<PAGE>
Filed Pursuant to Rule 424(b)(1)
Reg. No. 33-65299
PROSPECTUS
PROGRESS FINANCIAL CORPORATION
Up to 500,000 Shares
of Common Stock
Progress Financial Corporation (the "Company"), a Delaware corporation, is
hereby offering up to 500,000 shares of its common stock, par value $1.00 per
share ("Common Stock"), at a price of $5.25 per share to members of the general
public to whom a copy of this Prospectus is delivered (the "Offering"). The
Company will invest approximately $2.0 million of the net proceeds of this
Offering in equity of its wholly owned subsidiary, Progress Federal Savings
Bank, a federally chartered savings bank (the "Bank"). The Bank intends to use
such additional capital to increase its regulatory capital ratios, which may
reduce the Bank's federal deposit insurance premiums, enhance core earnings and
support the growth of its business.
The Offering will terminate at 5:00 p.m., Eastern Time, on January 31,
1996, unless extended by the Company (the "Expiration Time").
The Common Stock is quoted on the Nasdaq National Market System under the
symbol "PFNC." The last reported sale price of the Common Stock as quoted
through the Nasdaq National Market System on January 10, 1996 was $5.50 per
share.
THE SECURITIES OFFERED HEREBY INVOLVE CERTAIN RISKS.
SEE "RISK FACTORS" ON PAGE 10.
THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS
OR DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTA-
TION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Estimated
Offering Fees and Proceeds to the
Price Expenses(1) Company(1)
---------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share $ 5.25 $ 0.25 $ 5.00
----------------------------------------------------------------------------
Total $2,625,000 $ 125,000 $2,500,000
----------------------------------------------------------------------------
----------------------------------------------------------------------------
</TABLE>
- ---------------------
(1) Consists of estimated expenses of the Company. Such expenses are estimated
to be $125,000. See "Use of Proceeds" for the assumptions used to arrive
at this estimate.
The date of this Prospectus is January 11, 1996.
<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 "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the Commission's
public reference rooms located at 450 Fifth Street, N.W., Washington, D.C.
20549, and at the Commission's Regional Offices at Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and 7 World Trade
Center, Suite 1300, New York, New York 10048. Copies of such material can be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Common Stock is
listed on the Nasdaq National Market System, and such reports, proxy statements
and other information concerning the Company also may be inspected at the
offices of the National Association of Securities Dealers, Inc. ("NASD"), 1735 K
Street, N.W., Washington, D.C. 20006.
The Company has filed a Registration Statement on Form S-2 (herein together
with all amendments and exhibits thereto, called the "Registration Statement")
under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the Common Stock offered hereby. This Prospectus does not contain
all the information set forth in the Registration Statement. For further
information with respect to the Company and the Common Stock offered hereby,
reference is made to the Registration Statement. Statements contained in the
Prospectus concerning provisions of certain documents are not necessarily
complete and in each instance, reference is made to the copy of such document
filed as an exhibit to the Registration Statement or attached hereto, each such
statement being qualified in all respects by such references.
2
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This Prospectus is summary in nature, does not purport to be a full and
complete statement of the business, affairs and financial condition of the
Company and should be read in conjunction with the following documents of the
Company which have been filed with the Commission and are hereby incorporated by
reference into this Prospectus:
(i) the Company's Annual Report on Form 10-K for the year ended
December 31, 1994;
(ii) the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1995;
(iii) the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995;
(iv) the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1995;
(v) the Company's Current Report on Form 8-K dated May 24, 1995;
and
(vi) the Company's Current Report on Form 8-K dated November 1,
1995.
All documents filed by the Company pursuant to Sections 13(a) or 15(d) of
the Exchange Act subsequent to the date hereof are hereby incorporated by
reference in this Prospectus and shall be deemed a part hereof from the date of
filing such documents with the Commission. Any statement contained herein, in
any supplement or amendment hereof or in a document all or any portion of which
is incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent that
a statement contained herein, in any supplement or amendment hereof or in any
document incorporated herein by reference modifies or supersedes such statement.
Any statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus or any
supplement or amendment hereof.
Neither the delivery of this Prospectus nor any sale of securities made
hereunder shall, under any circumstances, create any implication that there has
been no change in the affairs of the Company or its affiliates since the date
hereof or that the information contained herein is correct as of any time
subsequent to its date.
This Prospectus is accompanied by the Company's Annual Report on Form 10-K
for the year ended December 31, 1994 and its Quarterly Report on Form 10-Q for
the quarter ended September 30, 1995. Copies of the other documents
incorporated by reference herein
3
<PAGE>
are available from the Company without charge (other than exhibits to such
documents, unless such exhibits are specifically incorporated by reference into
the information that this Prospectus incorporates) to any person to whom this
Prospectus is delivered, upon written request of such person. Requests for such
copies should be directed to W. Kirk Wycoff, Chairman, President and Chief
Executive Officer of the Company, at the Company's principal executive offices
located at Plymouth Meeting Executive Campus, 600 West Germantown Pike, Plymouth
Meeting, Pennsylvania 19462-1003. The Company's telephone number is (610) 825-
8800.
SUMMARY
The following summary does not purport to be complete and is qualified in
its entirety by the more detailed information, including the Consolidated
Financial Statements and related Notes, accompanying this Prospectus.
THE COMPANY
Progress Financial Corporation is a Delaware-chartered, registered thrift
holding company headquartered in Plymouth Meeting, Pennsylvania. The Company 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 in connection with the reorganization of the Bank
into a thrift holding company structure. The Bank conducts its business through
six full-service offices located in Montgomery County, one full-service office
in Delaware County, one full-service office in Chester County, one full-service
office in the Andorra section of Philadelphia, and one loan production office in
Montgomery County in southeastern Pennsylvania. Unless the context otherwise
requires, references herein to the Company include the Bank. At September 30,
1995, the Company had total consolidated assets of $356.7 million, total
consolidated liabilities of $341.8 million, including total consolidated
deposits of $288.9 million, and total consolidated stockholders' equity of $14.9
million.
The principal business of the Company has in the past consisted of
attracting deposits from the general public through its offices and using such
deposits to originate loans secured by first mortgage liens on existing single-
family residential real estate and existing multi-family residential and
commercial real estate, construction loans (which in the past included land
acquisition and development loans), commercial business loans, consisting
primarily of loans to small and medium-sized businesses, and various consumer
loans. The Company originates single-family residential real estate loans for
sale in the secondary market and secured consumer loans, such as home equity
loans and lines of credit. The Company also originates commercial business
loans to small and medium sized businesses in the communities its branches serve
and commercial real estate (including multi-family residential) and residential
construction loans. In addition, the Company invests in mortgage-backed
securities which are insured or guaranteed by the U.S. Government and
4
<PAGE>
agencies thereof and other similar investments permitted by applicable laws and
regulations. The Bank is also involved in real estate development and related
activities, through its subsidiaries, primarily to facilitate the completion and
sale of certain property held as real estate owned.
The principal sources of funds for the Company's activities are
amortization and repayment of loans, proceeds from sales of assets classified as
available for sale, net savings inflows and advances from the Federal Home Loan
Bank ("FHLB") of Pittsburgh. The Company's principal sources of revenues are
interest and other payments on loans, including origination and servicing fees,
interest on investments and mortgage-backed securities, service charges on
deposits, gains (losses) from mortgage banking activities and from the sale of
loans and mortgage-backed securities classified as available for sale and loan
and other fee income. Its principal expenses are interest paid on deposits and
advances from the FHLB of Pittsburgh, provisions for possible loan losses and
real estate owned, personnel, occupancy and equipment, and other administrative
expenses.
The Company, as a registered savings and loan holding company, is subject
to examination and regulation by the Office of Thrift Supervision ("OTS") and is
subject to various reporting and other requirements of the Commission. The
Bank, as a federally chartered savings bank, is 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 insures the
Bank's deposits to the maximum extent permitted by law. The Bank is a member of
the FHLB of Pittsburgh, which is one of the 12 regional banks which comprise the
FHLB System. The Bank is 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's principal executive offices are located at Plymouth Meeting
Executive Campus, 600 West Germantown Pike, Plymouth Meeting, Pennsylvania
19462-1003, and its telephone number is (610) 825-8800.
5
<PAGE>
THE OFFERING
SHARES OFFERED HEREBY The Company is offering up to 500,000 shares of
Common Stock to members of the general public
to whom a copy of this Prospectus is delivered.
The minimum individual purchase pursuant to
this Offering is 5,000 shares, and the maximum
is 100,000 shares. The Company reserves the
right to alter the individual minimum and
maximum purchase amounts should conditions so
warrant and specifically reserves the right to
approve purchases of more than 100,000 shares.
PURCHASE PRICE $5.25 per share of Common Stock ("Purchase
Price").
EXPIRATION TIME The Offering will expire at 5:00 p.m., Eastern
Time, on January 31, 1996, unless extended at
the discretion of the Board of Directors of the
Company. See "The Offering - Expiration Time."
PROCEDURE FOR ORDERING COMMON
STOCK IN THE OFFERING Persons who desire to participate in the
Offering must properly complete the Order Form
which accompanies this Prospectus and forward
the Order Form, with payment of the aggregate
Purchase Price, to the Company on or prior to
the Expiration Time. If the mail is used to
forward Order Forms, it is recommended that
insured, registered mail, return receipt
requested, be used. See "The Offering -
Issuance of Common Stock."
ORDERS FOR THE COMMON STOCK WHICH ARE RECEIVED
BY THE COMPANY FROM PERSONS PARTICIPATING IN
THE OFFERING MAY NOT BE REVOKED. See "The
Offering - Procedure for Ordering Common Stock
in the Offering."
ISSUANCE OF COMMON STOCK Certificates representing shares of Common
Stock purchased in the Offering will be
delivered as soon as practicable after the
Expiration Time. See "The Offering - Issuance
of Common Stock."
6
<PAGE>
USE OF PROCEEDS The Company intends to invest approximately
$2.0 million of the net proceeds of the
Offering in equity of the Bank. The Bank
intends to use such additional capital to
increase its regulatory capital ratios, which
may reduce the Bank's federal deposit insurance
premiums, enhance core earnings and support the
growth of its business. Any net proceeds
retained by the Company will be used by the
Company for general corporate purposes. See
"Use of Proceeds."
REGULATORY LIMITATION The Company will not be required to issue
shares of Common Stock pursuant to the Offering
to any person who, in the opinion of the
Company, would be required to obtain prior
clearance or approval from any state or federal
regulatory authority to own or control such
shares if, at the expiration of the Offering,
such clearance or approval has not been
obtained or any required waiting period has not
expired. See "The Offering - Regulatory
Limitation."
INTENTION OF DIRECTORS AND
EXECUTIVE OFFICERS Directors and executive officers of the Company
as a group (nine persons) have indicated to the
Company that they intend to subscribe for in
the aggregate 125,000 shares of Common Stock.
Assuming the full purchases indicated by the
directors and executive officers of the Company
and the Bank, such persons would be deemed to
beneficially own 16.02% of the Common Stock
assumed to be outstanding on a pro forma basis
following the Offering. In addition, the
Company's and the Bank's Employee Stock
Ownership Plan ("ESOP") intends to purchase in
the Offering 50,000 shares of Common Stock
(which may be increased to 100,000 shares of
Common Stock). See "The Offering - Intention
of Directors and Executive Officers."
NASDAQ NATIONAL MARKET SYSTEM
SYMBOL FOR THE COMMON STOCK PFNC
7
<PAGE>
RISK FACTORS
The Company has experienced financial and operating problems in recent
periods and for these and other reasons an investment in the Common Stock
involves a certain degree of risk. Prospective purchasers should carefully
consider the matters set forth under "Risk Factors."
DIVIDEND POLICY
The Company is currently not paying dividends on the Common Stock. The
Company's ability to pay dividends on the Common Stock depends on the receipt of
dividends from the Bank. 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 Common Stock or that, if paid, such dividends will not be reduced or
eliminated in future periods. See "Market Price for Common Stock and Dividends -
Dividends."
8
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
(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 Consolidated Financial Statements and
related Notes set forth in the Annual Report. See "Available Information."
<TABLE>
<CAPTION>
September 30, December 31,
----------------------------------------------------------
1995 1994 1993 1992 1991 1990
-------- --------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL CONDITION DATA:
Total assets $356,716 $348,189 $333,209 $291,542 $312,622 $324,708
Loans, net 210,609 205,771 158,268 153,734 193,789 277,490
Loans held for sale(1) 2,139 351 16,744 2,761 -- --
Investment securities:
Available for sale(1) 6,936 4,627 -- -- -- --
Held to maturity 12,918 12,866 4,632 5,260 2,212 1,694
Mortgage-backed securities:
Available for sale(1) 15,530 9,103 8,893 25,072 -- --
Held to maturity 84,476 93,673 117,054 60,939 47,875 315
Deposits 288,883 283,958 273,583 245,015 265,197 292,478
Borrowings 47,950 47,052 40,536 36,071 38,585 12,500
Stockholders' equity 14,874 13,021 14,787 6,877 5,599 15,844
Delinquent loans(2) 3,164 1,001 1,911 9,859 9,072 12,018
Non-performing assets(2) 4,873 9,085 17,628 34,829 50,427 29,239
Allowance for possible loan losses 1,556 1,502 2,113 2,703 5,483 4,123
Book value per share(3) 4.53 3.98 4.52 6.81 5.54 15.69
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
----------------------- ---------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
--------- -------- --------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS DATA:
Interest income $19,884 $16,518 $22,830 $20,824 $21,979 $ 27,122 $34,834
Interest expense 11,493 9,025 12,505 11,465 13,737 18,010 21,775
--------- -------- --------- ------- ------- -------- --------
Net interest income 8,391 7,493 10,325 9,359 8,242 9,112 13,059
Provision for possible loan losses 350 406 521 368 275 10,144 4,696
--------- -------- --------- ------- ------- -------- --------
Net interest income (expense) after
provision for possible loan losses 8,041 7,087 9,804 8,991 7,967 (1,032) 8,363
Gain (loss) from sales of securities (35) (124) (322) 215 1,197 341 ---
Gain (loss) from mortgage banking
activities 46 (171) (176) 606 1,428 319 ---
Income (loss) on properties sold (34) (60) (62) 102 1,218 153 ---
Other income 1,863 1,597 2,105 1,303 1,774 1,038 1,518
Provision for real estate owned 455 1,541 1,576 1,733 2,835 2,607 2,015
Other expense 8,292 7,852 10,489 9,835 9,397 10,280 11,610
--------- -------- --------- ------- ------- -------- --------
Income (loss) before income taxes
(benefit) 1,134 (1,064) (716) (351) 1,352 (12,068) (3,744)
Income tax expense (benefit) -- -- -- (1,034) 74 (1,823) (755)
--------- -------- --------- ------- ------- -------- --------
Net income (loss) $1,134 $ (1,064) $ (716) $ 683 $1,278 $(10,245) $(2,989)
--------- -------- --------- ------- ------- -------- --------
--------- -------- --------- ------- ------- -------- --------
Net income (loss) per share $ .33 $ (.32) $ (.22) $ .29 $ 1.27 $(10.14) $ (2.96)
--------- -------- --------- ------- ------- -------- --------
--------- -------- --------- ------- ------- -------- --------
Cash dividends per share $ -- $ -- $ -- $ -- $ -- $ -- $ .12
--------- -------- --------- ------- ------- -------- --------
--------- -------- --------- ------- ------- -------- --------
<CAPTION>
Nine Months Ended
September 30, At or For the Year Ended December 31,
------------------------ -------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
-------- ------- ------ ------- ------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA(4):
Return (loss) on average assets .43% (.42)% (.21)% .21% .42% (3.31)% (.92)%
Return (loss) on average equity 10.80 (10.26) (5.24)% 6.25 20.93 (101.81) (16.60)
Average equity to average
assets 4.00 4.10 4.01 3.42 1.99 3.24 5.52
Dividend payout ratio -- -- -- -- -- -- (.04)
Net interest margin(5) 3.37 3.17 3.23 3.25 3.13 3.31 4.30
Interest rate spread(5) 3.08 2.99 3.04 3.26 3.47 3.44 3.97
Non-performing loans as a
percent of total loans at end of
period(2) .66 2.92 2.19 3.42 4.37 7.03 4.85
Non-performing assets as a
percent of total assets at end
of period(2) 1.37 2.95 2.61 5.29 11.95 16.13 9.00
Allowance for possible loan
losses as a percent of non-
performing loans at end of
period 111.62 27.18 33.00 34.92 38.83 39.14 30.19
Net charge-offs as a percent of
average loans .14 .51 .60 .64 1.69 3.51 0.65
Capital Ratios(6):
Tangible 4.79 4.14 4.57 4.14 2.36 1.54 4.70
Core 4.79 4.14 4.57 4.14 2.36 1.54 4.70
Risk-based 9.36 8.86 9.47 9.39 5.37 3.33 6.62
Full service banking offices 9 8 8 8 7 8 8
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
9
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____________
(1) Loans classified as held for sale are carried at the lower of aggregate
cost or fair value while mortgage-backed securities and investment
securities classified as available for sale are carried at fair value.
(2) Delinquent loans consist of loans which are 30 to 89 days overdue. 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, which include in-substance foreclosures and
repossessions, in each case net of related reserves.
(3) Book value per share represents stockholders' equity divided by the number
of shares of Common Stock issued and outstanding.
(4) With the exception of end of period ratios, all ratios are based on average
daily balances during the indicated periods.
(5) Interest rate spread represents the difference between the weighted average
yield on interest-earning assets and the weighted 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.
(6) For additional information concerning the Bank's compliance with its
regulatory capital requirements, see "Regulatory Capital."
RISK FACTORS
An investment in the Common Stock involves certain investment risks. In
determining whether or not to make an investment in the Common Stock,
prospective purchasers should carefully consider the matters set forth below, as
well as the other information included or incorporated by reference in this
Prospectus.
POTENTIAL EFFECTS OF CHANGES IN INTEREST RATES AND THE CURRENT INTEREST RATE
ENVIRONMENT
The operations of the Company are substantially dependent on its net
interest income, which consists of the difference between the interest income
earned on its interest-earning assets and the interest expense paid on its
interest-bearing liabilities. Like most financial institutions, the Company's
earnings are affected by changes in market interest rates, which increased from
early 1994 to early 1995, and other economic factors beyond its 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. For the nine
10
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months ended September 30, 1995, the Company's interest rate spread amounted
to 3.08%. However, the Company's net interest margin has increased from
3.13% for 1992 to 3.23% for 1995 and amounted to 3.37% for the nine months
ended September 30, 1995. Further increases in short-term interest rates
could adversely affect the Company's interest rate spread and net interest
income in future periods.
In addition to affecting interest income and expense, changes in
interest rates also can affect the market value of the Company'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 September 30, 1995,
the Company had $12.9 million of investment securities and $84.5 million of
mortgage-backed securities 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
ability to sell such assets in order to meet its 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
portfolio of investment and mortgage-backed securities classified as held to
maturity being reclassified as available for sale. However, the Financial
Accounting Standards Board recently announced that companies (including
financial institutions) will be permitted to reclassify securities originally
classified under SFAS No. 115 without affecting the classifications of its
remaining securities portfolio. This announcement provides the Company with
the opportunity to reclassify individual securities previously classified as
"held to maturity" or "available for sale" without having to reclassify the
entire portfolio of similarly classified securities. The time period in
which such reclassifications may be made is from November 15, 1995 to
December 31, 1995. Although the Company currently intends to take advantage
of this opportunity and restructure its "held to maturity" portfolio, the
exact extent of such restructuring has not yet been determined. Pursuant to
SFAS No. 115, securities classified as available for sale must be reported at
fair value, with unrealized gains or losses being reported as a separate
component of stockholders' equity. The Company's investment and
mortgage-backed securities (including securities classified as available for
sale) had an aggregate carrying value and market value of $119.9 million and
$117.7 million, respectively, at September 30, 1995. At September 30, 1995,
the Company had $2.1 million of loans classified as held for sale.
The OTS has adopted a final rule (the effective date of which has been
postponed) which will incorporate an interest rate risk component into its
risk-based capital rules. This interest rate risk component 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 September 30, 1995, if interest rates increased by 200 basis points,
the Bank's net portfolio value would decrease
11
<PAGE>
by 2.00% of the estimated market value of the Bank's assets, as calculated by
the OTS, which would result in a $6,000 capital deduction if such deduction
was currently required.
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 is subject to reinvestment risk to the extent that
it is 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 borrowers with adjustable-rate loans to repay their
loans.
HISTORICAL FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company has recognized operating losses in recent years due, to a
large extent, to the prior economic recession and the resulting decline in
real estate values in the Company's market area. These conditions had a
material adverse effect on the quality of the Company's loan portfolio and
contributed in 1990 and 1991 to substantial increases in 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 $4.9 million or 1.4%
of total assets at September 30, 1995.
At September 30, 1995, the Company's allowance for loan losses amounted
to $1.6 million or .73% and 111.62% of total loans and total non-performing
loans, respectively, and the net carrying value of the Company's REO amounted
to $3.5 million at such date. The $3.5 million of REO at September 30, 1995
included a $3.1 million property which the Company has recently sold at a
loss of $280,000. 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.
12
<PAGE>
INCREASED EMPHASIS ON COMMERCIAL BUSINESS, CONSTRUCTION,
COMMERCIAL REAL ESTATE AND CONSUMER LENDING
At September 30, 1995, the Company's commercial business loans,
construction loans, commercial real estate loans (including multi-family
residential loans) and consumer loans amounted to $15.3 million or 7.1%,
$10.8 million or 5.0%, $76.0 million or 35.5% and $21.9 million or 10.2% of
the Company'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. 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.
REGULATION
The Company, as a savings and loan holding company, and the Bank, as a
federally chartered savings bank, are subject to extensive governmental
supervision and regulation, which is intended primarily for the protection of
depositors. In addition, the Company and the Bank 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 the Bank.
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RECAPITALIZATION OF SAIF AND RELATED LEGISLATIVE PROPOSALS
Applicable law requires that both the SAIF and Bank Insurance Fund
("BIF") be capitalized at a ratio of 1.25% of reserves to deposits. The FDIC
has reported that the BIF attained the 1.25% reserve ratio in May 1995 but
that the SAIF is not likely to reach the 1.25% reserve ratio until 2002.
SAIF reserves have not grown as quickly as the BIF reserves due to a number
of factors, including the fact that a significant portion of SAIF premiums
have been and are currently being used to make payments on bonds ("FICO
bonds") issued in the late 1980s by the Financing Corporation to recapitalize
the now defunct Federal Savings and Loan Insurance Corporation.
On November 14, 1995, the FDIC approved a final rule regarding deposit
insurance premiums. The final rule will reduce deposit insurance premiums
for BIF member institutions to zero basis points (subject to a $2,000
minimum) for institutions in the lowest risk category, while holding deposit
insurance premiums for SAIF members at their current levels (23 basis points
for institutions in the lowest risk category). The reduction will be
effective with respect to the semiannual premium assessment beginning January
1, 1996. Accordingly, in the absence of further legislative action, SAIF
members such as the Bank will be competitively disadvantaged as compared to
commercial banks by the resulting premium differential.
The U.S. House of Representatives and Senate have provided for a
resolution of the recapitalization of the SAIF in the Balanced Budget Act of
1995 (the "Reconciliation Bill") which was sent to the President on November
29, 1995. The President recently vetoed the Reconciliation Bill for reasons
unrelated to the recapitalization of the SAIF. The Reconciliation Bill
provides that all SAIF member institutions will pay a special one-time
assessment to recapitalize the SAIF, which in the aggregate will be
sufficient to bring the reserve ratio in the SAIF to 1.25% of insured
deposits. Based on the current level of reserves maintained by the SAIF it
is currently anticipated that the amount of the special assessment required
to recapitalize the SAIF will be approximately 80 to 85 basis points of the
SAIF-assessable deposits. The special assessment would be payable on January
1, 1996, based on the amount of SAIF deposits on March 31, 1995. It is
anticipated that after the recapitalization of the SAIF, that premiums of
SAIF-insured institutions would be reduced comparable to those currently
being assessed BIF-insured commercial banks.
The Reconciliation Bill also provides for the merger of the BIF and SAIF
on January 1, 1998, with such merger being conditioned upon the prior
elimination of the thrift charter. The Banking Committees of the House of
Representatives and the Senate in adopting the Reconciliation Bill agreed
that Congress should consider and act upon separate legislation as early as
possible in 1996 to eliminate the thrift charter. If adopted, such
legislation would require that the Bank, as a federal savings bank, convert
to a bank charter. Such a requirement to convert to a bank charter could
cause savings institutions to lose favorable tax treatment for their bad debt
reserves that they currently enjoy under Section 593 of the Internal Revenue
Code of 1986, as amended ("Code").
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While the outcome of the proposed legislation cannot be predicted with
certainty, it is likely that some kind of legislative or regulatory action
will be undertaken that will impact the Bank's insured deposits. A one-time
special assessment of 85 basis points would result in the Bank paying
approximately $2.3 million, net of related tax benefits, if any. In
addition, the enactment of such legislation may have the effect of
immediately reducing the capital of SAIF-member institutions by the amount of
the special assessment. As of September 30, 1995, after giving effect to the
payment and deduction of an 85 basis point special assessment, the Bank's
tangible, core and risk-based capital ratios would have amounted to, on a pro
forma basis, approximately 4.13%, 4.13%, and 8.18%, respectively, and the
Bank would continue to be classified as "well capitalized" pursuant to the
OTS' prompt corrective action regulations.
In light of the different proposals currently under consideration and
the uncertainty of the legislative process generally, management cannot
predict whether legislation reducing SAIF premiums and/or imposing a special
one-time assessment will be adopted, or, if adopted, the amount of the
assessment, if any, that would be imposed on the Bank.
PENDING LEGISLATION REGARDING BAD DEBT RESERVES
Under Section 593 of the Code, thrift institutions such as the Bank,
which meet certain definitional tests primarily relating to their assets and
the nature of their business, are permitted to establish a tax reserve for
bad debts and to make annual additions thereto, which additions may, within
specified limitations, be deducted in arriving at their taxable income. The
Bank's deduction with respect to "qualifying loans," which are generally
loans secured by certain interests in real property, may currently be
computed using an amount based on the Bank's actual loss experience (the
"experience method"), or a percentage equal to 8.0% of the Bank's taxable
income (the "percentage of taxable income method"), computed without regard
to this deduction and with additional modifications and reduced by the amount
of any permitted addition to the non-qualifying reserve.
Under the Reconciliation Bill, the percentage of taxable income method
would be repealed and the Bank would be permitted to use only the experience
method of computing additions to its bad debt reserve. In addition, the Bank
would be unable to make additions to its tax bad debt reserve, would be
permitted to deduct bad debts only as they occur and would additionally be
required to recapture (i.e. take into income) over a six-year period the
excess of the balance of its bad debt reserves as of December 31, 1995 over
the balance of such reserves as of December 31, 1987. However, under the
proposed legislation, such recapture requirements would be suspended for each
of two successive taxable years beginning January 1, 1996, in which the Bank
originates a minimum amount of certain residential loans based upon the
average of the principal amounts of such loans made by the Bank during its
six taxable years preceding 1996. It is anticipated that any recapture of
the Bank's bad debt reserves accumulated after 1987 would not have a material
adverse effect on the Company's consolidated financial condition and results
of operations.
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DIVIDENDS
The Company suspended dividend payments on the Common Stock after the
second quarter of 1990 in order to conserve its capital resources in light of
operating losses and the inability of the Bank to meet its risk-based capital
requirement at the time, and the Company has not paid any dividends since
such date. 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
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
Common Stock depends on the receipt of dividends from the Bank. See "Market
Price for Common Stock and Dividends."
POSSIBLE LIMITATION OF TAX BENEFITS
At September 30, 1995, the Company and the Bank had a net operating loss
carryforward for federal tax purposes of approximately $7.3 million, $417,000
of which expires in 2006, $4.5 million of which expires in 2007, $654,000 of
which expires in 2008 and $1.7 million of which expires in 2009. In
addition, at such date, the Company and the Bank had an allowance for
possible loan losses of approximately $1.6 million. The majority of the
allowance for possible loan losses is anticipated to give rise to deductible
losses in the current and future years. In addition, approximately $2.0
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 and the Bank have 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 and the Bank, either in connection with this transaction, or in
future years as a result of transactions unrelated thereto, the Company and
the Bank may be limited in their ability to use their net operating loss
carryforward. In addition, if the Built-in Losses of the Company and the
Bank (netted against gains which they have not yet recognized for tax
purposes, together, the "Net Unrealized Built-In Losses" of the Company and
the Bank) 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 and the Bank to deduct their
Built-in Losses will be limited in the current, or a past or future year. The
first factor is whether the Company and the Bank have undergone an "ownership
change," as defined. The second factor is whether the Net Unrealized Built-In
Losses of the Company and the Bank exceed the applicable threshold
limitations, discussed below, at the time such an "ownership change" occurs.
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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 Internal Revenue Service ("IRS") has issued regulations which
provide that if a corporation with a net built-in loss or net operating loss
carryforwards issues stock for cash, a percentage of the stock issued equal
to one-half of the percentage of stock owned by the group of less-than-5%
stockholders immediately before the issuance (the "Pre-Issuance Public
Group") will be presumed to have been acquired by the Pre-Issuance Public
Group. The amount of stock subject to this presumption is limited to the
amount of stock issued less the amount of stock acquired by 5% stockholders
(other than the Pre-Issuance Public Group). The corporation may treat the
Pre-Issuance Public Group as acquiring more stock than the amount presumed to
be acquired if it knows that the amount actually acquired by the Pre-Issuance
Public Group is greater. Accordingly, the Company's existing stockholders may
be deemed to have purchased a percentage of the shares of Common Stock being
offered, reducing the likelihood that the Offering may result in an ownership
change of the Company and the Bank.
IRS regulations also provide that outstanding stock options to acquire
shares of Common Stock of the Company will only be considered to have been
exercised for the purpose of determining whether there has been an ownership
change if the options had been issued for an abusive principal purpose, as
defined. Since the Company's outstanding stock options were ordinary options
designed to provide compensation to officers, and were not issued for the
purpose of manipulating the timing of an ownership change, or for another
prescribed purpose, it appears that such options will not be required to be
considered to have been exercised.
Other regulations which will apply in determining whether the Offering
will be deemed to have resulted in an ownership change of the Company and the
Bank provide that shares held in the name of an investment advisor may be
deemed to be owned by the persons represented by such investment advisor in
relation to their relative economic interest, based on the facts and
circumstances. Shares acquired by a 5% stockholder during a three-year
testing period are deemed to have been acquired proportionately from each
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public group of stockholders in existence prior to the 5% stockholder's
purchase of such shares.
Based upon an analysis of its known 5% stockholders during the past
three years, the Company believes that the Offering is unlikely to cause an
"ownership change" to be deemed to have occurred. However, no assurance may
be given that an "ownership change" will not occur as a result of the
Offering or in the future as a result of the cumulative effect of the
Offering and other acquisitions and transfers of Common Stock. Whether the
Offering will result in the Company being deemed to have experienced an
"ownership change" within the meaning of Section 382 of the Code will depend
on the number of shares of Common Stock purchased by existing stockholders.
Section 382 of the Code provides that if the amount of Net Unrealized
Built-in Losses of a corporation, generally, 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 herewith, that
its unrealized built-in gains (generally, the amount by which the fair market
value of certain assets of the Company and the Bank exceed the tax basis of
such assets), when netted against its unrealized built-in losses (including
the reserve for possible 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, in the event
of an "ownership change" in conjunction with the transactions contemplated
hereby, the Company and the Bank would be considered to have no Net
Unrealized Built-In Losses 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.
If an "ownership change" occurs with respect to the Company and the
Bank, an annual limitation (the "Section 382 Limitation") would 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 and the Bank 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 would be computed
by multiplying the aggregate fair market value of the Common Stock
immediately prior to an "ownership change" by the then-applicable interest
rate published by the IRS for this purpose. Based upon the market value of
the outstanding Common Stock on September 30, 1995, Section 382 could limit
the Company's ability to utilize in any one year more than $1.2 million of
its net operating loss carryforward and its as yet unrecognized Built-in
Losses in the event
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that the Offering were deemed to result in an "ownership change." 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. Accordingly, if the Section 382 Limitation were
to apply to the Company and the Bank to limit the rate of utilization of such
losses, it is uncertain whether the Company and the Bank would be able to
fully utilize their net operating loss carryforward and Built-in Losses in
the current, or a past or future year.
If the Offering does not result in an "ownership change," transactions
in shares of Common Stock subsequent to consummation of the Offering which
generally are beyond the control of the Company, could result in an
unanticipated increase in the ownership of Common Stock by one or more 5%
shareholders. If a sufficient number of shares of Common Stock were sold or
purchased by an applicable stockholder group in the current or future years,
an ownership change could occur and the Section 382 Limitation may then be
applicable to the Company and its subsidiaries. In such circumstances, the
determination whether the Company and its subsidiaries have Net Unrealized
Built-in Losses in excess of the applicable threshold amounts would be made
as of the date of such a future "ownership change."
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Certificate of Incorporation and
Bylaws and the Delaware General Corporation Law ("DGCL"), as well as a
shareholder rights plan adopted by the Company, could have the effect of
discouraging non-negotiated takeover attempts which certain stockholders
might deem to be in their interest and making it more difficult for
stockholders of the Company to remove members of its Board of Directors and
management. In addition, various federal laws and regulations could affect
the ability of a person, firm or entity to acquire the Company or shares of
its Common Stock. See "Restrictions on Acquisition of the Company" and
"Description of Capital Stock."
THE OFFERING
GENERAL
The Company is offering up to 500,000 shares of its Common Stock to
members of the general public to whom a copy of this Prospectus is delivered.
The minimum individual purchase pursuant to this Offering is 5,000 shares,
and the maximum is 100,000 shares. The Company reserves the right to alter
the individual minimum and maximum purchase amounts should conditions so
warrant and specifically reserves the right to approve purchases of more than
100,000 shares. The shares of Common Stock offered for sale in the Offering
are subject to the right of the Company to accept or reject orders received
in the Offering in whole or in part and the other limitations described
herein. If the number
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of shares of Common Stock offered hereby are not sufficient to satisfy all
orders received from participants in the Offering, such excess shares will be
allocated among such persons in any manner determined by the Company in its
sole discretion. If a proration of such excess shares results in a person
receiving fewer shares than the person ordered in the Offering, then any
excess funds paid by such person as the Purchase Price for shares not issued
will be returned without interest or deduction as soon as practicable
following the Expiration Time. There can be no assurance that any shares of
Common Stock will be available to persons desiring to order Common Stock in
the Offering. To order Common Stock in the Offering properly, the enclosed
Order Form must be completed, and payment in full of the aggregate Purchase
Price for all shares of Common Stock ordered must accompany the Order Form.
EXPIRATION TIME
The Offering will expire at 5:00 p.m., Eastern Time, on January 31,
1996, unless extended in the sole discretion of the Board of Directors of the
Company. The Company will not be obligated to honor any Order Form received
after the Expiration Time, regardless of when the documents were sent.
PROCEDURE FOR ORDERING COMMON STOCK IN THE OFFERING
Persons who desire to participate in the Offering must deliver to the
Company, on or prior to the Expiration Time, a properly completed and
executed Order Form with any required signatures guaranteed, together with
payment in full of the aggregate Purchase Price for the shares of Common
Stock ordered. Such payment in full must be by (a) check or bank draft drawn
upon a U.S. bank or postal, telegraphic or express money order payable to
Progress Federal Savings Bank, as Escrow Agent for Progress Financial
Corporation, or (b) wire transfer of funds to the account maintained by the
Company for such purpose at Progress Federal Savings Bank, Account No.
0860-16870; ABA No. 2313-7184-1. The aggregate Purchase Price will be deemed
to have been received by the Company only upon (i) clearance of any
non-certified check, (ii) receipt by the Company of any certified check or
bank draft drawn upon a U.S. bank or of any postal, telegraphic or express
money order or (iii) receipt of good funds in the account designated above.
All payments received by the Company will be delivered to the escrow account
designated above promptly. If paying by non-certified personal check, please
note that the funds paid thereby may take at least five business days to
clear. Accordingly, persons who wish to pay the aggregate Purchase Price by
means of a non-certified personal check are urged to make payment
sufficiently in advance of the Expiration Time to ensure that such payment is
received and clears by such date and are urged to consider payment by means
of a certified or cashier's check, money order or wire transfer of funds.
Earnings on the funds held in the escrow account designated above (which are
not expected to be material) will be retained by the Company whether or not
the Offering is consummated.
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The address to which the Order Form and payment of the Purchase Price
should be delivered is:
Progress Financial Corporation
Plymouth Meeting Executive Campus
600 West Germantown Pike
Plymouth Meeting, Pennsylvania 19462-1003
Attention: W. Kirk Wycoff
Payment may be made by wire transfer as described above. Persons who
make payment by such method must be sure to deliver to the Company, prior to
the Expiration Time, a properly executed and completed Order Form. Order
Forms may be delivered to the Company as described above or by telecopy. The
Company's telephone number is (610) 825-8800. The Company's telecopy number
is (610) 825-4460. The contact person is W. Kirk Wycoff.
If the aggregate Purchase Price paid by an Offering participant is
insufficient to purchase the number of shares of Common Stock that the person
indicates are being ordered, or if such Offering participant does not specify
the number of shares of Common Stock ordered, then the Offering participant
will be deemed to have ordered the number of whole shares of Common Stock
which may be purchased by the full extent of the payment tendered (subject
only to reduction to comply with regulatory limitations or conditions of the
Offering). If the aggregate Purchase Price paid by an Offering participant
exceeds the amount necessary to purchase the number of shares of Common Stock
for which the Offering participant has ordered, then the Offering participant
will be deemed to have ordered the number of whole shares of Common Stock
which may be purchased by the full extent of the payment tendered (subject
only to reduction to comply with regulatory limitations or conditions of the
Offering).
THE INSTRUCTIONS ACCOMPANYING THE ORDER FORM SHOULD BE READ CAREFULLY
AND FOLLOWED IN DETAIL. THE METHOD OF DELIVERY OF ORDER FORMS AND PAYMENT OF
THE AGGREGATE PURCHASE PRICE TO THE COMPANY WILL BE AT THE ELECTION AND RISK
OF OFFERING PARTICIPANTS, BUT IF SENT BY MAIL, IT IS RECOMMENDED THAT SUCH
ORDER FORM AND PAYMENTS BE SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH
RETURN RECEIPT REQUESTED AND THAT A SUFFICIENT NUMBER OF DAYS BE ALLOWED TO
ENSURE DELIVERY TO THE COMPANY AND CLEARANCE OF PAYMENT PRIOR TO THE
EXPIRATION TIME. BECAUSE UNCERTIFIED PERSONAL CHECKS MAY TAKE FIVE BUSINESS
DAYS TO CLEAR, YOU ARE STRONGLY URGED TO PAY, OR ARRANGE FOR PAYMENT, BY
MEANS OF A CERTIFIED OR CASHIER'S CHECK, MONEY ORDER OR WIRE TRANSFER OF
FUNDS.
All questions concerning the timeliness, validity, form and eligibility
of Order Forms received will be determined by the Company, whose
determinations will be final and binding. The Company in its sole discretion
may waive any defect or irregularity, or permit a defect or irregularity to
be corrected within such time as it may determine, or reject the purported
orders for shares of Common Stock. Order Forms will not be deemed to have
been received or accepted until all irregularities have been waived or cured
within such time
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as the Company determines in its sole discretion. The Company will not be
under any duty to give notification of any defect or irregularity in
connection with the submission of Order Forms and will not incur any
liability for failure to give such notification.
ORDERS FOR THE COMMON STOCK WHICH ARE RECEIVED BY THE COMPANY FROM
PERSONS IN THE OFFERING MAY NOT BE REVOKED.
Certain directors and executive officers of the Company and the Bank
will assist the Company in the Offering by, among other things, generally
being available to answer questions of potential purchasers and soliciting
orders in the Offering. None of such directors and executive officers will
receive compensation for such services. None of such directors and executive
officers are registered as securities brokers or dealers under the federal or
applicable state securities laws, nor are any of such persons affiliated with
any broker or dealer. Because none of such persons are in the business of
either effecting securities transactions for others or buying and selling
securities for their own account, they are not required to register as
brokers or dealers under the federal securities laws. In addition, the
proposed activities of such directors and executive officers are exempted
from registration pursuant to a specific safe-harbor provision under Rule
3a4-1 under the Exchange Act. Substantially similar exemptions from
registration are available under applicable state securities laws.
ISSUANCE OF COMMON STOCK
Provided that all conditions necessary to consummate the Offering are
satisfied, certificates representing shares of Common Stock purchased
pursuant to the Offering will be delivered to purchasers as soon as
practicable after the Expiration Time and after all prorations and
adjustments contemplated by the Offering have been effected. No fractional
shares will be issued in the Offering.
DETERMINATION OF PURCHASE PRICE
The Purchase Price was determined by the Company. As part of the
Company's determination of the Purchase Price, the Company's management and
Board of Directors reviewed such factors as recent offerings in the thrift
and banking industries, the reported price and trading activity of the Common
Stock, certain financial and stock market information for the Company as
compared to certain other publicly traded companies, the business prospects
for the Company and the general condition of the securities markets at the
time of the meeting of the Board of Directors at which the Purchase Price was
determined.
There can be no assurance that the market price of the Common Stock will
not decline during the Offering to a level equal to or below the Purchase
Price, or that following completion of the Offering and the issuance of the
Common Stock sold pursuant thereto, an Offering participant will be able to
sell shares purchased in the Offering at a price equal
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to or greater than the Purchase Price. Moreover, until certificates for
shares of Common Stock are delivered, Offering participants may not be able
to sell the shares of Common Stock that they have purchased in the Offering.
THE BOARD OF DIRECTORS EXPRESSES NO OPINION AND MAKES NO RECOMMENDATION
TO OFFERING PARTICIPANTS AS TO WHETHER OFFERING PARTICIPANTS SHOULD ORDER
COMMON STOCK IN THE OFFERING. AN INVESTMENT IN THE COMMON STOCK OF THE
COMPANY MUST BE MADE PURSUANT TO EACH INVESTOR'S EVALUATION OF THE OFFERING
IN THE CONTEXT OF HIS OR HER BEST INTERESTS.
INTENTION OF DIRECTORS AND EXECUTIVE OFFICERS
Directors and executive officers of the Company as a group (nine
persons) have indicated to the Company that they intend to order, in the
aggregate, 125,000 shares of Common Stock. These intentions are not
commitments and could change based upon individual circumstances. Assuming
the full purchases indicated by the directors and executive officers of the
Company and the Bank, such persons would be deemed to beneficially own 16.02%
of the Common Stock assumed to be outstanding on a pro forma basis following
the Offering. In addition, the Company's and the Bank's ESOP intends to
purchase in the Offering 50,000 shares of Common Stock (which may be
increased to 100,000 shares of Common Stock).
REGULATORY LIMITATION
The Company will not be required to issue shares of Common Stock
pursuant to the Offering to any person who, in the opinion of the Company,
would be required to obtain prior clearance or approval from any state or
federal bank regulatory authority to own or control such shares if, at the
Expiration Time, such clearance or approval has not been obtained or any
required waiting period has not expired.
RIGHT TO AMEND OR TERMINATE THE OFFERING
The Company expressly reserves the right to amend the terms and
conditions of the Offering, whether the terms and conditions are more or less
favorable to Offering participants. In the event of a material change to the
terms of the Offering, the Company will file a post-effective amendment to
its Registration Statement, of which this Prospectus is a part, and resolicit
persons to the extent required by the Commission. The Company expressly
reserves the right, at any time prior to delivery of shares of Common Stock
offered hereby, to terminate the Offering if the Offering is prohibited by
law or regulation or the Board of Directors concludes, in its judgment, that
it is not in the best interests of the Company to complete the Offering under
the circumstances. If the Offering is so terminated, all funds received from
Offering participants will be promptly refunded, without interest.
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USE OF PROCEEDS
The Company intends to invest $2.0 million of the net proceeds from the
sale of the shares of Common Stock offered hereby in equity of the Bank, in
order to increase its regulatory capital ratios, which may reduce the Bank's
federal deposit insurance premiums, enhance its core earnings and support the
growth of its business. Any net proceeds retained by the Company will be
used by the Company for general corporate purposes. Initially, the net
proceeds from the Offering will be invested in short-term investment grade
securities.
The estimated net proceeds to be raised in the Offering depends on the
amount of the actual expenses incurred in the Offering, which may differ from
the estimates thereof.
The following table shows estimated gross and net proceeds based upon
the sale of 500,000 shares of Common Stock in the Offering. In determining
net proceeds, the estimated expenses of the Offering (which are currently
estimated to amount to $125,000 in the aggregate) have been subtracted from
gross proceeds.
Issuance of the
500,000 Shares
---------------
Gross proceeds $2,625,000
Less: estimated expenses 125,000
-----------
Total net proceeds $2,500,000
-----------
-----------
24
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company at September 30, 1995 and the pro forma consolidated capitalization of
the Company at such date after giving effect to the Company's receipt of all of
the estimated net proceeds from the sale of the Common Stock offered hereby,
based on the assumptions set forth in "Use of Proceeds" and in the notes below.
For a tabular presentation of the estimated pro forma effects of the Offering on
the regulatory capital ratios of the Bank, see "Regulatory Capital."
<TABLE>
<CAPTION>
September 30, 1995
-----------------------------------
Actual As Adjusted
--------------- -------------
(Dollars in Thousands, Except Per
Share Amounts)
<S> <C> <C>
Deposits $288,883 $288,883
Advances from the FHLB
of Pittsburgh 44,950 44,950
Subordinated debt 3,000 3,000
Loan to ESOP(1) -- 263
------- -------
Total deposits and
borrowed funds $336,833 $337,096
------- -------
------- -------
Stockholders' equity:
Preferred Stock
(authorized: 1,000,000
shares, par value $.01;
outstanding: none) $ --- $ ---
Common Stock
(authorized: 6,000,000
shares, par value $1.00;
issued: 3,280,000 shares and
3,780,000 shares, as adjusted) 3,280 3,780
Additional paid-in capital 15,706 17,831
Retained earnings (deficit) (3,775) (3,775)
Unrealized loss on securities
available for sale (337) (337)
Less: Common Stock
acquired by the ESOP(1) -- 50
------- -------
Total stockholders' equity $ 14,874 $ 17,449
------- -------
------- -------
Book value per share of
Common Stock(2) $4.53 $4.62
---- -----
---- -----
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
25
<PAGE>
_______________
(1) Assumes that 50,000 shares of Common Stock will be purchased by the ESOP
(which may be increased to 100,000 shares, which would reduce total
stockholders' equity to $17,399,000 and book value per share of Common
Stock to $4.60). The Common Stock acquired by the ESOP is reflected as
a reduction of stockholders' equity. The funds used to acquire the ESOP
shares are expected to be borrowed from a third party lender.
(2) Book value per share of Common Stock is determined by dividing the
Company's actual and as adjusted consolidated total stockholders' equity at
September 30, 1995 by 3,280,000 shares of issued and outstanding Common
Stock and 3,780,000 shares of Common Stock, as adjusted, respectively.
REGULATORY CAPITAL
Under regulations adopted by the OTS, each savings institution is currently
required to maintain tangible and core capital equal to at least 1.5% and 3.0%,
respectively, of its adjusted total assets, and total capital equal to at least
8.0% of its risk-weighted assets.
The following table sets forth the actual regulatory capital ratios of the
Bank at September 30, 1995 and as adjusted to give effect to the receipt of the
estimated net proceeds from the sale of the Common Stock offered hereby, based
on the Company's contribution of approximately $2.0 million of the net proceeds
to the Bank.
<TABLE>
<CAPTION>
As Adjusted
Historical Pro Forma
at September 30, 1995 at September 30, 1995
----------------------------------------- -----------------------------------------
Capital Excess Capital Excess
Capital Requirement Capital Capital Requirement Capital
---------- -------------- ---------- ---------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
DOLLAR BASIS:
Tangible $17,070 $ 5,345 $11,725 $19,070 $ 5,375 $13,695
Core(1) 17,070 10,690 6,380 19,070 10,750 8,320
Risk-based(2)(3) 18,626 15,914 2,712 20,626 15,946 4,680
PERCENTAGE BASIS:
Tangible 4.79% 1.50% 3.29% 5.32% 1.50% 3.82%
Core(1) 4.79 3.00 1.79 5.32 3.00 2.32
Risk-based(2)(3) 9.36 8.00 1.36 10.35 8.00 2.35
</TABLE>
_______________
(1) Does not reflect the 4.0% requirement to be met in order for an institution
to be deemed "adequately capitalized" under applicable laws and
regulations.
(2) Does not reflect amendments to the risk-based capital requirement.
(3) Assumes the net proceeds are initially invested in 20% risk-weighted
assets.
26
<PAGE>
MARKET PRICE FOR COMMON STOCK AND DIVIDENDS
MARKET PRICE FOR COMMON STOCK
The Common Stock is traded in the over-the-counter market on the Nasdaq
National Market System under the symbol "PFNC." The following table sets forth
the high and low sales prices of the Common Stock as reported by the Nasdaq
National Market System and the cash dividends declared per share of Common Stock
during the periods indicated.
<TABLE>
<CAPTION>
Sales Price
-------------------------------
Dividends
High Low Per Share
---------- --------- -------------
<S> <C> <C> <C>
1993
--------------------
First Quarter $7.25 $3.00 --
Second Quarter 7.50 3.50 --
Third Quarter 5.50 3.50 --
Fourth Quarter 5.25 4.25 --
1994
--------------------
First Quarter 6.25 4.50 --
Second Quarter 5.625 4.25 --
Third Quarter 5.50 4.25 --
Fourth Quarter 5.50 3.50 --
1995
--------------------
First Quarter 5.00 4.25 --
Second Quarter 6.25 4.50 --
Third Quarter 6.25 5.00 --
Fourth Quarter 6.125 5.125 --
1996
--------------------
First Quarter
(through January 10,
1996) 5.875 5.25 --
</TABLE>
On January 10, 1996, the last trading day before the commencement of the
Offering, the closing sale price of a share of Common Stock on the Nasdaq
National Market System was $5.50.
27
<PAGE>
As of September 30, 1995, there were 3,280,000 shares of 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 Common Stock is traded on the
Nasdaq National Market System, historically, the Common Stock has not been
actively traded.
DIVIDENDS
The Company has not paid dividends on the Common Stock since the second
quarter of 1990. The Company's ability to pay dividends on the Common Stock
will depend on the receipt of dividends from the Bank. In addition, the
Company's ability to pay dividends on the Common Stock will be affected by its
obligation to pay interest on the $3.0 million of 8.25% Subordinated Notes due
2004 (the "Notes") issued together with 300,000 Common Stock Purchase Warrants
(the "Warrants") in June 1994. Interest expense on such Notes amounts to
approximately $248,000 per year. Applicable rules and regulations of the OTS
impose limitations on capital distributions by savings institutions. Savings
institutions, such as the Bank, which have capital in excess of all fully
phased-in capital requirements before and after the proposed capital
distribution are permitted, after giving prior notice to the OTS, to make
capital distributions during a calendar year up to the greater of (i) 100% of
net income to date during the calendar year, plus the amount that would reduce
by one-half its "surplus capital" (excess capital over its fully phased-in
capital requirements) at the beginning of the calendar year or (ii) 75% of its
net income over the most recent four-quarter period. However, such capital
distribution may not reduce surplus capital below the fully phased-in capital
requirement at the date of the capital distribution. Institutions with less
capital are more restricted in the payment of dividends and no institution can
pay dividends if such payment would cause the institution to no longer satisfy
its capital requirements. Furthermore, institutions may not be permitted by the
OTS to distribute the full amount of dividends otherwise permitted under the
regulations due to safety and soundness concerns.
28
<PAGE>
MANAGEMENT AND PRINCIPAL STOCKHOLDERS
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding each director
and executive officer of the Company, including information regarding their age
and the number and percent of shares of Common Stock beneficially owned by such
persons as of September 30, 1995. No director is related to any other director
or executive officer of the Company or the Bank 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. The
Company does not have any executive officers who are not also directors.
<TABLE>
<CAPTION>
Amount and Percentage of
Year of Shares Beneficially Owned
Director Expiration as of
Name Age(1) Since of Term September 30, 1995
- -------------------------- ------- -------- ---------- -----------------------------------
AMOUNT PERCENTAGE
------ ----------
<S> <C> <C> <C> <C> <C>
John E. F. Corson 54 1991 1996 7000(2) *
William O. Daggett, Jr. 54 1990 1995 62,230(3) 1.9%
Donald F. U. Goebert 58 1987 1996 140,766(4) 4.3
Joseph R. Klinger 52 1992 1995 8,500(2) *
Paul M. LaNoce 35 1991 1996 16,400(2) *
A. John May, III 39 1993 1997 8,193(5) *
William L. Mueller 43 1990 1995 65,726(6) 2.0
Charles J. Tornetta 64 1991 1997 23,158(7) *
W. Kirk Wycoff 37 1991 1997 174,155(8) 5.1
</TABLE>
___________________
* Represents less than 1% of the issued and outstanding Common Stock of the
Company.
(1) As of September 30, 1995.
(2) Includes options to purchase 5,500 shares subject to stock options which
are exercisable within 60 days of September 30, 1995.
(3) Includes 47,230 shares owned by companies of which Mr. Daggett is a
director, officer and 10% stockholder and 5,500 shares subject to stock
options which are exercisable within 60 days of September 30, 1995. Does
not include 12,500 Warrants.
29
<PAGE>
(4) Includes 135,266 shares owned by a company of which Mr. Goebert is a
director, officer and 10% stockholder and 5,500 shares subject to stock
options which are exercisable within 60 days of September 30, 1995. Does
not include 50,000 Warrants.
(5) Includes options to purchase 500 shares subject to stock options which
are exercisable within 60 days of September 30, 1995.
(6) Includes 15,114 shares held jointly by Mr. Mueller with or for the
benefit of certain family members and 5,500 shares subject to stock
options which are exercisable within 60 days of September 30, 1995. Does
not include 25,000 Warrants.
(7) Includes 5,500 shares subject to stock options which are exercisable
within 60 days of September 30, 1995. Does not include 25,000 Warrants.
(8) Includes 7,000 shares held jointly by Mr. Wycoff with or for the benefit
of certain family members and 120,000 shares subject to stock options
which are exercisable within 60 days of September 30, 1995. Does not
include 12,500 Warrants.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information relating to the only
persons known to the Company to be the beneficial owners of 5% or more of the
Company's Common Stock as of September 30, 1995, and the amount of Common Stock
of the Company held by all directors and executive officers of the Company as a
group as of such date. The information below is based upon filings made
pursuant to the Exchange Act and information furnished by the respective
individuals.
<TABLE>
<CAPTION>
Amount of Common
Stock
Name and Address of Beneficially Owned Percent of
Beneficial Owner as of September 30, 1995 Common Stock
- --------------------- ------------------------ -------------
<S> <C> <C>
1993 SOP Partners, L.P. 200,000(1) 6.1%
Two World Trade Center
104th Floor
New York, New York 10048
W. Kirk Wycoff 174,155(2) 5.1
875 Lantern Lane
Blue Bell, Pennsylvania 19422
Directors and executive 506,128(3) 14.7
officers of the Company
as a group (nine persons)
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
30
<PAGE>
_______________________
(1) Does not include 50,000 Warrants.
(2) Includes 7,000 shares which are held jointly by Mr. Wycoff with or for the
benefit of certain family members and 120,000 shares which may be acquired
upon the exercise of stock options exercisable within 60 days of September
30, 1995. Does not include 12,500 Warrants.
(3) Includes 7,000 shares which are held jointly by Mr. Wycoff with or for the
benefit of certain family members, 47,230 shares which are owned by
companies of which Mr. Daggett is a director, officer or 10% stockholder,
135,266 shares owned by companies of which Mr. Goebert is a director,
officer or 10% stockholder and 15,114 shares held jointly by Mr. Mueller
with or for the benefit of certain family members. Also includes 159,000
shares subject to stock options which are exercisable within 60 days from
September 30, 1995. Does not include 125,000 shares subject to the
Warrants held by the group.
RESTRICTIONS ON ACQUISITION OF THE COMPANY
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. The
Company currently has 1,000,000 authorized but unissued shares of
Preferred Stock and 6,000,000 authorized shares
31
<PAGE>
of Common Stock, of which 3,280,000 shares were issued and outstanding as of
September 30, 1995. 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.
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."
BOARD OF DIRECTORS. The 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. See "Management and Principal
Stockholders - Board of Directors and Executive Officers."
Vacancies 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.
32
<PAGE>
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. 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
33
<PAGE>
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 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.
34
<PAGE>
DELAWARE GENERAL CORPORATION LAW
Section 203 of the DGCL generally provides that a Delaware
corporation shall not engage in any "business combination" with
an "interested stockholder" for a period of three years following
the date that such stockholder became an interested stockholder
unless (1) prior to such date the board of directors of the
corporation approved either the business combination or the
transaction which resulted in the stockholder becoming an
interested stockholder; or (2) upon consummation of the
transaction which resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the
time the transaction commenced, excluding for this purpose,
shares owned by persons who are directors and also officers and
shares owned by employee stock ownership plans in which employee
participants do not have the right to determine confidentially
whether the shares held subject to the plan will be tendered in a
tender offer or exchange offer; or (3) on or subsequent to such
date, the business combination is approved by the board of
directors and authorized at an annual or special meeting of
stockholders by the affirmative vote of at least 66 2/3% of the
outstanding voting stock which is not owned by the interested
stockholder. The three-year prohibition on business combinations
with an interested stockholder does not apply under certain
circumstances, including business combinations with a corporation
which does not have a class of voting stock that is (i) listed on
a national securities exchange, (ii) authorized for quotation on
an inter-dealer quotation system of a registered national
securities association, or (iii) held of record by more than
2,000 stockholders, unless in each case this result was directly
or indirectly caused by the interested stockholder.
An "interested stockholder" generally means any person that
(i) is the owner of 15% or more of the outstanding voting stock
of the corporation or (ii) is an affiliate or associate of the
corporation and was the owner of 15% or more of the outstanding
voting stock of the 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.
35
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company is currently authorized to issue up to 6,000,000
shares of Common Stock, par value $1.00 per share, and 1,000,000
shares of Preferred Stock, par value $.01 per share. At
September 30, 1995 the Company had 3,280,000 shares of 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 THE BANK AND IS NOT INSURED BY THE FDIC OR ANY OTHER
GOVERNMENTAL AGENCY.
COMMON STOCK
GENERAL. Each share of Common Stock has the same relative
rights and is identical in all respects with each other share of
Common Stock. The Common Stock is not subject to call for
redemption and, upon receipt by the Company of the full purchase
price therefor, each share of 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 Common Stock possess
exclusive voting rights in the Company. Each holder of 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 Common Stock are entitled to
such dividends as may be declared from time to time by the Board
of Directors of the Company 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 the Bank to pay dividends to the
Company, see "Market Price for Common Stock and Dividends."
PRE-EMPTIVE RIGHTS. Holders of the 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 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 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 Common Stock.
WARRANTS TO PURCHASE COMMON STOCK
As of September 30, 1995, the Company had Warrants to
purchase 300,000 shares of Common Stock outstanding. The
following is a summary of the material provisions of
36
<PAGE>
the Warrants. THE WARRANTS ARE NOT SAVINGS ACCOUNTS OR DEPOSITS OF
THE COMPANY OR THE BANK 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, 1994, with each
unit consisting of $250,000 of subordinated debt and Warrants to
purchase 25,000 shares of 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 and Principal Stockholders").
The remaining 175,000 Warrants are held by eight individuals or
entities.
Each Warrant entitles the holder thereof to purchase one
share of the 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 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 Common
Stock as a dividend or distribution on the Common Stock and
subdivisions, combinations and certain reclassifications of
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 Common Stock
sufficient to provide for the exercise of the rights represented
by 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 filed the Common Stock Registration
Statement with the Commission and 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
Company plans to repurchase or bid for shares of Common Stock,
whether on the open market or otherwise, the Company may
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request that holders of Warrants that have not previously been sold, 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 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 Common Stock and may rank prior to the
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
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 Common Stock on the Nasdaq National
Market System or the requirements of any exchange on which the
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 Common Stock (including
subsequently issued shares such as those proposed to be issued in
connection with the Offering). Each Right entitles each
registered holder, upon the occurrence of certain events, to
purchase from the Company a unit consisting of one 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 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 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
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would result in a person or group beneficially owning 20% or more of such
outstanding shares of Common Stock.
Until the Distribution Date, (i) the Rights will be
evidenced by the Common Stock certificates and will be
transferred with and only with such Common Stock certificates,
(ii) new Common Stock certificates issued after the Rights were
declared, including shares to be issued in the Offering, will
contain a notation incorporating by reference the Rights
Agreement and (iii) the surrender for transfer of any certificate
for Common Stock outstanding will also constitute the transfer of
the Rights associated with the 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
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 Common Stock of the Company
is changed into or exchanged for other 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, 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 Common Stock (an "Exchange") at an exchange ratio of one share
per Right, as such may be appropriately adjusted to reflect any
stock split or similar transaction.
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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 Common Stock. In the
event of liquidation, the holders of the Preferred Stock will be
entitled to a preferential liquidation payment equal to the
greater of $100 per share or an aggregate payment of 100 times
the payment made per share of Common Stock. Each share of
Preferred Stock will have 100 votes, voting together with the
Common Stock. Finally, in the event of any merger, consolidation
or other transaction in which shares of Common Stock are
exchanged, each share of Preferred Stock will be entitled to
receive 100 times the amount received per share of Common Stock.
The Rights may have certain antitakeover effects. The
Rights would cause substantial dilution to a person or group that
acquires 20% or more of the outstanding shares of Common Stock of
the Company if a Triggering Event thereafter occurs without the
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 Common Stock and
the Warrants is American Stock Transfer & Trust Company, New
York, New York.
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EXPERTS
The consolidated financial statements of the Company as of
December 31, 1994 and 1993 and for each of the two years in the
period ended December 31, 1994 have been audited by Coopers &
Lybrand L.L.P., independent certified public accountants, as
stated in their report thereon 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. Such
consolidated financial statements are incorporated herein by
reference in reliance upon such report given upon the authority
of such firm as experts in accounting and auditing.
The consolidated financial statements of the Company for the
year ended December 31, 1992 have been audited by KPMG Peat
Marwick LLP, independent certified public accountants, as stated
in their report thereon dated January 22, 1993, except for the
last paragraph thereof which is as of February 16, 1993. Such
report contains an explanatory paragraph that states that (i) at
December 31, 1992, the Bank 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) the
Bank 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 the Bank submitted an
amendment to its plan and the Bank had not received notification
as to acceptance or rejection of its amended capital plan, (iii)
because the Bank does not meet the minimum capital thresholds to
be considered "adequately capitalized" it was subject to certain
operating restrictions such as growth limitations, prohibition on
dividend payments, increased supervisory monitoring by its
primary regulator, limitations on executive compensation, and
restriction on deposit interest rates, (iv) failure to increase
its capital ratios in accordance with its capital plan or further
declines in its capital ratios exposed the Bank to additional
restrictions and regulatory actions, including regulatory take-
over, (v) there is substantial doubt about the Company's ability
to continue as a going concern, and (vi) the ability of the
Company to continue as a going concern is dependent upon many
factors including regulatory action and the ability of management
to achieve its plan. Such consolidated financial statements are
incorporated herein by reference in reliance upon such report
given upon the authority of such firm as experts in accounting
and auditing.
LEGAL MATTERS
Certain legal matters relating to the Common Stock will be
passed upon for the Company by Elias, Matz, Tiernan & Herrick
L.L.P., 734 15th Street, N.W., 12th Floor, Washington, D.C.
20005.
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- -------------------------------------------
- -------------------------------------------
NO PERSON IS AUTHORIZED TO
GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATION NOT
CONTAINED IN THIS PROSPECTUS
AND ANY INFORMATION OR
REPRESENTATION NOT INCLUDED
HEREIN MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY
THE COMPANY. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER
OF ANY SECURITIES OTHER THAN
THE SECURITIES TO WHICH IT
RELATES OR AN OFFER TO ANY
PERSON IN ANY JURISDICTION
WHERE SUCH AN OFFER WOULD BE
UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE
HEREOF.
_________________________
TABLE OF CONTENTS
_________________________
PAGE
Available Information. . . . . 2
Incorporation of Certain
Documents
by Reference. . . . . . . . . 3
Summary. . . . . . . . . . . . 4
Selected Consolidated
Financial
and Other Data . . . . . . . 9
Risk Factors . . . . . . . . . 10
The Offering . . . . . . . . . 19
Use of Proceeds. . . . . . . . 24
Capitalization . . . . . . . . 25
Regulatory Capital . . . . . . 26
Market Price for Common Stock
and Dividends. . . . . . . . 27
Management and Principal
Stockholders . . . . . . . . 29
Restrictions on Acquisition
of the Company . . . . . . . 31
Description of Capital Stock . 36
Experts. . . . . . . . . . . . 41
Legal Matters. . . . . . . . . 41
APPENDIX A - Annual Report on
Form 10-K for the
Year Ended
December 31, 1994
APPENDIX B - Quarterly Report
on Form 10-Q for
the Quarter Ended
September 30, 1995
- -------------------------------------------
- -------------------------------------------
PROGRESS
FINANCIAL
CORPORATION
UP TO 500,000 SHARES
OF COMMON STOCK
____________________
PROSPECTUS
____________________
January 11, 1996
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- -------------------------------------------
