the terms of this Agreement shall have been duly
performed and complied with in all material respects and the representations and
warranties of the Mutual Holding Company and Roxborough-Manayunk contained in
this Agreement shall have been true and correct in all material respects as of
the date of this Agreement and as of the Closing Date as though made at and as
of the Closing Date, 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 the Roxborough-Manayunk
Subsidiaries taken as a whole, and the Corporation and Progress shall have
received certificates to that effect signed by the chief executive and chief
financial officers of the Mutual Holding Company and Roxborough-Manayunk.
(b) The Corporation and Progress shall have received an opinion,
dated the Closing Date, from Malizia, Spidi, Sloane & Fisch, P.C., Washington,
D.C., covering the
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matters set forth in Exhibit G hereto and such other matters as may be
reasonably requested by counsel to the Corporation and Progress.
(c) The Mutual Holding Company and Roxborough-Manayunk shall
have furnished the Corporation and Progress with such certificates of its
officers or others and such other documents to evidence fulfillment of the
conditions set forth in this Agreement as the Corporation and Progress may
reasonably request.
5.03 Conditions to the Obligations of the Mutual Holding Company
and Roxborough-Manayunk under this Agreement. The obligations of the Mutual
Holding Company and Roxborough-Manayunk under this Agreement shall be further
subject to the satisfaction, at or prior to the Closing Date, of the following
conditions, any one or more of which may be waived by the Mutual Holding Company
and Roxborough-Manayunk:
(a) Each of the covenants and obligations of the Corporation and
Progress required to be performed at or prior to the Closing Date pursuant to
the terms of this Agreement shall have been duly performed and complied with in
all material respects and the representations and warranties of the Corporation
and Progress contained in this Agreement shall have been true and correct in all
material respects as of the date of this Agreement and as of the Closing Date as
though made at and as of the Closing Date, 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 Corporation, Progress and the Progress Subsidiaries
taken as a whole, and the Mutual Holding Company and Roxborough-Manayunk shall
have received certificates to that effect signed by the chief executive and
chief financial officers of the Corporation and Progress.
(b) The Mutual Holding Company and Roxborough-Manayunk shall
have received an opinion, dated the Closing Date, from Elias, Matz, Tiernan &
Herrick L.L.P., Washington, D.C., covering the matters set forth in Exhibit H
hereto and such other matters as may be reasonably requested by counsel to the
Mutual Holding Company and Roxborough-Manayunk.
(c) The Corporation and Progress shall have furnished the Mutual
Holding Company and Roxborough-Manayunk with such certificates of its officers
or others and such other documents to evidence fulfillment of the conditions set
forth in this Agreement as the Mutual Holding Company and Roxborough-Manayunk
may reasonably request.
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ARTICLE VI
TERMINATION, AMENDMENT AND WAIVER
6.01 Termination. This Agreement may be terminated at any time
prior to the Closing Date, whether before or after the receipt of all required
regulatory approvals and/or the approval of the Conversion and/or the
Reorganization by the stockholders of Roxborough-Manayunk and the Corporation
and the members of the Mutual Holding Company:
(a) by mutual written consent of the Corporation, Progress, the
Mutual Holding Company and Roxborough-Manayunk authorized by their respective
Boards of Directors;
(b) by the Corporation and Progress if (i) at the time of such
termination there shall be a material adverse change (as defined in Section
3.05(a) of this Agreement) in the business, operations, assets or financial
condition of the Mutual Holding Company, Roxborough-Manayunk and the Roxborough-
Manayunk 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 hereunder 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 Corporation and Progress specifying the
nature of such breach and requesting that it be remedied, (iii) there shall have
been a failure to satisfy any of the conditions set forth in Sections 5.01 or
5.02 hereof (provided such conditions were not previously waived by the
Corporation 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 (as
defined in Section 2.05(a) of this Agreement) in the business, operations,
assets, or financial condition of the Corporation, Progress and the Progress
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 Corporation or Progress hereunder and such breach shall not
have been remedied within 15 business days after receipt by the Corporation and
Progress of notice in writing from the Mutual Holding Company and Roxborough-
Manayunk 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 Sections 5.01 and 5.03 hereof (provided such conditions were not
previously waived by the Mutual Holding Company and Roxborough-Manayunk);
(d) by the Corporation and Progress or the Mutual Holding
Company and Roxborough-Manayunk (i) if the Closing Date shall not have occurred
on or prior to March 31, 1996, or (ii) if the stockholders of the Corporation
(if required) or Roxborough-Manayunk or the members of the Mutual Holding
Company fail to approve this Agreement
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by the requisite vote, the Plan (and in the case of the Mutual Holding Company
and Roxborough-Manayunk, the Plan of Conversion) at meetings of
stockholders/members (as the case may be) held with respect thereto (or any
adjournment thereof); unless in the case of clause (i) of this Section 6.01(d),
the failure of such occurrence shall be due to the failure of the party seeking
to terminate this Agreement to perform or observe its agreements set forth
herein to be performed or observed by such party on or before the Closing Date;
(e) by the Corporation 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 Reorganization and
the other transactions contemplated hereby 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 Corporation 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 hereof 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 Corporation and Progress or
the Mutual Holding Company and Roxborough-Manayunk, would be materially
inconsistent with the terms of this Agreement;
(g) by the Corporation and Progress if (i) the independent
appraisal would result in the issuance of Conversion Stock and Exchange Shares
(including, on a fully diluted basis, options to purchase Roxborough-Manayunk
Common Stock which are converted into options to purchase Corporation Common
Stock) which in the aggregate would exceed 64% of the total number of shares of
Corporation Common Stock (on a fully diluted basis) to be outstanding upon
consummation of the Conversion and the Reorganization; and
(h) by the Mutual Holding Company and Roxborough-Manayunk if the
independent appraisal would result in the issuance of Conversion Stock and
Exchange Shares (including, on a fully diluted basis, options to purchase
Roxborough-Manayunk Common Stock which are converted into options to purchase
Corporation Common Stock) which in the aggregate would be less than 56% of the
total number of shares of Corporation Common Stock (on a fully diluted basis) to
be outstanding upon consummation of the Conversion and the Reorganization.
6.02 Effect of Termination. In the event of termination of this
Agreement by either the Corporation and Progress or the Mutual Holding Company
and Roxborough-Manayunk as provided above, this Agreement and the Plan shall
forthwith become void (other than Sections 4.05(b) and 7.01 hereof, which shall
remain in full force and effect) and there shall be no further liability on the
part of the Corporation and Progress or the Mutual Holding
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Company and Roxborough-Manayunk or their respective officers or directors,
except for the liability of the Corporation and Progress and the Mutual Holding
Company and Roxborough-Manayunk under Sections 4.05(b) and 7.01 hereof and
except for liability for any willful breach of this Agreement. It is expressly
understood by the parties that a termination of this Agreement pursuant to the
terms of Section 6.01 hereof shall not be considered a default for purposes of
Section 7.01 hereof.
6.03 Amendment, Extension and Waiver. Subject to applicable law,
at any time prior to the consummation of the Conversion and the Reorganization,
whether before or after approval thereof by the stockholders of Roxborough-
Manayunk and the Corporation, if required, and the members of the Mutual Holding
Company, the parties may (i) amend this Agreement and the Plan, (ii) extend the
time for the performance of any of the obligations or other acts of any other
party hereto, (iii) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto, or (iv) waive
compliance with any of the agreements or conditions contained herein. This
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties hereto. Any agreement on the part of a party hereto to
any extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party, but such waiver or failure to insist on
strict compliance with such obligation, covenant, agreement or condition shall
not operate as a waiver of, or estoppel with respect to, any subsequent or other
failure.
ARTICLE VII
MISCELLANEOUS
7.01 Expenses. All costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby, including without
limitation legal, accounting and investment banking expenses (collectively,
"Costs and Expenses"), shall be borne by the party incurring such costs and
expenses, provided that the parties shall equally bear all costs of printing,
mailing and filing the Registration Statement, the Application for Conversion on
Form AC and the Prospectus/Proxy Statement and all other registration and filing
fees relating to the Reorganization. Notwithstanding anything in this Section
7.01 to the contrary, in the event that any of the parties shall default in
their obligations hereunder and the Agreement shall be terminated as a result
thereof (pursuant to the terms hereof, including proper notice), 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 this Agreement or a failure to
consummate the Conversion and the Reorganization as a result of a breach of a
representation or warranty by one of the parties hereto or the failure of one of
the parties hereto to perform or observe its covenants, agreements or
obligations set forth herein to be performed or observed by it at or before the
Closing Date, and compliance with such
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representation, warranty, covenant, agreement or obligation was within the
control of such party.
7.02 Survival. The respective representations, warranties and
covenants of the parties to this Agreement shall not survive the Closing Date
and shall terminate as of the Closing Date except for the provisions of Section
4.12 hereof.
7.03 Notices. All notices or other communications hereunder
shall be in writing and shall be deemed given if delivered personally or mailed
by registered or certified mail (return receipt requested) or by cable, telegram
or telex addressed as follows:
(a) If to Roxborough-Manayunk or the Mutual Holding Company, to:
Roxborough-Manayunk Federal Savings Bank
6060 Ridge Avenue
Philadelphia, Pennsylvania 19128
Attention: John F. McGill, Sr., President and
Chief Executive Officer
With a copy to:
Samuel J. Malizia, Esq.
Malizia, Spidi, Sloane & Fisch, P.C.
1301 K Street, N.W., Suite 700 East
Washington, D.C. 20005
(b) If to the Corporation or Progress, to:
Progress Financial Corporation
600 West Germantown Pike
Plymouth Meeting, Pennsylvania 19462
Attention: W. Kirk Wycoff, President and
Chief Executive Officer
With a copy to:
Raymond A. Tiernan, Esq.
Elias, Matz, Tiernan & Herrick L.L.P.
734 15th Street, N.W., Suite 1200
Washington, D.C. 20005
or such other address as shall be furnished in writing by any party, and any
such notice or communication shall be deemed to have been given as of the date
so mailed or delivered.
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7.04 Parties in Interest. This Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
successors and assigns; provided, however, that neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by any party
hereto without the prior written consent of the other parties. Nothing in this
Agreement is intended to confer, expressly or by implication, upon any other
person any rights or remedies under or by reason of this Agreement.
7.05 Complete Agreement. This Agreement and the Plan, including
the documents and other writings referred to herein or therein or delivered
pursuant hereto or thereto, contain the entire agreement and understanding of
the parties with respect to their subject matter and shall supersede all prior
agreements and understandings between the parties, both written and oral, with
respect to such subject matter. There are no restrictions, agreements,
promises, warranties, covenants or undertakings between the parties other than
those expressly set forth herein or therein.
7.06 Counterparts. This Agreement may be executed in one or more
counterparts all of which shall be considered one and the same agreement and
each of which shall be deemed an original.
7.07 Governing Law. This Agreement shall be governed by the laws
of the Commonwealth of Pennsylvania, without giving effect to the principles of
conflicts of laws thereof, except to the extent governed by the rules and
regulations of the OTS.
7.08 Headings. The Article and 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.
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IN WITNESS WHEREOF, the parties hereto have caused this Amended
Agreement to be executed by their duly authorized officers as of August 7, 1995.
PROGRESS FINANCIAL CORPORATION
By:
-------------------------------
W. Kirk Wycoff
President and Chief Executive
Officer
PROGRESS FEDERAL SAVINGS BANK
By:
-------------------------------
W. Kirk Wycoff
President and Chief Executive
Officer
FJF FINANCIAL, M.H.C.
By:
-------------------------------
John F. McGill, Sr.
President and Chief Executive
Officer
ROXBOROUGH-MANAYUNK FEDERAL
SAVINGS BANK
By:
-----------------------------
John F. McGill, Sr.
President and Chief Executive
Officer
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EXHIBIT B
PLAN OF MERGER
Plan of Merger, dated as of May 24, 1995 and amended as of August 7, 1995,
by and among Progress Federal Savings Bank ("Progress" or the "Surviving Bank"),
a federally chartered savings bank, Progress Financial Corporation (the
"Corporation"), a Delaware corporation and the savings and loan holding company
of Progress, and Roxborough-Manayunk Federal Savings Bank ("Roxborough-
Manayunk"), a federally chartered savings bank.
WITNESSETH:
WHEREAS, FJF Financial, M.H.C. (the "Mutual Holding Company"), a federally-
chartered mutual holding company which owns 87.29% of the common stock, par
value $1.00 per share, of Roxborough-Manayunk ("Roxborough-Manayunk Common
Stock"), and Roxborough-Manayunk have adopted a Plan of Conversion pursuant to
which the Mutual Holding Company will convert from the mutual form to a federal
interim stock savings bank and then merge with and into Roxborough-Manayunk and,
in connection therewith, all shares of Roxborough-Manayunk Common Stock held by
the Mutual Holding Company will be cancelled (the "Conversion"); and
WHEREAS, subsequent to the Conversion, pursuant to an Agreement and Plan of
Reorganization, dated as of May 24, 1995 and amended as of August 7, 1995, by
and among the Corporation, Progress, the Mutual Holding Company and Roxborough-
Manayunk (the "Agreement"), Progress will merge with and into Roxborough-
Manayunk (the "Reorganization") and, in connection therewith, (i) all
outstanding shares of Roxborough-Manayunk Common Stock will be converted
automatically into and become shares of common stock of the Corporation, par
value $1.00 per share ("Corporation Common Stock") and (ii) all outstanding
shares of common stock of Progress will be converted automatically into and
become shares of Roxborough-Manayunk Common Stock, all of which shall be owned
by the Corporation; and
WHEREAS, in connection with the Conversion and the Reorganization, the
Corporation will offer shares of Corporation Common Stock to certain depositors
and borrowers of Roxborough-Manayunk as of specified record dates, certain tax-
qualified employee benefit plans of the Corporation, stockholders of Roxborough-
Manayunk and the Corporation and certain members of the general public in the
manner set forth in the Plan of Conversion; and
WHEREAS, Progress and Roxborough-Manayunk (the "Constituent Banks") desire
to provide for the terms and conditions of the Reorganization;
NOW, THEREFORE, Progress and Roxborough-Manayunk hereby agree as follows:
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1. Effective Date. The Reorganization shall become effective on the date
specified in the endorsement of the Articles of Combination relating to the
Reorganization by the Secretary of the Office of Thrift Supervision ("OTS")
pursuant to 12 C.F.R. Sec. 552.13(k), or any successor thereto (the "Effective
Date").
2. The Reorganization and Effect Thereof. Subject to the terms and
conditions set forth herein, the prior approval of the OTS of the Conversion and
the Reorganization and the expiration of all applicable waiting periods,
Progress shall merge with and into Roxborough-Manayunk, which shall be the
surviving corporation of the merger (the "Surviving Bank"). Upon consummation
of the Reorganization, the Surviving Bank shall be considered the same business
and corporate entity as each of the Constituent Banks and thereupon and
thereafter all the property, rights, powers and franchises of each of the
Constituent Banks shall vest in the Surviving Bank and the Surviving Bank shall
be subject to and be deemed to have assumed all of the debts, liabilities,
obligations and duties of each of the Constituent Banks and shall have succeeded
to all of each of their relationships, fiduciary or otherwise, as fully and to
the same extent as if such property, rights, privileges, powers, franchises,
debts, obligations, duties and relationships had been originally acquired,
incurred or entered into by the Surviving Bank. In addition, any reference to
either of the Constituent Banks in any contract, will or document, whether
executed or taking effect before or after the Effective Date, shall be
considered a reference to the Surviving Bank if not inconsistent with the other
provisions of the contract, will or document; and any pending action or other
judicial proceeding to which either of the Constituent Banks is a party shall
not be deemed to have abated or to have been discontinued by reason of the
Reorganization, but may be prosecuted to final judgment, order or decree in the
same manner as if the Reorganization had not occurred or the Surviving Bank may
be substituted as a party to such action or proceeding, and any judgment, order
or decree may be rendered for or against it that might have been rendered for or
against either of the Constituent Banks if the Reorganization had not occurred.
3. Conversion of Roxborough-Manayunk Common Stock.
(a) On the Effective Date, (i) each share of Roxborough-Manayunk Common
Stock issued and outstanding immediately prior to the Effective Date (other than
Dissenting Shares, as hereinafter defined, and other than shares held by the
Mutual Holding Company which will be cancelled in connection with the
Conversion) shall, by virtue of the Reorganization and without any action on the
part of the holder thereof, be converted into the right to receive Corporation
Common Stock based on an exchange ratio (the "Exchange Ratio") which shall be
determined in accordance with federal law and regulations as part of the
independent appraisal of the Mutual Holding Company, Roxborough-Manayunk, the
Corporation and Progress, as described in great detail in the Plan of Conversion
adopted by the Mutual Holding Company and Roxborough-Manayunk and attached to
the Agreement as Exhibit A thereto ("Plan of Conversion"), plus the right to
receive cash in lieu of any fractional share interest, as determined in
accordance with Section 3(c) hereof; (ii) each share of common stock, par value
$1.00 per share, of Progress ("Progress Common
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<PAGE>
Stock") issued and outstanding immediately prior to the Effective Date shall, by
virtue of the Reorganization and without any action on the part of the holder
thereof, be converted into one share of Roxborough-Manayunk Common Stock; and
(iii) all outstanding options to purchase shares of Roxborough-Manayunk Common
Stock (which are identified in Section 3.02(b) of the Agreement) which are not
exercised between the date hereof and immediately prior to the Effective Date
shall, by virtue of the Reorganization and without any further action by the
holder thereof, be converted into options to purchase shares of Corporation
Common Stock pursuant to the Exchange Ratio. By voting in favor of this Plan of
Merger, the Corporation, as the sole stockholder of Progress, shall have agreed
to issue shares of Corporation Common Stock in accordance with the terms hereof
upon the effectiveness of the Reorganization.
(b) On and after the Effective Date, there shall be no registrations of
transfers on the stock transfer books of Progress or Roxborough-Manayunk of
shares of Progress Common Stock or Roxborough-Manayunk Common Stock which were
outstanding immediately prior to the Effective Date.
(c) Notwithstanding any other provision hereof, no fractional shares of
Corporation Common Stock shall be issued to holders of Roxborough-Manayunk
Common Stock. In lieu thereof, each holder of shares of Roxborough-Manayunk
Common Stock entitled to a fraction of a share of Corporation Common Stock
shall, at the time of surrender of the certificate or certificates representing
such holder's shares, receive an amount of cash equal to the product arrived at
by multiplying such fraction of a share of Corporation Common Stock by the
Actual Purchase Price, as defined in the Plan of Conversion. No such holder
shall be entitled to dividends, voting rights or any other rights in respect of
any fractional share.
4. Exchange of Shares.
(a) At or after the Effective Date, each holder of a certificate or
certificates theretofore evidencing issued and outstanding shares of Roxborough-
Manayunk Common Stock, upon surrender of the same to an agent, duly appointed by
the Corporation ("Exchange Agent"), shall be entitled to receive in exchange
therefor a certificate or certificates representing the number of full shares of
Corporation Common Stock for which the shares of Roxborough-Manayunk Common
Stock theretofore represented by the certificate or certificates so surrendered
shall have been converted as provided in Section 3(a) hereof. The Exchange
Agent shall mail to each holder of record of an outstanding certificate which
immediately prior to the Effective Date evidenced shares of Roxborough-Manayunk
Common Stock, and which is to be exchanged for Corporation Common Stock as
provided in Section 3(a) hereof, 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
Reorganization and of the procedure for surrendering to the
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<PAGE>
Exchange Agent such certificate in exchange for a certificate or certificates
evidencing Corporation Common Stock.
(b) No holder of a certificate theretofore representing shares of
Roxborough-Manayunk Common Stock shall be entitled to receive any dividends in
respect of Corporation Common Stock into which such shares shall have been
converted by virtue of the Reorganization until the certificate representing
such shares of Roxborough-Manayunk Common Stock is surrendered in exchange for
certificates representing shares of Corporation Common Stock. In the event that
cash dividends are declared and paid by the Corporation in respect of
Corporation Common Stock after the Effective Date but prior to surrender of
certificates representing shares of Roxborough-Manayunk Common Stock, dividends
payable in respect of shares of Corporation 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 Roxborough-
Manayunk Common Stock. The Corporation shall be entitled, after the Effective
Date, to treat certificates representing shares of Roxborough-Manayunk Common
Stock as evidencing ownership of the number of full shares of Corporation Common
Stock into which the shares of Roxborough-Manayunk Common Stock represented by
such certificates shall have been converted, notwithstanding the failure on the
part of the holder thereof to surrender such certificates.
(c) The Corporation shall not be obligated to deliver a certificate or
certificates representing shares of Corporation Common Stock to which a holder
of Roxborough-Manayunk Common Stock would otherwise be entitled as a result of
the Reorganization until such holder surrenders the certificate or certificates
representing the shares of Roxborough-Manayunk Common Stock for exchange as
provided in this Section 4, or an appropriate Affidavit of Loss and Indemnity
Agreement and/or a bond as may be required in each case by the Corporation. If
any certificate evidencing shares of Corporation Common Stock is to be issued in
a name other than that in which the certificate evidencing Roxborough-Manayunk
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 Corporation
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.
5. Dissenting Shares. If any holders of shares of Roxborough-Manayunk
Common Stock dissent from the Reorganization and exercise and perfect the right
to obtain valuation of and payment for their shares of Roxborough-Manayunk
Common Stock ("Dissenting Shares") pursuant to 12 C.F.R. Sec. 552.14, then (a)
the Dissenting Shares, if any, will be deemed to have been retired and
cancelled immediately prior to consummation of the Conversion and the
Reorganization, with the effect that such shares will not be exchanged for
Corporation Common Stock pursuant to Section 3(a) hereof, and (b) all payments
to be made to the holders of such Dissenting Shares will be made directly by
Progress.
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<PAGE>
6. Name of Surviving Bank. The name of the Surviving Bank shall be
"Progress Bank, F.S.B."
7. Directors of the Surviving Bank. Upon the Effective Date, the number
of directors of the Surviving Bank shall be 16. The names, terms and residence
addresses of those persons who, upon the Effective Date, shall be directors of
the Surviving Bank are set forth in Exhibit D to the Agreement.
8. Offices. Upon the Effective Date, all offices of Progress and
Roxborough-Manayunk shall be offices of the Surviving Bank. As of the Effective
Date, the home office of the Surviving Bank shall be at Plymouth Meeting
Executive Campus, 600 West Germantown Pike, Plymouth Meeting, Pennsylvania
19462-1003 and the location of the other deposit-taking offices of the Surviving
Bank shall be as set forth in Schedule I hereto, except for the addition of
deposit-taking offices authorized or the deletion of deposit-taking offices
closed subsequent to the date hereof and the Effective Date.
9. Charter and Bylaws. Upon the Effective Date, the Charter and Bylaws
of Roxborough-Manayunk as in effect immediately prior to the Effective Date
shall be the Charter and Bylaws of the Surviving Bank, subject to such
amendments as may be necessary in order to (i) establish a liquidation account
on behalf of each eligible account holder and supplemental eligible account
holder of Roxborough-Manayunk, as defined in the Plan of Conversion, in
accordance with Section 17 of the Plan of Conversion, (ii) set the number of
directors of the Surviving Bank, as provided in Section 7 hereof and (iii)
effect the other transactions contemplated by the Agreement and this Plan of
Merger.
10. Savings Accounts. Upon the Effective Date, any savings accounts of
Progress, without reissue, shall be and become savings accounts of the Surviving
Bank without change in their respective terms, including, without limitation,
maturity, minimum required balances or withdrawal value.
11. Conditions Precedent. The respective obligations of each party under
this Plan of Merger shall be subject to the satisfaction, or waiver by the party
permitted to do so, of the conditions set forth in Article V of the Agreement.
12. Termination. This Plan of Merger shall be terminated upon the
termination of the Agreement in accordance with Section 6.01 thereof; provided,
that any such termination of this Plan of Merger shall not relieve any party
hereto from liability on account of a breach by such party of any of the terms
hereof or thereof.
13. Amendments. This Plan of Merger may be amended in the manner set
forth in Section 6.03 of the Agreement by a subsequent writing signed by the
parties hereto upon the approval of the Board of Directors of each of the
parties hereto.
14. Successors. This Agreement shall be binding on the successors of
Progress and Roxborough-Manayunk.
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<PAGE>
IN WITNESS WHEREOF, Progress and Roxborough-Manayunk have caused this Plan
of Merger to be executed by their duly authorized officers as of August 7, 1995.
PROGRESS FEDERAL SAVINGS BANK
Attest:
By:
-------------------------------- ------------------------------------------
Eric J. Morgan W. Kirk Wycoff
Secretary President and Chief Executive Officer
ROXBOROUGH-MANAYUNK FEDERAL
SAVINGS BANK
Attest:
By:
-------------------------------- ------------------------------------------
John F. McGill, Jr. John F. McGill, Sr.
Secretary President and Chief Executive Officer
The Corporation concurs in the foregoing Plan of Merger and undertakes that
it will be bound thereby and that it will do and perform all acts and things
therein referred to or provided to be done by it.
PROGRESS FINANCIAL CORPORATION
Attest:
By:
-------------------------------- ------------------------------------------
Eric J. Morgan W. Kirk Wycoff
Secretary President and Chief Executive Officer
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<PAGE>
SCHEDULE I
List of Offices of
the Surviving Bank
------------------
Executive Office:
600 West Germantown Pike
Plymouth Meeting,
Pennsylvania
Branch Offices:
6060 Ridge Avenue Corner Routes 202 & 23
Philadelphia, Pennsylvania Bridgeport, Pennsylvania
4370 Main Street 405 Fayette Street
Philadelphia, Pennsylvania Conshohocken, Pennsylvania
7568 Ridge Avenue Genuardi Shopping Center
Philadelphia, Pennsylvania Jeffersonville, Pennsylvania
8345 Ridge Avenue Valley Forge Shopping Center
Philadelphia, Pennsylvania King of Prussia, Pennsylvania
1722 S. Broad Street Sandy Hill Shopping Center
Philadelphia, Pennsylvania Norristown, Pennsylvania
Church Lane & Chester Avenue Andorra Shopping Center
Yeadon, Pennsylvania Philadelphia, Pennsylvania
6503-15 Haverford Avenue 1084 E. Lancaster Avenue
Philadelphia, Pennsylvania Rosemont, Pennsylvania
601 Morgan Avenue 55 Leopard Road
Drexel Hill, Pennsylvania Paoli, Pennsylvania
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<PAGE>
EXHIBIT C
The following sets forth the name and residence address of each
person who shall be a director of the Corporation as of the Closing Date.
Director Residence Address
William O. Daggett, Jr. P.O. Box 835
248 Church Road
Devon, Pennsylvania 19333
Paul M. LaNoce 12 Coulton Drive
Norristown, Pennsylvania 19401
A. John May, III 1523 Waynesborough Road
Paoli, Pennsylvania 19301
William L. Mueller, Esq. 516 Bartram Road
Moorestown, New Jersey 08057
Charles J. Tornetta 221 Joseph Street
Norristown, Pennsylvania 19403
W. Kirk Wycoff 875 Lantern Lane
Blue Bell, Pennsylvania 19422
Add B. Anderson, Jr., Esq. 10 Summit Place
Philadelphia, Pennsylvania 19128
Joseph P. Healy 4114 Presidential Drive
Lafayette Hill, Pennsylvania 19444
Francis E. McGill, III, Esq. 6822 Lawnton Street
Philadelphia, Pennsylvania 19128
John F. McGill 101 Newton Street
Philadelphia, Pennsylvania 19118
John F. McGill, Jr. 8615 Evergreen Place
Philadelphia, Pennsylvania 19118
Jerry A. Naessens 1133 Hall Avenue
Roslyn, Pennsylvania 190012
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<PAGE>
EXHIBIT D
The following sets forth the name and residence address of each
person who shall be a director of Roxborough-Manayunk as of the Closing Date.
Director Residence Address
John Edward Flynn Corson 212 Stenton Avenue
Blue Bell, Pennsylvania 19422
William O. Daggett, Jr. P.O. Box 835
248 Church Road
Devon, Pennsylvania 19333
Donald F.U. Goebert 1170 Harmony Hill Road
Downingtown, Pennsylvania 19335
Joseph R. Klinger 1475 Jericho Road
Abington, Pennsylvania 19001
Paul M. LaNoce 12 Coulton Drive
Norristown, Pennsylvania 19401
William L. Mueller, Esq. 516 Bartram Road
Moorestown, New Jersey 08057
Charles J. Tornetta 221 Joseph Street
Norristown, Pennsylvania 19403
W. Kirk Wycoff 875 Lantern Lane
Blue Bell, Pennsylvania 19422
Add B. Anderson, Jr., Esq. 10 Summit Place
Philadelphia, Pennsylvania 19128
Robert E. Domanski, M.D. 826 Foxwood Circle
Lafayette Hill, Pennsylvania 19444
Joseph P. Healy 4114 Presidential Drive
Lafayette Hill, Pennsylvania 19444
Pietro M. Jacovini, Jr. 514 4th Avenue
Absecon, New Jersey 08201
William A. Lamb, Sr. 925 Lorien Drive
Gwynedd Valley, Pennsylvania 19437
Francis E. McGill, III, Esq. 6822 Lawnton Street
Philadelphia, Pennsylvania 19128
John F. McGill 101 Newton Street
Philadelphia, Pennsylvania 19118
John F. McGill, Jr. 8615 Evergreen Place
Philadelphia, Pennsylvania 19118
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<PAGE>
EXHIBIT E
The following sets forth the name and residence address of each
person who shall serve as a member of the Nominating Committee of each of the
Boards of Directors of the Corporation and Roxborough-Manayunk as of the Closing
Date.
Name and Position Residence Address
The Corporation:
William O. Daggett, Jr. P.O. Box 835
248 Church Road
Devon, Pennsylvania 19333
William L. Mueller, Esq. 516 Bartram Road
Moorestown, New Jersey 08057
W. Kirk Wycoff 875 Lantern Lane
Blue Bell, Pennsylvania 19422
John F. McGill 101 Newton Street
Philadelphia, Pennsylvania 19118
John F. McGill, Jr. 8615 Evergreen Place
Philadelphia, Pennsylvania 19118
Jerry A. Naessens 1133 Hall Avenue
Roslyn, Pennsylvania 19001
Roxborough-Manayunk:
William O. Daggett, Jr. P.O. Box 835
248 Church Road
Devon, Pennsylvania 19333
William L. Mueller, Esq. 516 Bartram Road
Moorestown, New Jersey 08057
W. Kirk Wycoff 875 Lantern Lane
Blue Bell, Pennsylvania 19422
John F. McGill 101 Newton Street
Philadelphia, Pennsylvania 19118
Francis E. McGill, III, Esq. 6822 Lawnton Street
Philadelphia, Pennsylvania 19128
William A. Lamb, Sr. 925 Lorien Drive
Gwynedd Valley, Pennsylvania 19437
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<PAGE>
EXHIBIT F
The following sets forth the name and position of each person who
shall serve as an executive officer of the Corporation and Roxborough-Manayunk
as of the Closing Date.
Name and Position
John F. McGill, Sr. Chairman
W. Kirk Wycoff President and Chief
Executive Officer
John F. McGill, Jr. Executive Vice President
Jerry A. Naessens Chief Financial Officer and
Treasurer
Eric J. Morgan Senior Vice President and
Secretary
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EXHIBIT 2.2
PLAN OF CONVERSION
of
FJF FINANCIAL, M.H.C.
and
ROXBOROUGH-MANAYUNK FEDERAL SAVINGS BANK
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<PAGE>
PLAN OF CONVERSION
of
FJF FINANCIAL, M.H.C.
and
AGREEMENT AND PLAN OF REORGANIZATION
between
FJF FINANCIAL, M.H.C.
and
ROXBOROUGH-MANAYUNK FEDERAL SAVINGS BANK
EFFECTIVE AS OF MAY 24, 1995
AND AMENDED AS OF AUGUST 7, 1995
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<PAGE>
TABLE OF CONTENTS
Section
Number Page
------ ----
1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3. General Procedure for Conversion and Reorganization . . . . . . . . 8
4. Number of Shares and Purchase Price of Conversion Stock . . . . . . 11
5. Subscription Rights of Eligible Account Holders
(First Priority) . . . . . . . . . . . . . . . . . . . . . . . . . 12
6. Subscription Rights of the Tax-Qualified
Employee Stock Benefit Plans (Second Priority) . . . . . . . . . . 13
7. Subscription Rights of Supplemental Eligible
Account Holders (Third Priority) . . . . . . . . . . . . . . . . 14
8. Subscription Rights of Other Members (Fourth Priority) . . . . . . 14
9. Subscription Rights of Savings Bank Eligible Stockholders
and Progress Eligible Stockholders . . . . . . . . . . . . . . . 15
10. Community Offering . . . . . . . . . . . . . . . . . . . . . . . . 16
11. Syndicated Community Offering . . . . . . . . . . . . . . . . . . . 16
12. Limitation on Purchases . . . . . . . . . . . . . . . . . . . . . . 17
13. Timing of Subscription Offering; Manner of Exercising
Subscription Rights and Order Forms . . . . . . . . . . . . . . . 19
14. Payment for Conversion Stock . . . . . . . . . . . . . . . . . . . 21
15. Account Holders in Nonqualified States or in Foreign Countries . . 22
16. Voting Rights of Stockholders . . . . . . . . . . . . . . . . . . . 22
17. Liquidation Account . . . . . . . . . . . . . . . . . . . . . . . . 22
18. Transfer of Savings Accounts . . . . . . . . . . . . . . . . . . . 24
19. Requirements Following Conversion for Registration,
Market Making and Stock Exchange Listing . . . . . . . . . . . . . 24
20. Directors and Officers of Progress Bank . . . . . . . . . . . . . . 24
21. Restrictions on Transfer of Stock . . . . . . . . . . . . . . . . . 24
22. Restrictions on Acquisition of Stock of Progress Bank . . . . . . . 25
23. Tax Rulings or Opinions . . . . . . . . . . . . . . . . . . . . . . 25
24. Dividend and Repurchase Restrictions on Stock . . . . . . . . . . . 26
25. Payment of Fees to Brokers . . . . . . . . . . . . . . . . . . . . 26
26. Dissenting Stockholders . . . . . . . . . . . . . . . . . . . . . . 26
27. Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . 26
28. Amendment or Termination of the Plan . . . . . . . . . . . . . . . 26
29. Interpretation of the Plan . . . . . . . . . . . . . . . . . . . . 27
Annex A - Plan of Merger Between the Mutual Holding Company and the Savings
Bank.
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<PAGE>
1. INTRODUCTION
On December 31, 1992, Roxborough-Manayunk Federal Savings and Loan
Association (the "Association"), a federally chartered mutual savings and loan
association, reorganized into the mutual holding company form of organization.
To accomplish this transaction, the Association organized Roxborough-Manayunk
Federal Savings Bank (the "Savings Bank"), a federally chartered stock savings
bank, as a wholly owned subsidiary. The Association then transferred
substantially all of its assets and liabilities to the Savings Bank in exchange
for 1,415,000 shares of Savings Bank Common Stock, and reorganized itself into a
federally chartered mutual holding company known as FJF Financial, M.H.C. (the
"Mutual Holding Company"). The Savings Bank simultaneously sold 200,000 shares
of Savings Bank Common Stock to employee stock benefit plans, directors and
employees of the Savings Bank, and other members of the public. In addition,
6,000 shares of restricted stock of Savings Bank have been issued under
Management Stock Bonus Plans adopted by the Savings Bank, so that as of May 24,
1995 the Savings Bank had 1,415,000 shares of Savings Bank Common Stock owned by
the Mutual Holding Company and 206,000 shares of Savings Bank Common Stock owned
by the public. As of the date thereof, the Mutual Holding Company owned 87.29%
of the outstanding Savings Bank Common Stock, while the Public Stockholders
owned an aggregate of 12.71% of the outstanding Savings Bank Common Stock.
The Boards of Directors of the Mutual Holding Company and the Savings Bank
believe that a conversion of the Mutual Holding Company from the mutual form to
a federal interim stock savings bank pursuant to this Plan of Conversion and
simultaneous merger and reorganization with Progress Federal Savings Bank,
Plymouth Meeting, Pennsylvania ("Progress Bank") and its holding company,
Progress Financial Corporation ("Progress Holding Company") is in their best
interests, as well as the best interests of their respective Members and
Stockholders. Accordingly, the Mutual Holding Company and Savings Bank have
also entered into an Agreement and Plan of Reorganization with Progress Bank and
Progress Holding Company dated May 24, 1995 and a related Plan of Merger, which
are incorporated by reference herein and made a part hereof (collectively the
"Merger Agreement"). The purpose of the Conversion and Merger Agreement is to
provide greater organizational flexibility in the holding company form of
organization and enable the Savings Bank to increase its equity capital base
available for expansion of its services, facilities, possible acquisitions of
other financial institutions, possible diversification into other related
financial services activities and further enhance the ability to render services
to the public and compete with other financial institutions. The Boards of
Directors determined that the Plan of Conversion and Merger Agreement equitably
provide for the interests of certain holders of savings accounts in the Savings
Bank and that consummation of the Conversion would not have any adverse impact
on the net worth of the Savings Bank.
In connection with the Plan of Conversion and Merger Agreement, the Mutual
Holding Company will convert from the mutual form to a federal interim stock
savings bank to be known as "FJF Financial Interim Federal Savings Bank" and
simultaneously merge with and into the Savings Bank, which will then immediately
merge with Progress Bank, with the Savings Bank
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<PAGE>
being the surviving institution. The Savings Bank will amend its charter to
operate under the name "Progress Bank." Stockholders of the Savings Bank, other
than the Mutual Holding Company, will exchange their shares of Savings Bank
Common Stock for shares of Progress Holding Company Common Stock based upon the
Exchange Ratio. Members as of specified dates will be granted non-transferable
subscription rights to purchase shares of Progress Holding Company Common Stock,
and a liquidation account will be established for the benefit of depositors as
of specified dates.
This Plan provides that shares of Conversion Stock will be offered first to
Eligible Account Holders, then to Tax-Qualified Employee Stock Benefit Plans,
then to Supplemental Eligible Account Holders, then to Other Members, then to
Savings Bank Eligible Stockholders and Progress Eligible Stockholders. Any
shares of Conversion Stock remaining unsold after the Subscription Offering will
be offered for sale to the public through a Community Offering and/or Syndicated
Community Offering, as determined by the Boards of Directors of the Primary
Parties in their sole discretion.
The Plan and Merger Agreement are subject to the approval of the OTS and
must be adopted by (1) at least a majority of the total number of votes eligible
to be cast by Voting Members of the Mutual Holding Company at the Special
Meeting, (2) holders of at least two-thirds of the outstanding Savings Bank
Common Stock at the Stockholders' Meeting and (3) the current stockholders of
Progress Holding Company. In addition, the Primary Parties have conditioned the
consummation of the Conversion on the approval of the Plan by at least a
majority of the votes cast, in person or by proxy, by the Public Stockholders of
the Savings Bank at the Stockholders' Meeting.
Upon the completion of the Conversion, each person having a Savings Account
at the Savings Bank prior to Conversion will continue to have a Savings Account
at Progress Bank, without payment therefor, in the same amount and subject to
the same terms and conditions (except for voting and liquidation rights) as in
effect prior to the Conversion. After the Conversion, Progress Bank will
succeed to all the rights, interests, duties and obligations of the Savings Bank
before the Merger, including but not limited to all rights and interests of the
Savings Bank in and to its assets and properties, whether real, personal or
mixed. Progress Bank will continue to be a member of the Federal Home Loan Bank
System and all its insured savings deposits will continue to be insured by the
Federal Deposit Insurance Corporation (the "FDIC") to the extent provided by
applicable law.
All capitalized terms in this Section 1 have the meanings ascribed to them
in Section 2 of this Plan.
2. DEFINITIONS
For the purposes of this Plan, the terms set forth below have the following
meaning:
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<PAGE>
Acting in Concert means (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 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.
Actual Purchase Price means the price per share at which the Conversion
---------------------
Stock is ultimately sold by the Progress Holding Company to Participants in the
Subscription Offering and Persons in the Community Offering and/or Syndicated
Community Offering in accordance with the terms thereof. The Actual Purchase
Price will be equal to the average closing price of the Common Stock of Progress
Holding Company as reported on the NASDAQ National Market during the twenty (20)
trading days ending on the day prior to termination of the Subscription and
Community Offerings.
Affiliate means a Person who, directly or indirectly, through one or more
---------
intermediaries, controls or is controlled by or is under common control with the
Person specified.
Associate when used to indicate a relationship with any Person, means (i) a
---------
corporation or organization (other than any of the Primary Parties or a
majority-owned subsidiary of any of the Primary Parties) 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 or Non-Tax-Qualified Employee Stock Benefit Plan of any of the
Primary Parties in which such Person has a substantial beneficial interest or
serves as a trustee or in a similar fiduciary capacity, and (iii) any relative
or spouse of such Person, or any relative of such spouse, who has the same home
as such Person or who is a director or officer of the Mutual Holding Company or
the Savings Bank or any of the subsidiaries of the foregoing.
Association means Roxborough-Manayunk Federal Savings and Loan Association
-----------
in its mutual form prior to its mutual holding company reorganization.
Code means the Internal Revenue Code of 1986, as amended.
----
Community Offering means the offering for sale by Progress Holding Company
------------------
to certain members of the general public directly by Progress Holding Company of
any shares of Conversion Stock not subscribed for in the Subscription Offering
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<PAGE>
Community Purchasers - The term Community Purchasers means natural persons
--------------------
residing in the Local Community.
Control (including the terms "controlling," "controlled by," and "under
-------
common control with") means the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise.
Conversion means (i) the conversion of the Mutual Holding Company from the
----------
mutual form to a federal interim stock savings bank to be known as "FJF
Financial Interim Federal Savings Bank" and its simultaneous merger with and
into the Savings Bank, (ii) the merger of the Savings Bank with and into
Progress Bank, with the Savings Bank being the surviving institution (the
Savings Bank will amend its charter to operate under the name "Progress Bank")
and being a wholly owned subsidiary of Progress Holding Company, (iii) the
exchange of shares of Savings Bank Common Stock (other than those held by the
Mutual Holding Company, which will be extinguished) for shares of Progress
Holding Company Common Stock, and (iv) the issuance of Conversion Stock as
provided herein.
Conversion Stock means the common stock of Progress Holding Company to be
----------------
issued and sold in the Subscription Offering, the Community Offering and/or the
Syndicated Community Offering pursuant to the Plan of Conversion.
Director, Officer and Employee means the terms as applied respectively to
------------------------------
any person who is a director, officer or employee of the Mutual Holding Company,
the Savings Bank, Progress Holding Company, Progress Bank or any subsidiaries
thereof.
Eligible Account Holder means any Person holding a Qualifying Deposit on
-----------------------
the Eligibility Record Date for purposes of determining Subscription Rights.
Eligibility Record Date means the date for determining Qualifying Deposits
-----------------------
of Eligible Account Holders and is the close of business on February 28, 1994.
Estimated Price Range means the range of the estimated aggregate pro forma
---------------------
market value of the total amount of Conversion Stock to be issued in the
Conversion, as determined by the Independent Appraiser.
Exchange Ratio means the rate at which shares of Progress Holding Company
--------------
Common Stock will be exchanged for shares of Savings Bank Common Stock held by
the Public Stockholders upon consummation of the Conversion. The exact rate
shall be determined at the time the Actual Purchase Price is determined and
shall equal the rate that will result in the Public Stockholders receiving in
the aggregate the same percentage of the shares of Progress Holding Company
Common Stock issued in the Conversion as the percentage of Savings Bank Common
Stock owned by them in the aggregate immediately prior to consummation of the
Conversion, before giving effect to (a) the payment of cash in lieu of issuing
fractional shares
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of Progress Holding Company Common Stock, (b) any shares of Conversion Stock
purchased by the Public Stockholders in the Conversion, and (c) any Dissenting
Shares (as defined herein).
Exchange Shares means Savings Bank Common Stock (other than shares owned by
---------------
stockholders who exercise appraisal rights in accordance OTS regulations and the
Mutual Holding Company) that will be converted into shares of Progress Holding
Company pursuant to the Exchange Ratio.
FDIC means the Federal Deposit Insurance Corporation or any successor
----
thereto.
Independent Appraiser means the independent investment banking or financial
---------------------
consulting firm retained by the Mutual Holding Company, the Savings Bank,
Progress Bank and Progress Holding Company to prepare an appraisal of the
estimated pro forma market value of the Conversion Stock.
Interim means FJF Financial Interim Federal Savings Bank.
-------
Local Community means Philadelphia, Bucks, Delaware, Chester and Montgomery
---------------
Counties, Pennsylvania.
Member means any Person qualifying as a member of the Mutual Holding
------
Company in accordance with its mutual charter and bylaws and the laws of the
United States.
Merger means the merger of Progress Bank with and into the Savings Bank
------
immediately after the simultaneous stock conversion of the Mutual Holding
Company from the mutual form to a federal interim stock savings bank and the
merger of Interim with and into the Savings Bank.
Merger Agreement refers to the Agreement and Plan of Reorganization among
----------------
the Mutual Holding Company, Savings Bank, Progress Holding Company and Progress
Bank and a related Plan of Merger dated May 24, 1995, as amended on August 7,
1995, pursuant to which and immediately following the conversion of the Mutual
Holding Company from the mutual form to a federal interim stock savings bank and
the merger of Interim into the Savings Bank, the Savings Bank will merge with
Progress Bank, with the Savings Bank as the surviving entity.
Mutual Holding Company means FJF Financial, M.H.C.
----------------------
Mutual Holding Company Merger means the merger of Interim with and into the
-----------------------------
Savings Bank pursuant to the Plan of Merger included as Annex A hereto.
Officer means an executive officer of the Savings Bank or Mutual Holding
-------
Company and may include the chairman of the board of directors, president, vice-
president, secretary, treasurer or principal financial officer, comptroller or
principal accounting officer and any other person performing similar functions.
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Order Form means the form or forms provided by the Mutual Holding Company,
----------
containing all such terms and provisions as set forth herein, to a Participant
or other Person by which Conversion Stock may be ordered in the Subscription
Offering, the Community Offering and/or the Syndicated Community Offering.
Other Member means a Voting Member who is not an Eligible Account Holder or
------------
Supplemental Eligible Account Holder.
OTS means the Office of Thrift Supervision or any successor thereto.
---
Participant means any Eligible Account Holder, Tax-Qualified Employee Stock
-----------
Benefit Plan, Supplemental Eligible Account Holder, Other Member, Savings Bank
Eligible Stock Holder and Progress Eligible Stockholder.
Person means an individual, a corporation, a partnership, an association, a
------
joint stock company, a trust (including Individual Retirement Accounts and KEOGH
accounts), an unincorporated organization or a government or any political
subdivision thereof.
Plan and Plan of Conversion mean this Plan of Conversion and amendments
---------------------------
hereto, as provided herein.
Primary Parties mean the Mutual Holding Company, the Savings Bank, Progress
---------------
Holding Company and Progress Bank.
Progress Bank means Progress Federal Savings Bank, Plymouth Meeting,
-------------
Pennsylvania, a federal stock savings bank.
Progress Eligible Stockholder means a stockholder of Progress Holding
-----------------------------
Company as of the close of business on the date of record for voting upon the
Merger Agreement.
Progress Holding Company means Progress Financial Corporation, a
------------------------
corporation organized under the laws of the State of Delaware, which currently
owns all of the outstanding stock of Progress Bank. Upon completion of the
Merger of Progress Bank with and into the Savings Bank, Progress Holding Company
shall hold all of the capital stock of the Savings Bank.
Progress Holding Company Common Stock means the common stock of Progress
-------------------------------------
Holding Company, par value $1.00 per share.
Prospectus means the one or more documents to be used in offering the
----------
Conversion Stock in the Subscription Offering and, to the extent applicable,
Community Offering and Syndicated Community Offering and for providing
information to Participants and other Persons in connection with such offerings.
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<PAGE>
Public Stockholders means those Persons who own shares of Savings Bank
-------------------
Common Stock, excluding the Mutual Holding Company, as of the close of business
on the Voting Record Date.
Qualifying Deposit means the aggregate balance of all Savings Accounts in
------------------
the Savings Bank of (i) an Eligible Account Holder at the close of business on
the Eligibility Record Date, provided such aggregate balance is not less than
$50, and (ii) a Supplemental Eligible Account Holder at the close of business on
the Supplemental Eligibility Record Date, provided such aggregate balance is not
less than $50.
SAIF means the Savings Association Insurance Fund or any successor thereto.
----
Savings Account includes savings accounts as defined in Section 561.42 of
---------------
the Rules and Regulations of the OTS and includes certificates of deposit.
Savings Bank means Roxborough-Manayunk Federal Savings Bank.
------------
Savings Bank Common Stock means the common stock of the Savings Bank, par
-------------------------
value $1.00 per share, issued and outstanding immediately prior to consummation
of the Conversion.
Savings Bank Eligible Stockholder means a stockholder of the Savings Bank
---------------------------------
as of the close of business on the date of record for voting upon the Plan of
Conversion and the Merger Agreement.
SEC means the Securities and Exchange Commission.
---
Special Meeting means the Special Meeting of Members of the Mutual Holding
---------------
Company called for the purpose of submitting this Plan and the Merger Agreement
to the Members for their approval, including any adjournments of such meeting.
Stockholders mean those Persons who own shares of Savings Bank Common
------------
Stock.
Stockholders' Meeting means the annual or special meeting of Stockholders
---------------------
of the Savings Bank called for the purpose of submitting this Plan and the
Merger Agreement to the Stockholders for their approval, including any
adjournments of such meeting.
Subscription Offering means the offering of the Conversion Stock to
---------------------
Participants.
Subscription Rights means non-transferable rights to subscribe for
-------------------
Conversion Stock granted to Participants pursuant to the terms of this Plan.
Supplemental Eligible Account Holder means any Person, except Directors and
------------------------------------
Officers of the Savings Bank and their Associates, holding a Qualifying Deposit
at the close of business on the Supplemental Eligibility Record Date.
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<PAGE>
Supplemental Eligibility Record Date means the date for determining
------------------------------------
Qualifying Deposits of Supplemental Eligible Account Holders. The Supplemental
Eligibility Record Date shall be the last day of the calendar quarter preceding
OTS approval of the Application for Conversion submitted by the Mutual Holding
Company pursuant to this Plan of Conversion.
Syndicated Community Offering means the offering for sale by a syndicate of
-----------------------------
broker-dealers to the general public of shares of Conversion Stock not purchased
in the Subscription Offering and the Community Offering.
Tax-Qualified Employee Stock Benefit Plan means any defined benefit plan or
-----------------------------------------
defined contribution plan, such as an employee stock ownership plan, stock bonus
plan, profit-sharing plan or other plan, which is established for the benefit of
the employees and which, with its related trust, meets the requirements to be
"qualified" under Section 401 of the Code as from time to time in effect. A
"Non-Tax-Qualified Employee Stock Benefit Plan" is any defined benefit plan or
defined contribution stock benefit plan which is not so qualified.
Voting Member means a Person who at the close of business on the Voting
-------------
Record Date is entitled to vote as a Member of the Mutual Holding Company in
accordance with its mutual charter and bylaws.
Voting Record Date means the date or dates for determining the eligibility
------------------
of Members to vote at the Special Meeting and Stockholders to vote at the
Stockholders' Meeting, as applicable.
3. GENERAL PROCEDURE FOR CONVERSION AND REORGANIZATION
A. As soon as practicable after the adoption of the Plan (including the
Plan of Merger attached hereto as Annex A) by the Boards of Directors of the
Mutual Holding Company and the Savings Bank, the Savings Bank and the Mutual
Holding Company shall enter into the Merger Agreement with Progress Holding
Company and Progress Bank.
B. An Application for Conversion, including the Plan, will be submitted,
together with all requisite material, to the OTS for approval. The Mutual
Holding Company and the Savings Bank also will cause notice of the adoption of
the Plan by the Boards of Directors of the Mutual Holding Company and the
Savings Bank to be given by publication in a newspaper having general
circulation in each community in which an office of the Savings Bank is located;
and will cause copies of the Plan to be made available at each office of the
Mutual Holding Company and the Savings Bank for inspection by Members and
Stockholders. After filing the Application for Conversion with the OTS, the
Mutual Holding Company and the Savings Bank will post the notice of the filing
of the Application for Conversion in each of their offices and will again cause
to be published, in accordance with the requirements of applicable regulations
of the OTS, a notice of the filing with the OTS of an application to convert the
Mutual Holding Company from mutual to stock form.
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<PAGE>
C. Promptly following approval of the Application for Conversion by the
OTS, this Plan and the Merger Agreement will be submitted to the Members for
their consideration and approval at the Special Meeting. The Mutual Holding
Company may, at its option, mail to all Members as of the Voting Record Date, at
their last known address appearing on the records of the Savings Bank, a proxy
statement in either long or summary form describing the Plan which will be
submitted to a vote of the Members at the Special Meeting. The Mutual Holding
Company shall also mail to all such Members (as well as other Participants)
either a Prospectus and Order Form for the purchase of Conversion Stock or a
letter informing them of their right to receive a Prospectus and Order Form and
a postage prepaid card to request such materials. The Mutual Holding Company
may use previously-executed general proxies from its Members to approve the
Merger Agreement, but may not use previously-executed general proxies from its
Members to approve the Plan. The Plan must be approved by the affirmative vote
of at least a majority of the total number of votes eligible to be cast by
Voting Members at the Special Meeting.
D. Non-transferable Subscription Rights to purchase shares of Conversion
Stock will be issued without payment therefor to Eligible Account Holders, Tax-
Qualified Employee Stock Benefit Plans, Supplemental Eligible Account Holders,
Other Members, Savings Bank Eligible Stockholders and Progress Eligible
Stockholders, as set forth herein.
E. The Savings Bank shall file preliminary proxy materials with the OTS
in order to seek the approval of the Plan and Merger Agreement by its
Stockholders. Promptly following clearance of such proxy materials (and of the
Application for Conversion) by the OTS, this Plan and Merger Agreement will be
submitted to the Stockholders as of the Voting Record Date for their
consideration and approval at an annual or special meeting. The Plan and the
Merger Agreement must be approved by the holders of at least two-thirds of the
outstanding Savings Bank Common Stock as of the Voting Record Date. In
addition, the Primary Parties have conditioned the consummation of the
Conversion on the approval of the Plan and Merger Agreement by at least a
majority of the votes cast, in person or by proxy, by the Public Stockholders at
the Stockholders' Meeting.
F. Progress Holding Company shall submit or cause to be submitted an
Application H-(e)3 to the OTS for approval of the transaction with the Savings
Bank. In addition, applications to form an interim federal savings bank and
merge the Interim and the Savings Bank shall be filed with the OTS, either as an
exhibit to the Application for Conversion of the Mutual Holding Company and the
Savings Bank or separately. In addition, an application to merge Progress Bank
(immediately after the merger with the Mutual Holding Company) with and into the
Savings Bank shall be filed as an exhibit to the H-(e)3. All notices required
to be published in newspapers in connection with such applications shall be
published at the times required.
G. Progress Holding Company shall file a Registration Statement with the
SEC to register the Conversion Stock and the Progress Holding Company Common
Stock under the Securities Act of 1933, as amended, and shall further register
the Conversion Stock and the Progress Holding Company Common Stock under any
applicable state securities law. Upon
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<PAGE>
registration and after the receipt of all required regulatory approvals, the
Conversion Stock shall be first offered for sale in a Subscription Offering to
Eligible Account Holders, Tax-Qualified Employee Stock Benefit Plans,
Supplemental Eligible Account Holders, Other Members, Savings Bank Eligible
Stockholders and Progress Eligible Stockholders. It is anticipated that any
shares of Conversion Stock remaining unsold after the Subscription Offering will
be sold through a Community Offering and/or a Syndicated Community Offering.
H. Progress Holding Company shall contribute to the Progress Bank an
amount of the net proceeds received by Progress Holding Company from the sale of
Conversion Stock as shall be determined by the Boards of Directors of Progress
Holding Company and Progress Bank and as shall be approved by the OTS.
I. Upon the effective date of the Conversion, the following transactions
shall occur:
(i) the Mutual Holding Company shall convert its charter from a
mutual holding company to a federal interim stock savings bank and
simultaneously merge with and into the Savings Bank, with the Savings Bank
being the surviving institution, and the shares of Savings Bank Common
Stock held by the Mutual Holding Company shall be extinguished;
(ii) Members of the Mutual Holding Company will be granted interests
in the liquidation account to be established by the Savings Bank, which
liquidation account will be maintained in the immediate subsequent merger
with Progress Bank;
(iii) Progress Bank shall merge with and into the Savings Bank,
with the Savings Bank being the surviving institution as a wholly owned
subsidiary of Progress Holding Company;
(iv) the shares of Savings Bank Common Stock held by the Stockholders
of the Savings Bank, other than the Mutual Holding Company, shall be
converted into shares of Progress Holding Company Common Stock based upon
the Exchange Ratio, with cash paid in lieu of fractional shares based upon
the Actual Purchase Price;
(v) options to purchase shares of Savings Bank Common Stock which are
outstanding immediately prior to consummation of the Conversion shall be
converted into options to purchase shares of Progress Holding Company
Common Stock, with the number of shares subject to the option and the
exercise price per share to be adjusted based upon the Exchange Ratio so
that the aggregate exercise price remains unchanged, and with the duration
of the option remaining unchanged;
(vi) Progress Holding Company shall sell an amount of Conversion
Stock determined in accordance with the provisions herein.
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<PAGE>
J. The Charter of the Savings Bank shall be amended upon consummation of
the Merger to reflect the establishment of a liquidation account in accordance
with Section 18 hereof and to reflect the assumption of the current liquidation
account of Progress Bank.
K. The Primary Parties may retain and pay for the services of financial
and other advisors and investment bankers to assist in connection with any or
all aspects of the Conversion, including in connection with the Subscription
Offering, the Community Offering and/or any Syndicated Community Offering, the
payment of fees to brokers and investment bankers for assisting Persons in
completing and/or submitting Order Forms. All fees, expenses, retainers and
similar items shall be reasonable.
L. The Conversion Stock will not be insured by the FDIC. The Primary
Parties will not knowingly lend funds or otherwise extend credit to any Person
to purchase shares of the Conversion Stock.
4. NUMBER OF SHARES AND PURCHASE PRICE OF CONVERSION STOCK.
Pursuant to the Plan and Merger Agreement, Progress Holding Company
intends to offer for sale shares of Conversion Stock and Exchange Shares. The
total amount of Conversion Stock and Exchange Shares to be issued and sold by
Progress Holding Company in the Conversion will be determined by the Boards of
Directors of the Primary Parties in consultation with the Independent Appraiser
of the pro forma market value of the Conversion Stock and Exchange Shares. The
aggregate price at which all shares of Conversion Stock will be sold shall be
equal to the estimated pro forma market value of the Savings Bank upon merger
into the Progress Bank as determined by the Independent Appraisal. Such pro
forma market value shall be based upon the incremental pro forma market value to
Progress Holding Company attributable to the Conversion and the Merger including
the net proceeds from the sale of the Conversion Stock. The appraisal will set
forth the Estimated Price Range for the Conversion Stock to be sold and issued,
within which price range, as it may from time to time be amended, the Conversion
Stock will be sold. The Estimated Price Range will be appropriately updated
when required by applicable regulations.
All shares sold in the Conversion will be sold at a uniform price per share
referred to in this Plan as the Actual Purchase Price. The Actual Purchase
Price will be the average closing price of the Common Stock of Progress Holding
Company as reported on the Nasdaq National Market during the twenty (20) trading
days ending on the day prior to termination of the Subscription and Community
Offerings. The aggregate Actual Purchase Price for all shares of Conversion
Stock will not be inconsistent with the estimated consolidated pro forma market
value. The estimated consolidated pro forma market value will be determined for
such purpose by the Independent Appraiser. Prior to the commencement of the
Subscription and Community Offerings, an Estimated Price Range will be
established, which range will vary within 15% above to 15% below the midpoint of
such range. The aggregate amount of Conversion Stock to be issued may be
increased or decreased by the Boards of Directors of the Primary Parties. In
the event that the aggregate Actual Purchase Price of the Conversion Stock is
below the
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<PAGE>
minimum of the Estimated Price Range, or materially above the maximum of the
Estimated Price Range, resolicitation of purchasers may be required, provided
that up to a 15% increase above the Maximum of the Estimated Price Range will
not be deemed material so as to require a resolicitation. In the event that the
total number of shares offered in the Conversion is increased to an amount
greater than the number of shares representing the maximum of the Estimated
Price Range as set forth in the Prospectus ("Maximum"), the Tax-Qualified
Employee Stock Benefit Plans shall have a priority right to purchase any such
shares exceeding the Maximum up to an aggregate of 8% of the Conversion Stock.
Notwithstanding the foregoing, no sale of Conversion Stock may be
consummated unless, prior to such consummation, the Independent Appraiser
confirms to the Primary Parties and to the OTS that, to the best knowledge of
the Independent Appraiser, nothing of a material nature has occurred which,
taking into account all relevant factors, would cause the Independent Appraiser
to conclude that the aggregate value of the Conversion Stock sold is
incompatible with its estimate of the aggregate consolidated pro forma market
value. If such confirmation is not received, the Primary Parties may cancel the
Subscription and Community Offerings and/or the Syndicated Community Offering,
reopen or hold new Subscription and Community Offerings and/or Syndicated
Community Offering to take such other action as the OTS may permit.
The Conversion Stock to be issued in the Conversion shall be fully paid and
nonassessable.
5. SUBSCRIPTION RIGHTS OF ELIGIBLE ACCOUNT HOLDERS (FIRST PRIORITY)
A. Each Eligible Account Holder shall receive, without payment,
nontransferable subscription rights to subscribe for shares of Conversion Stock
equal to the greater of: (i) when combined with Exchange Shares received, the
maximum established for the Community Offering; (ii) one-tenth of one percent of
the Conversion Stock offered; or (iii) 15 times the product (rounded down to the
next whole number) obtained by multiplying the total number of shares of
Conversion Stock offered by a fraction of which the numerator is the amount of
the Qualifying Deposits of such Eligible Account Holder and the denominator is
the total amount of Qualifying Deposits of all Eligible Account Holders but in
no event greater than the maximum purchase limitation specified in Section 13
hereof. All such purchases are subject to the maximum and minimum purchase
limitations specified in Section 13 and are exclusive of an increase in the
total number of shares issued due to an increase in the maximum of the Estimated
Price Range of up to 15%.
B. In the event that Eligible Account Holders exercise Subscription
Rights for an amount of Conversion Stock in excess of the total number of such
shares eligible for subscription, the shares of Conversion Stock shall be
allocated among the subscribing Eligible Account Holders so as to permit each
subscribing Eligible Account Holder, to the extent possible, to purchase a
number of shares sufficient to make his total allocation of Conversion Stock
equal to the lesser of 100 shares or the number of shares subscribed for by the
Eligible
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<PAGE>
Account Holder. Any shares remaining after that allocation will be allocated
among the subscribing Eligible Account Holders whose subscriptions remain
unsatisfied in the proportion that the amount of the Qualifying Deposit of each
Eligible Account Holder whose subscription remains unsatisfied bears to the
total amount of the Qualifying Deposits of all Eligible Account Holders whose
subscriptions remain unsatisfied, provided that no fractional shares shall be
issued. If the amount so allocated exceeds the amount subscribed for by any one
or more Eligible Account Holders, the excess shall be reallocated (one or more
times as necessary) among those Eligible Account Holders whose subscriptions are
still not fully satisfied on the same principle until all available shares have
been allocated or all subscriptions satisfied.
C. Subscription rights as Eligible Account Holders received by Directors
and Officers and their Associates which are based on deposits made by such
persons during the twelve (12) months preceding the Eligibility Record Date
shall be subordinated to the Subscription Rights of all other Eligible Account
Holders.
6. SUBSCRIPTION RIGHTS OF THE TAX-QUALIFIED EMPLOYEE STOCK BENEFIT PLANS
(SECOND PRIORITY).
Notwithstanding the purchase limitations discussed below, Tax-Qualified
Employee Stock Benefits Plans of Progress Holding Company and the Savings Bank
shall receive, without payment, non-transferable Subscription Rights to purchase
in the aggregate up to 8% of the Conversion Stock, including any shares of
Conversion Stock to be issued in the Conversion as a result of an increase in
the Estimated Price Range after commencement of the Subscription Offering and
prior to completion of the Conversion. The subscription rights granted to the
Tax-Qualified Employee Stock Benefit Plans shall be subject to the availability
of shares of Conversion Stock after taking into account the shares of Conversion
Stock purchased by Eligible Account Holders, provided, however, that in the
event that the total amount of stock offered in the Conversion is increased to
an amount greater than the maximum of the Estimated Price Range as set forth in
the Prospectus (the "Maximum"), the Tax-Qualified Employee Stock Benefit Plans
shall have a priority right to purchase any such shares exceeding the Maximum.
Consistent with applicable laws and regulations and policies and practices of
the OTS, Tax-Qualified Employee Stock Benefit Plans may use funds contributed by
Progress Holding Company, Progress Bank or the Savings Bank and/or borrowed from
an independent financial institution to exercise such Subscription Rights, and
Progress Holding Company, Progress Bank and the Savings Bank may make scheduled
discretionary contributions thereto, provided that such contributions do not
cause Progress Holding Company, Progress Bank or the Savings Bank to fail to
meet any applicable regulatory capital requirements. Tax-Qualified Employee
Stock Benefit Plans shall not be deemed to be Associates or Affiliates or
Persons Acting In Concert with any Director or Officer of any of the Primary
Parties.
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7. SUBSCRIPTION RIGHTS OF SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS (THIRD
PRIORITY)
A. In the event that the Eligibility Record Date is more than 15 months
prior to the date of the latest amendment to the Application for Conversion
filed prior to OTS approval, then, and only in that event, each Supplemental
Eligible Account Holder shall receive, without payment, nontransferable
subscription rights entitling such Supplemental Eligible Account Holder to
purchase that number of shares of Conversion Stock which is equal to the greater
of: (i) when combined with Exchange Shares received, the maximum purchase
limitation established for the Community Offering; (ii) one-tenth of 1% of the
Conversion Stock offered; and (iii) or 15 times the product (rounded down to the
next whole number) obtained by multiplying the total number of shares of
Conversion Stock to be issued by a fraction of which the numerator is the amount
of the Qualifying Deposits of the Supplemental Eligible Account Holder and the
denominator is the total amount of the Qualifying Deposits of all Supplemental
Eligible Account Holders. All such purchases are subject to the maximum and
minimum purchase limitations in Section 13 and are exclusive of an increase in
the total number of shares issued due to an increase in the Maximum of the
Estimated Price Range of up to 15%.
B. Subscription rights received pursuant to this category shall be
subordinated to the subscription rights received by Eligible Account Holders and
by the Tax-Qualified Employee Stock Benefit Plans.
C. Any subscription rights to purchase shares of Conversion Stock
received by an Eligible Account Holder in accordance with Section 5 shall be
reduced to the extent thereof the subscription rights to be distributed pursuant
to this Section.
D. In the event of an oversubscription for shares of Conversion Stock
pursuant to this Section, shares of Conversion Stock shall be allocated among
the subscribing Supplemental Eligible Account Holders so as to permit each such
Supplemental Eligible Account Holder, to the extent possible, to purchase a
number of shares of Conversion Stock sufficient to make his total allocation
(including the number of shares of Conversion Stock, if any, allocated in
accordance with Section 5) equal to 100 shares of Conversion Stock or the total
amount of his subscription, whichever is less. Any shares of Conversion Stock
so allocated shall be allocated among the subscribing Supplemental Eligible
Account Holders on an equitable basis, related to the amounts of their
respective Qualifying Deposits as compared to the total Qualifying Deposits of
all subscribing Supplemental Eligible Account Holders.
8. SUBSCRIPTION RIGHTS OF OTHER MEMBERS (FOURTH PRIORITY)
A. Each Other Member shall receive, without payment, nontransferable
subscription rights to subscribe for shares of Conversion Stock in an amount
equal to the greater of (i) when combined with Exchange Shares received, the
maximum purchase limitation established for the Community Offering or (ii) one-
tenth of one percent of the Conversion Stock offered, subject to the maximum and
minimum purchase limitations specified in Section 12 and exclusive of an
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increase in the total number of shares issued due to an increase in the Maximum
of the Estimated Price Range of up to 15%, which will be allocated only after
first allocating to Eligible Account Holders, the Tax-Qualified Employee Stock
Benefit Plans and Supplemental Eligible Account Holders all shares of Conversion
Stock subscribed for pursuant to Sections 5, 6 and 7 above.
B. In the event that such Other Members subscribe for a number of shares
of Conversion Stock which, when added to the shares of Conversion Stock
subscribed for by the Eligible Account Holders, Tax-Qualified Employee Stock
Benefit Plans and the Supplemental Eligible Account Holders is in excess of the
total number of shares of Conversion Stock being issued, the subscriptions of
such Other Members will be allocated among the subscribing Other Members so as
to permit each subscribing Other Member, to the extent possible, to purchase a
number of shares sufficient to make his total allocation of Conversion Stock
equal to the lesser of 100 shares or the number of shares subscribed for by the
Other Member. Any shares remaining will be allocated among the subscribing
Other Members whose subscriptions remain unsatisfied on a 100 shares (or
whatever lesser amount is available) per order basis until all orders have been
filled or the remaining shares have been allocated.
9. SUBSCRIPTION RIGHTS OF SAVINGS BANK ELIGIBLE STOCKHOLDERS AND PROGRESS
ELIGIBLE STOCKHOLDERS (FIFTH PRIORITY)
If there are shares available after taking into account the shares of
Conversion Stock subscribed for under Sections 5-8 above, each Savings Bank
Eligible Stockholder and Progress Eligible Stockholder shall receive without
payment nontransferable subscription rights to subscribe for shares of
Conversion Stock in an amount equal to the greater of (i) when combined with
Exchange Shares received, the maximum purchase limitation established for the
Community Offering or (ii) one-tenth of one percent of the Conversion Stock
offered, subject to the maximum and minimum purchase limitations specified in
Section 12 and exclusive of an increase in the total number of shares issued due
to an increase in the Maximum of the Estimated Price Range of up to 15%, which
will be allocated only after first allocating to Eligible Account Holders, the
Tax-Qualified Employee Stock Benefit Plans, Supplemental Eligible Account
Holders and Other Members all shares of Conversion Stock subscribed for pursuant
to Sections 5, 6, 7 and 8 above. If the number of shares available for purchase
under this category is not sufficient to satisfy the subscription orders
received from Savings Bank Eligible Stockholders and Progress Eligible
Stockholders under this category, the shares will be allocated pro rata in the
same proportion which the subscription of each Savings Bank Eligible Stockholder
or Progress Eligible Stockholder under the category bears to the total
subscriptions of all Savings Bank Eligible Stockholders and Progress Eligible
Stockholders under this category, with subscriptions being rounded to the
nearest 100 shares.
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10. COMMUNITY OFFERING
A. If less than the total number of shares of Conversion Stock to be
subscribed for in the Conversion are sold to Participants in the Subscription
Offering as set forth in Sections 5-9 above, it is expected that shares
remaining unsubscribed for will be made available for purchase in the Community
Offering to certain members of the general public, subject to the maximum and
minimum purchase limitations specified in Section 12 and exclusive of an
increase in the total number of shares issued due to an increase in the Maximum
of the Estimated Price Range of up to 15%. The shares may be made available in
the Community Offering through a direct community marketing program which may
provide for utilization of a broker, dealer, consultant or investment banking
firm, experienced and expert in the sale of savings institution securities. In
the Community Offering, shares will be available for purchase by the general
public with preference given to natural persons residing in the Local Community
as of the date of the Prospectus. Progress Holding Company and the Savings Bank
shall make distribution of the Conversion Stock to be sold in the Community
Offering in such a manner that will achieve the widest distribution of
Conversion Stock.
B. If the Community Purchasers in the Community Offering, whose orders
would otherwise be accepted, subscribe for more shares than are available for
purchase, the shares available to them will be allocated among persons
submitting orders in the Community Offering in an equitable manner as determined
by the Board of Directors. If there are any shares remaining after all accepted
orders by Community Purchasers have been satisfied, any remaining shares shall
be allocated to other members of the general public who purchase in the
Community Offering applying the same method of allocation as that utilized for
Community Purchasers. Progress Holding Company and the Savings Bank shall
establish all terms and conditions of such offer.
C. The Community Offering may commence simultaneously with, during or
subsequent to the completion of the Subscription Offering and if commenced
simultaneously with or during the Subscription Offering the Community Offering
may be limited to Community Purchasers. The Community Offering must be
completed within 45 days after the completion of the Subscription Offering
unless otherwise extended by the OTS.
D. The Savings Bank and Progress Holding Company, in their absolute
discretion, reserve the right to reject any or all orders in whole or in part
which are received in the Community Offering, at the time of receipt or as soon
as practicable following the completion of the Community Offering.
11. SYNDICATED COMMUNITY OFFERING
Shares of Conversion Stock not subscribed for in the Subscription and
Community Offerings may be sold in a Syndicated Community Offering, subject to
such terms, conditions and procedures as may be determined by the Boards of
Directors of the Savings Bank and Progress Holding Company, in a manner that
will achieve the widest distribution of the Conversion Stock subject to the
right of the Savings Bank and Progress Holding Company, in their absolute
discretion, to accept or reject in whole or in part all subscriptions in the
Syndicated Community Offering. In the Syndicated Community Offering, any person
together
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with any Associate or group of persons Acting in Concert may purchase up to the
maximum purchase limitation established for the Community Offering, subject to
the maximum and minimum purchase limitations specified in Section 12 and
exclusive of an increase in the total number of shares issued due to an increase
in the Maximum of the Estimated Price Range of up to 15%. Shares purchased by
any Person together with any Associate or group of persons Acting in Concert in
the Community Offering shall be counted toward meeting the maximum purchase
limitation specified for this Section. Provided that the Subscription Offering
has commenced, the Savings Bank and Progress Holding Company may commence the
Syndicated Community Offering at any time after the mailing to the Members of
the Proxy Statement to be used in connection with the Special Meeting of
Members, provided that the completion of the offer and sale of the Conversion
Stock shall be conditioned upon the approval of this Plan by the Voting Members.
If the Syndicated Community Offering is not sooner commenced pursuant to the
provisions of the preceding sentence, the Syndicated Community Offering will be
commenced as soon as practicable following the date upon which the Subscription
and Community Offerings terminate.
The Savings Bank and Progress Holding Company shall have the right to sell
any shares of Conversion Stock remaining following the Subscription and
Community Offerings in an underwritten firm commitment public offering. The
provisions of Section 12 hereof shall not be applicable to sales to underwriters
for purposes of such an offering but shall be applicable to the sales by the
underwriters to the public. The price to be paid by the underwriters in such an
offering shall be equal to the Actual Purchase Price less an underwriting
discount to be negotiated among such underwriters and the Savings Bank and
Progress Holding Company, which will in no event exceed an amount deemed to be
acceptable by the OTS.
If for any reason a Syndicated Community Offering or an underwritten firm
commitment public offering of shares of Conversion Stock not sold in the
Subscription and Community Offerings cannot be effected, other purchase
arrangements will be made for the sale of unsubscribed shares by the Savings
Bank and Progress Holding Company, if possible. Such other purchase
arrangements will be subject to the approval of the OTS.
12. LIMITATION ON PURCHASES
The following limitations shall apply to all purchases of shares of
Conversion Stock:
A. The maximum number of shares of Conversion Stock which may be
purchased in the Subscription Offering by any Person (or persons through a
single account) in the First Priority, Third Priority, Fourth Priority and Fifth
Priority shall not exceed 3.0% of the Conversion Stock (when combined with any
Exchange Shares received).
B. The maximum number of shares of Conversion Stock which may be
purchased in the Community Offering and Syndicated Community Offering pursuant
to Sections 10 and 11 by any Person shall not exceed 3.0% of the Conversion
Stock (when combined with any Exchange Shares received).
C. The maximum number of shares of Conversion Stock which may be
subscribed for or purchased in all categories in the Conversion by any Person
(or persons through a single
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account) or Participant together with any Associate or group of persons Acting
in Concert shall not exceed 5.0 % of the Conversion Stock (when combined with
any Exchange Shares received), except for Tax-Qualified Employee Stock Benefit
Plans, which in the aggregate may subscribe for up to 8% of the Conversion Stock
issued.
D. The maximum number of shares of Conversion Stock which may be
purchased in all categories in the conversion by Officers and Directors of the
Mutual Holding Company, the Savings Bank and their Associates in the aggregate
shall not exceed 30% of the total number of shares of Conversion Stock issued
(when combined with any Exchange Shares received).
E. The maximum number of shares of Progress Holding Company Common Stock
which may be owned upon consummation of the Conversion by Officers and Directors
of Progress Holding Company, Progress Bank and their Associates in the aggregate
shall not exceed 25% of the total number of shares of issued and outstanding
Progress Holding Company Common Stock.
F. A minimum of 25 shares of Conversion Stock must be purchased by each
Person purchasing shares in the Conversion to the extent those shares are
available; provided, however, that the minimum number of shares requirement will
not apply if the number of shares of Conversion Stock purchased times the price
per share exceeds $500.
If the number of shares of Conversion Stock otherwise allocable pursuant to
Sections 5 through 12, inclusive, to any Person or that Person's Associates
would be in excess of the maximum number of shares permitted as set forth above,
the number of shares of Conversion Stock allocated to each such person shall be
reduced to the lowest limitation applicable to that Person, and then the number
of shares allocated to each group consisting of a Person and that Person's
Associates shall be reduced so that the aggregate allocation to that Person and
his Associates complies with the above maximums, and such maximum number of
shares shall be reallocated among that Person and his Associates as they may
agree, or in the absence of an agreement, in proportion to the shares subscribed
by each (after first applying the maximums applicable to each Person,
separately).
Depending upon market or financial conditions, the Boards of Directors of
the Savings Bank and Progress Holding Company, without further approval of the
Members, may decrease or increase the purchase limitations in this Plan,
provided that the maximum purchase limitations may not be increased to a
percentage in excess of 5% of the shares of Conversion Stock (when combined with
any Exchange Shares received); provided that orders for Conversion Stock in the
Community Offering or Syndicated Community Offering shall first be filled to a
maximum of 2% of the total number of shares of Conversion Stock sold in the
Conversion and thereafter any remaining shares shall be allocated on an equal
number of shares basis per order until all orders have been filled. If the
Savings Bank and Progress Holding Company increase the maximum purchase
limitations, the Savings Bank and Progress Holding Company are only required to
resolicit Persons who subscribed for the maximum purchase amount and may, in the
sole discretion of the Savings Bank and Progress Holding Company, resolicit
certain other large subscribers. For purposes of this Section, the Directors of
the Primary Parties shall not be deemed to be Associates or a group affiliated
with each other or otherwise Acting in Concert solely as a result of their being
Directors of the Primary Parties.
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In the event of an increase in the total amount of Conversion Stock offered
in the Conversion due to an increase in the maximum of the Estimated Price Range
of up to 15% (the "Adjusted Maximum"), the additional shares will be used in the
following order of priority: (i) to fill the Tax-Qualified Employee Stock
Benefit Plan's subscription to up to 8% of the Adjusted Maximum; (ii) in the
event that there is an oversubscription at the Eligible Account Holder level, to
fill unfilled subscriptions of Eligible Account Holders exclusive of the
Adjusted Maximum according to Section 5; (iii) in the event that there is an
oversubscription at the Supplemental Eligible Account Holder level, to fill
unfilled subscriptions of Supplemental Eligible Account Holders exclusive of the
Adjusted Maximum according to Section 7; (iv) in the event that there is an
oversubscription at the Other Member level, to fill unfilled subscriptions of
Other Members exclusive of the Adjusted Maximum in accordance with Section 8;
(v) in the event that there is an oversubscription at the Savings Bank Eligible
Stockholder and Progress Eligible Stockholder level, to fill unfilled
subscriptions of Savings Bank Eligible Stockholders and Progress Eligible
Stockholders exclusive of the Adjusted Maximum in accordance with Section 9; and
(vi) to fill unfilled Subscriptions in the Community Offering exclusive of the
Adjusted Maximum, with preference given to Community Purchasers.
Each Person purchasing Conversion Stock in the Conversion shall be deemed
to confirm that such purchase does not conflict with the above purchase
limitations contained in this Plan.
For a period of three years following the Conversion, no Officer, Director
or their Associates shall purchase, without the prior written approval of the
OTS, any outstanding shares of Progress Holding Company Common Stock, except
from a broker-dealer registered with the SEC. This provision shall not apply to
negotiated transactions involving more than one percent of the outstanding
shares of Holding Company Common Stock, the exercise of any options pursuant to
a stock option plan or purchases of Holding Company Common Stock, made by or
held by any Tax-Qualified Employee Stock Benefit Plan or Non-Tax Qualified
Employee Stock Benefit Plan of Progress Bank or Progress Holding Company which
may be attributable to any Officer or Director. As used herein, the term
"negotiated transaction" means a transaction in which the securities are offered
and the terms and arrangements relating to any sale are arrived at through
direct communications between the seller or any person acting on its behalf and
the purchaser or his investment representative. The term "investment
representative" shall mean a professional investment advisor acting as agent for
the purchaser and independent of the seller and not acting on behalf of the
seller in connection with the transaction.
13. TIMING OF SUBSCRIPTION OFFERING; MANNER OF EXERCISING SUBSCRIPTION RIGHTS
AND ORDER FORMS
A. The Subscription Offering may be commenced concurrently with or at any
time after the mailing to Voting Members of the Mutual Holding Company and
Stockholders of the Savings Bank of the proxy statement(s) to be used in
connection with the Special Meeting and the Stockholders' Meeting. The
Subscription Offering may be closed before the Special Meeting and the
Stockholders' Meeting, provided that the offer and sale of the Conversion Stock
shall be conditioned upon the approval of the Plan by the Voting Members of the
Mutual Holding Company and the Stockholders of the Savings Bank at the Special
Meeting and the Stockholders' Meeting, respectively.
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B. The exact timing of the commencement of the Subscription Offering
shall be determined by the Primary Parties in consultation with the Independent
Appraiser and any financial or advisory or investment banking firm retained by
them in connection with the Conversion. The Primary Parties may consider a
number of factors, including, but not limited to, their current projected future
earnings, local and national economic conditions, and the prevailing market for
stocks in general and stocks of financial institutions in particular. The
Primary Parties shall have the right to withdraw, terminate, suspend, delay,
revoke or modify any such Subscription Offering, at any time and from time to
time, as they in their sole discretion may determine, without liability to any
Person, subject to compliance with applicable securities laws and any necessary
regulatory approval or concurrence.
C. The Primary Parties shall, promptly after the SEC has declared the
Registration Statement which includes the Prospectus effective and all required
regulatory approvals have been obtained, distribute or make available the
Prospectus, together with Order Forms for the purchase of Conversion Stock, to
all Participants for the purpose of enabling them to exercise their respective
Subscription Rights, subject to Section 15 hereof. The Primary Parties may
elect to mail a Prospectus and Order Form only to those Participants who request
such materials by returning a postage-paid card to the Primary Parties by a date
specified in the letter informing them of their Subscription Rights. Under such
circumstances, the Subscription Offering shall not be closed until the
expiration of 30 days after the mailing by the Primary Parties of the postage-
paid card to Participants.
D. A single Order Form for all Savings Accounts maintained with the
Savings Bank by an Eligible Account Holder and any Supplemental Eligible Account
Holder may be furnished, irrespective of the number of Savings Accounts
maintained with the Savings Bank on the Eligibility Record Date and Supplemental
Eligibility Record Date, respectively.
E. The recipient of an Order Form shall have no less than 20 days and no
more than 45 days from the date of mailing of the Order Form (with the exact
termination date to be set forth on the Order Form) to properly complete and
execute the Order Form and deliver it to the Primary Parties. The Primary
Parties may extend such period by such amount of time as they determine is
appropriate. Failure of any Participant to deliver a properly executed Order
Form to the Primary Parties, along with payment (or authorization for payment by
withdrawal) for the shares of Conversion Stock subscribed for, within the time
limits prescribed, shall be deemed a waiver and release by such person of any
rights to subscribe for shares of Conversion Stock. Each Participant shall be
required to confirm to the Primary Parties by executing an Order Form that such
Person has fully complied with all of the terms, conditions, limitations and
restrictions in the Plan.
F. The Primary Parties shall have the absolute right, in their sole
discretion and without liability to any Participant or other Person, to reject
any Order Form, including, but not limited to, any Order Form that is (i)
improperly completed or executed; (ii) not timely received; (iii) not
accompanied by the proper payment (or authorization of withdrawal for payment)
or, in the case of institutional investors in the Community Offering, not
accompanied by an irrevocable order together with a legally binding commitment
to pay the full amount of the purchase price prior to 48 hours before the
completion of the Conversion; or (iv) submitted by a Person whose
representations the Primary Parties believe to be false or who they otherwise
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believe, either alone, or acting in concert with others, is violating, evading
or circumventing, or intends to violate, evade or circumvent, the terms and
conditions of the Plan. The Primary Parties may, but will not be required to,
waive any irregularity on any Order Form or may require the submission of
corrected Order Forms or the remittance of full payment for shares of Conversion
Stock by such date as they may specify. The interpretation of the Primary
Parties of the terms and conditions of the Order Forms shall be final and
conclusive.
14. PAYMENT FOR CONVERSION STOCK
A. Payment for shares of Conversion Stock subscribed for by Participants
may be made in cash, if delivered in person, or by check or money order at the
time the Order Form is delivered to the Primary Parties. The Primary Parties
may also elect to receive payment for shares of Conversion Stock by wire
transfer. In addition, the Primary Parties may elect to provide Participants
and/or other Persons who have a Savings Account with the Savings Bank or
Progress Bank the opportunity to pay for shares of Conversion Stock by
authorizing the Savings Bank or Progress Bank to withdraw for such Savings
Account an amount equal to the aggregate purchase price of such shares.
B. Consistent with applicable laws and regulations and policies and
practices of the OTS, payment for shares of Conversion Stock subscribed for by
Tax-Qualified Employee Stock Benefit Plans may be made with funds contributed by
Progress Holding Company, Progress Bank or the Savings Bank and/or funds
obtained pursuant to a loan from an unrelated financial institution pursuant to
a loan commitment which is in force from the time that any such plan submits an
Order Form until the closing of the transactions contemplated hereby.
C. If a Participant or other person authorizes the Savings Bank or
Progress Bank to withdraw an amount from his Savings Account, the Savings Bank
and Progress Bank shall have the right to make such withdrawal or to freeze
funds equal to the order. Notwithstanding any regulatory provisions regarding
penalties for early withdrawals from certificate accounts, the Savings Bank and
Progress Bank may allow payment by means of withdrawal from certificate accounts
without the assessment of such penalties. In the case of an early withdrawal of
only a portion of such account, the certificate evidencing such account shall be
canceled if any applicable minimum balance requirement ceases to be met. In
such case, the remaining balance will earn interest at the regular passbook
rate. However, where any applicable minimum balance is maintained in such
certificate account, the rate of return on the balance of the certificate
account shall remain the same prior to such early withdrawal. This waiver of
the early withdrawal penalty applies only to withdrawals made in connection with
the purchase of Conversion Stock and is entirely within the discretion of the
Savings Bank or Progress Bank, as the case may be.
D. The Savings Bank or Progress Bank, as the case may be, shall pay
interest, at not less than the passbook rate, for all amounts paid in cash, by
check or money order to purchase shares of Conversion Stock in the Subscription
Offering and the Community Offering from the date payment is received until the
date the Conversion is completed or terminated.
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E. Primary Parties shall not knowingly loan funds or otherwise extend
credit to any Participant or other Person to purchase Conversion Stock, except
to eligible Tax Qualified Employee Benefit Plans described in Section 6 hereof.
F. Each share of Conversion Stock shall be non-assessable upon payment in
full of the Actual Purchase Price.
15. ACCOUNT HOLDERS IN NON-QUALIFIED STATES OR FOREIGN COUNTRIES
The Primary Parties shall make reasonable efforts to comply with the
securities laws of all jurisdictions in the United States in which Participants
reside. However, no Participant will be offered or receive any Conversion Stock
under the Plan if such Participant resides in a foreign country or in a
jurisdiction of the United States with respect to which any of the following
apply: (a) there are few Participants otherwise eligible to subscribe for
shares under this Plan who reside in such jurisdiction; (b) the granting of
Subscription Rights or the offer or sale of shares of Conversion Stock to such
Participants would require any of the Primary Parties or their respective
Directors and Officers, under the laws of such jurisdiction, to register as a
broker-dealer, salesman or selling agent or to register or otherwise qualify the
Conversion Stock for sale in such jurisdiction, or any of the Primary Parties
would be required to qualify as a foreign corporation or file a consent to
service of process in such jurisdiction; and (c) such registration,
qualification or filing in the judgment of the Primary Parties would be
impracticable or unduly burdensome for reasons of cost or otherwise.
16. VOTING RIGHTS OF STOCKHOLDERS
Following consummation of the Conversion, voting rights with respect to
Progress Bank shall be held and exercised exclusively by Progress Holding
Company as holder of the Progress Bank's voting capital stock, and voting rights
with respect to Progress Holding Company shall be held and exercised exclusively
by the holders of the Progress Holding Company's voting capital stock.
17. LIQUIDATION ACCOUNT
A. At the time of the Conversion, the Savings Bank shall establish a
liquidation account in an amount equal to the greater of (i) $16,035,000, which
is equal to 100% of the retained earnings of the Association as of June 30,
1992, the date of the latest statement of financial condition contained in the
final offering circular utilized in the formation of the Mutual Holding Company,
or (ii) 87.29% of the Savings Bank's total stockholders' equity as reflected in
its latest statement of financial condition contained in the final Prospectus
utilized in the Conversion, plus the aggregate amount of dividends waived by the
Mutual Holding Company since the mutual holding company reorganization of the
Association. This liquidation account established by the Savings Bank will be
maintained by the Savings Bank in connection with the immediate subsequent
merger of Progress Bank with and into the Savings Bank. The function of the
liquidation account will be to preserve the rights of certain holders of Savings
Accounts in the Savings Bank who maintain such accounts in the Savings Bank
following the Conversion
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to a priority to distributions in the unlikely event of a liquidation of the
Savings Bank subsequent to the Conversion.
B. The liquidation account shall be maintained for the benefit of
Eligible Account Holders and Supplemental Eligible Account Holders, who maintain
their Savings Accounts in the Savings Bank after the Conversion. Each such
account holder will, with respect to each Savings Account held, have a related
inchoate interest in a portion of the liquidation account balance, which
interest will be referred to in this Section as the "subaccount balance." All
Savings Accounts having the same social security number will be aggregated for
purposes of determining the initial subaccount balance with respect to such
Savings Accounts, except as provided in Subsection D hereof.
C. In the event of a complete liquidation of the Savings Bank subsequent
to the Conversion (and only in such event), each Eligible Account Holder and
Supplemental Eligible Account Holder shall be entitled to receive a liquidation
distribution from the liquidation account in the amount of the then current
subaccount balances for Savings Accounts then held (adjusted as described below)
before any liquidation distribution may be made with respect to the capital
stock of the Savings Bank. No merger, consolidation, sale of bulk assets or
similar combination transaction with another FDIC-insured institution in which
the Savings Bank is not the surviving entity shall be considered a complete
liquidation for this purpose. In any such transaction, the liquidation account
shall be assumed by the surviving entity.
D. The initial subaccount balance for a Savings Account held by an
Eligible Account Holder and Supplemental Eligible Account Holder shall be
determined by multiplying the opening balance in the liquidation account by a
fraction, of which the numerator is the amount of the Qualifying Deposits of
such account holder and the denominator is the total amount of Qualifying
Deposits of all Eligible Account Holders and Supplemental Eligible Account
Holders. For Savings Accounts in existence at both the Eligibility Record Date
and the Supplemental Eligibility Record Date, separate initial subaccount
balances shall be determined on the basis of the Qualifying Deposits in such
Deposit Accounts on each such record date. Initial subaccount balances shall
not be increased, and shall be subject to downward adjustment as provided below.
E. If the aggregate deposit balance in the Savings Account(s) of any
Eligible Account Holder or Supplemental Eligible Account Holder, at the close of
business on any annual closing date subsequent to the Eligibility Record Date or
the Supplemental Eligibility Record Date, is less than the lesser of (a) the
aggregate deposit balance in such Savings Account(s) at the close of business on
any other annual closing date subsequent to such record dates or (b) the
aggregate deposit balance in such Savings Account(s) as of the Eligibility
Record Date or the Supplemental Eligibility Record Date, the subaccount balance
for such Savings Account(s) shall be adjusted by reducing such subaccount
balance in an amount proportionate to the reduction in such deposit balance. In
the event of such a downward adjustment, the subaccount balance shall not be
subsequently increased, notwithstanding any subsequent increase in the deposit
balance of the related Savings Account(s). The subaccount balance of an
Eligible Account Holder or Supplemental Eligible Account Holder will be reduced
to zero if the Account Holder ceased to maintain a Savings Account at the
Savings Bank that has the same social security number as appeared on his Savings
Account(s) at the Eligibility Record Date or, if applicable, the Supplemental
Eligibility Record Date.
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F. Subsequent to the Conversion, the Savings Bank may not pay cash
dividends generally on deposit accounts and/or capital stock of the Savings
Bank, or repurchase any of the capital stock of the Savings Bank, if such
dividend or repurchase would reduce the Savings Bank's regulatory capital below
the aggregate amount of the then current subaccount balances for Savings
Accounts then held; otherwise, the existence of the liquidation amount shall not
operate to restrict the use or application of any of the net worth accounts of
the Savings Bank.
G. For purposes of this Section, a Savings Account includes a predecessor
or successor account which is held by an Account Holder with the same social
security number.
18. TRANSFER OF SAVINGS ACCOUNTS
Each Savings Account in Progress Bank at the time of the consummation of
the Conversion shall become, without further action by the holder, a Savings
Account in the Savings Bank equivalent in withdrawable amount to the withdrawal
value (as adjusted to give effect to any withdrawal made for the purchase of
Conversion Stock), and subject to the same terms and conditions (except as to
voting and liquidation rights) as such Savings Account in Progress Bank
immediately preceding consummation of the Conversion. Holders of Savings
Accounts in the Savings Bank shall not, as such holders, have any voting rights.
19. REQUIREMENTS FOLLOWING CONVERSION FOR REGISTRATION, MARKET MAKING AND STOCK
EXCHANGE LISTING
In connection with the Conversion, Progress Holding Company shall continue
its registration of the Progress Holding Company Common Stock pursuant to
Section 12(g) of the Securities Exchange Act of 1934, as amended, and shall
undertake not to deregister such stock for a period of three years thereafter.
Progress Holding Company also shall use its best efforts to continue to (i)
encourage and assist a market maker to establish and maintain a market for its
common stock; and (ii) have quotations for its common stock disseminated on the
National Association of Securities Dealers Automated Quotation System.
20. DIRECTORS AND OFFICERS OF PROGRESS BANK AND PROGRESS HOLDING COMPANY
The names and positions that the current directors and senior officers of
the Savings Bank and the Mutual Holding Company will assume at the Savings Bank
and Progress Holding Company upon completion of the Conversion are set forth in
Exhibits C, D and F to the Merger Agreement.
21. RESTRICTIONS ON TRANSFER OF STOCK
All shares of the Conversion Stock which are purchased by Persons other
than Directors and Officers of the Mutual Holding Company and the Savings Bank
shall be transferable without restriction, except as otherwise provided in the
certificate of incorporation of Progress Holding Company. Shares of Conversion
Stock purchased by Directors and Officers of the Holding Company and the Savings
Bank on original issue from Progress Holding Company (by
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subscription or otherwise) shall be subject to the restriction that such shares
shall not be sold or otherwise disposed of for value for a period of one year
following the date of purchase, except for any disposition of such shares
following the death of the original purchaser or pursuant to any merger or
similar transaction approved by the OTS. The shares of Conversion Stock issued
by Progress Holding Company to Directors and Officers of the Mutual Holding
Company and the Savings Bank shall bear the following legend giving appropriate
notice of such one-year restriction:
"The shares of stock evidenced by this Certificate are restricted as
to transfer for a period of one year from the date of this Certificate
pursuant to Part 563b of the Rules and Regulations of the Office of Thrift
Supervision. These shares may not be transferred during such one year
period without a legal opinion of counsel for Progress Financial
Corporation that said transfer is permissible under the provisions of
applicable law and regulation. This restrictive legend shall be deemed
null and void after one year from the date of this Certificate."
In addition, Progress Holding Company shall give appropriate instructions
to the transfer agent for its common stock with respect to the applicable
restrictions relating to the transfer of restricted stock. Any shares issued at
a later date as a stock dividend, stock split or otherwise with respect to any
such restricted stock shall be subject to the same holding period restrictions
as may then be applicable to such restricted stock.
The foregoing restriction on transfer shall be in addition to any
restrictions on transfer that may be imposed by federal and state securities
laws.
22. RESTRICTIONS ON ACQUISITION OF STOCK OF PROGRESS HOLDING COMPANY
In accordance with OTS regulations, for a period of three years from the
date of consummation of Conversion, no Person, other than Tax-Qualified Employee
Stock Benefit Plans, shall directly or indirectly offer to acquire or acquire
the beneficial ownership of more than 10% of any class of an equity security of
Progress Holding Company without the prior written consent of the OTS.
23. TAX RULINGS OR OPINIONS
Consummation of the Conversion is expressly conditioned upon prior receipt
by the Primary Parties of either a ruling or an opinion of counsel with respect
to federal tax laws, and either a ruling or an opinion of counsel with respect
to Pennsylvania tax laws, to the effect that consummation of the transactions
contemplated hereby will not result in a taxable reorganization under the
provisions of the applicable codes or otherwise result in any material adverse
tax consequences to the Primary Parties or to account holders receiving
Subscription Rights before or after the Conversion, except in each case to the
extent, if any, that Subscription Rights are deemed to have fair market value on
the date such rights are issued.
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24. DIVIDEND AND REPURCHASE RESTRICTIONS ON STOCK
A. The Savings Bank shall not declare or pay a cash dividend on, or
repurchase any of, its capital stock if the effect thereof would cause its
regulatory capital to be reduced below the amount required for the liquidation
account. Any dividend declared or paid on, or repurchase of, the Savings Bank's
capital stock also shall be in compliance with Section 563.134 of the Rules and
Regulations of the OTS, or any successor thereto.
B. Notwithstanding anything to the contrary set forth herein, Progress
Holding Company may repurchase its capital stock to the extent and subject to
the requirements set forth in Section 563b.3(g) of the Rules and Regulations of
the OTS, or any successor thereto, or as otherwise may be approved by the OTS.
25. PAYMENT OF FEES TO BROKERS
The Primary Parties may elect to offer to pay fees on a per share basis to
securities brokers who assist Persons in determining to purchase shares in the
Subscription Offering, Community Offering and/or Syndicated Community Offering.
26. DISSENTING STOCKHOLDERS
If any Stockholders of the Savings Bank dissent from the Conversion and
Merger Agreement and exercise and perfect the right to obtain valuation of and
payment for their shares of Savings Bank Common Stock ("Dissenting Shares")
pursuant to 12 C.F.R. Sec.552.14, then (a) the Dissenting Shares, if any, will
be deemed to have been retired and canceled immediately prior to consummation of
the Conversion, with the effect that such shares will not be exchanged for
Progress Holding Company Common Stock pursuant to the provisions contained in
this Plan, and (b) all payments to be made to the holders of such Dissenting
Shares will be made directly by the Savings Bank.
27. EFFECTIVE DATE
The effective date of the Conversion shall be the date upon which Articles
of Combination shall be filed with the OTS with respect to the merger of the
Mutual Holding Company with and into the Savings Bank and the merger of Progress
Bank with and into the Savings Bank. The Articles of Combination shall not be
filed with the OTS until all requisite regulatory, Member and Stockholder
approvals have been obtained, all applicable waiting periods have expired, and
sufficient subscriptions and orders for the Conversion Stock have been received.
The closing of the sale of all shares of Conversion Stock sold in the
Subscription Offering, Community Offering and/or Syndicated Community Offering
shall occur simultaneously on the effective date of the Conversion.
28. AMENDMENT OR TERMINATION OF THE PLAN
If deemed necessary or desirable by the Boards of Directors of the Mutual
Holding Company and the Savings Bank, this Plan may be substantively amended, as
a result of comments from regulatory authorities or otherwise, at any time prior
to the solicitation of
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<PAGE>
proxies from Members and Stockholders to vote on the Plan and at any time
thereafter with the concurrence of the OTS. Any amendment to this Plan made
after approval by the Members and Stockholders with the concurrence of the OTS
shall not necessitate further approval by the Members or Stockholders unless
otherwise required by the OTS. This Plan shall terminate if the sale of all
shares of Conversion Stock is not completed within 24 months from the date of
the Special Meeting. Prior to the Special Meeting, this Plan may be terminated
by the Boards of the Mutual Holding Company and the Savings Bank without
approval of the OTS; after the Special Meeting, the Boards of Directors may
terminate this Plan only with the approval of the OTS.
29. INTERPRETATION OF THE PLAN
All interpretations of this Plan, and application of its provisions to
particular circumstances by a majority of each of the Boards of Directors of the
Primary Parties shall be final, subject to the authority of the OTS.
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Plan to be executed by
their duly authorized officers as of August 7, 1995.
FJF FINANCIAL, M.H.C.
Attest:/s/John F. McGill, Jr. By: /s/John F. McGill
----------------------- ----------------------------------------
John F. McGill, Jr. John F. McGill, Chairman of the
Secretary Board, Chief Executive Officer
and President
ROXBOROUGH-MANAYUNK FEDERAL
SAVINGS BANK
Attest:/s/John F. McGill By: /s/John F. McGill
----------------------- ----------------------------------------
John F. McGill, Jr. John F. McGill, Chairman of the
Secretary Board, Chief Executive Officer
and President
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<PAGE>
ANNEX A
PLAN OF MERGER
PLAN OF MERGER, dated as of May 24, 1995 ("Plan of Merger"), and amended on
August 7, 1995 by and between Roxborough-Manayunk Federal Savings Bank ("Savings
Bank") and FJF Financial, M.H.C. ("Mutual Holding Company"). Unless otherwise
noted, defined terms shall have the same meaning as those set forth in the Plan
of Conversion of FJF Financial, M.H.C. and Agreement and Plan of Reorganization
between FJF Financial, M.H.C. and Roxborough-Manayunk Federal Savings Bank
("Plan") (of which this Plan of Merger is an Annex thereto).
WITNESSETH:
WHEREAS, on December 31, 1992, Roxborough-Manayunk Federal Savings and Loan
Association (the "Association"), a federally chartered mutual savings and loan
association, reorganized into the mutual holding company form of organization
whereby (i) the Association organized Roxborough-Manayunk Federal Savings Bank
(the "Savings Bank"), a federally chartered stock savings bank, as a wholly
owned subsidiary; (ii) the Association then transferred substantially all of its
assets and liabilities to the Savings Bank in exchange for 1,415,000 or 87.61%
of the shares of Savings Bank Common Stock, and reorganized itself into a
federally chartered mutual holding company known as FJF Financial, M.H.C.;
WHEREAS, the Board of Directors of the Mutual Holding Company has
determined that it is in the best interests of the Mutual Holding Company and
its members to convert from the mutual to stock form of organization;
WHEREAS, the Savings Bank is currently a majority owned subsidiary of the
Mutual Holding Company;
WHEREAS, the Conversion of the Mutual Holding Company to stock form will be
facilitated by causing the Mutual Holding Company to convert from the mutual
form to a federal interim stock savings bank to be known as "FJF Financial
Interim Federal Savings Bank" ("Interim") and simultaneously merge with the
Savings Bank ("Reorganization"); and
WHEREAS, immediately upon completion of the Reorganization, the Savings
Bank will merge with Progress Bank, the wholly owned subsidiary of Progress
Holding Company ("Merger"). The Savings Bank will be the surviving institution
and will change its name to "Progress Bank." The existing minority stockholders
of the Savings Bank will exchange their shares of the Savings Bank for shares of
Progress Holding Company based upon an Exchange Ratio established in accordance
with the independent appraisal of the Savings Bank upon merger with Progress
Bank and the trading price of the stock of Progress Holding Company, and the
remaining shares will be sold in subscription and community offerings, giving
priority subscription rights as set forth in the Plan in accordance with Office
of Thrift Supervision ("OTS") conversion regulations.
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<PAGE>
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein contained, and in accordance with federal law, the Savings
Bank and the Mutual Holding Company hereby agree that, subject to the conditions
hereinafter set forth, the Mutual Holding Company shall convert from the mutual
form to a federal interim stock savings bank, and Interim shall then be merged
with and into the Savings Bank with the Savings Bank as the surviving entity.
The terms and conditions of such merger shall be as follows:
1. Regulatory Approvals. The merger shall not become effective until
receipt of approval of the Office of Thrift Supervision ("OTS") and any other
agency having jurisdiction over the merger, if any.
2. Identity and Name of Resulting Savings Bank. The resulting savings
bank in the Reorganization shall be the Savings Bank.
3. Offices of Resulting Savings Bank. The home office of the Savings
Bank, as the resulting savings bank, shall be the Savings Bank's office located
at 6060 Ridge Avenue, Philadelphia, Pennsylvania. The locations of the branch
offices of the resulting savings bank shall be those of the Savings Bank in
existence on the date of this Plan of Merger. In addition, the resulting
savings bank shall operate branch offices at such additional locations as may be
approved by the OTS.
4. The Savings Bank's Federal Charter and Bylaws. The federal stock
charter and bylaws of the Savings Bank as in effect immediately prior to the
effectiveness of the Reorganization shall be amended as necessary to accomplish
the Reorganization.
5. Effective Date. The effective date of the Reorganization ("Effective
Date") shall be the date as soon as practicable after the issuance and/or
execution by the OTS and any other federal or state regulatory agencies, of all
approvals, certificates and documents as may be required in order to cause the
Reorganization and the Merger to become effective.
6. Savings Bank Stockholder Approval. The affirmative vote of the
holders of two-thirds of the outstanding Savings Bank Common Stock and at least
a majority of such Savings Bank Common Stock not held by the Mutual Holding
Company voting at a meeting of the stockholders shall be required to approve
this Plan of Merger.
7. Mutual Holding Company Approval. The approval of a majority of the
members of the Mutual Holding Company, as of a specified date shall be required
to approve this Plan of Merger.
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<PAGE>
8. Cancellation of Savings Bank Common Stock held by the Mutual Holding
Company and Member Interests; Liquidation Account.
(a) On the Effective Date, (i) each share of Savings Bank Common
Stock issued and outstanding immediately prior to the Effective Date and held by
the Mutual Holding Company shall, by virtue of the Reorganization and without
any action on the part of the holder thereof, be canceled, (ii) the interests in
the Mutual Holding Company of any person, firm or entity who or which qualified
as a member of the Mutual Holding Company in accordance with its mutual charter
and bylaws and the laws of the United States prior to the Mutual Holding
Company's conversion from mutual to stock form (the "Members") shall, by virtue
of the Reorganization and without any action on the part of the holder thereof,
be canceled, and (iii) the Savings Bank shall establish a liquidation account on
behalf of each depositor member of the Mutual Holding Company, as defined in the
Plan, in accordance with Section 17 of the Plan.
(b) At or after the Effective Date and prior to the Merger, each
certificate or certificates theretofore evidencing issued and outstanding shares
of Savings Bank Common Stock, other than any such certificate or certificates
held by the Mutual Holding Company, which shall be canceled, shall continue to
represent issued and outstanding shares of Savings Bank Common Stock.
9. Dissenting Shares. No Member of the Mutual Holding Company shall have
any dissenter or appraisal rights in connection with the Reorganization.
However, stockholders of the Savings Bank shall have dissenter or appraisal
rights in accordance with Section 26 of the Plan and 12 C.F.R. Sec. 552.14.
10. Deposits of the Savings Bank. All deposit accounts of the Savings
Bank shall be and will become deposits in the resulting savings bank without
change in their respective terms, interest rates, maturities, minimum required
balances or withdrawal values. After the Effective Date, the resulting savings
bank will continue to issue deposit accounts on the same basis as immediately
prior to the Effective Date.
11. Effect of Reorganization. Upon the Effective Date of the
Reorganization and the Merger, all assets and property (real, personal and
mixed, tangible and intangible, chooses in action, rights and credits) then
owned by the Savings Bank or the Mutual Holding Company or which would inure to
either of them, shall immediately by operation of law and without any
conveyance, transfer or further action, become the property of the resulting
savings bank, which shall have, hold and enjoy them in its own right as fully
and to the same extent as they were possessed, held and enjoyed by the Savings
Bank and the Mutual Holding Company immediately prior to the Effective Date of
the Reorganization. The resulting savings bank shall be deemed to be a
continuation of the entity of both the Savings Bank and the Mutual Holding
Company and all of the rights and obligations of the Savings Bank and the Mutual
Holding Company shall remain unimpaired; and the resulting savings bank, upon
the Effective Date of the Reorganization, shall succeed to all those rights and
obligations and the duties and liabilities connected therewith.
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<PAGE>
12. Directors and Executive Officers. The persons who are the current
officers and directors of the Savings Bank will be the directors and officers of
the resulting savings bank and such terms or positions will be unchanged.
13. Abandonment of Plan of Merger. This Plan of Merger may be abandoned
by either the Savings Bank or the Mutual Holding Company at any time before the
Effective Date in the manner set forth in Section 28 of the Plan.
14. Amendment of this Plan of Merger. This Plan of Merger may be amended
or modified at any time by mutual agreement of the Boards of Directors of the
Savings Bank and the Mutual Holding Company in the manner set forth in Section
28 of the Plan of Conversion.
15. Governing Law. This Plan of Merger is made pursuant to, and shall be
construed and be governed by, the laws of the United States, and the rules and
regulations promulgated thereunder, including without limitation, the rules and
regulations of the OTS.
16. All Terms Included. This Plan of Merger sets forth all terms,
conditions, agreements and understandings of the Savings Bank and the Mutual
Holding Company with respect to the Reorganization.
17. Counterparts. This Plan of Merger may be executed in several
identical counterparts, each of which when executed by the Parties and delivered
shall be an original, but all of which together shall constitute a single
instrument. In making proof of this Plan of Merger, it shall not be necessary
to produce or account for more than one such counterpart.
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Plan of Merger to be
executed by their duly authorized officers as of August 7, 1995.
FJF FINANCIAL, M.H.C.
Attest: By:
----------------------- ----------------------------------------
John F. McGill, Jr. John F. McGill, Chairman of the
Secretary Board, Chief Executive Officer
and President
ROXBOROUGH-MANAYUNK FEDERAL
SAVINGS BANK
Attest: By:
---------------------------- -----------------------------------
John F. McGill, Jr. John F. McGill, Chairman of the
Secretary Board, Chief Executive Officer
and President
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Exhibit 5
Opinion
of
ELIAS, MATZ, TIERNAN & HERRICK, L.L.P.
REGARDING LEGALITY
of
SECURITIES BEING REGISTERED
E - 144
<PAGE>
Law Offices
Elias, Matz, Tiernan & Herrick, L.L.P.
12th Floor
734 15th Street, N.W.
Washington, D.C. 20005
(202) 347-0300
Facsimile (202) 347-2172
August 8, 1995
Board of Directors
Progress Financial Corporation
Plymouth Meeting Executive Campus
600 East Germantown Pike
Plymouth Meeting, Pennsylvania 19462
Gentlemen:
We have acted as special counsel to Progress Financial Corporation (the
"Company") in connection with the preparation and filing with the Securities and
Exchange Commission pursuant to the Securities Act of 1933, as amended, of the
Registration Statement on Form S-1 (the "Registration Statement"), relating to
the issuance of up to $42,421,812 million of the Company's common stock, par
value $1.00 per share (the "Common Stock"), in connection with the conversion of
FJF Financial, M.H.C. (the "MHC") from the mutual form to a federal interim
stock savings bank ("Interim"), the merger of Interim into Roxborough-Manayunk
Federal Savings Bank, a subsidiary of the MHC ("Roxborough-Manayunk"), and the
merger of Progress Federal Savings Bank, the Company's wholly owned subsidiary
("Progress"), into Roxborough-Manayunk (the "Conversion and the Merger"). In
this regard, we have examined the Certificate of Incorporation and Bylaws of
the Company, resolutions of the Board of Directors of the Company, the MHC,
Progress and Roxborough-Manayunk, the Plan of Conversion of the MHC, the
Agreement and Plan of Reorganization by and among the Company, Progress, the
MHC and Roxborough-Manayunk, and such other documents and matters of law as we
deemed appropriate for the purposes of this opinion.
Based upon the foregoing, we are of the opinion as of the date hereof that
the Common Stock has been duly and validly authorized, and when issued in
accordance with the terms of the Plan of Conversion of the MHC upon receipt of
the consideration required therefore, will be legally issued, fully paid and
non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Company's Registration Statement and to the references to this firm under the
heading "Legal and Tax Opinions" in the Prospectus contained in the Registration
Statement.
Very truly yours,
ELIAS, MATZ, TIERNAN & HERRICK, L.L.P.
By: /s/ Gerald F. Heupel, Jr.
-----------------------------------
Gerald F. Heupel, Jr., a Partner
E - 145
EXHIBIT 8.1
OPINION
of
MALIZIA, SPIDI, SLOANE & FISCH, P.C.
regarding
FEDERAL INCOME TAX CONSEQUENCES
E - 146
<PAGE>
MALIZIA, SPIDI, SLOANE & FISCH, P.C.
One Franklin Square
1301 K Street, N.W.
Suite 700 East
Washington, D.C. 20005
(202) 434-4660
Facsimile: (202) 434-4661
August 8, 1995
Boards of Directors
Roxborough-Manayunk Federal Savings Bank
FJF Financial, M.H.C.
6060 Ridge Avenue
Philadelphia, Pennsylvania 19128
Gentlemen:
In accordance with your request, set forth herein is the opinion of this
firm relating to certain federal income tax consequences of the two integrated
transactions described below.
We have examined such corporate records, certificates and other documents
as we have considered necessary or appropriate for this opinion. In our
examination, we have assumed the genuineness of all signatures, the legal
capacity of all natural persons, the authenticity of all documents submitted to
us as originals, the conformity to original documents of all documents submitted
to us as certified, conformed or photostatic copies and the authenticity of the
originals of such copies. In rendering our opinion, we have relied upon certain
written representations and covenants of Roxborough-Manayunk Federal Savings
Bank (the "Savings Bank"), FJF Financial, M.H.C. (the "Mutual Holding Company"),
Progress Financial Corporation ("PFC"), and Progress Federal Savings Bank
("Progress") which are annexed hereto (collectively referred to herein as the
"Tax Affidavits").
STATEMENT OF FACTS
------------------
Based solely upon our review of the documents described herein, and in
reliance upon such documents, we understand that the relevant facts are as
follows. The Savings Bank and the Mutual Holding Company were created in a
reorganization of Roxborough-Manayunk Federal Savings and Loan Association (the
"Mutual S&L") in December of 1992 (the "1992 Reorganization"). In January of
1993, the Mutual Holding Company and the Savings Bank received rulings from the
Internal Revenue Service (the "Service") holding that the 1992 Reorganization
constituted a tax-free transaction under Section 351 of the Internal Revenue
Code of 1986, as amended (the "Code"). In the 1992 Reorganization, the Mutual
S&L transferred substantially all of its assets and liabilities to the newly
created Savings Bank in exchange for all of the outstanding stock of the Savings
Bank ("Savings Bank Stock"), and converted its
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<PAGE>
Boards of Directors
Roxborough-Manayunk Federal Savings Bank
FJF Financial, M.H.C.
August 8, 1995
Page 2
charter from that of a mutual savings and loan association to that of a mutual
savings and loan holding company. As part of the 1992 Reorganization, the
Savings Bank sold a portion of its stock to the public whereby immediately after
the 1992 Reorganization the public owned approximately 13% of the outstanding
Savings Bank Stock and the Mutual Holding Company owned the remaining 87%.
The principal business of the Savings Bank is the acceptance of savings
deposits from the general public and the origination and purchase of mortgage
loans for the purpose of constructing, financing or refinancing one-to-four
family residences and other improved residential and commercial real estate.
The Savings Bank's income is derived largely from interest and fees in
connection with its lending activities. Its principal expenses are interest
paid on savings deposits and operating expenses.
Progress is a federally-chartered savings bank that has all of its stock
owned by PFC, which operates as a unitary savings and loan holding company. All
of the stock of PFC (the "PFC Stock") is currently owned by the public. The PFC
Stock is widely distributed and is traded on the NASDAQ National Market.
Currently, the management of the Savings Bank, the Mutual Holding Company,
Progress, and PFC believe it would be mutually beneficial to operate in the
corporate structure specified below. The combined capital and resources of the
Savings Bank and PFC's controlled corporate group would allow PFC to increase
its share of the loan and deposit markets in desirable growth areas currently
serviced by the Savings Bank in Pennsylvania, and provide additional capital to
allow PFC's controlled corporate group to effectively carry out their business
plan. Further, the combined corporate structure, resulting from the
transactions specified below, of the Savings Bank, the Mutual Holding Company,
Progress, and PFC would provide greater organizational flexibility, and enable
the resulting institutions to increase their equity capital base available for
expansion of services, facilities, possible future acquisitions of other
financial institutions, possible diversification into other related financial
services activities, and enhance their ability to render services to the public
in a competitive manner.
The Savings Bank and the Mutual Holding Company have adopted a Plan of
Conversion and a related Plan of Merger (collectively referred to herein as the
"Plan of Conversion"). The Mutual Holding Company and the Savings Bank
represent that the Plan of Conversion complies with the provisions of Subpart A
of 12 C.F.R. Part 563b which sets forth the Office of Thrift Supervision (the
"OTS") regulations for conversions of mutual institutions to stock form and that
the Plan of Conversion also complies with the provisions of 12 C.F.R. Sec.
575.12(a), which is the OTS regulation governing the conversion of mutual
savings and loan holding companies to
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<PAGE>
Boards of Directors
Roxborough-Manayunk Federal Savings Bank
FJF Financial, M.H.C.
August 8, 1995
Page 3
stock form. The Mutual Holding Company and the Savings Bank also represent that
the Plan of Conversion includes language that complies with 12 C.F.R.
Sec. 552.13, the OTS regulation governing mergers involving federal stock
associations.
For valid business reasons, as described above and in the prospectus to be
used in the public offerings of PFC Stock described herein ("Prospectus"), the
present corporate structure of the Mutual Holding Company and the Savings Bank
will be changed pursuant to the following proposed transactions:
(i) Pursuant to the Plan of Conversion, the Mutual Holding Company will
convert from the mutual form to a federal interim stock savings bank to be known
as "FJF Financial Interim Federal Savings Bank" ("Interim") and simultaneously
merge with and into the Savings Bank, with the Savings Bank being the surviving
corporation ("Merger 1"). The Savings Bank Stock which was previously held by
the Mutual Holding Company will be extinguished. Eligible members of the Mutual
Holding Company as of certain specified dates set forth in the Plan of
Conversion will be granted interests in a liquidation account to be established
by the Savings Bank (referred to herein as "Savings Bank Liquidation
Interests").
The initial balance of the liquidation account will equal the greater of:
(i) $16,035,000, which is 100% of the retained earnings of the Mutual S&L as of
June 30, 1992, the date of the latest statement of financial condition contained
in the final offering circular utilized in the 1992 Reorganization, or (ii)
87.29% of the Savings Bank's total shareholder equity as reflected in its latest
statement of financial condition contained in the Prospectus to be utilized in
the Mutual Holding Company's mutual-to-stock conversion (the "Conversion").
(ii) Immediately following Merger 1, Progress will merge with and into the
Savings Bank, with the Savings Bank surviving ("Merger 2"). Merger 2 will be
completed in accordance with applicable federal and state laws, and will be
pursuant to an Agreement and Plan of Reorganization between PFC, Progress, the
Mutual Holding Company, and the Savings Bank dated May 24, 1995 and a related
Plan of Merger (collectively referred to herein as the "Plan of
Reorganization"). The Savings Bank Stock held by the public stockholders will
automatically be converted into common stock of PFC ("PFC Stock") based upon an
exchange ratio which ensures that the public stockholders will receive, in the
aggregate, approximately the same percentage of PFC Stock outstanding upon
completion of Merger 2 as the percentage of Savings Bank Stock owned by them in
the aggregate immediately prior to the consummation of Merger 2, before giving
effect to: (a) cash paid in lieu of fractional shares, (b) shares of PFC Stock
purchased by the public in the stock offerings described below in (iv), and (c)
cash paid upon the exercise and perfection of dissenters' rights.
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<PAGE>
Boards of Directors
Roxborough-Manayunk Federal Savings Bank
FJF Financial, M.H.C.
August 8, 1995
Page 4
(iii) Simultaneously with the consummation of Merger 2, PFC will sell
additional shares of PFC Stock to the public through a subscription offering,
and if any shares of PFC Stock remain unsold, then such remaining shares will be
offered for sale to the public through a community offering and/or a syndicated
community offering, as determined by the boards of directors of the resulting
corporate entities. Priority subscription rights to purchase PFC Stock in the
Conversion will be granted to certain depositors and borrowers of the Savings
Bank, certain tax qualified employee stock benefit plans of the Savings Bank,
and stockholders of PFC and the Savings Bank as of certain specified dates
provided in the Plan of Reorganization.
(iv) Members of the Mutual Holding Company possessing Savings Bank
Liquidation Interests as a result of Merger 1 will continue to maintain such
interests upon the completion of Merger 2. Further, individuals maintaining a
liquidation interest in Progress prior to Merger 2 will continue to maintain
such liquidation interests in the Savings Bank (pursuant to OTS regulations),
the surviving corporation in Merger 2.
With respect to the Plan of Conversion and the Plan of Reorganization, the
Savings Bank has filed a private letter ruling request on June 22, 1995,
requesting the following rulings:
1. The exchange of the members' equity interests in the Mutual Holding
Company for interests in a liquidation account established at the Savings Bank
in Merger 1 will satisfy the continuity of interest requirement of Section
1.368-1(b) of the Treasury Regulations (cf. Rev. Rul. 69-646, 1969-1 C.B. 54).
2. Interests in the liquidation account established at the Savings Bank
(i.e., the Savings Bank Liquidation Interests), and the shares of Savings Bank
----
Stock held by the Mutual Holding Company prior to the consummation of Merger 1,
will be disregarded for the purpose of determining that an amount of Savings
Bank Stock which constitutes "control" of such corporation was acquired by PFC
in exchange for shares of PFC Stock pursuant to Merger 2 (Section 368(c) of the
Code).
3. The exchange of PFC Stock for the shares of Savings Bank Stock in
Merger 2, following the consummation of Merger 1, will satisfy the continuity of
interest requirement of Section 1.368-1(b) of the Treasury Regulations in Merger
2.
The facts to the private letter ruling request filed with the Service on
June 22, 1995 will be updated and amended to provide that the Mutual Holding
Company shall convert its charter from a mutual holding company to a federal
interim stock savings bank prior to merging with the Savings Bank instead of
merging directly with the Savings Bank. The Service has not, as
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<PAGE>
Boards of Directors
Roxborough-Manayunk Federal Savings Bank
FJF Financial, M.H.C.
August 8, 1995
Page 5
of the date of this opinion, issued a response to the private letter rulings
requested; however, the Savings Bank and the Mutual Holding Company expect to
receive favorable rulings substantially in the form requested above.
ANALYSIS
--------
Rev. Rul. 80-105(1) provides that the conversion of a federal mutual
savings and loan association to a state or federal stock savings and loan
association, and the conversion of a state chartered mutual savings and loan
association to a stock savings and loan association in the same state are
reorganizations under Code Section 368(a)(1)(F) (Rev. Rul. 54-193 superseded).
Section 368(a)(1)(F) of the Code provides that a mere change in identity, form,
or place of organization, however effected, is a reorganization. If the Mutual
Holding Company converts itself from a federal mutual holding company to a
federal interim stock savings bank the changes at the corporate level, other
than its place of organization and form of organization as described above,
will be insubstantial. Throughout its brief period of existence Interim will:
(i) continue its business in the same manner as the Mutual Holding Company, (ii)
hold the exact same assets previously held by the Mutual Holding Company, (iii)
not engage in any business which the Mutual Holding Company is prohibited from
engaging in, and (iv) be subject to the same regulatory agencies which regulated
the Mutual Holding Company. Therefore, the change in the form of operation of
the Mutual Holding Company from a federal mutual holding company to that of a
federal interim stock savings bank will constitute a reorganization within the
meaning of Section 368(a)(1)(F) of the Code.
It is important to note that Merger 1 could alternatively be accomplished
by merging the Mutual Holding Company directly with and into the Savings Bank
without the formation of an interim stock savings bank.(2) Indeed, Merger 1 as
originally contemplated in the private letter ruling request submitted to the
Service on June 22, 1995 provided for the direct merger of the Mutual Holding
Company with and into the Savings Bank. However, solely for regulatory reasons,
Merger 1 will take place immediately after the Mutual Holding Company converts
its charter to that of a federal interim stock savings bank. It should be
further noted that the formation of Interim prior to Merger 1 will not be for
the purpose of tax avoidance. Clearly,
----------------------------------------
(1) 1980-1 C.B. 78.
(2) Prior taxpayers have accomplished a transaction similar to that of
Meger 1 with a direct merger of a mutual holding company with and into its
subsidiary stock savings institution. See Priv. Ltr. Ruls. 9449018 and 9437020.
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<PAGE>
Boards of Directors
Roxborough-Manayunk Federal Savings Bank
FJF Financial, M.H.C.
August 8, 1995
Page 6
the Mutual Holding Company transaction, providing for the formation of Interim,
should be held to its chosen form when specific business benefits are sought
(such as the avoidance of additional regulatory delay and expense) and
presumably obtained by forming Interim prior to Merger 1.(3)
Section 368(a)(1)(A) of the Code defines the term "reorganization" to
include a "statutory merger or consolidation" of corporations such as Merger 1
and Merger 2. Section 368(a)(2)(E) of the Code provides that a transaction
otherwise qualifying as a merger under Section 368(a)(1)(A), such as Merger 2,
shall not be disqualified by reason of the fact that common stock of a
corporation (referred to in the Code as the "controlling corporation") (i.e.,
----
PFC) which before the merger was in control of the merged corporation, is used
in the transaction if:
(i) after the transaction, the corporation surviving the merger [the
Savings Bank] holds substantially all of its properties and the properties
of the merged corporation [Progress] (other than common stock of the
controlling corporation [PFC] distributed in the transaction); and
(ii) in the transaction, former stockholders of the surviving corporation
[the Savings Bank stockholders] exchanged, for an amount of voting common
stock of the controlling corporation, an amount of common stock in the
surviving corporation which constitutes control of such corporation.
Section 1.368-2(b)(1) of the Treasury Regulations provides that, in order
to qualify as a reorganization under Section 368(a)(1)(A), a transaction must be
a merger or consolidation effected pursuant to the corporation laws of the
United States or a state. The Plan of Conversion and Plan of Reorganization
together provide that Merger 1 and Merger 2 will be consummated in accordance
with applicable federal and state laws.
Treasury Regulations and case law require that, in addition to the
existence of statutory
----------------------------------------
(3) The Service has accepted that a taxpayer may choose his form to obtain
the tax consequences desired. In Rev. Rul. 70-223, 1970-2 C.B. 79, Corporation
X acquired all of the outstanding stock of Corporation Y within a 12 month
period. The assets of Y had an adjusted basis in its hands greater than the
cost of the Y stock to X. It was thus decided, for good business reasons, to
merge X into Y in order to avoid the reduction in basis of Y's assets that would
have resulted under Code Sections 332 and 334(b)(2) had Y been liquidated into X
(or merged upstream into X). In holding that the downstream merger qualified
under Code Section 368(a)(1)(A), the ruling states "[s]ince X may accomplish its
desired objective of combining the two businesses by either liquidating Y or by
merging into Y, it may choose whichever form it desires for the transaction."
E - 152
<PAGE>
Boards of Directors
Roxborough-Manayunk Federal Savings Bank
FJF Financial, M.H.C.
August 8, 1995
Page 7
authority for a merger, certain other conditions must be satisfied in order to
qualify a proposed transaction as a reorganization within the meaning of Section
368(a)(1)(A) of the Code. The "business purpose test," which required a
proposed merger to have a bona fide business purpose, must be satisfied. See
---
Treas. Reg. Section 1.368-1(c). We believe that Merger 1 and Merger 2 will
satisfy the business purpose test for the reasons set forth herein and in the
Prospectus which is related to the public offerings of PFC Stock pursuant to
Merger 2. The "continuity of business enterprise test" requires an acquiring
corporation to either continue an acquired corporation's historic business or
use a significant portion of its historic assets in a business. See Treas. Reg.
---
Section 1.368-1(d). We believe that the continuity of business enterprise test
is satisfied because the Prospectus provides that the business conducted by the
Savings Bank prior to Merger 1 and Merger 2 will be unaffected by the proposed
transactions.
The "continuity of interest doctrine" requires that the continuing common
stock interest of the former owners of an acquired corporation, considered in
the aggregate, represent a "substantial part" of the value of their former
interest and provide them with a "definite and substantial interest" in the
affairs of the acquiring corporation or a corporation in control of the
acquiring corporation. Paulsen v. Comm'r, 469 U.S. 131 (1985); Helvering v.
----------------- ------------
Minnesota Tea Co., 296 U.S. 378 (1935); John A. Nelson Co. v. Helvering, 296
----------------- -------------------------------
U.S. 374 (1935); Southwest Natural Gas Co. v. Comm'r, 189 F.2d 332 (5th Cir.
-----------------------------------
1951), cert. denied, 342 U.S. 860 (1951).
---- ------
The following issues are not clearly and adequately addressed by statute,
regulation, decision of the Supreme Court of the United States, tax treaty,
revenue ruling, revenue procedure, notice, or other authority published in the
Internal Revenue Bulletin:
(i) how the judicially-developed continuity of interest requirement is
satisfied when a mutual holding company converts to stock form,
(ii) whether to include the Mutual Holding Company as a former stockholder
of the Savings Bank in applying the continuity of interest requirement with
respect to Merger 2, and
(iii) whether the Savings Bank Liquidation Interests (to be distributed to
certain members of the Mutual Holding Company in Merger 1) and the Savings
Bank Stock held by the Mutual Holding Company prior to Merger 1, should be
disregarded for purposes of determining if PFC acquired "control" of the
Savings Bank in Merger 2.
E - 153
<PAGE>
Boards of Directors
Roxborough-Manayunk Federal Savings Bank
FJF Financial, M.H.C.
August 8, 1995
Page 8
The Service has previously ruled on an identical issues in Priv. Ltr. Rul.
9510044. Although Priv. Ltr. Rul. 9510044 may not be used or cited as precedent
pursuant to Section 6110(j)(3) of the Code, it illustrates the Service's
analysis and position concerning these particular issues. As provided in Priv.
Ltr. Rul. 9510044, a mutual holding company owns approximately 57.5% of the
outstanding stock of a federally-chartered stock savings bank. The proposed
transaction in Priv. Ltr. Rul. 9510044 includes the conversion of a mutual
holding company from mutual to stock form and the simultaneous merger of the
mutual holding company with and into the federally-chartered stock savings bank
with the stock savings bank being the surviving corporation. Subsequent to such
mutual-to-stock conversion, the common stock of the stock savings bank held by
the mutual holding company was to be extinguished, and eligible members of the
mutual holding company were to be granted interests in a liquidation account to
be established by the stock savings bank. This particular transaction, which is
identical to the proposed transaction described herein as Merger 1, was held by
the Service to satisfy the continuity of interest requirement of Section 1.368-
1(b) of the Treasury Regulations. The Service cited Rev. Rul. 69-646, 1969-1
C.B. 54, as authority for this ruling.(4)
The issue of whether to include the Mutual Holding Company as a former
stockholder of the Savings Bank in applying the continuity of interest
requirement with respect to Merger 2 was also addressed by the Service in Priv.
Ltr. Rul. 9510044. The Service found no cause to apply the step transaction
doctrine to step together the two mergers contemplated in Priv. Ltr. Rul.
9510044. The Service ruled that the exchange of shares of common stock of the
savings and loan holding company for the shares of common stock of the stock
savings bank satisfied the continuity of interest requirement of Treasury
Regulation Section 1.368-1(b), an exchange which occurs immediately following
the conversion of the mutual holding company.
The Service also ruled in Priv. Ltr. Rul. 9510044 that liquidation
interests (comparable to the Savings Bank Liquidation Interests) and stock
previously held by a mutual holding company (comparable to the Savings Bank
Stock held by the Mutual Holding Company prior to Merger 1) were to be
disregarded in determining whether the acquiring corporation obtained control
within the meaning of Code Section 368(c).
-----------------------------------------
(4) The Service has ruled consistently regarding the exchange of members'
equity interests in a converting mutual holding company for interests in a
liquidation account established by its subsidiary stock savings institution in
other Private Letter Rulings with substantially similar facts. See Priv. Ltr.
---
Ruls. 9449018 and 9437020.
E - 154
<PAGE>
Boards of Directors
Roxborough-Manayunk Federal Savings Bank
FJF Financial, M.H.C.
August 8, 1995
Page 9
Although Code Section 6110 precludes the parties to Merger 1 and Merger 2
from using or citing Priv. Ltr. Rul. 9510044 as precedent, there is currently no
reasonable basis to believe that the Service will rule contrary to recent
private letter rulings encompassing substantially similar facts and
circumstances. However, should the Service not rule favorably as to the three
rulings requested, our opinions rendered herein (regarding the tax-free status
of Merger 1 and Merger 2) may be significantly affected thereby.
Further, we believe that Merger 2 satisfies the continuity of interest
doctrine because the Savings Bank's stockholders who do not exercise dissenters'
rights following Merger 1, will receive only PFC Stock in exchange for their
shares of Savings Bank Stock. In addition, we believe other applicable
requirements of the Treasury Regulations and case law which are preconditions to
the qualification of Merger 1 and Merger 2 as a reorganization, within the
meaning of Sections 368(a)(1)(A) and 368(a)(2)(E) of the Code, are satisfied on
the basis of the information contained in the Plan of Conversion, the Plan of
Reorganization, the Tax Affidavits, and the Prospectus.
Section 354 of the Code provides that no gain or loss shall be recognized
by stockholders who exchange common stock in a corporation, such as the Savings
Bank, which is a party to a reorganization, solely for common stock in another
corporation which is a party to the reorganization, such as PFC. Section 356 of
the Code provides that stockholders shall recognize gain to the extent they
receive money as part of a reorganization, such as money received in lieu of
fractional shares. Section 358 of the Code provides that, with certain
adjustments for money received in a reorganization, a stockholder's basis in
the common stock he or she receives in a reorganization shall equal the basis
of the common stock which he or she surrendered in the transaction. Section
1223(1) states that, where a stockholder receives property in an exchange
which has the same basis as the property surrendered, he or she shall be deemed
to have held the property received for the same period as the property
exchanged, provided that the property exchanged had been held as a capital
asset.
Section 361 of the Code provides that no gain or loss shall be recognized
to a corporation such as Progress which is a party to a reorganization on any
transfer of property pursuant to a plan of reorganization. Section 362 of the
Code provides that if property is acquired by a corporation such as the Savings
Bank in connection with a reorganization, then the basis of such property shall
be the same as it would be in the hands of the transferor immediately prior to
the transfer. Section 1223(2) of the Code states that where a corporation such
as the Savings Bank will have a carryover basis in property received from
another corporation which is a party to a reorganization, the holding period of
such assets in the hands of the acquiring corporation shall include the period
for which such assets were held by the transferor, provided that the property
E - 155
<PAGE>
Boards of Directors
Roxborough-Manayunk Federal Savings Bank
FJF Financial, M.H.C.
August 8, 1995
Page 10
transferred had been held as a capital asset. Section 1032 of the Code states
that no gain or loss shall be recognized to a corporation, such as PFC, on the
receipt of property in exchange for common stock.
OPINION OF COUNSEL
------------------
If Merger 1 and Merger 2 are consummated as described herein, and provided
that: (i) the change in the form of operation of the Mutual Holding Company
from a federal mutual holding company to that of a federal interim stock savings
bank constitutes a reorganization within the meaning of Section 368(a)(1)(F) of
the Code, and (ii) the Service rules favorably as to the private letter rulings
requested on June 22, 1995 (as modified), we are of the opinion that:
1. Merger 1 qualifies as a reorganization within the meaning of Section
368(a)(1)(A) of the Code.
2. No gain or loss will be recognized by the Savings Bank upon the
receipt of the assets of the Mutual Holding Company in Merger 1.
3. Merger 2 qualifies as a reorganization within the meaning of Section
368(a)(1)(A) of the Code. Pursuant to Section 368(a)(2)(E) of the Code, Merger
2 is not disqualified from qualifying as a reorganization within the meaning of
Section 368(a)(1)(A) because PFC Stock will be conveyed to the Savings Bank's
stockholders in exchange for their Savings Bank Stock.
4. No gain or loss will be recognized by Progress upon the transfer of
its assets to the Savings Bank pursuant to Merger 2.
5. No gain or loss will be recognized by the Savings Bank upon the
receipt of the assets of Progress.
6. No gain or loss will be recognized by PFC upon the receipt of Savings
Bank Stock solely in exchange for PFC Stock.
7. No gain or loss will be recognized by the Savings Bank's public
stockholders upon the receipt of PFC Stock solely in exchange for their shares
of Savings Bank Stock.
E - 156
<PAGE>
Boards of Directors
Roxborough-Manayunk Federal Savings Bank
FJF Financial, M.H.C.
August 8, 1995
Page 11
8. The basis of the PFC Stock to be received by the Savings Bank's public
stockholders will be the same as the basis of the Savings Bank Stock surrendered
in exchange therefor, before giving effect to any payment of cash in lieu of
fractional shares.
9. The holding period of the PFC Stock to be received by the Savings
Bank's public stockholders will include the holding period of the Savings Bank
Stock, provided that the Savings Bank Stock was held as a capital asset on the
date of the exchange.
10. No gain or loss will be recognized by PFC upon the sale of PFC Stock
to investors.
11. The Eligible Account Holders, Supplemental Eligible Account Holders,
and Other Members (as such terms are defined in the Plan of Conversion) will
recognize gain, if any, upon the issuance to them of: (i) withdrawable savings
accounts in the Savings Bank following the Conversion, (ii) Savings Bank
Liquidation Interests, and (iii) nontransferable subscription rights to purchase
PFC Stock, but only to the extent of the value, if any, of the subscription
rights.
12. The tax basis to the holders of PFC Stock purchased in the public
stock offerings will be the amount paid therefor, and the holding period for
such shares will begin on the date of consummation of such offerings if
purchased through the exercise of subscription rights. If purchased in the
Community Offering or Syndicated Community Offering (as such terms are defined
in the Plan of Conversion), the holding period for such stock will begin on the
day after the date of purchase.
SCOPE OF OPINION
----------------
No opinion is expressed as to the tax consequences to any party, whether
federal, state, local, or foreign, of either Merger 1 or Merger 2, or any
transactions related to Merger 1 or Merger 2, or contemplated by either the Plan
of Conversion or the Plan of Reorganization, or to the tax treatment of any
conditions existing at the time of, or effects resulting from, the transactions
which are not specifically referenced above. Further, no opinion is expressed
or intended to be expressed herein as to the effect, if any, of Merger 1 or
Merger 2 on the continued existence of, the carryover or carryback of, or the
limitation on, any net operating losses of the Savings Bank under the Code. If
any of the information upon which we have relied is incorrect, or if changes in
the relevant facts occur after the date hereof, our opinion could be affected
thereby. Moreover, our opinion is based on the case law, Code, Treasury
Regulations thereunder, and the Revenue Rulings from the Service as they now
exist. These authorities are
E - 157
<PAGE>
Boards of Directors
Roxborough-Manayunk Federal Savings Bank
FJF Financial, M.H.C.
August 8, 1995
Page 12
all subject to change, and such change may be made with retroactive effect. We
can give no assurance that, after such change, the opinions set forth herein
would not significantly change. We undertake no responsibility to update or
supplement our opinion. This opinion is not binding on the Service and there
can be no assurance, and none is hereby given, that the Service will not take a
position contrary to one or more of the positions reflected in the foregoing
opinion, or that our opinion will be upheld by the courts if challenged by the
Service.
USE OF OPINION
--------------
This opinion is solely for the information and use of the Savings Bank and
the Mutual Holding Company in connection with Merger 1 and Merger 2, and may not
be used or relied upon for any other purpose and may not be circulated, quoted,
or otherwise referred to, nor is it to be filed with any governmental agency or
other person without our express written consent.
CONSENT
-------
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement on Form S-1 ("Form S-1") to be filed by PFC with the
Securities and Exchange Commission, and as an exhibit to the Mutual Holding
Company's Application for Conversion on the Form AC as filed with the OTS ("Form
AC"), and to the references to our firm in the Prospectus which is part of both
the Form S-1 and the Form AC.
Very truly yours,
Malizia, Spidi, Sloane & Fisch, P.C.
/s/ Malizia, Spidi, Sloane & Fisch, P.C.
----------------------------------------
E - 158
EXHIBIT 8.2
OPINION
of
DRINKER BIDDLE & REATH
regarding
PENNSYLVANIA INCOME TAX CONSEQUENCES
E - 159
<PAGE>
LAW OFFICES
DRINKER BIDDLE & REATH
PHILADELPHIA NATIONAL TRUST BUILDING
1345 CHESTNUT STREET
PHILADELPHIA, PA 19107-3496
TELEPHONE: (215) 988-2700
TELEX: 834684
FAX: (215) 988-2757
August 7, 1995
Board of Directors
FJF Financial, Mutual Holding Company
6060 Ridge Avenue
Philadelphia, PA 19128
Board of Directors
Roxborough-Manayunk
Federal Savings Bank
6060 Ridge Avenue
Philadelphia, PA 19128
Gentlemen:
You have requested our opinion regarding certain Pennsylvania tax
consequences to FJF Financial Mutual Holding Company ("FJF"), Roxborough-
Manayunk Federal Savings Bank ("Bank") and their respective shareholders,
depositors and members under the laws of the Commonwealth of Pennsylvania of the
proposed interdependent transactions (the "Conversion and Merger") under which:
(i) FJF will convert from the mutual form to a federal interim stock
savings bank to be known as "FJF Financial Interim Federal Savings
Bank" and simultaneously merge with and into Bank;
(ii) Progress Federal Savings Bank ("Progress"), a wholly-owned
subsidiary of Progress Financial Corporation ("Parent") will merge
with and into Bank, upon the happening of which Bank will change its
name to "Progress Bank" and become a wholly-owned subsidiary of
Parent; and
(iii) The shares of Bank not owned by FJF will be converted to Parent
common stock pursuant to the Exchange Ratio,
E - 160
<PAGE>
DRINKER BIDDLE & REATH
Board of Directors
FJF Financial, Mutual Holding Company
Board of Directors
Roxborough-Manayunk
Federal Savings Bank
August 7, 1995
Page 2
pursuant to the Plan of Conversion adopted by the Boards of Directors of FJF and
Bank on May 24, 1995, and the Agreement and Plan of Reorganization entered into
by FJF, Bank, Parent and Progress on May 24, 1995. Capitalized terms not
defined herein shall have the meanings ascribed to them in said Agreement and
Plan of Reorganization.
You have received an opinion of counsel (the "Federal Tax Opinion")
from the firm of Malizia, Spidi, Sloane & Fisch, P.C., regarding certain federal
income tax aspects of the Conversion and Merger. Based upon the facts stated in
the Federal Tax Opinion, including certain representations of FJF and Bank, the
Federal Tax Opinion concludes, among other things, that the Conversion and
Merger qualify as tax-free reorganizations under Section 368(a)(1)(A) and
Sections 368(a)(1)(A) and 368(a)(2)(E) of the Internal Revenue Code of 1986, as
amended, respectively, and that FJF, Bank, and their respective shareholders,
depositors and members will not recognize income, gain or loss for federal
income tax purposes upon the implementation of the Conversion and Merger.
Based upon (1) the facts and circumstances attendant to the Conversion
and Merger including the representations of FJF and Bank, as described in the
Federal Tax Opinion, (2) current provisions of Pennsylvania law, as reflected in
Pennsylvania statutes, administrative regulations and rulings thereunder, and
court decisions, (3) the Federal Tax Opinion, and (4) the assumption that the
Conversion and Merger will not result in the recognition of any gain or income
on the books of FJF and Bank under generally accepted accounting principles
("GAAP"), it is our opinion that under the laws of the Commonwealth of
Pennsylvania, the implementation of the Conversion and Merger will not cause any
tax liability to be incurred (a) by FJF or Bank under the Pennsylvania Mutual
Thrift Institutions Tax ("MTIT"), 72 P.S. Sec.8501 et seq., (b) by the members
------
of FJF or the shareholders or the depositors of Bank under the Pennsylvania
Personal Income Tax ("PIT"), 72 P.S. Sec.7301 et seq., except to the extent that
------
taxable income for federal income tax purposes is recognized by any such person
as a result of the receipt of cash in lieu of fractional shares or on the
exercise of dissenters
E - 161
<PAGE>
DRINKER BIDDLE & REATH
Board of Directors
FJF Financial, Mutual Holding Company
Board of Directors
Roxborough-Manayunk
Federal Savings Bank
August 7, 1995
Page 3
rights, and (c) by FJF under the Pennsylvania Corporate Net Income Tax ("CNIT"),
72 P.S. Sec.7401 et seq.
------
Our opinions herein are expressly limited to those taxes specified in
the immediately preceding paragraph and specifically do not include any opinions
with respect to the consequences of the implementation of the Conversion and
Merger under any other taxes imposed by the Commonwealth of Pennsylvania or any
other subdivision thereof, or imposed by states other than Pennsylvania and
local jurisdictions of such states. In addition, the opinions herein
specifically do not include (1) an opinion with respect to the consequences of
the implementation of the Conversion and Merger under any local taxes imposed by
any political subdivision of the Commonwealth of Pennsylvania, and under any
state or local realty or other transfer tax, or (2) an opinion with respect to
tax liabilities under the MTIT, the PIT, or the CNIT attributable to events
after the Conversion and Merger.
We are also not hereby opining on any federal income tax consequences
or GAAP consequences of the Conversion and Merger. To the extent that such
federal income tax consequences and GAAP consequences are relevant to our
opinion with respect to the Pennsylvania tax consequences under the MTIT, the
PIT, and the CNIT, we have relied solely on the Federal Tax Opinion described
above, and we have assumed for purposes of our opinion that the Conversion and
Merger will not result in the recognition of any gain or income on the books of
FJF or Bank under GAAP.
We hereby consent to the filing of this opinion as an exhibit to the
Form AC of the Association filed with the Office of Thrift Supervision ("OTS")
and the Registration Statement on Form S-1 of Parent filed with the Securities
and Exchange Commission (the "SEC"), and to the reference to our firm in the
Offering Prospectus related to this opinion. In giving this
E - 162
<PAGE>
DRINKER BIDDLE & REATH
Board of Directors
FJF Financial, Mutual Holding Company
Board of Directors
Roxborough-Manayunk
Federal Savings Bank
August 7, 1995
Page 4
consent, we do not thereby admit that we come within the category of persons
whose consent is required by the rules of the OTS or the SEC.
Sincerely,
/s/ DRINKER BIDDLE & REATH
DRINKER BIDDLE & REATH
SDDH:EMM
E - 163
EXHIBIT 8.3
OPINION
of
RP FINANCIAL, INC.
REGARDING SUBSCRIPTION RIGHTS
E - 164
<PAGE>
RP FINANCIAL, INC.
-----------------------------------------------
Financial Services Industry Consultants
August 8, 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
Re: Plan of Conversion, Agreement and Plan of Reorganization, and
Plan of Merger: Subscription Rights
FJF Financial, M.H.C., Roxborough-Manayunk Federal Savings Bank,
Progress Financial Corporation, and Progress Federal Savings Bank
Gentlemen:
All capitalized terms not otherwise defined in this letter have
the meanings given such terms in the Plan of Conversion and related
Plan of Merger (the "Plan") adopted by Roxborough-Manayunk Federal
Savings Bank ("Roxborough-Manayunk") and FJF Financial, M.H.C. (the
"Mutual Holding Company"), and the Agreement and Plan of
Reorganization and related Plan of Merger (collectively, the "Merger
Agreement") adopted by Roxborough-Manayunk, the Mutual Holding
Company, Progress Financial Corporation (the "Company") and Progress
Federal Savings Bank ("Progress") (collectively, the "Parties").
Pursuant to the Plan and Merger Agreement, 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 (collectively, with the Exchange, the
"Conversion and Merger").
We understand that Subscription Rights to purchase shares of
Company Common Stock ("Conversion Stock") are to be issued to (i)
Eligible Account Holders; (ii) the ESOP; (iii) Supplemental Eligible
Account Holders; (iv) Other Members; and (v) Eligible Stockholders,
collectively referred to as the "Recipients". Based solely upon our
observation that the Subscription Rights will be available to such
Recipients without cost, will be legally non-transferable and of
short duration, and will afford the Recipients the right only to
purchase shares of Conversion Stock at the same price as will be
paid by members of the general public in the Community Offering, but
without undertaking any independent investigation of state or
federal law or the position of the Internal Revenue Service with
respect to this issue, we are of the belief that:
(1) the Subscription Rights will have no ascertainable
market value; and,
(2) the price at which the Subscription Rights are
exercisable will not be more or less than the pro
forma market value of the shares upon issuance.
________________________________________________________________________________
Washington Headquarters
Rosslyn Center
1700 North Moore Street, Suite 2210 Telephone: (703) 528-1700
Arlington, VA 22209 Fax No.: (703) 528-1788
E - 165
<PAGE>
RP Financial, Inc.
Board of Directors
August 8, 1995
Page 2
Changes in the local and national economy, the legislative and
regulatory environment, the stock market, interest rates, and other
external forces (such as natural disasters or significant world
events) may occur from time to time, often with great
unpredictability and may materially impact the value of thrift
stocks as a whole or the pro forma market value alone. Accordingly,
no assurance can be given that persons who subscribe to shares of
Conversion Stock in the conversion will thereafter be able to buy or
sell such shares at the same price paid in the Subscription
Offering.
Sincerely,
/s/ William E. Pommerening
William E. Pommerening
Chief Executive Officer and
Managing Consultant
E - 166
Exhibit 23.4
Consent of RP Financial, Inc.
E - 167
<PAGE>
[LETTERHEAD OF RP FINANCIAL, INC.]
August 8, 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-168
Exhibit 23.5
Consent of Coopers & Lybrand L.L.P.
E - 169
<PAGE>
Consent of Independent Accountants
We consent to the inclusion in this registration statement on Form S-1,
including Amendment No. 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."
2400 Eleven Penn Center
Philadelphia, Pennsylvania
August 8, 1995
E-170
Exhibit 23.6
Consent of KPMG Peat Marwick LLP
E - 171
<PAGE>
CONSENT PREVIOUSLY FILED, WITH
NO CHANGES TO 1992 FINANCIAL STATEMENTS
E-172
Exhibit 23.7
Consent of Deloitte & Touche, LLP
E - 173
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to 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
August 8, 1995
E-174
EXHIBIT 99.1
PROXY STATEMENT
and
FORM OF PROXY
for
SOLICITATION OF STOCKHOLDERS
of
PROGRESS FINANCIAL CORPORATION
E - 175
<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 September __, 1995
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of Progress
Financial Corporation (the "Company") will be held at the Plymouth Country Club,
Plymouth and Belvoir Roads, Norristown, Pennsylvania, on September __, 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 form to a federal interim stock savings bank
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 three 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 adjourn the Special Meeting, if necessary, to solicit additional
proxies; and
(3) 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 August
14, 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
August __, 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.
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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 the Plymouth
Country Club, Plymouth and Belvoir Roads, Norristown, Pennsylvania, on September
__, 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 August __, 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 August
14, 1995 ("Voting Record Date") are entitled to notice of and to vote at the
Special Meeting. On the Voting Record Date, there were 3,280,000 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
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Conversion and the Merger and the amendments to the Company's Certificate of
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. The
affirmative vote of the holders of a majority of the total votes present in
person or by proxy is required to approve the proposal to adjourn the Special
Meeting, if necessary. Because of the required vote, abstentions will have the
same effect as a vote against the proposal to adjourn the Special Meeting, if
necessary. There will be no broker non-votes on this 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
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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 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,
which documents were subsequently amended on August 7, 1995. Pursuant to the
Plan of Conversion and the Merger Agreement, (i) the Mutual Holding Company will
convert from the mutual form to a federal interim stock savings bank to be known
as "FJF Financial Interim Federal Savings Bank" ("Interim") 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 ("Roxborough-Manayunk 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 Roxborough-Manayunk
Common Stock held by the public stockholders of Roxborough-Manayunk (the
"Roxborough-Manayunk Public Shares"), which amounted to 206,000 shares or 12.71%
of the outstanding Roxborough-Manayunk Bank Common Stock at March 31, 1995, will
be converted into shares of Company Common Stock (the "Exchange Stock") pursuant
to a ratio (the "Exchange Ratio") that will result in the holders of such shares
(the "Roxborough-Manayunk 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 Stock) as the percentage of Roxborough-Manayunk Common Stock owned by
them in the aggregate immediately prior to consummation of the Conversion and
the Merger (although the Roxborough-Manayunk Public Stockholders will receive a
smaller percentage ownership interest in the Company than they had in
Roxborough-Manayunk), before giving effect to
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(a) the payment of cash in lieu of issuing fractional shares of Exchange Stock,
(b) any shares of Conversion Stock purchased by the Roxborough-Manayunk Public
Stockholders in the Offerings, and (c) any exercise of dissenters' rights by the
Roxborough-Manayunk 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 Summary - 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 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 the mutual form to a federal
interim stock savings bank, the merger of Interim 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 August 7, 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 Roxborough-Manayunk 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 Roxborough-Manayunk Public Stockholders at the
Roxborough-Manayunk Stockholders' Meeting. The Mutual Holding Company intends
to vote its shares of Roxborough-Manayunk 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 August 14, 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.
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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 $62.4 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 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.
In addition to the above, the Parties also considered that Progress is
categorized as an "adequately capitalized" institution under the OTS regulations
which needs additional capital in order to support future growth and remain
competitive, while Roxborough-Manayunk is already categorized as a "well
capitalized" institution that would have difficulty generating adequate rates
of return on the additional capital that it would receive in a conversion of
the Mutual Holding Company from mutual to stock form that did not involve a
combination with another institution. By combining Progress and Roxborough-
Manayunk, the resulting institution Progress Bank will be a well capitalized
institution that will have sufficient capital to support
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future growth without having the amount of excess capital that the Mutual
Holding Company and Roxborough-Manayunk would have if they converted on their
own.
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 August 7, 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 August 7, 1995 ("Other
Members"); and (v) stockholders of Roxborough-Manayunk as of August 7, 1995 and
of the Company as of August 14, 1995 ("Eligible Stockholders") (the
"Subscription Offering"). Subscription rights will expire if not exercised
by 12:00 noon, Eastern Time, on September, 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 "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
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-Manayunk in the past. An affiliate of Sandler O'Neill, 1993 SOP Partners,
L.P., is currently deemed to beneficially own 6.10% of the outstanding Company
Common Stockand 16.67% of the Company's outstanding subordinated debt and
outstanding warrants. See "Risk Factors - Relationships Between the Company,
Roxborough-Manayunk and Sandler O'Neill" and "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 Roxborough-Manayunk
Public 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 Roxborough-Manayunk 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.
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
multiplying the Appraised Value, as determined by RP Financial, by the Mutual
Holding Company's percentage interest in Roxborough-Manayunk and then dividing
the resulting amount by 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.
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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 Stock and shares of Company Common Stock to be
subject to options to purchase Company Common Stock upon the conversion of
existing options to purchase Roxborough-Manayunk 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 Stock 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) 4,128,656 5,767,011
Exchange Stock 601,160 839,715
--------- ---------
Total to be issued in the Conversion
and the Merger 4,729,816 6,606,726
Exchange Ratio(2) 2.91825 4.07629
Conversion of existing options to
purchase Roxborough-Manayunk Common Stock(3) 116,730 163,051
--------- ---------
Total New Shares 4,846,546 6,769,777
Company Common Stock currently outstanding
on a fully diluted basis (4) 3,808,000 3,808,000
--------- ---------
Company Common Stock to be outstanding
on a fully diluted basis 8,654,546 10,577,777
========= ==========
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 the policies of the Office of Thrift Supervision
("OTS"), the shares of Conversion Stock and Exchange Stock 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
Roxborough-Manayunk Common Stock).
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(2) The Exchange Ratio was determined by dividing the number of shares of
Exchange Stock by the 206,000 outstanding Roxborough-Manayunk Public
Shares. In the event outstanding stock options to purchase Roxborough-
Manayunk 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 Roxborough-Manayunk 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 Roxborough-
Manayunk Common Stock owned by them in the aggregate immediately prior to
consummation of the Conversion and the Merger (although the Roxborough-
Manayunk Public Stockholders will receive a smaller percentage ownership
interest in the Company than they had in Roxborough-Manayunk), before
giving effect to (i) the payment of cash in lieu of issuing fractional
shares of Exchange Stock, (ii) any shares of Conversion Stock purchased by
the Roxborough-Manayunk Public Stockholders in the Offerings, and (iii) any
exercise of dissenters' rights by the Roxborough-Manayunk 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.
(3) If any outstanding stock options to purchase Roxborough-Manayunk 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 Roxborough-
Manayunk 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 228,000 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 4,128,656 shares of Conversion Stock or more than 5,767,011
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 is 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
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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.
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 4,128,656 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 5,767,011 shares of Conversion Stock are issued, based upon the
number of shares of Company Common Stock currently outstanding on a fully
diluted basis.
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Based upon the minimum and maximum Exchange Ratio that will not give rise
to a right of termination of the Merger Agreement by any of the Parties, the
following table sets forth the number of shares of Exchange Stock to be received
by the Roxborough-Manayunk Public Stockholders.
Number of Shares of Exchange Stock
------------------------------------
Minimum Maximum
------- -------
Roxborough-Manayunk Public
Shares(1):
Per share 2.91825 4.07629
Total of 206,000 shares 601,160 839,715
-------------------------
(1) Cash will be paid in lieu of issuing fractional shares of Exchange Stock.
Assumes no exercise of dissenters' rights and no exercise of outstanding
stock options to purchase Roxborough-Manayunk Common Stock.
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
November __, 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 three 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 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
11
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<PAGE>
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
Stock 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 4,846,546 to 6,769,777 . 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 first meeting of stockholders six
months after the completion of the Conversion and the Merger. If both plans are
approved by stockholders, the Company expects to reserve for issuance pursuant
to such plans an aggregate of 495,438 to 692,041 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 9,213,177 and 11,333,011.
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 by stockholders, the Company expects to have between
92,131 and 113,330 shares of Preferred Stock reserved for issuance pursuant to
Rights.
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
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<PAGE>
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 three 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.
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 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 the Board of Directors' judgment, the Board of
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<PAGE>
Directors of the Company is in the best position to determine the true value of
the Company and to negotiate more effectively for what may be in the best
interests of its stockholders. Accordingly, the Board of Directors of the
Company believes that it is in the best interests of the Company and its
stockholders to encourage potential acquirors to negotiate directly with the
Board of Directors of the Company and that these provisions will encourage such
negotiations and discourage hostile takeover attempts. It is also the Board of
Directors' view that these provisions should not discourage persons from
proposing a merger or other transaction at prices reflective of the true value
of the Company and where the transaction is in the best interests of all
stockholders. 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. Despite the Board of
Directors' belief as to the benefits to the Company's stockholders of the
foregoing provisions, these provisions also may have the effect of discouraging
a future takeover attempt in which stockholders might receive a substantial
premium for their shares over then current market prices and may tend to
perpetuate existing management. As a result, stockholders who might desire to
participate in such a transaction may not have an opportunity to do so. The
Board of Directors of the Company, however, has concluded that the potential
benefits of these provisions outweigh their possible disadvantages. See
"Restrictions on Acquisition of the Company and Progress Bank" in the
Prospectus.
ADJOURNMENT OF SPECIAL MEETING
Each proxy solicited hereby requests authority to vote for an adjournment
of the Special Meeting, if an adjournment is deemed to be necessary. The
Company may seek an adjournment of the Special Meeting for not more than 29 days
in order to enable the Company to solicit additional votes in favor of the
proposal to adopt the Merger Agreement in the event that such proposal has not
received the requisite vote of stockholders at the Special Meeting and such
proposal has not received the negative votes of the holders of a majority of the
Company's Common Stock. If the Company desires to adjourn the meeting, it will
request a motion that the meeting be adjourned for up to 29 days and no vote
will be taken on the proposal at the originally scheduled Special Meeting. Each
proxy solicited hereby, if properly signed and returned to the Company and not
revoked prior to its use, will be voted on any motion for adjournment in
accordance with the instructions contained therein. If no contrary instructions
are given, each proxy received will be voted in favor of any motion to adjourn
the meeting. Unless revoked prior to its use, any proxy solicited for the
Special Meeting will continue to be valid for any adjournment of the Special
Meeting, and will be voted in accordance with instructions contained therein,
and if no contrary instructions are given, for the proposal to adopt the Merger
Agreement.
14
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<PAGE>
Any adjournment will permit the Company to solicit additional proxies and
will permit a greater expression of the stockholders' views with respect to the
proposal to adopt the Merger Agreement. Such an adjournment would be
disadvantageous to stockholders who are against the proposal, because an
adjournment will give the Company additional time to solicit favorable votes and
thus increase the chances of passing such proposal.
If a quorum is not present at the Special Meeting, the proposal to adopt
the Merger Agreement will be acted upon and the Board of Directors of the
Company will adjourn the Special Meeting to a later date in order to solicit
additional proxies on the proposal to adopt the Merger Agreement.
An adjournment for up to 29 days will not require either the setting of a
new record date or notice of the adjourned meeting as in the case of an original
meeting. The Company has no reason to believe that an adjournment of the
Special Meeting will be necessary at this time.
Because the Board of Directors recommends that stockholders vote FOR the
proposal to adopt the Merger Agreement, the Board of Directors recommends that
stockholders vote FOR the possible adjournment of the Special Meeting. The
holders of a majority of the Company's Common Stock present, in person or by
proxy, at the Special Meeting will be required to approve a motion to adjourn
the Special Meeting.
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
15
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<PAGE>
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 $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, 1993 SOP Partners, L.P., is currently deemed to beneficially
own 6.10% of the outstanding Company Common Stock and 16.67% of the Company's
outstanding subordinated debt and outstanding warrants. See "Risk Factors -
Relationships Between the Company, Roxborough-Manayunk and Sandler O'Neill" and
"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.
16
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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 three years from the
completion of the conversion of FJF Financial, M.H.C. from mutual 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.
A-1
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<PAGE>
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 third anniversary of the completion of the
Conversion and the Merger.
A-2
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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 SEPTEMBER __, 1995 AND AT ANY ADJOURNMENT THEREOF.
The undersigned, being a stockholder of the Company as of August 14, 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 Plymouth Country Club, Plymouth and Belvoir Roads, Norristown, Pennsylvania,
on September __, 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 form to a federal interim stock savings bank
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 three 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. To adjourn the Special Meeting, if necessary, to solicit additional
proxies.
FOR AGAINST ABSTAIN
3. 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 proposals to approve the
Merger Agreement and to adjourn the meeting, if necessary, 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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EXHIBIT 99.2
ORDER FORM
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<PAGE>
<TABLE><CAPTION>
A PROPERLY COMPLETED ORIGINAL STOCK
ORDER FORM MUST BE USED TO PURCHASE
[Progress Financial Logo] COMMON STOCK, ALSO READ AND SIGN THE
ATTACHED CERTIFICATION FORM.
SUBSCRIPTION AND COMMUNITY OFFERING STOCK ORDER FORM
-----------------------------------------------------------------------------------------------------------
Expiration Date:
September __, 1995
12:00 noon., Eastern Time
CONVERSION CENTER
Roxborough-Manayunk Federal Savings Bank
6060 Ridge Avenue
Philadelphia, PA 19128
(215) 487-3835
Note: Please read the Stock Ownership Guide and Order Form Instructions as you complete this form.
--------------------------------------------------------------------------------------------------
(1) The undersigned hereby subscribes for or orders $________ of common stock ("Order Amount") of Progress Financial
Corporation ("Progress Financial"). The Order Amount will be divided by the average closing price of the common stock of
Progress Financial as reported on the Nasdaq National Market during the 20 trading days ending on the day prior to the close
of the Offerings ("Per Share Price") in order to determine the number of whole shares of common stock to be issued. Cash will
be refunded in lieu of issuing fractional shares. Minimum order is $150, and the maximum order is $966,000 (subject to
adjustment).
<S> <C>
Method of Payment Purchaser Information
(2) __Enclosed is a check or money order (5)a __ Check here if you are an Eligible Account
payable to Roxborough-Manayunk Federal Savings Holder with a deposit account(s) totaling $50.00
Bank ("Roxborough"). or more on February 28, 1994.
Cash can be used only LIST ACCOUNT(S) BELOW.
$ ________________ if presented in person at a (5)b __ Check here if you are a Supplemental Eligible
branch office of Roxborough. Account Holder with a deposit account(s) totaling
$50.00 or more on June 30, 1995. LIST
(3) __ The undersigned authorizes withdrawal from the ACCOUNT(S) BELOW.
following account(s) at Roxborough. Individual (5)c __Check here if you are a depositor or borrower
Retirement Accounts can not be used. (with a loan outstanding as of December 31,
1992, which continued to be outstanding as of
August 7, 1995) of Roxborough on August 7, 1995.
Account Number(s) Amount LIST ACCOUNT(S) OR LOAN(S) BELOW.
$
$
$ Account Title (Names on Accounts) Account Number
Total Withdrawal Amount $ .................................
................................. ______________
______________________________________________________
.................................
................................. ______________
______________________________________________________
Please note: Failure to list all your accounts may
result in the loss of part or all of your subscription
rights. If additional space is needed, please use
the back of this order form.
(4)a __Check here if you were a stockholder of Roxborough as of August 7, 1995.
(4)b __Check here if you were a stockholder of Progress Financial as of August 14, 1995.
(4)c __Check here if you are a director, officer or employee of Roxborough, Progress Financial or any subsidiaries of
Roxborough or Progress Financial or a member of such person's immediate family.
</TABLE>
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<PAGE>
<TABLE><CAPTION>
Stock Registration
<S> <C> <C> <C>
(6) Form of Stock Ownership:
__ Individual __Joint Tenants __Tenants in Common __ IRA/Keogh Trust
__ Fiduciary __Corporation or Partnership __UTMA (Beneficiary SS#_______)
(7) Name(s) in which your stock is to be registered (Please print clearly) Social Security No. Or Tax ID No.
Name(s) Social Security No. Or Tax ID No.
Street Address City State Zip Code County of Residence
(8)Telephone Information Daytime Phone Evening Phone
( ) ( )
</TABLE>
NASD Affiliation
(9)__Check here if you are a member of the National Association of Securities
Dealers, Inc. ("NASD"), a person associated with an NASD member, a member of
the immediate family of any such person to whose support such person
contributes, directly or indirectly, or the holder of an account in which an
NASD member or person associated with an NASD member has a beneficial
interest. To comply with conditions under which an exemption from the NASD's
Interpretation With Respect to Free-Riding and Withholding is available, you
agree, if you have checked the NASD Affiliation box, (I) not to sell, transfer
or hypothecate the stock for a period of three months following issuance, and
(ii) to report this subscription in writing to the applicable NASD member
within one day of payment therefor.
Associates /Acting in Concert
(10)__Check here, and complete the reverse side of this Stock Order Form, if
you or any of your associates (as defined on the reverse side of this Form) or
persons acting in concert with you have submitted other orders for shares in
the Subscription and/or Community Offerings.
Acknowledgement
(11)__To be effective, this fully completed Stock Order Form and accompanying
Certification Form must be properly completed and actually received by
Roxborough or Progress no later than 12:00 noon, Eastern Time, on
September __, 1995, unless extended; otherwise this Stock Order Form and all
subscription rights will be void. The undersigned agrees that after receipt
by Roxborough or Progress, this Stock Order Form may not be modified,
withdrawn or cancelled without the consent of such companies and if
authorization to withdraw from deposit accounts at Roxborough or Progress has
been given as payment for shares, the amount authorized for withdrawal shall
not otherwise be available for withdrawal by the undersigned.
Under penalty of perjury, I certify that the Social Security or Tax ID Number
and the information provided on this Stock Order Form is true, correct and
complete, that I am not subject to backup withholding, and that I am
purchasing solely for my own account and that there is no agreement or
understanding regarding the sale or transfer of such shares, or my right to
subscribe for shares herewith. It is understood that this Stock Order Form
will be accepted in accordance with, and subject to the terms and conditions
of, the Plan of Conversion and the Agreement and Plan of Reorganization
described in the accompanying Prospectus. The undersigned hereby acknowledges
receipt of the Prospectus at least 48 hours prior to delivery of this Stock
Order Form to Roxborough. Federal regulations prohibit any person from
transferring, or entering into any agreement directly or indirectly to
transfer, the legal or beneficial ownership of subscription rights or the
underlying securities to the account of another. Roxborough and Progress
Financial will pursue any and all legal remedies in the event they become
aware of the transfer of subscription rights and will not honor orders known
by them to involve such transfer.
<TABLE>
<S> <C> <C> <C>
(12)Signature Date Signature Date
</TABLE>
ALL ORDER FORMS MUST BE ACCOMPANIED BY AN EXECUTED CERTIFICATION FORM.
--------------------------------------------------------------------------------
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<PAGE>
Item (5)a, (5)b, (5)c--continued
Account Title (Names on Accounts) Account Number
_____________________________ ______________
_____________________________
_____________________________
_____________________________ ______________
_____________________________
_____________________________
_____________________________ ______________
_____________________________
_____________________________
Item (10)--continued
List below all other orders submitted by you or Associates (as
defined below) or by persons acting in concert with you.
Name(s) listed on other Order Forms Dollar Amount Ordered
_____________________________ ______________
_____________________________
_____________________________
_____________________________ ______________
_____________________________
_____________________________
_____________________________ ______________
_____________________________
_____________________________
_____________________________ ______________
_____________________________
_____________________________
"Associate" is defined as: (i) any corporation or organization
(other than FJF Financial, Roxborough, Progress Financial or
Progress) 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 a trustee or in a similar
fiduciary capacity; provided, however, that such term shall not
include Progress Financial's or Roxborough's tax-qualified
employee benefit plans 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 Progress
Financial, FJF Financial or Roxborough or any subsidiaries
thereof. Directors of Progress Financial, Progress, FJF Financial
or Roxborough are not treated as associates solely because of
their Board membership.
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<PAGE>
YOU MUST SIGN THE FOLLOWING CERTIFICATION IN ORDER TO PURCHASE STOCK.
CERTIFICATION FORM
I ACKNOWLEDGE THAT THE SHARES OF COMMON STOCK, PAR VALUE $1.00 PER SHARE
("COMMON STOCK"), OF PROGRESS FINANCIAL CORPORATION (THE "COMPANY"), ARE NOT
SAVINGS ACCOUNTS OR DEPOSITS, ARE NOT FEDERALLY INSURED, AND ARE NOT GUARANTEED
BY THE FEDERAL GOVERNMENT OR ANY OTHER AGENCY.
If anyone asserts that the shares of Common Stock are federally insured or
guaranteed, or are as safe as an insured deposit, I should call the Office of
Thrift Supervision, Northeast Regional Director, Angelo A. Vigna at (201)413-
1000.
I further certify that, before purchasing the shares of Common Stock of the
Company, I received a Prospectus of the Company dated August __, 1995 relating
to such offer of Common Stock. The Prospectus that I received contains
disclosure concerning the nature of the Common Stock being offered by the
Company and describes the following risks involved in an investment in the
Common Stock under the heading "Special Considerations" beginning on page __ of
the Prospectus.
1. Potential Effects of Changes in Interest Rates and the Current
Interest Rate Enviroment
2. Historical Financial Condition and Results of Operations
3. Increased Emphasis on Commercial Business, Residential Construction,
Commercial Real Estate and Consumer Lending
4. Regulation
5. Recapitalization of SAIF and Effect of Reduction in BIF Premiums
6. Dividends
7. Limitation of Tax Benefits
8. Effect of the Conversion and the Merger
9. Possible Dilutive Effect of Issuance of Additional Shares
10. Possible Dilution to Roxborough Public Stockholders as a result
of Purchase Limitations
11. Purchases of Conversion Stock in the Offerings
12. Relationships Between the Company, Roxborough-Manayunk and Sandler
O'Neill
13. Anti-takeover Provisions
14. Possible Adverse Income Tax Consequences of the Distribution of
Subscription Rights
NOTE: If stock is to be held jointly, both parties must sign.
Signature: ___________________________ Signature:_______________________________
Date: ________________________________ Date: __________________________________
E - 201
<PAGE>
[LOGO]
STOCK ORDER FORM
GUIDE AND INSTRUCTIONS
----------------------
Stock Ownership Guide
---------------------
Individual
Include the first name, middle initial and last name of the shareholder. Avoid
the use of two initials. Please omit words that do not affect ownership rights,
such as "Mrs.", "Mr.", "Dr.", "special account", "single person", etc.
Joint Tenants
Joint tenants with right of survivorship may be specified to identify two or
more owners. When stock is held by joint tenants with right of survivorship,
ownership is intended to pass automatically to the surviving joint tenant(s)
upon the death of any joint tenant. All parties must agree to the transfer or
sale of shares held by joint tenants.
Tenants in Common
Tenants in common may also be specified to identify two or more owners. When
stock is held by tenants in common, upon the death of one co-tenant, ownership
of the stock will be held by the surviving co-tenant(s) and by the heirs of the
deceased co-tenant. All parties must agree to the transfer or sale of shares
held by joint tenants.
Uniform Gifts to Minors ("UGMA")
Stock may be held in the name of a custodian for a minor under the Uniform Gifts
to Minors Act of each state. There may be only one custodian and one minor
designated on a stock certificate. The standard abbreviation for Custodian is
"CUST", while the Uniform Gifts to Minors Act is "UGMA". Standard U.S. Postal
Service state abbreviations should be used to describe the appropriate stats.
For example, stock held by John Doe as custodian for Susan Doe under the New
York Uniform Gifts to Minors Act will be abbreviated John Doe, CUST Susan Doe
UGMA, NY (use minor's social security number).
Fiduciaries
Information provided with respect to stock to be held in a fiduciary capacity
must contain the following:
o The name(s) of the fiduciary. If an individual, list the first name,
middle initial and last name. If a corporation, list the full corporate
title (name). If an individual and a corporation, list the corporation's
title before the individual.
o The fiduciary capacity, such as administrator, executor, personal
representative, conservator, trustee, committee, etc.
o A description of the document governing the fiduciary relationship,
such as a trust agreement or court order. Documentation establishing a
fiduciary relationship may be required to register your stock in a
fiduciary capacity.
o The date of that document governing the relationship, except that the date
of a trust created by a will need not be included in the description.
o The name of the maker, donor or testator and the name of the beneficiary.
An example of fiduciary ownership of stock in the case of a trust is: John Doe,
Trustee Under Agreement Dated 10-1-87 for Susan Doe.
E - 202
<PAGE>
Instructions
------------
Item 1--
Fill in the total dollar amount that you wish to purchase. The minimum purchase
is $150. The maximum purchase in the Subscription Offering is $966,000 (subject
to adjustment). The maximum purchase in the Community Offering is $966,000
(subject to adjustment). The maximum that any person , together with associates
of or persons actiong in concert with such person, may purchase is $1,610,000
(subject to adjustment). Progress Financial reserves the right to reject, in
whole or in part, any subscription received in the Community Offering.
Item 2--
Payment for shares may be made in cash (only if delivered by you in person) or
by check or money order payable to Roxborough-Manayunk Federal Savings Bank
("Roxborough"). Your funds will earn interest at Roxborough's passbook rate of
interest until the Conversion and the Merger are completed. DO NOT MAIL CASH TO
PURCHASE STOCK! Please check this box if your method of payment is by check or
money order.
Item 3--
If you pay for your stock by a withdrawal from a Roxborough deposit account,
insert the account number(s) and the amount of your withdrawal authorization for
each account. The total amount withdrawn should equal the amount of your stock
purchase. There will be no penalty assessed for early withdrawals from
certificate accounts used for stock purchases. This form of payment may not be
used if your account is an Individual Retirement Account.
Item 4--
a. Please check this box if you were a stockholder of Roxborough as of
August 7, 1995.
b. Please check this box if you were a stockholder of Progress Financial
as of August 14, 1995.
c. Please check this box to indicate whether you are a director, officer
or employee of Roxborough, Progress Financial or any subsidiaries
thereof or a member of such person's immediate family.
Item 5--
a. Please check this box if you are an Eligible Account Holder with a
deposit account of $50.00 or more on February 28, 1994.
b. Please check this box if you are a Supplemental Eligible Account
Holder with a deposit account of $50.00 or more on June 30, 1995.
c. Please check this box if you were a depositor or a borrower (with a
loan outstanding as of December 31, 1992, which continued to be
outstanding as of August,7 1995) of Roxborough on August 7, 1995.
Please list all names on the account(s) and all account number(s) of accounts
you had at these dates in order to ensure proper identification of your purchase
rights. Please note: Failure to list your accounts may result in loss of part
or all of your subscription rights.
Items 6, 7 and 8--
The stock transfer industry has developed a uniform system of shareholder
registrations that we will use in the issuance of your Progress Financial
Corporation common stock. Please complete items 6, 7 and 8 as fully and
accurately as possible, and be certain to supply your social security number and
your daytime and evening telephone number(s). We will need to call you if we
cannot execute your order as given. If you have any questions regarding the
registration of your stock, please consult your legal advisor. Stock
ownership must be registered in one of the ways described under "Stock
Ownership Guide".
Item 9--
Please check this box if you are a member of the NASD or if this item
otherwise applies to you.
Item 10--
Please check this box if you or any associate (as defined on the reverse side of
the Stock Order Form) or person acting in concert with you has submitted another
order for shares and complete the reverse side of the Stock Order Form.
Item 11 and 12--
Please sign and date the Stock Order Form where indicated. Review the Stock
Order Form carefully before you sign, including the acknowledgement. Normally,
one signature is required. An additional signature is required only when
payment is to be made by withdrawal from a deposit account that requires
multiple signatures to withdraw funds.
_______________________________________________________________________________
You may mail your completed Stock Order Form and Certification Form in the
envelope that has been provided, or you may deliver your Stock Order Form and
Certification Form to any branch office of Roxborough. Your Stock Order Form
and Certification Form, properly completed, and payment in full (or withdrawal
authorization) must be received by Roxborough no later than 12:00 noon,
Eastern Time, on September__,1995 or it will become void. If you have any
remaining questions, or if you would like assistance in completing your Stock
Order Form and Certification Form, you may call our Conversion Center Monday
through Friday from 10:00 a.m. to 4:00 p.m.. Please note the Conversion
Center will be closed for the Labor Day holiday, from 12:00 noon on Friday,
September 1, 1995 through 12:00 noon on Tuesday, September 5, 1995.
E - 203
EXHIBIT 99.3
TRANSMITTED LETTERS
to
STOCKHOLDERS AND MEMBERS
E - 204
<PAGE>
[FJF Letterhead] A
Dear Member:
We are pleased to announce that the Boards of Directors of FJF Financial,
M.H.C. ("FJF") and its majority-owned subsidiary Roxborough-Manayunk Federal
Savings Bank ("Roxborough") have adopted a Plan of Conversion (the "Plan") and
an Agreement and Plan of Reorganization ("Merger Agreement") with Progress
Financial Corporation, Plymouth Meeting, PA (the "Company") and its wholly owned
subsidiary Progress Federal Savings Bank ("Progress"). Under the Plan, FJF will
convert from the mutual form to a federal interim stock savings bank and
simultaneously merge into Roxborough (the "Conversion and the Merger"). In
accordance with the Merger Agreement, Progress will then merge into Roxborough,
with Roxborough as the surviving entity. Roxborough will then change its name
to Progress Bank and become a wholly owned subsidiary of the Company.
In accordance with the Plan and the Merger Agreement, the Company is
offering shares of its common stock to certain depositors, borrowers and
stockholders of Roxborough and stockholders of the Company in a subscription
offering and to certain other persons in a community offering. The enclosed
material provides additional information about the Conversion and the Merger.
Please note that your deposit account(s) at Roxborough will not be affected by
the Conversion and the Merger. Your deposits will become deposits in Progress
Bank, with equivalent terms to your present deposits at Roxborough. All
deposits of Progress Bank following the Conversion and the Merger will continue
to be insured up to the legal maximum by the FDIC. In addition, all loans made
by Roxborough will be unaffected by the Conversion and the Merger and the
amount, rate, maturity, security and other conditions of the loans will remain
contractually fixed on the same basis as they existed prior to the Conversion
and the Merger.
In order to complete the Conversion and the Merger, we need your
participation on an important vote at a special meeting to be held on September
__, 1995. Because your vote is critical to the success of the Plan and the
Merger Agreement, on behalf of the Board of Directors, I urge you to vote FOR
the proposed transaction by signing, dating and returning the enclosed proxy
card immediately in the postage-paid envelope provided, whether or not you plan
-----------
to attend the special meeting or subscribe for stock. If you have an IRA or
other qualified plan account for which Roxborough acts as trustee and we do not
receive a proxy from you, Roxborough intends, as trustee for such account, to
vote in favor of the Plan and the Merger Agreement on your behalf.
Your vote for approval of the Plan and the Merger Agreement in no way obligates
you to buy stock. However, as a qualifying member, you have been granted
nontransferable rights to purchase shares of common stock of the Company
without commission or fee. To subscribe for shares, complete the enclosed stock
order form and certification form and return them with payment to any Roxborough
branch office or mail them to us in the postage-paid envelope provided. Your
stock order form and certification form together with payment must be received
no later than 12:00 noon, Eastern Time, on September __, 1995.
If you have any questions or need additional information, please call our
Conversion Center at (215) 487-3835 Monday through Friday from 10:00 a.m. to
4:00 p.m., Eastern Time. The Conversion Center will be closed from 12:00 noon
on Friday, September 1st through 12:00 noon on Tuesday, September 5, in
observance of Labor Day.
Sincerely,
John F. McGill
Chairman of the Board,
President and Chief Executive Officer
The shares of common stock offered in the Conversion and the Merger are not
savings accounts or deposits and are not insured by the Federal Deposit
Insurance Corporation or any other government agency. This letter is neither an
offer to sell nor a solicitation of an offer to buy common stock. The offer is
made only by the Prospectus.
E - 205
<PAGE>
[Roxborough Manayunk Letterhead] B
Dear Stockholder:
We are pleased to announce that the Boards of Directors of FJF Financial,
M.H.C. ("FJF") and its majority- owned subsidiary Roxborough-Manayunk Federal
Savings Bank ("Roxborough") have adopted a Plan of Conversion (the "Plan") and
an Agreement and Plan of Reorganization ("Merger Agreement") with Progress
Financial Corporation, Plymouth Meeting, PA (the "Company") and its wholly-owned
susidiary Progress Federal Savings Bank ("Progress"). Under the Plan, FJF will
convert from the mutual form to a federal interim stock savings bank and
simultaneously merge into Roxborough (the "Conversion and the Merger"). In
accordance with the Merger Agreement, Progress will then merge into Roxborough,
with Roxborough as the survivng entity. Roxborough will then change its name to
Progress Bank and become a wholly owned subsidiary of the Company.
In accordance with the Plan and the Merger Agreement, your shares in
Roxborough will be converted, subject to your right of appraisal, into shares
of common stock of the Company pursuant to a ratio that will result in your
holding approximately the same percentage of common stock of the Company to be
issued in the Conversion and the Merger as you hold in Roxborough immediately
prior to the Conversion and the Merger. Additionally, the Company is offering
shares of its common stock to certain depositors, borrowers and stockholders of
Roxborough and stockholders of the Company in a subscription offering and to
certain other persons in a community offering. The enclosed material provides
additional information about the Conversion and the Merger and related
offerings.
In order to complete the Conversion and the Merger, we need your
participation on an important vote at the Roxborough-Manayunk Stockholders'
Meeting to be held on September __, 1995. Because your vote is critical to the
success of the Plan and the Merger Agreement, on behalf of the Board of
Directors, I urge you to vote FOR the proposed transaction by signing, dating
and returning the enclosed proxy card immediately in the postage-paid envelope
------------
provided, whether or not you plan to attend the Stockholders' Meeting.
Your vote for approval of the Plan and the Merger Agreement in no way
obligates you to purchase additional shares of common stock of the Company.
However, as a Roxborough stockholder of record, you have been granted
nontransferable subscription rights to purchase shares of common stock of the
Company without commission or fee. To subscribe for shares, complete the
enclosed stock order form and certification form and return them with payment to
any Roxborough branch office or mail them to us in the postage-paid envelope
provided. Your stock order form and and certification form together with
payment must be received by 12:00 noon, Eastern Time, on September __, 1995. .
If you have any questions or need additional information, please call our
Conversion Center at (215) 487-3835 Monday through Friday from 10:00 a.m. to
4:00 p.m., Eastern Time. The Conversion Center will be closed from 12:00 noon
on Friday, September 1st through 12:00 noon on Tuesday, September 5th in
observance of Labor Day.
Sincerely,
John F. McGill
Chairman of the Board,
President and Chief Executive Officer
The shares of common stock offered in the Conversion and the Merger are not
savings accounts or deposits and are not insured by the Federal Deposit
Insurance Corporation or any other government agency. This letter is neither an
offer to sell nor a solicitation of an offer to buy common stock. The offer is
made only by the Prospectus.
E - 206
<PAGE>
[Progress Financial Corporation Letterhead]
C
Dear Stockholder:
We are pleased to announce that the Boards of Directors of FJF Financial,
M.H.C., Philadelphia, PA ("FJF") and its majority-owned subsidiary Roxborough-
Manayunk Federal Savings Bank ("Roxborough") have adopted a Plan of Conversion
(the "Plan") and Agreement and Plan of Reorganization ("Merger Agreement") with
Progress Financial Corporation (the "Company") and its wholly-owned subsidiary
Progress Federal Savings Bank ("Progress"). Under the Plan, FJF will convert
from the mutual form to a federal interim stock savings bank and simultaneously
merge into Roxborough (the "Conversion and the Merger"). In accordance with the
Merger Agreement, Progress will then merge into Roxborough, with Roxborough as
the surviving entity. Roxborough will then change its name to Progress Bank and
become a wholly owned subsidiary of the Company.
In accordance with the Plan and the Merger Agreement, the Company is
offering shares of its common stock to certain depositors, borrowers and
stockholders of Roxborough and stockholders of the Company in a subscription
offering and to certain other persons in a community offering. The enclosed
material provides additional information about the Conversion and the Merger and
related offerings.
In order to complete the Merger, we need your participation on an important
vote at a special meeting of stockholders to be held on September __, 1995.
Because your vote is critical to the success of the Merger, on behalf of the
Board of Directors, I urge you to vote FOR the Merger Agreement by signing,
dating and returning the enclosed proxy card immediately in the postage-paid
-----------
envelope provided, whether or not you plan to attend the Stockholders' Meeting.
Your vote for approval of the Merger Agreement in no way obligates you to
purchase additional shares of common stock of the Company. However, as a
stockholder of record of the Company, you have been granted nontransferable
subscription rights to purchase shares of common stock without commission or
fee. To subscribe for shares, complete the enclosed stock order form and
certification form and return them with payment to any Roxborough branch office
or mail them to us in the postage-paid envelope provided. Your stock order form
and certification form together with payment must be received by 12:00 noon,
Eastern Time, on September __, 1995.
If you have any questions, or need additional information, please call our
Conversion Center at (215) 487-3835 Monday through Friday from 10:00 a.m. to
4:00 p.m., Eastern Time. The Conversion Center will be closed from 12:00 noon
on Friday, September 1st through 12:00 noon on Tuesday, September 5th in
observance of Labor Day.
Sincerely,
W. Kirk Wycoff
Chairman of the Board,
President and Chief Executive Officer
The shares of common stock offered in the Conversion and the Merger are not
savings accounts or deposits and are not insured by the Federal Deposit
Insurance Corporation or any other government agency. This letter is neither an
offer to sell nor a solicitation of an offer to buy common stock. The offer is
made only by the Prospectus.
E - 207
<PAGE>
[FJF Letterhead] D
Dear Voting Member:
We are pleased to announce that the Boards of Directors of FJF Financial,
M.H.C. ("FJF") and its majority-owned subsidiary Roxborough-Manayunk Federal
Savings Bank ("Roxborough") have adopted a Plan of Conversion (the "Plan") and
Agreement and Plan of Reorganization ("Merger Agreement") with Progress
Financial Corporation, Plymouth Meeting, PA (the "Company") and its wholly-owned
subsidiary Progress Federal Savings Bank ("Progress"). Under the Plan, FJF will
convert from the mutual form to a federal interim stock savings bank and
simultaneously merge into Roxborough (the "Conversion and the Merger"). In
accordance with the Merger Agreement, Progress will then merge into Roxborough,
with Roxborough as the surviving entity. Roxborough will then change its name
to Progress Bank and become a wholly-owned subsidiary of the Company. Please
note that your deposit account(s) at Roxborough will not be affected by the
Conversion and the Merger. Your deposits will become deposits in Progress Bank,
with equivalent terms to your present deposits at Roxborough. All deposits of
Progress Bank following the Conversion and the Merger will continue to be
insured up to the legal maximum by the FDIC. In addition, all loans made by
Roxborough will be unaffected by the Conversion and the the Merger and the
amount, rate, maturity, security and other conditions of the loans will remain
contractually fixed on the same basis as they existed prior to the Conversion
and the Merger.
In order to complete the Conversion and the Merger, we need your
participation on an important vote at a special meeting to be held on September
__, 1995. Because your vote is critical to the success of the Plan and the
Merger Agreement, on behalf of the Board of Directors, I urge you to vote FOR
the proposed transaction by signing, dating and returning the enclosed proxy
card immediately in the postage-paid envelope provided, whether or not you plan
to attend the special meeting.
Although you may vote on the Conversion and the Merger, the Company is
unfortunately unable to either offer or sell its common stock to you (i) because
the number of eligible subscribers in your state makes registration or
qualification of the common stock or the filing of a consent to service of
process under the securities laws of your state impracticable, for reasons of
cost or otherwise; (ii) because the number of eligible subscribers in your state
makes registration or qualification of the Company, the other parties to the
Merger Agreement or their officers, directors, employees and persons acting on
their behalf as broker-dealers or salesmen in your state impracticable, for
reasons of cost or otherwise; or (iii) because you reside in a foreign country.
Accordingly, neither this letter, the enclosed materials nor the materials that
you may request should be considered an offer to sell or a solicitation of an
offer to buy the Company's common stock.
If you have any questions or would like additional information, please call
our Conversion Center at (215) 487-3835 Monday through Friday from 10:00 a.m. to
4:00 p.m., Eastern Time. The Conversion Center will be closed from 12:00 noon
on Friday, September 1st through 12:00 noon on Tuesday, September 5th in
observance of Labor Day.
Sincerely,
John F. McGill
Chairman of the Board,
President and Chief Executive Officer
The shares of common stock offered in the Conversion and the Merger are not
savings accounts or deposits and are not insured by the Federal Deposit
Insurance Corporation or any other government agency. This letter is neither an
offer to sell nor a solicitation of an offer to buy common stock. The offer is
made only by the Prospectus.
E - 208
<PAGE>
[Progress Financial Corporation Letterhead]
Dear Prospective Investor: E
We are pleased to provide you with the enclosed materials regarding the
offering of common stock of Progress Financial Corporation ( the "Company") in
connection with the conversion of FJF Financial, M.H.C. ("FJF") from the mutual
form to a federal interim stock savings bank, the merger of the interim savings
bank into its majority-owned subsidiary Roxborough-Manayunk Federal Savings Bank
("Roxborough"), and the merger of the Company's wholly-owned subsidiary Progress
Federal Savings Bank ("Progress") into Roxborough (the "Conversion and the
Merger"). Roxborough as the surviving entity will change its name to Progress
Bank and become a wholly-owned subsidiary of the Company.
A Prospectus is enclosed for your review, together with a stock order form
and certification form. Please review the Prospectus carefully before making an
investment decision.
To order shares, complete the enclosed stock order form and certification
form and return them with payment to any Roxborough branch office or mail them
to us in the postage-paid envelope provided. Your stock order form and
certification form together with payment must be received no later than 12:00
noon., Eastern Time, on September __, 1995.
If you have any questions or would like additional information, please call
our Conversion Center at (215) 487-3835 Monday through on Friday from 10:00
a.m. to 4:00 p.m., Eastern Time. The Conversion Center will be closed from
12:00 noon on Friday, September 1st through 12:00 noon on Tuesday, September 5th
in observance of Labor Day.
Sincerely,
W. Kirk Wycoff
Chairman of the Board,
President and Chief Executive Officer
The shares of common stock offered in the Conversion and the Merger are not
savings accounts or deposits and are not insured by the Federal Deposit
Insurance Corporation or any other government agency. This letter is neither an
offer to sell nor a solicitation of an offer to buy common stock. The offer is
made only by the Prospectus.
E - 209
<PAGE>
[Roxborough-Manayunk Letterhead]
F
Dear Friend:
We are pleased to announce that the Boards of Directors of FJF Financial,
M.H.C. ("FJF") and its majority-owned subsidiary Roxborough-Manayunk Federal
Savings Bank ("Roxborough") have adopted a Plan of Conversion (the "Plan") and
an Agreement and Plan of Reorganization ("Merger Agreement") with Progress
Financial Corporation, Plymouth Meeting, PA (the "Company") and its wholly-owned
subsidiary Progress Federal Savings Bank ("Progress"). Under the Plan FJF will
convert from the mutual form to a federal interim stock association and
simultaneously merge into Roxborough (the "Conversion and the Merger"). In
accordance with the Merger Agreement, Progress will then merge into Roxborough,
with Roxborough as the surviving entity. Roxborough will then change its name
to Progress Bank and become a wholly-owned subsidiary of the Company. In
accordance with the Plan and the Merger Agreement, the Company is offering
shares of its common stock to certain depositors, borrowers and stockholders of
Roxborough and stockholders of the Company in a subscription offering and to
certain other persons in a community offering. The enclosed material provides
additional information about the Conversion and the Merger and related
offerings.
As a former depositor of Roxborough, you have been granted nontransferable
rights to purchase shares of common stock of the Company without commission or
fee on a priority basis. To subscribe for shares, simply complete the enclosed
stock order form and certification form and return them with payment to any
Roxborough branch office or mail them to us in the postage-paid envelope
provided. Your stock order form and certification form together with payment
must be received by 12:00 noon, Eastern Time, on September __, 1995.
If you have any questions or would like additional information, please call
our Conversion Center at (215) 487-3835 Monday through Friday from 10:00 a.m. to
4:00 p.m., Eastern Time. The Conversion Center will be closed from 12:00 noon
on Friday, September 1st through 12:00 noon on Tuesday, September 5th in
observance of Labor Day.
Sincerely,
John F. McGill
Chairman of the Board,
President and Chief Executive Officer
The shares of common stock offered in the Conversion and the Merger are not
savings accounts or deposits and are not insured by the Federal Deposit
Insurance Corporation or any other government agency. This letter is neither an
offer to sell nor a solictation of an offer to buy common stock. The offer is
made only by the Prospectus.
E - 210
<PAGE>
[Sandler O'Neill Letterhead] G
We are pleased to provide you with the enclosed materials regarding the
offering of common stock of Progress Financial Corporation ( the "Company") in
connection with the conversion of FJF Financial, M.H.C. ("FJF") from the mutual
form to a federal interim stock savings bank, the merger of the interim savings
bank into its majority-owned subsidiary Roxborough-Manayunk Federal Savings Bank
("Roxborough"), and the merger of the Company's wholly-owned subsidiary Progress
Federal Savings Bank ("Progress") into Roxborough (the "Conversion and the
Merger"). Roxborough as the surviving entity will change its name to Progress
Bank and become a wholly-owned subsidiary of the Company.
Sandler O'Neill & Partners, L.P. is managing the Company's Subscription and
Community Offering, which will conclude at 12:00 noon., Eastern Time, on
September __, 1995. Members of the general public are eligible to subscribe for
shares of common stock of the Company in the Community Offering, subject to the
prior rights of holders of subscription rights and the Company's right to reject
or accept orders in the Community Offering. If you have any questions or would
like additional information, please call the Company's Conversion Center at
(215) 487-3835.
Sincerely,
Sandler O'Neill & Partners, L.P.
The shares of common stock offered in the Conversion and the Merger are not
savings accounts or deposits and are not insured by the Federal Deposit
Insurance Corporation or any other government agency. This letter is neither an
offer to sell nor a solicitation of an offer to buy common stock. The offer is
made only by the Prospectus.
E - 211
<PAGE>
[Sandler O'Neill Letterhead] H
Dear Valued Friend:
At the request of Progress Financial Corporation (the "Company"), we have
enclosed materials regarding the offering of common stock of the Company in
connection with the conversion of FJF Financial, M.H.C. ("FJF") from the mutual
form to a federal interim stock savings bank, the merger of the interim savings
bank into its majority-owned subsidiary Roxborough-Manayunk Federal Savings Bank
("Roxborough"), and the merger of the Company's wholly-owned subsidiary Progress
Federal Savings Bank ("Progress") into Roxborough (the "Conversion and the
Merger"). Roxborough as the surviving entity will change its name to Progress
Bank and become a wholly-owned subsidiary of the Company. The materials
include a Prospectus and stock order form and certification form which offer you
the opportunity to subscribe for shares of common stock of the Company. We urge
you to read these materials carefully.
If you decide to subscribe for shares, your properly completed stock order
form and certification form together with payment must be received no later than
12:00 noon, Eastern Time, on September __, 1995. If you have any questions or
would like additional information, please call the Conversion Center at (215)
487-3835 Monday through Friday from 10:00 a.m. to 4:00 p.m., Eastern Time. The
Conversion Center will be closed from 12:00 noon on Friday, September 1st
through 12:00 noon on Tuesday, September 5th in obsevance of Labor Day.
The Company has asked us to forward these documents to you in view of
certain requirements of the securities laws of your jurisdiction. We should not
be understood as recommending or soliciting in any way any action by you with
respect to the enclosed materials.
Sincerely,
Sandler O'Neill & Partners, L.P.
The shares of common stock offered in the Conversion and the Merger are not
savings accounts or deposits and are not insured by the Federal Deposit
Insurance Corporation or any other government agency. This letter is neither an
offer to sell nor a solicitation of an offer to buy common stock. The offer is
made only by the Prospectus.
E - 212
<PAGE>
[Progress Financial Corporation Letterhead]
Dear Investor:
We hereby acknowledge receipt of your stock order form for shares of the
common stock of Progress Financial Corporation, the holding company of Progress
Bank.
At this time, we cannot confirm the number of shares that will be issued to
you. Such allocation will be made in accordance with the Plan of Conversion and
the Agreement and Plan of Reorganization following completion of the offering.
If you have any questions, please call our Conversion Center at (215) 487-
3835 Monday through Friday from 10:00 a.m. to 4:00 p.m., Eastern Time. The
Conversion Center will be closed from 12:00 noon on Friday, September 1st
through 12:00 noon on Tuesday, September 5th, in observance of Labor Day.
On behalf of the Board of Directors and employees of Progress Financial
Corporation, we would like to thank you for supporting our offering.
Sincerely,
W. Kirk Wycoff
President and Chief Executive Officer
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[Progress Financial Corporation Letterhead]
Dear Interested Investor:
We regret to inform you that we have determined not to accept your order
for shares of Progress Financial Corporation common stock in our Community
Offering. This action is in accordance with the terms of the Plan of Conversion
and the Agreement and Plan of Reorganization, which gives Progress Financial
Corporation the absolute right to reject, in whole or in part, the subscription
of any person in the Community Offering.
We enclose a check representing the return of your subscription payment,
together with interest earned thereon.
Sincerely,
Progress Financial Corporation
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LOGO: [FJF FINANCIAL LETTERHEAD]
PROXY REQUEST
WE NEED YOUR VOTE!
DEAR CUSTOMER:
YOUR VOTE ON OUR PLAN OF CONVERSION HAS NOT BEEN RECEIVED. YOUR VOTE IS VERY
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IMPORTANT TO US. PLEASE VOTE AND MAIL THE ENCLOSED PROXY TODAY.
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REMEMBER: VOTING FOR THE PLAN OF CONVERSION AND THE AGREEMENT AND PLAN OF
REORGANIZATION DOES NOT OBLIGATE YOU TO BUY STOCK. YOUR BOARD OF
DIRECTORS HAS UNANIMOUSLY APPROVED THE PLAN OF CONVERSION AND THE
AGREEMENT AND PLAN OF REORGANIZATION AND URGES YOU TO VOTE IN FAVOR
OF THEM. YOUR DEPOSIT ACCOUNTS OR LOANS WILL NOT BE AFFECTED IN ANY
WAY. DEPOSIT ACCOUNTS WILL CONTINUE TO BE FEDERALLY INSURED UP TO
THE MAXIMUM AMOUNT PERMISSIBLE BY LAW.
A POSTAGE-PAID ENVELOPE IS ENCLOSED WITH THE PROXY FORM. IF YOU HAVE ANY
QUESTIONS, PLEASE CALL OUR CONVERSION CENTER AT (215) 487-3835.
IF YOU HAVE MORE THAN ONE ACCOUNT, YOU MAY HAVE RECEIVED MORE THAN ONE PROXY.
PLEASE VOTE TODAY BY RETURNING ALL PROXY FORMS RECEIVED.
SINCERELY,
FJF FINANCIAL, M.H.C.
Holding Company for
Roxborough-Manayunk Federal Savings Bank
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[Progress Financial Corporation Letterhead]
Welcome Stockholder:
We are pleased to enclose the stock certificate that represents your share
of ownership in Progress Financial Corporation.
Please examine your stock certificate to be certain that it is properly
registered. If you have any questions about your certificate, you should
contact the Transfer Agent immediately at the following address:
American Stock Transfer and Trust Company
40 Wall Street
New York, New York 10005
(212) 936-5100
Please remember that your certificate is a negotiable security which should
be stored in a secure place, such as a safe deposit box or on deposit with your
stockbroker.
On behalf of the Board of Directors and employees of Progress Financial
Corporation, we would like to thank you for supporting our offering.
Sincerely,
John F. McGill W. Kirk Wycoff
Chairman of the Board President and Chief Executive Officer
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[Progress Financial Corporation Letterhead]
Dear Interested Investor;
We regret to inform you that we are unable to accept your order for shares
of Progress Financial Corporation common stock.
Progress Financial Corporation received orders for shares of common stock
in the Subscription and Community Offerings that exceeded the maximum number of
shares that were available pursuant to our Plan of Conversion, Agreement and
Plan of Reorganization and Prospectus.
If you paid for your subscription by cash, check or money order, a refund
check for the full amount of your order, plus interest earned at __% from the
time your funds were received by Roxborough-Manayunk Federal Savings Bank until
the date of the completion of the offering, will be returned promptly. If you
paid for your shares by authorizing a withdrawal from your deposit account at
Roxborough Federal, your withdrawal authorization has been cancelled.
Progress Financial Corporation common stock trades on the Nasdaq National
Market under the symbol "PFNC". Should you be interested in purchasing shares
of common stock of Progress Financial Corporation, you should contact your
stockbroker. The Board of Directors, management and staff of Progress Financial
Corporation thank you for your interest and support. If we may be of further
assistance, please call us at (215) 487-3835.
Sincerely
John F. McGill W. Kirk Wycoff
Chairman of the Board President and Chief Executive Officer
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EXHIBIT 99.4
QUESTIONS AND ANSWER BROCHURE
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QUESTIONS AND ANSWERS ABOUT STOCK CONVERSION
The Boards of Directors of FJF Financial, M.H.C. ("FJF") and its majority-
owned subsidiary Roxborough- Manayunk Federal Savings Bank ("Roxborough") have
unanimously adopted a Plan of Conversion (the "Plan") and an Agreement and Plan
of Reorganization ("Merger Agreement") with Progress Financial Corporation,
Plymouth Meeting, PA (the "Company") and its wholly-owned subsidiary Progress
Federal Savings Bank ("Progress"). Under the Plan, FJF will convert from the
mutual form to a federal interim stock savings bank and simultaneously merge
into Roxborough (the "Conversion and the Merger"). In accordance with the Merger
Agreement, Progress will then merge into Roxborough, with Roxborough as the
surviving entity. Roxborough will then change its name to Progress Bank and
become a wholly-owned subsidiary of the Company. In accordance with the Plan
and the Merger Agreement, the Company is offering shares of its common stock to
certain depositors, borrowers and stockholders of Roxborough and stockholders of
the Company in a subscription offering and to certain other persons in a
community offering.
To complete the Conversion and the Merger, we need your participation on an
important vote at a special meeting to be held on September __, 1995. The Plan
and the Merger Agreement must be approved by, among others, a majority of the
total number of votes eligible to be cast by members of FJF at a special
meeting of FJF members to be held on September ___, 1995. This brochure is
designed to answer some of the most frequently asked questions about the
Conversion and the Merger and your voting rights. More detailed information is
contained in the enclosed Proxy Statement and Prospectus. Please review these
materials carefully.
Because your vote is critical to the success of the Plan and the Merger
Agreement, the Board of Directors urges you to vote FOR the proposed transaction
by signing, dating and returning the enclosed proxy card immediately in the
postage-paid envelope provided, whether or not you plan to attend the special
meeting.
GENERAL
Q. Will the Conversion and the Merger affect any of my deposit accounts or
loans?
A. No. The Conversion and the Merger will have no effect on your deposit
accounts or loans. Your deposits will become deposits in Progress Bank, with
equivalent terms to your present deposits at Roxborough. All deposits of
Progress Bank following the Conversion and the Merger will continue to be
insured up to the legal maximum by the Savings Association Insurance Fund, as
administered by the Federal Deposit Insurance Corporation ("FDIC").
Q. Will I automatically become a stockholder of Progress Financial
Corporation?
A. No, only if you decide to purchase stock will you become a stockholder.
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VOTING
Q. What vote is necessary to approve the Plan and the Merger Agreement?
A. The Conversion and the Merger cannot be undertaken without the approval of
FJF's members. Both the Plan and the Merger Agreement must be approved by a
majority of the total votes eligible to be cast at the special meeting of
members. THEREFORE, YOUR VOTE IS VERY IMPORTANT.
Q. Who is eligible to vote?
A. Depositors having deposit accounts with Roxborough on August 7, 1995 are
eligible to vote at the special meeting. Borrowers of Roxborough with loans
outstanding on December 31, 1992 which continue to be outstanding as of August
7, 1995 are also eligible to vote. Borrowers have one vote and depositors have
one vote for each $100 on deposit. No member will receive more than 1,000 votes
in the aggregate.
Q. Are members required to vote?
A. No. Members are not required to vote. However, because the Conversion and
the Merger must be approved by a majority vote of members, IT IS CRITICAL TO THE
SUCCESS OF THE PLAN AND THE MERGER AGREEMENT THAT ALL ELIGIBLE MEMBERS VOTE.
Because the Board of Directors believes that the Conversion and Merger will
benefit FJF and Roxborough, the Board has unanimously approved the Plan and the
Merger Agreement and urges members to vote "FOR" the proposed transaction.
Q. How do I vote for the Conversion and the Merger?
A. Complete the proxy card and mail it to Roxborough in the postage-paid
envelope provided as soon as possible. Should you attend the special meeting of
members and wish to change your vote, you may do so by completing a ballot at
the meeting and any previously returned proxy will be revoked.
Q. How many proxies should I sign?
A. If you have more than one account at Roxborough, you may have received more
than one proxy. YOU SHOULD SIGN, DATE AND RETURN ALL PROXIES THAT YOU RECEIVE.
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Q. Who should sign the proxy?
A. If you have a joint account, only one signature is necessary. If you have
a trustee or custodial account, the trustee or custodian must sign. If you are
the executor or administrator for a deceased depositor, you should sign your own
name and indicate that you are signing as executor or administrator.
Q. If I vote for the Conversion and the Merger, will I be obligated to buy
stock?
A. No. A vote in favor of the Conversion and the Merger does not require you
to purchase any stock. Voting and subscribing for stock are separate actions.
BUYING STOCK
Q. Who is eligible to purchase stock in the Subscription Offering?
A. Nontransferable subscription rights have been granted, in the following
order of priority, to depositors of Roxborough with account balances of $50.00
or more as of the close of business on February 28, 1994, the Company's Employee
Stock Ownership Plan, depositors of Roxborough with account balances of $50.00
or more as of the close of business on June 30,1995, depositors of Roxborough as
of the close of business on August 7, 1995 and borrowers of Roxborough as of the
close of business on December 31, 1992 who continue to be borrowers as of the
close of business on August 7, 1995, stockholders of Roxborough as of the close
of business August 7, 1995, and stockholders of the Company as of the close of
business August 14, 1995.
Q. How many shares of stock are being offered and at what price?
A. Progress Financial Corporation is offering up to $32.2 million of its
common stock in the Subscription and Community Offerings.The actual purchase
price will be the average closing price of the common stock of the Company as
reported on the Nasdaq National Market during the 20 trading days ending on the
day prior to the close of the Offerings ("Per Share Price"). The actual number
of shares will be determined by dividing the aggregate estimated incremental
pro-forma market value of FJF and Roxborough at the close of the Offerings, as
determined by an independent appraiser, by the Per Share Price.
Q. How much stock may I purchase?
A. The minimum purchase is $150. The maximum amount that may be purchased is
$966,000 (subject to adjustment). The maximum amount that any person, together
with associates of or persons acting in concert with such person, may purchase
is $1,610,000 (subject to adjustment).
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<PAGE>
Q. How do I order stock?
A. You may order stock by completing, signing and returning the stock order
form and certification form, together with payment, in the postage-paid envelope
provided.
Q. How can I pay for my stock purchase?
A. You can pay for your stock order by cash, check, money order or
authorization to withdraw payment from a Roxborough deposit account. If paying
with cash, please hand deliver your stock order form to any Roxborough branch
office. DO NOT SEND CASH THROUGH THE MAIL. Payments made by cash, check or
money order will earn interest at Roxborough's passbook rate from the date of
receipt until the completion or termination of the offering. FUNDS WITHDRAWN
FROM A ROXBOROUGH CERTIFICATE ACCOUNT WILL NOT BE SUBJECT TO EARLY WITHDRAWAL
PENALTIES. Neither Roxborough nor Progress may lend funds for the purchase of
the common stock.
Q. Can I purchase stock using funds in my Roxborough IRA account?
A. Yes. However, federal regulations prohibit using your existing Roxborough
IRA for purchasing stock. To use such funds, you need to establish a "self-
directed" IRA account with a trustee other than Roxborough. ESTABLISHING A
SELF-DIRECTED IRA TAKES TIME, SO PLEASE MAKE YOUR ARRANGEMENTS AS SOON AS
POSSIBLE.
Q. Can I change my mind after I have placed an order to subscribe for stock?
A. No. After receipt, your order may not be withdrawn or modified without the
consent of Roxborough or the Company.
Q. Will dividends be paid on the stock?
A. No. However, the Board of Directors of the Company may consider a policy
of paying cash dividends on the common stock commencing in 1996, although no
decision has been made.
Q. Where will the stock be listed?
A. The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "PFNC".
Q. Will my stock be insured?
A. No. Common Stock cannot be insured by the FDIC, the Bank Insurance Fund,
the Savings Association Insurance Fund or any other government agency.
Q. What if I have questions or need additional information?
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<PAGE>
A. If you have any questions about the Conversion and the Merger or need
additional information, please call our Conversion Center at (215) 487-3835
Monday through Friday from 10:00 a.m. to 4:00 p.m., Eastern Time. The
Conversion Center will be closed from 12:00 noon on Friday, September 1st
through 12:00 noon on Tuesday, September 5th, in observance of Labor Day.
The shares of common stock offered in the Conversion and the Merger are not
savings accounts or deposits and are not insured by the Federal Deposit
Insurance Corporation or any other government agency. This brochure is neither
an offer to sell nor a solicitation of an offer to buy common stock. The offer
is made only by the Prospectus.
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