<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 8, 1996
REGISTRATION NO. 333-______
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
PRIME NEWCO, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Pennsylvania 23-2860688
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
6425 Rising Sun Avenue
Philadelphia, PA 19111
(215) 742-5300
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
------------------
JAMES J. LYNCH
President and Chief Executive Officer
Prime Bancorp., Inc.
6425 Rising Sun Avenue
Philadelphia, PA 19111
(215) 742-5300
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
Copies of all communications should be sent to:
David E. Beavers, Esq. John Lasak, Esq.
Stradley, Ronon, Stevens & Young, LLP Kania, Lindner, Lasak and Feeney
2600 One Commerce Square Two Bala Plaza, Suite 525
Philadelphia, PA 19103 Bala Cynwyd, PA 19004
(215) 564-8000 (610) 667-3240
Fax:(215) 564-8120 Fax: (610) 668-9676
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective and all other
conditions under the Agreement and Plan of Reorganization, dated as of June 12,
1996, as amended, by and among Prime Bancorp., Inc., a Delaware corporation, and
First Sterling Bancorp, Inc., a Pennsylvania corporation, have been satisfied or
waived.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /x/
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
========================================================================================================================
TITLE OF EACH PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
CLASS OF SECURITIES AMOUNT TO OFFERING PRICE AGGREGATE REGISTRATION FEE
TO BE REGISTERED BE REGISTERED (1) PER SHARE (2) OFFERING PRICE (2) (3)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $1.00
per share........................... 1,654,546 shares $7.66 $12,676,000 $4,371.03
========================================================================================================================
</TABLE>
(1) Based upon the assumed maximum number of shares that may be issued in the
Merger described herein. Such assumed number is calculated as the product of
(A) the number of shares of Common Stock, par value $1.00 per share ('First
Sterling Common Stock'), of First Sterling Bancorp., Inc. ('First Sterling')
outstanding at September 20, 1996, plus all outstanding options to purchase
shares of First Sterling Common Stock, and all shares issuable upon
conversion of certain outstanding convertible subordinated debentures times
(B) the number of shares of Prime Newco, Inc. Common Stock, par value $1.00
per share ('Prime Common Stock') to be issued in exchange for each such
share of First Sterling Common Stock in the Merger.
(2) Estimated solely for the purpose of computing the registration fee pursuant
to Rule 457(f)(2) based on total stockholders equity of First Sterling at
June 30, 1996 of $12,676,000.
(3) A filing fee of $2,660.20 was paid on behalf of the Registrant, in
connection with a Preliminary Proxy Statement/Prospectus filed on August 6,
1996 and, pursuant to Rule 457(b), is credited to the registration fee. The
difference, $1,710.83, is paid herewith.
------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PRIME BANCORP., INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K, CROSS REFERENCE SHEET SHOWING
LOCATION
IN PROSPECTUS OF INFORMATION, REQUIRED BY ITEMS OF FORM S-4
<TABLE>
<CAPTION>
FORM S-4 ITEM NUMBER AND CAPTION LOCATION IN PROXY STATEMENT-PROSPECTUS
---------------------------------------------------- ----------------------------------------------------
<S> <C> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of
Prospectus........................................ Facing Page; Cross Reference Sheet, Outside Front
Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus........................................ Inside Front Cover Page; Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed Charges and
Other Information................................. Summary; Selected Consolidated Financial Data
4. Terms of the Transaction............................ Summary; The Merger; Description of New Prime
Capital Stock; Comparison of Stockholders' Rights;
Certain Differences Between the Corporation
Statutes of Delaware and Pennsylvania
5. Pro Forma Financial Information..................... Summary; Pro Forma Condensed Combined Financial Data
6. Material Contacts with the Company Being Acquired... The Merger -- Background
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to be Underwriters..... Not Applicable
8. Interests of Named Experts and Counsel.............. Legal Matters; Experts
9. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities.................... Not Applicable
(INFORMATION ABOUT THE REGISTRANT)
10. Information with respect to S-3 Registrants......... Not Applicable
11. Incorporation of Certain Information by Reference... Not Applicable
12. Information with respect to S-2 or S-3
Registrants....................................... Information Incorporated by Reference; Selected
Consolidated Financial Data; Market Price and
Dividend Matters; Summary -- Comparative Per Share
Data; Pro Forma Condensed Combined Financial Data;
Prime Bancorp., Inc.
13. Incorporation of Certain Information by Reference... Information Incorporated by Reference
14. Information with respect to Registrants other than
S-2 or S-3 Registrants............................ Not Applicable
(INFORMATION ABOUT THE COMPANY BEING ACQUIRED)
15. Information with respect to S-3 Companies........... Not Applicable
16. Information with respect to S-2 or S-3 Companies.... Not Applicable
17. Information with respect to Companies other than S-2
or S-3 Companies.................................. First Sterling Management's Discussion and Analysis
of Financial Conditions and Results of Operations;
First Sterling Bancorp, Inc.; Selected
Consolidated Financial Data; Market Price and
Dividend Matters; Index to Financial Statements of
First Sterling Bancorp, Inc. and Subsidiary
(VOTING AND MANAGEMENT INFORMATION)
18. Information if Proxies, Consents or Authorizations
are to be Solicited............................... Prime Special Meeting; First Sterling Special
Meeting
19. Information if Proxies, Consents or Authorizations
are not to be Solicited or in an Exchange Offer... Not Applicable
</TABLE>
<PAGE>
[ PRIME BANCORP., INC. LETTERHEAD ]
October 18, 1996
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of
Prime Bancorp., Inc. to be held at Somerton Springs, 50 Bustleton Pike,
Feasterville, Pennsylvania, on November 26, 1996 at 10:00 a.m., local time. At
this meeting, you will be asked to consider and approve (i) the Agreement and
Plan of Reorganization dated as of June 12, 1996, as amended, (the 'Merger
Agreement') between Prime Bancorp., Inc. ('Prime'), Prime Newco, Inc., a newly
formed Pennsylvania corporation ('New Prime') and First Sterling Bancorp, Inc.
('First Sterling') and (ii) the Agreement and Plan of Merger dated September 12,
1996 between Prime and New Prime. Under the terms of the agreements, Prime and
First Sterling will merge with and into New Prime, which will assume the name
'Prime Bancorp, Inc.' after the transactions. Both mergers are intended to be
completed simultaneously.
Under Delaware law, in order to consummate the mergers, Prime must obtain
the approval of a majority of its outstanding shares. Completion of the merger
under the Merger Agreement is also subject to approval of the shareholders of
First Sterling under Pennsylvania law, approval of the sole shareholder of New
Prime, receipt of all required regulatory approvals, and other customary
conditions described in the enclosed Prospectus/Joint Proxy Statement. If the
mergers are approved and completed, each Prime stockholder will receive the same
number of shares of common stock of New Prime as he or she held in currently
outstanding Prime common stock immediately prior to the mergers. The rights and
privileges of the New Prime common stock are substantially the same as those of
the current Prime common stock, although there are some important differences,
due in part to the differences in the state laws governing each company, which
are described in the enclosed Prospectus/Joint Proxy Statement.
Pursuant to the terms of the Merger Agreement and upon the effective date
of the mergers, shareholders of First Sterling will be entitled to receive 1.00
share of New Prime common stock in exchange for each share of First Sterling
common stock owned. No fractional shares of New Prime common stock will be
issued in connection with the mergers and, in lieu thereof, New Prime will pay
First Sterling shareholders the value of any fractional shares of New Prime
common stock in cash.
A notice of the Special Meeting of Stockholders, a proxy for your use in
connection with that meeting, and a Prospectus/Joint Proxy Statement describing
the proposed transactions in detail accompany this letter. We urge you to read
all of these documents carefully before deciding how to vote your shares.
Your Board of Directors has unanimously determined that the mergers are
fair to and in the best interests of Prime and its stockholders. Both management
and the Board of Directors of Prime believe that the combination with First
Sterling, an institution with a strong community banking franchise in geographic
areas not currently serviced by Prime Bank and strong commercial banking
expertise, is very positive for Prime stockholders. Accordingly, your Board of
Directors unanimously recommends that you vote 'FOR' approval of the proposed
transactions.
We hope that you will attend the Special Meeting. Regardless of your plans
to attend, we urge you, because of the importance of this matter, to execute and
mail the enclosed proxy in the envelope provided. If you decide to attend the
meeting, you may withdraw your proxy and vote in person on all matters brought
before it.
Sincerely,
James J. Lynch
President and Chief Executive Officer
<PAGE>
PRIME BANCORP., INC.
6425 RISING SUN AVENUE
PHILADELPHIA, PA 19111
(215) 742-5300
NOTICE OF SPECIAL MEETING
OF PRIME BANCORP., INC. STOCKHOLDERS
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that, pursuant to the call of the Board of
Directors, a Special Meeting of Stockholders of Prime Bancorp., Inc. will be
held at Somerton Springs, 50 Bustleton Pike, Feasterville, Pennsylvania on
November 26, 1996 at 10:00 a.m., local time, for the purpose of considering and
voting upon the following matters:
1. approval of the Agreement and Plan of Reorganization dated as of
June 12, 1996, as amended, between Prime Bancorp., Inc., Prime Newco, Inc.,
a newly formed Pennsylvania corporation ('New Prime') and First Sterling
Bancorp, Inc. and the merger described therein (a copy of the agreement is
attached as Annex A to the accompanying Prospectus/Joint Proxy Statement);
2. approval of the Agreement and Plan of Merger dated September 12,
1996 between Prime Bancorp., Inc. and New Prime and the merger described
therein (a copy of the agreement is attached as Annex D to the accompanying
Prospectus/Joint Proxy Statement); and
3. transaction of such other business as may properly come before the
meeting or any adjournment or adjournments thereof.
The close of business on September 27, 1996, has been fixed by the Board of
Directors as the record date for determining shareholders entitled to notice of
and to vote at this Special Meeting.
By Order of the Board of Directors,
October 18, 1996 Joseph A. Fluehr, III,
Philadelphia, Pennsylvania Secretary
YOU ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING. FAILURE TO RETURN
A PROPERLY EXECUTED PROXY CARD OR TO VOTE AT THE SPECIAL MEETING WILL HAVE THE
SAME EFFECT AS A VOTE AGAINST THE AGREEMENTS. ACCORDINGLY, EVEN IF YOU PLAN TO
BE PRESENT AT THE SPECIAL MEETING, YOU ARE REQUESTED TO COMPLETE, DATE, SIGN AND
RETURN THE PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE AS SOON AS POSSIBLE.
IF YOU ATTEND THE SPECIAL MEETING, YOU MAY VOTE EITHER IN PERSON OR BY PROXY.
ANY PROXY GIVEN MAY BE REVOKED BY YOU IN WRITING OR IN PERSON AT ANY TIME PRIOR
TO THE EXERCISE THEREOF.
<PAGE>
[ FIRST STERLING BANCORP, INC. LETTERHEAD ]
October 18, 1996
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
First Sterling Bancorp, Inc. to be held at Radnor Hotel, 591 East Lancaster
Avenue, St. Davids, Pennsylvania, on November 26, 1996 at 11:00 AM, local time.
At this meeting, you will be asked to consider and approve the Agreement and
Plan of Reorganization dated as of June 12, 1996, as amended, (the 'Merger
Agreement') between Prime Bancorp., Inc. ('Prime'), Prime Newco, Inc., a newly
formed Pennsylvania corporation ('New Prime') and First Sterling Bancorp, Inc.
('First Sterling'). Under the terms of the Merger Agreement, First Sterling and
Prime will merge with and into New Prime which will assume the name 'Prime
Bancorp, Inc.' after the transaction.
Under Pennsylvania law, in order to consummate the merger First Sterling
must obtain the affirmative vote of a majority of the shares present and voting
at a duly called shareholders meeting at which a quorum is present. Completion
of the merger is also subject to the approval of the Prime stockholders,
approval of the sole shareholder of New Prime, receipt of all required
regulatory approvals, and other conditions described in the enclosed
Prospectus/Joint Proxy Statement.
Pursuant to the terms of the Merger Agreement and upon the effective date
of the merger, shareholders of First Sterling will be entitled to receive 1.00
share of New Prime common stock in exchange for each share of First Sterling
common stock owned. No fractional shares of New Prime common stock will be
issued in connection with the merger and, in lieu thereof, New Prime will pay
First Sterling shareholders the value of any fractional shares of New Prime
common stock in cash. Dissenting shareholders who follow the statutory
procedures described in the enclosed Prospectus/Joint Proxy Statement will be
entitled to receive the fair value of their shares.
A notice of the Special Meeting of Shareholders, a proxy for your use in
connection with that meeting, and a Prospectus/Joint Proxy Statement describing
the proposed transaction in detail accompany this letter. Also enclosed are
copies of Prime's (1) Annual Report on Form 10-K for the year ended December 31,
1995, (2) 1995 Annual Report to its stockholders, and (3) Quarterly Report on
Form 10-Q for the six months ended June 30, 1996. On or about November 10, 1996,
you will also be mailed Prime's Quarterly Report on Form 10-Q for the nine
months ended September 30, 1996. We urge you to read all of these documents
carefully before deciding how to vote your shares.
Your Board of Directors has unanimously determined that the merger is fair
to and in the best interests of First Sterling and its shareholders. Your Board
of Directors and management believe that the combination with Prime presents an
excellent opportunity for the First Sterling shareholders to participate in the
excellent growth opportunities and stronger competitive position of a
substantially larger, but community oriented banking organization. Accordingly,
your Board of Directors unanimously recommends that you vote 'FOR' approval of
the Merger Agreement.
We hope that you will attend the Special Meeting. Regardless of your plans
to attend, we urge you, because of the importance of this matter, to execute and
mail the enclosed proxy in the envelope provided. If you decide to attend the
meeting, you may withdraw your proxy and vote in person on all matters brought
before it.
Sincerely,
William H. Bromley
President
<PAGE>
FIRST STERLING BANCORP, INC.
80 WEST LANCASTER AVENUE
DEVON, PA 19383
(610) 971-1800
NOTICE OF SPECIAL MEETING
OF FIRST STERLING BANCORP, INC. SHAREHOLDERS
TO THE SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that, pursuant to the call of the Board of
Directors, a Special Meeting of Shareholders of First Sterling Bancorp, Inc.
will be held at Radnor Hotel, 591 East Lancaster Avenue, St. Davids,
Pennsylvania on November 26, 1996 at 11:00 AM, local time, for the purpose of
considering and voting upon the following matters:
1. to approve the Agreement and Plan of Reorganization dated as of
June 12, 1996, as amended, between Prime Bancorp., Inc., Prime Newco, Inc.,
a newly formed Pennsylvania corporation ('New Prime') and First Sterling
Bancorp, Inc. and the Merger described therein (a copy of the Agreement is
attached as Annex A to the accompanying Prospectus/Joint Proxy Statement);
and
2. to transact such other business as may properly come before the
meeting or any adjournments thereof.
The close of business on October 15, 1996, has been fixed by the Board of
Directors as the record date for determining shareholders entitled to notice of
and to vote at this Special Meeting.
By Order of the Board of Directors,
October 18, 1996 James D. Kania,
Devon, Pennsylvania Secretary
YOU ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING. EVEN IF YOU PLAN
TO BE PRESENT AT THE SPECIAL MEETING, YOU ARE REQUESTED TO COMPLETE, DATE, SIGN
AND RETURN THE PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE AS SOON AS
POSSIBLE. IF YOU ATTEND THE SPECIAL MEETING, YOU MAY VOTE EITHER IN PERSON OR BY
PROXY. ANY PROXY GIVEN MAY BE REVOKED BY YOU IN WRITING OR IN PERSON AT ANY TIME
PRIOR TO THE EXERCISE THEREOF.
<PAGE>
PRIME BANCORP., INC. AND FIRST STERLING BANCORP, INC.
JOINT PROXY STATEMENT
------------------------------
PRIME NEWCO, INC.
PROSPECTUS
1,654,546 SHARES OF COMMON STOCK
PAR VALUE $1.00 PER SHARE
This Prospectus/Joint Proxy Statement is being furnished in connection with
the solicitation of proxies by the Board of Directors of Prime Bancorp., Inc.
('Prime') and the Board of Directors of First Sterling Bancorp, Inc. ('First
Sterling') to be used at a special meeting of stockholders of Prime and First
Sterling, respectively, to be held on November 26, 1996 (the 'Prime Special
Meeting' and the 'First Sterling Special Meeting,' respectively, and together
the 'Special Meetings'). The purpose of the Special Meetings is to consider and
vote upon an Agreement and Plan of Reorganization, dated as of June 12, 1996, as
amended, between Prime, Prime Newco, Inc., a newly formed Pennsylvania
corporation ('New Prime') and First Sterling (the 'Merger Agreement'). At the
Prime Special Meeting, stockholders will also be asked to consider and vote upon
an Agreement and Plan of Merger dated September 12, 1996 between Prime and New
Prime. Pursuant to the terms of these agreements, First Sterling and Prime will
merge into New Prime, which as a result of the mergers will change its name to
'Prime Bancorp, Inc.' (the 'Merger').
Upon consummation of the Merger, each outstanding share of common stock of
First Sterling ('First Sterling Stock') (other than any shares held by Prime or
a subsidiary thereof other than in a fiduciary capacity or in satisfaction of a
debt previously contracted) shall, by virtue of the Merger and without any
action on the part of the holder thereof, be converted into the right to receive
1.00 share of common stock of New Prime, par value $1.00 per share ('Prime
Stock'), plus cash in lieu of any fractional share interest, as described in
this Prospectus/Joint Proxy Statement, with the exception of shares held by
First Sterling shareholders who elect to exercise certain statutory dissenters'
rights. In addition, upon consummation of the Merger, each outstanding share of
common stock of Prime ('PBI Stock') will become one (1) share of Prime Stock.
See 'The Merger,' Annex A and Annex D.
This Prospectus/Joint Proxy Statement also constitutes a prospectus of New
Prime relating to the shares of Prime Stock issuable to holders of First
Sterling Stock upon consummation of the Merger. Based on 1,454,203 shares of
First Sterling Stock outstanding on the date hereof, 89,833 shares of First
Sterling Stock issuable upon the exercise of outstanding stock options on such
date, and a maximum of 110,510 shares of First Sterling Stock issuable upon the
conversion of First Sterling's 7.5% Convertible Subordinated Debentures
('Debentures'), a maximum of 1,654,546 shares of Prime Stock are expected to be
issued upon consummation of the Merger. New Prime has filed a registration
statement with the Securities and Exchange Commission ('SEC') with respect to
such Prime Stock.
The PBI Stock is traded on the Nasdaq National Market System. The closing
sale of the PBI Stock on June 11, 1996, (the last trading day prior to the
public announcement of the Merger) was $17.75 per share. After the Merger, the
Prime Stock is expected to assume the trading rights of the PBI Stock on the
Nasdaq National Market System.
All information contained in this Prospectus/Joint Proxy Statement with
respect to Prime and New Prime has been supplied by Prime, and all information
with respect to First Sterling has been supplied by First Sterling. This
Prospectus/Joint Proxy Statement is first being mailed to the holders of the
First Sterling Stock and PBI stock on or about October 20, 1996.
------------------------------
NEITHER THE MERGER NOR THE SECURITIES OFFERED HEREBY HAVE BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION NOR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------
THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR
OTHER OBLIGATIONS OF A BANK OR SAVINGS ASSOCIATION AND ARE
NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION
OR ANY OTHER GOVERNMENTAL AGENCY.
The date of this Prospectus/Joint Proxy Statement is October 10, 1996.
<PAGE>
AVAILABLE INFORMATION
Prime is subject to the information and reporting requirements of the
Securities Exchange Act of 1934, as amended (the 'Exchange Act'), and, in
accordance with those requirements, files reports, proxy and information
statements, and other information with the Securities and Exchange Commission
(the 'SEC'). The documents filed by Prime with the SEC can be inspected and
copied at the Public Reference Section of the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the SEC's Regional Office in New York, which is
located at 7 World Trade Center, Suite 1300, New York, New York 10048. The PBI
Stock is quoted on the Nasdaq National Market. Consequently, reports, proxy
statements and other information relating to Prime also may be inspected and
copied at the Public Reference Section of The National Association of Securities
Dealers, Inc. ('NASD') at 1735 K Street, N.W., Washington D.C. 20006-1506.
Copies of such documents can be obtained from the public reference sections at
prescribed rates. Insofar as New Prime is an inactive corporation which has been
newly formed for the purposes described herein, it is not presently subject to
the Exchange Act. Immediately prior to the effective time of the Merger, Prime
and New Prime will file with the SEC such documents as are necessary for New
Prime to become a successor registrant to Prime under applicable SEC rules, and
New Prime anticipates succeeding to the trading privileges of Prime on the
Nasdaq National Market.
This Prospectus/Joint Proxy Statement does not contain all of the
information set forth in the Registration Statement on Form S-4, of which this
Prospectus/Joint Proxy Statement is a part, and exhibits thereto (together with
the amendments thereto, the 'Registration Statement') which has been filed by
Prime with the SEC under the Securities Act of 1933, as amended (the 'Securities
Act') and the regulations thereunder, certain portions of which have been
omitted pursuant to the regulations of the SEC. For further information,
reference is made to the Registration Statement and the exhibits filed or
incorporated as a part thereof, which are on file at the offices of the SEC and
may be obtained upon payment of the fee prescribed by the SEC, or may be
examined without charge at the SEC's offices. Statements contained in this
Prospectus/Joint Proxy Statement as to the contents of any contract or any
document referred to herein, are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement.
No person has been authorized to give any information or make any
representation not contained in this Prospectus/Joint Proxy Statement in
connection with the offer and proxy solicitations contained herein, and, if
given or made, such information or representation must not be relied upon as
having been authorized by Prime or New Prime. NEITHER THE DELIVERY OF THIS
PROSPECTUS/JOINT PROXY STATEMENT NOR ANY DISTRIBUTION OF THE SECURITIES TO WHICH
THIS PROSPECTUS/JOINT PROXY STATEMENT RELATES SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF PRIME OR
FIRST STERLING SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. THIS PROSPECTUS/JOINT PROXY
STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO
SELL OR SOLICITATION TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH
AN OFFER OR SOLICITATION IS NOT LAWFUL.
2
<PAGE>
INFORMATION INCORPORATED BY REFERENCE
The following documents are hereby incorporated by reference into and made
a part of this Prospectus/Joint Proxy Statement which documents have previously
been filed by Prime (File No. 0-17286) with the SEC:
(1) The annual report on Form 10-K for the fiscal year ended December 31,
1995;
(2) The quarterly reports on Form 10-Q for the fiscal quarters ended
March 31, 1996 and June 30, 1996;
(3) The current reports on Form 8-K dated June 12, 1996 and filed on
June 27, 1996 as amended by filing on August 12, 1996; and
(4) The description of the common stock of Prime Bancorp., Inc. in its
registration statement on Form S-1 filed pursuant to Section 12(g) of
the Securities Act of 1933 (No. 33-23083), dated October 11, 1988,
including all amendments thereto and reports filed under the Securities
Exchange Act for the purpose of updating such description.
Such incorporation by reference will not be deemed to specifically incorporate
by reference the information referred to in Item 402(a)(8) of Regulation S-K.
All documents filed by Prime pursuant to Sections 13(a), 13(c), 14 or 15(d)
of the Exchange Act after the date of this Prospectus/Joint Proxy Statement and
prior to the date of the Special Meetings shall be deemed to be incorporated by
reference in this Prospectus/Joint Proxy Statement and to be a part hereof from
the date of filing of such documents. Any statement incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus/Joint Proxy Statement to the extent that a statement contained herein
or in any other such subsequently filed document which also is or is deemed to
be incorporated by reference herein 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/Joint Proxy Statement.
THIS PROSPECTUS/JOINT PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (OTHER
THAN THE EXHIBITS TO SUCH DOCUMENTS, UNLESS SUCH EXHIBITS ARE SPECIFICALLY
INCORPORATED THEREIN BY REFERENCE) ARE AVAILABLE, WITHOUT CHARGE, TO ANY PERSON,
INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS PROSPECTUS/JOINT PROXY STATEMENT IS
DELIVERED, ON WRITTEN OR ORAL REQUEST. REQUESTS FOR DOCUMENTS FILED BY PRIME
SHOULD BE DIRECTED TO MICHAEL J. SEXTON, CHIEF FINANCIAL OFFICER, PRIME
BANCORP., INC., 6425 RISING SUN AVENUE, PHILADELPHIA, PA 19111 (TELEPHONE NO.
215-742-5300). IN ORDER TO ENSURE TIMELY DELIVERY OF DOCUMENTS PRIOR TO THE
SPECIAL MEETINGS, ANY REQUESTS SHOULD BE MADE BY NOT LATER THAN NOVEMBER 10,
1996.
3
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
SUMMARY.................................................................................................... 7
The Companies............................................................................................ 7
Prime................................................................................................. 7
First Sterling........................................................................................ 7
The Special Meetings..................................................................................... 7
Security Ownership of Management and Others.............................................................. 8
The Merger............................................................................................... 8
General............................................................................................... 8
Reasons for the Merger................................................................................ 9
Recommendations of the Board of Directors............................................................. 9
Opinion of Financial Advisor.......................................................................... 9
Interests of Certain Persons in the Merger............................................................ 10
Conditions to the Merger.............................................................................. 10
Certain Federal Income Tax Consequences............................................................... 10
Accounting Treatment.................................................................................. 11
Dissenters Rights..................................................................................... 11
Management After the Merger........................................................................... 11
Comparison of Stockholders' Rights....................................................................... 11
Trading Matters.......................................................................................... 11
Comparative Per Share Data (Unaudited)................................................................... 11
SELECTED CONSOLIDATED FINANCIAL DATA....................................................................... 13
FIRST STERLING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS...................................................................... 19
Results of Operations...................................................................................... 19
Summary.................................................................................................. 19
Net Interest Income...................................................................................... 20
Provision For Loan Losses................................................................................ 24
Non-Interest Income...................................................................................... 25
Non-Interest Expense..................................................................................... 25
Provision for Income Taxes............................................................................... 26
Financial Condition........................................................................................ 26
Sources and Uses of Funds................................................................................ 26
Investment Securities and Other Short-Term Investments................................................... 27
Loans.................................................................................................... 28
Deposits................................................................................................. 29
Short-Term Borrowings.................................................................................... 29
Non-Performing Assets.................................................................................... 29
Allowance for Loan Losses................................................................................ 30
Liquidity................................................................................................ 32
Capital Resources........................................................................................ 33
Interest Rate Sensitivity................................................................................ 34
Effects of Inflation..................................................................................... 35
MARKET PRICE AND DIVIDEND MATTERS.......................................................................... 36
THE FIRST STERLING SPECIAL MEETING......................................................................... 37
Date, Time and Place..................................................................................... 37
Matters to be Considered at the First Sterling Special Meeting........................................... 37
Record Date; Proxies..................................................................................... 37
Vote Required............................................................................................ 37
</TABLE>
4
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
Solicitation, Voting and Revocation of Proxies........................................................... 38
Certain Beneficial Owners Of First Sterling Stock........................................................ 38
THE PRIME SPECIAL MEETING.................................................................................. 41
Date, Time and Place..................................................................................... 41
Matters to be Considered at the Prime Special Meeting.................................................... 41
Record Date; Proxies..................................................................................... 41
Votes Required........................................................................................... 41
Solicitation, Voting and Revocation of Proxies........................................................... 41
Certain Beneficial Owners Of PBI Stock................................................................... 42
THE MERGER................................................................................................. 44
General.................................................................................................. 44
Effect On The Corporate Parties.......................................................................... 44
Background Of The Merger................................................................................. 44
Reasons For The Merger -- First Sterling................................................................. 46
Reasons For The Merger -- Prime.......................................................................... 47
Opinion Of Financial Advisor To Prime.................................................................... 48
The Merger Consideration................................................................................. 51
Exchange Of Stock Certificates........................................................................... 51
Certain Federal Income Tax Consequences.................................................................. 52
Dissenters Rights........................................................................................ 53
Representations and Warranties........................................................................... 56
Conditions To Consummation Of The Merger................................................................. 56
Regulatory Approvals..................................................................................... 57
Conduct of Business Pending The Merger................................................................... 59
No Solicitation.......................................................................................... 60
Effective Time Of The Merger; Termination And Amendment.................................................. 60
Interests Of Certain Persons In The Merger............................................................... 61
Treatment of Stock Options and Debentures................................................................ 62
Management After The Merger.............................................................................. 63
Resale Of Prime Stock.................................................................................... 65
Accounting Treatment..................................................................................... 66
PRIME BANCORP., INC........................................................................................ 66
Recent Developments...................................................................................... 66
FIRST STERLING BANCORP, INC................................................................................ 68
General.................................................................................................. 68
First Sterling Bank...................................................................................... 68
Services................................................................................................. 68
Competition.............................................................................................. 69
Offices.................................................................................................. 69
PRIME NEWCO, INC........................................................................................... 69
PRO FORMA CONDENSED COMBINED FINANCIAL DATA................................................................ 70
COMPARISON OF STOCKHOLDERS' RIGHTS......................................................................... 76
Capital Stock............................................................................................ 76
Voting Power............................................................................................. 76
Board of Directors....................................................................................... 77
Limitation on Directors' Liability....................................................................... 77
Supermajority Vote on Certain Matters.................................................................... 77
Informal Shareholder Action.............................................................................. 78
Modification of Charter Documents and Bylaws............................................................. 78
</TABLE>
5
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<TABLE>
<CAPTION>
PAGE
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CERTAIN DIFFERENCES BETWEEN THE CORPORATION
STATUTES OF DELAWARE AND PENNSYLVANIA...................................................................... 79
Fiduciary Duties of Directors............................................................................ 79
Limitation of Director Liability......................................................................... 79
Indemnification.......................................................................................... 80
Shareholder Protective Provisions........................................................................ 80
Amendments to Charter.................................................................................... 83
Mergers and Major Transactions........................................................................... 83
Dividends................................................................................................ 83
Stock Repurchases........................................................................................ 83
Voting Rights............................................................................................ 83
Appraisal or Dissenters Rights........................................................................... 83
Amendments to Bylaws..................................................................................... 84
Action by Written Consent................................................................................ 84
Special Meetings of Shareholders......................................................................... 84
Annual Meeting of Shareholders........................................................................... 85
Case Law and Court Systems............................................................................... 85
DESCRIPTION OF NEW PRIME CAPITAL STOCK..................................................................... 85
General.................................................................................................. 85
Common Stock............................................................................................. 86
Preferred Stock.......................................................................................... 86
EXPERTS.................................................................................................... 86
LEGAL MATTERS.............................................................................................. 87
STOCKHOLDER PROPOSALS...................................................................................... 87
Annex F -- INDEX TO FINANCIAL STATEMENTS OF FIRST STERLING BANCORP, INC. AND SUBSIDIARY.................... F-1
Annex A -- Agreement and Plan of Reorganization and First Amendment
Annex B -- Berwind Financial Group, L.P. Opinion to Prime
Annex C -- Pennsylvania Statutory Provisions Relating to Dissenters Rights
Annex D -- Agreement and Plan of Merger
</TABLE>
6
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SUMMARY
The following is a summary of the information contained in this
Prospectus/Joint Proxy Statement. This summary is not, and is not intended to
be, a complete statement of all material contained in this Prospectus/Joint
Proxy Statement and it is qualified in its entirety by reference to the more
detailed discussions contained elsewhere in this document, in the accompanying
annexes attached hereto and the information incorporated herein by reference.
Shareholders should read carefully this entire Prospectus/Joint Proxy Statement
and the annexes hereto and information incorporated herein.
THE COMPANIES
PRIME
Prime is a non-diversified savings and loan holding company incorporated
under the laws of the State of Delaware. Prime's principal subsidiary is Prime
Bank, a savings bank ('Prime Bank') which is a Pennsylvania chartered stock
savings bank headquartered in Philadelphia, PA.
Through Prime Bank, Prime follows a community bank strategy, focusing on
providing individuals, businesses, and communities with quality basic banking
services, including primarily residential real estate loans, commercial real
estate loans, construction loans, consumer loans and commercial business loans.
As of September 30, 1996, Prime Bank operated through eighteen (18) branch
offices throughout Philadelphia, Bucks and Montgomery Counties in southeastern
Pennsylvania.
New Prime is a newly-organized Pennsylvania corporation which has no
present operations or assets. New Prime has been formed solely for the purpose
of merging Prime into it. See 'The Merger -- Reasons for the Merger -- Prime'.
The principal executive offices for both Prime and New Prime are located at
6425 Rising Sun Avenue, Philadelphia, PA 19111 (215-742-5300).
FIRST STERLING
First Sterling is a privately owned bank holding company incorporated under
the laws of the Commonwealth of Pennsylvania. Its sole subsidiary is First
Sterling Bank, a Pennsylvania chartered banking organization ('First Sterling
Bank') which is headquartered in Devon, Pennsylvania.
Through First Sterling Bank, First Sterling is engaged in the business of
providing banking services to individuals, businesses and communities focusing
on both basic banking services as well as commercial lending services including
commercial business loans, construction loans, residential loans and commercial
real estate loans. As of October 1, 1996, First Sterling Bank operated through
five (5) branch offices in Chester, Delaware and Montgomery Counties in
southeastern, Pennsylvania.
The principal executive offices of First Sterling and First Sterling Bank
are located at 80 West Lancaster Avenue, Devon, PA 19333 (610-971-1800). See
'First Sterling Bancorp, Inc.'
THE SPECIAL MEETINGS
The Prime Special Meeting will be held at Somerton Springs, 50 Bustleton
Pike, Feasterville, Pennsylvania, on November 26, 1996, at 10:00 a.m., local
time. The First Sterling Special Meeting will be held at the Radnor Hotel, 591
East Lancaster Avenue, St. Davids, Pennsylvania, on November 26, 1996, at 11:00
a.m., local time. Only the holders of record of outstanding shares of PBI Stock
and First Sterling Stock at the close of business on September 27, 1996 (the
'Prime Record Date') and October 15, 1996 (the 'First Sterling Record Date'),
respectively, are entitled to notice of and to vote at the Prime Special Meeting
and the First Sterling Special Meeting, respectively. At the Prime Record Date,
7
<PAGE>
3,725,056 shares of Prime Stock were outstanding and entitled to be voted, and
at the First Sterling Record Date 1,454,203 shares of First Sterling Stock were
outstanding and entitled to be voted. Holders of PBI Stock and First Sterling
Stock are each entitled to one vote per share on each matter to be voted on at
the respective Special Meetings.
At the Special Meetings and at any adjournment or adjournments thereof,
stockholders of Prime and First Sterling will consider and vote upon and approve
the Merger Agreement, a copy of which is attached as Annex A hereto. In
addition, at the Prime Special Meeting the holders of the PBI Stock will be
asked to approve the merger of Prime into New Prime pursuant to the Agreement
and Plan of Merger, a copy of which is attached as Annex D hereto. The
affirmative vote of at least a majority of the issued and outstanding PBI Stock
is necessary to approve the Merger Agreement and the merger with New Prime on
behalf of Prime.
Shareholders entitled to cast at least a majority of the votes which all
shareholders are entitled to cast on the First Sterling Record Date must be
present in person or by proxy at the First Sterling Special Meeting in order for
a quorum to be present for purposes of voting on the Merger Agreement. Approval
of the Merger Agreement will require the affirmative vote of at least a majority
of the shares of First Sterling Stock present and voting at the First Sterling
Special Meeting.
SECURITY OWNERSHIP OF MANAGEMENT AND OTHERS
As of the Prime Record Date, the directors and executive officers of Prime
and their affiliates in the aggregate beneficially owned 565,539 shares, or
15.2%, of the outstanding PBI Stock, excluding shares subject to options. Each
Prime director and executive officer has indicated his or her present intention
to vote, or cause to be voted, the PBI Stock so owned by him or her for approval
of the Merger Agreement. As of the Prime Record Date, First Sterling directors
and executive officers beneficially owned 605 shares of PBI Stock. Each First
Sterling director and executive officer has indicated his present intention to
vote all of the shares of PBI Stock owned by him for approval of the Merger
Agreement. Based upon the foregoing, persons holding an aggregate of
approximately 15% of the outstanding shares of PBI Stock on the Prime Record
Date have indicated a present intention to vote for approval of the Merger
Agreement. See 'The Prime Special Meeting -- Certain Beneficial Owners of PBI
Stock'.
As of the First Sterling Record Date, the directors and executive officers
of First Sterling and their affiliates in the aggregate beneficially owned
997,863 shares, or 68.6%, of the outstanding First Sterling Stock, excluding
shares subject to options or issuable on conversion of the Debentures. Each of
the directors and executive officers of First Sterling has indicated his present
intention to vote, or cause to be voted, the First Sterling Stock so owned by
him for approval and adoption of the Merger Agreement. None of the directors or
executive officers of Prime beneficially owned any shares of First Sterling
Stock. 'The First Sterling Special Meeting -- Certain Beneficial Owners of First
Sterling Stock'.
THE MERGER
GENERAL
First Sterling and Prime will merge with and into New Prime which will
survive the Merger, pursuant to the terms and conditions of the Merger Agreement
(Annex A) and Agreement and Plan of Merger (Annex D). First Sterling and Prime
will cease to exist as separate corporate entities at the Effective Time of the
Merger, and their assets, liabilities and operations will transfer by operation
of law to New Prime. After the Merger is effected, New Prime will operate as
both a bank holding company and a savings and loan holding company. As a result
of the Merger, the Articles of Incorporation of New Prime will be amended to
change the corporation's name to 'Prime Bancorp, Inc.'
8
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It is anticipated that the Merger will be effected as promptly as
practicable after the requisite stockholder approvals have been obtained, all
appropriate regulatory approvals have been obtained, and all other conditions to
the Merger have been satisfied or waived. As a result of the Merger, each share
of First Sterling Stock shall be converted into the right to receive one share
of Prime Stock (the 'Exchange Ratio'), plus cash in lieu of any fractional
interest. In addition, each outstanding share of PBI Stock will become one share
of Prime Stock. See 'The Merger -- The Merger Consideration,' ' -- Exchange of
Stock Certificates,' ' -- Effective Time of the Merger; Termination and
Amendment' and ' -- Effect on the Corporate Parties.'
In connection with the Merger, the outstanding options to acquire First
Sterling Stock in favor of certain employees and directors of First Sterling
will be assumed by New Prime and converted into options to acquire Prime Stock.
Furthermore, by their terms, the Debentures will also become convertible into
Prime Stock.
REASONS FOR THE MERGER
The Boards of Directors of Prime and First Sterling believe that the
combination of the two companies will result in a premier community
banking-oriented franchise in Philadelphia and its surrounding counties. The
Merger brings together two strong and profitable institutions with different
strengths. First Sterling Bank has an attractive franchise and is
well-positioned in the rapidly expanding suburbs west of the City of
Philadelphia. In addition, First Sterling Bank is particularly strong in its
commercial banking operations which is an area which Prime Bank has targeted for
strategic development. Prime Bank has a particular strength in its branch
network which includes 18 branches. Both Boards of Directors have identified
growth opportunities in the Philadelphia banking region by focusing on the
business and personal needs of small and medium sized businesses which, because
of the service needs and requirements of the customer, are often best served by
community banking institutions. See 'The Merger -- Background of the Merger', '
- -- Reasons for the Merger -- First Sterling' and ' -- Reasons for the Merger --
Prime'.
The Board of Directors of Prime believes that it is in the best interest of
Prime and its stockholders to change the state of incorporation of Prime from
Delaware to Pennsylvania; thus, it has approved the merger of Prime into New
Prime. The primary reasons for this change are to conform the company's domicile
to the state where its principal offices and businesses are located, to take
advantage of the modernized Pennsylvania Business Corporation Law ('PBCL'), to
reduce state taxes by eliminating the annual cost of Delaware franchise taxes,
and to eliminate certain technical questions relating to the initial issuance of
the PBI Stock and the original organization of Prime. See 'The Merger -- Reasons
for the Merger -- Prime.'
RECOMMENDATIONS OF THE BOARD OF DIRECTORS
The Boards of Directors of both Prime and First Sterling believe that the
terms of the Merger Agreement are fair to and in the best interest of their
respective stockholders. The Prime Board of Directors (with all seven directors
present) and the First Sterling Board of Directors (with all seven directors
present in person or by conference telephone) have each, by unanimous vote,
approved the Merger Agreement and the transactions contemplated thereby, and
recommend that their respective stockholders vote to approve the Merger
Agreement. See 'The Merger -- General'.
OPINION OF FINANCIAL ADVISOR
Berwind Financial Group, L.P. ('Berwind') has rendered to Prime its written
opinion, dated the date of this Prospectus/Joint Proxy Statement, that as of the
date of such opinion, and subject to the assumptions and considerations set
forth therein, the Merger is fair from a financial point of view to the holders
of the PBI Stock. A copy of the opinion of Berwind is attached hereto as Annex
B. See 'The Merger -- Opinion of Financial Advisor to Prime'.
9
<PAGE>
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of the Boards of Directors and managements of Prime and
First Sterling may be deemed to have certain interests in the Merger in addition
to their interests generally as stockholders of Prime or First Sterling, as the
case may be. These interests may include: (i) the agreement of Prime to cause
the election of three First Sterling nominees to the Board of Directors of New
Prime after the Merger is effective, (ii) Prime's covenant to enter into an
employment agreement with William H. Bromley pursuant to which Mr. Bromley is
employed as an Executive Vice President of New Prime for a period of three years
at a base salary of $200,000 per annum, providing for a bonus of $75,000, an
award of incentive stock options to purchase 33,000 shares of Prime Stock, and
providing for benefits equal to twice his average annual compensation in the
event that Mr. Bromley terminates his employment upon a change in control of New
Prime, (iii) the interest of James D. Kania, an officer and director of First
Sterling, and principal, along with his father and siblings, in the landlord of
three of the five facilities leased by First Sterling Bank, and (iv) Messrs.
James J. Lynch, Erwin T. Straw and Walter L. Tillman, Jr. with respect to their
employment agreements with Prime which have 'change in control' provisions which
may be triggered by the Merger. Each of Messrs. Lynch, Straw and Tillman have
executed written waivers with respect to the Merger. See 'The Merger --
Interests of Certain Persons in the Merger'.
CONDITIONS TO THE MERGER
The obligations of Prime, New Prime and First Sterling to consummate the
Merger are subject to various conditions, including obtaining requisite
stockholder approvals, obtaining necessary regulatory approvals from the Board
of Governors of the Federal Reserve System ('FRB'), the Department of Banking of
the Commonwealth of Pennsylvania ('PADOB'), and the Office of Thrift Supervision
('OTS'), and certain other federal and state governmental authorities, in each
case without the imposition of any conditions which would reasonably be expected
to either (a) result in a material adverse effect on the financial condition,
results of operations, business or prospects of New Prime or (b) prevent the
parties from realizing the major portion of the economic benefits of the
transactions contemplated by the Merger Agreement. New Prime has filed
applications for necessary approvals with the FRB, OTS, and PADOB, and expects
to have filed all other necessary applications with other regulatory authorities
prior to the mailing of this Prospectus/Joint Proxy Statement.
There are certain other normal and customary conditions to completion of
the transactions, namely receipt of accountants' letters regarding pooling of
interests accounting treatment, receipt of opinions of counsel relating to
certain federal income tax consequences of the Merger and certain corporate law
matters, and approval of the Nasdaq National Market, subject to official notice
of issuance, of trading privileges with respect to the shares of Prime Stock to
be issued in connection with the Merger. The Merger Agreement permits any
condition (other than a condition required in order to comply with applicable
law) to be waived by the party benefitted thereby. See 'The Merger -- Regulatory
Approvals' and ' -- Conditions to Consummation of the Merger'.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Merger is intended to qualify as a 'tax-free' reorganization under
Section 368 of the Internal Revenue Code of 1986, as amended ('Code'), so that
no gain or loss will be recognized by Prime or First Sterling, and no gain or
loss will be recognized by First Sterling shareholders, except in respect of
cash received in lieu of fractional shares, or by Prime stockholders. First
Sterling and Prime have each received opinions of legal counsel dated the date
hereof to the effect that the Merger will constitute a 'reorganization' within
the meaning of Section 368 of the Code for federal income tax purposes, subject
to certain assumptions set forth in such opinions. Each First Sterling and Prime
stockholder is urged to consult his or her own tax advisor to determine the
specific tax consequences of the Merger to such stockholder, including the
applicability of various state, local and foreign tax laws. See 'The Merger --
Certain Federal Income Tax Consequences'.
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ACCOUNTING TREATMENT
It is anticipated that the Merger, when consummated, will be accounted for
as a pooling of interests. The merger with First Sterling will not be
consummated in the event that the Merger cannot be accounted for as a pooling of
interests. See 'The Merger -- Accounting Treatment.'
DISSENTERS RIGHTS
Under the provisions of the Delaware General Corporation Law ('DGCL'), the
holders of the PBI Stock are not entitled to dissenters rights or appraisal
remedies in connection with the Merger. Under the PBCL, holders of the First
Sterling Stock are entitled to exercise dissenters rights in connection with the
Merger. In order for a First Sterling shareholder to exercise dissenters rights
there are specific statutory requirements under the PBCL which must be followed
precisely, or else the shareholder will lose the right to dissent. See 'The
Merger -- Dissenters Rights' and Annex C hereto.
MANAGEMENT AFTER THE MERGER
After the Merger, the Board of Directors of New Prime will initially
consist of ten directors, comprised of seven directors nominated by the Board of
Directors of Prime and three directors nominated by the Board of Directors of
First Sterling. The executive officers of New Prime will remain substantially
unchanged, with the exception that William H. Bromley, presently President of
First Sterling and First Sterling Bank, will become an Executive Vice President
of New Prime. Mr. Bromley will remain as President of First Sterling Bank. See
'The Merger -- Management After the Merger.'
COMPARISON OF STOCKHOLDERS' RIGHTS
The rights of shareholders of First Sterling currently are determined by
reference to the PBCL, and First Sterling's Articles of Incorporation and
Bylaws. At the effective time of the Merger, shareholders of First Sterling will
become shareholders of New Prime and their rights as such will then be
determined by reference to the provisions of the PBCL and the Articles of
Incorporation and Bylaws of New Prime. The rights of stockholders of Prime are
currently determined by reference to the DGCL and Prime's Certificate of
Incorporation and Bylaws. At the Effective time of the Merger, stockholders of
Prime will become shareholders of New Prime and their rights as such will be
determined by reference to the provisions of the PBCL and New Prime's Articles
of Incorporation and Bylaws. See 'Comparison of Stockholders' Rights,' 'Certain
Differences Between the Corporation Statutes of Delaware and Pennsylvania' and
'Description of New Prime Capital Stock'.
TRADING MATTERS
PBI Stock is traded on Nasdaq National Market System under the symbol
'PSAB.' It is anticipated that the Prime Stock at the effective time of the
Merger will succeed to the trading privileges of the PBI Stock on the Nasdaq
National Market System and will trade under the symbol 'PSAB.' On June 11, 1996,
the last trading day prior to the public announcement of the execution of the
Merger Agreement, the last reported sale price of a share of PBI Stock was
$17.75. There is no current market for the First Sterling Stock. See 'Market
Price and Dividend Matters.'
COMPARATIVE PER SHARE DATA
(Unaudited)
The tables which follow present certain historical per share data for Prime
and First Sterling and certain pro forma combined per share data at the dates
and for the periods indicated, giving effect to the Merger using the pooling of
interests method of accounting. Because the Exchange Ratio is one for one, the
equivalent book value per share is equal to the pro forma book value set forth
below. The per share data included in the tables which follow should be read in
conjunction with the historical
11
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financial statements of Prime and First Sterling and the related notes
accompanying each such financial statements, as incorporated by reference herein
or included in Annex F hereto. The data presented are not necessarily indicative
of the results which would have been obtained if the combination had been
consummated in the periods indicated or which may be obtained in the future.
<TABLE>
<CAPTION>
PER COMMON SHARE JUNE 30, 1996 DECEMBER 31, 1995
---------------- ------------- -----------------
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BOOK VALUE:
Historical book value per share:
Prime Bancorp................................................................. $ 15.58 $ 15.18
First Sterling................................................................ 8.72 8.19
Pro forma book value............................................................ 13.19 12.64
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
-------------------- -------------------------------
1996 1995 1995 1994 1993
--------- --------- --------- --------- ---------
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CASH DIVIDENDS DECLARED:
Historical cash dividends per share
Prime................................................... $.34 $.30 $ .62 $ .54 $ .50
First Sterling.......................................... -- -- -- -- --
Pro forma cash dividends declared......................... $.34 $.30 $ .62 $ .54 $ .50
NET INCOME:
Historical net income per share
Prime................................................... $.86 $.79 $1.55 $1.55 $1.46(1)
First Sterling.......................................... .66 .48 1.03 .61 .79
Pro forma net income per share............................ $.78 $.70 $1.39 $1.27 $1.27
</TABLE>
- ------------------
(1) Does not reflect the cumulative effect on prior years of a change in tax
accounting method. Earnings per share of Prime in 1993 after the cumulative
effect of a change in accounting principle was $1.75.
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SELECTED CONSOLIDATED FINANCIAL DATA
The following selected historical consolidated financial data of Prime and
First Sterling for the five years ended December 31, 1995, are derived in part
from the audited consolidated financial statements contained in Annex F hereto
or incorporated herein by reference. The historical consolidated financial data
of Prime and First Sterling for the six months ended June 30, 1996 and 1995, are
derived from unaudited consolidated financial statements of each company
contained in Annex F hereto or incorporated herein by reference. The unaudited
consolidated financial statements include all adjustments, consisting of normal
recurring accruals, which are considered necessary by the managements of Prime
and First Sterling for a fair presentation of the financial position and results
of operations of Prime and First Sterling for these periods, respectively.
Operating results for the six months ended June 30, 1996, are not necessarily
indicative of the results that may be expected for any other interim period or
the entire year ending December 31, 1996. The Prime selected historical
consolidated financial data set forth below should be read in conjunction with,
and are qualified in their entirety by, the historical consolidated financial
statements of Prime, including the related notes, incorporated herein by
reference. See 'Available Information' and 'Information Incorporated by
Reference.' All figures are stated in thousands except per share data and
percentages.
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SELECTED HISTORICAL FINANCIAL DATA OF PRIME
<TABLE>
<CAPTION>
6 MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995(8) 1996(8)
-------- -------- -------- -------- -------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total Amount of:
Assets................................... $364,110 $393,324 $450,912 $566,904 $607,975 $568,120 $644,560
Loans (2) and mortgage-backed
securities............................. 289,453 320,778 386,140 449,441 487,367 449,280 534,848
Investment securities and
interest-bearing deposits.............. 57,307 46,543 34,732 71,733 72,508 71,088 57,241
Land acquired for development and
resale................................. 1,209 1,000 838 694 10,405 10,139 10,107
Deposits................................. 294,840 338,006 368,800 447,651 476,539 469,441 499,781
FHLB advances and other borrowings....... 22,811 6,271 27,264 59,710 68,844 39,122 80,760
Stockholders' equity..................... 41,325 44,909 49,698 47,641 56,247 54,241 58,048
Book value............................... 11.67 12.53 13.65 12.86 15.18 14.64 15.58
INCOME STATEMENT DATA:
Interest income.......................... $ 33,584 $ 30,691 $ 31,310 $ 34,986 $ 42,795 21,044 22,560
Interest expense......................... 19,598 14,944 13,150 15,253 21,825 10,599 11,068
Net interest income...................... 13,986 15,747 18,160 19,733 20,970 10,445 11,492
Provision for loan losses................ 1,320 1,200 1,442 1,243 644 356 650
Net interest income after provision for
loan losses............................ 12,666 14,547 16,718 18,490 20,326 10,089 10,842
Gain (loss) on sale of assets............ 320 220 279 (104) 728 328 198
Rental income............................ 227 214 350 321 174 54 143
Non-interest income...................... 1,702 1,668 1,233 1,578 1,954 809 1,033
Non-interest expenses.................... 8,197 8,769 9,807 11,336 13,831 6,609 7,235
Income before income taxes and effect of
cumulative change in accounting
principle.............................. 6,718 7,880 8,773 8,949 9,351 4,671 4,981
Income tax expense....................... 2,652 3,177 3,349 3,141 3,498 1,709 1,733
Income before effect of cumulative change
in accounting principle................ 4,066 4,703 5,424 5,808 5,853 2,962 3,248
Cumulative effect on prior years of
change in tax accounting method (9).... -- -- 1,055 -- -- -- --
Net income............................... $ 4,066 $ 4,703 $ 6,479 $ 5,808 $ 5,853 $ 2,962 $ 3,248
Primary earnings per share (1)........... $ 1.19 $ 1.28 $ 1.46 $ 1.55 $ 1.56 $ 0.79 $ 0.86
Fully diluted earnings per share (1)..... $ 1.19 $ 1.29 $ 1.46 $ 1.55 $ 1.55 $ 0.79 $ 0.86
Dividends declared per share............. $ 0.22 $ 0.37 $ 0.50 $ 0.54 $ 0.62 $ 0.30 $ 0.34
AVERAGE BALANCE SHEET DATA:
Total Amount of:
Assets................................... $352,475 $365,152 $419,389 $498,930 $575,740 $565,319 $615,686
Loans(2) and mortgage-backed
securities............................. 295,123 295,871 359,402 408,851 465,195 453,516 508,193
Investment securities and
interest-bearing deposits.............. 44,951 47,604 31,965 52,194 63,630 63,700 58,833
Deposits................................. 290,543 306,579 348,895 406,278 461,335 451,459 486,495
FHLB advances and other borrowings....... 22,289 9,319 15,746 32,763 56,132 54,310 65,885
Stockholders' equity..................... 39,769 43,117 47,304 48,670 51,944 50,941 57,148
Common shares outstanding-primary........ 3,417 3,653 3,706 3,736 3,763 3,760 3,778
Common shares outstanding-fully
diluted................................ 3,417 3,668 3,712 3,736 3,774 3,757 3,776
PERCENTAGES:
Net income to average total stockholders'
equity................................. 10.22% 10.91% 11.47% 11.93% 11.27% 11.63% 11.37%
Net income to average assets............. 1.15% 1.28% 1.28% 1.16% 1.00% 1.04% 1.04%
Average stockholders' equity to average
assets................................. 11.28% 11.81% 11.28% 9.75% 9.02% 9.01% 9.28%
Allowance for loan losses to:
Net loans.............................. 0.92% 1.15% 1.34% 1.32% 1.09% 1.09% 0.99%
Non-performing loans................... 86.78% 97.00% 93.16% 99.19% 126.31% 117.86% 82.75%
Net charge-offs to average net loans..... 0.25% 0.22% 0.23% 0.27% 0.34% 0.31% 0.19%
Total non-performing assets to total
assets (3)............................. 0.91% 0.96% 1.02% 0.81% 0.55% 0.71% 0.78%
Capital ratios:
Tangible capital....................... 10.25% 9.82% 9.57% 7.16% 7.52% 7.93% 7.54%
Leverage............................... 10.25% 9.82% 9.57% 7.16% 7.52% 7.93% 7.54%
Risk-based Capital..................... 17.80% 17.34% 18.46% 13.41% 14.08% 14.59% 12.52%
Net interest margin...................... 4.11% 4.58% 4.64% 4.65% 4.26% 4.35% 4.23%
</TABLE>
See footnotes on page 18.
14
<PAGE>
The First Sterling selected historical consolidated financial data set
forth below should be read in conjunction with, and is qualified in its entirety
by, the historical consolidated financial statements of First Sterling,
including the related notes, contained in Annex F hereto.
SELECTED HISTORICAL FINANCIAL DATA OF FIRST STERLING
<TABLE>
<CAPTION>
6 MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995(8) 1996(8)
-------- -------- -------- -------- -------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total Amount of:
Assets................................... $ 99,706 $119,080 $147,946 $172,327 $211,986 $190,927 $227,944
Loans (1) and mortgage-back securities... 73,519 88,583 107,639 117,073 152,304 131,412 170,143
Investment securities and
interest-bearing deposits.............. 19,495 21,824 31,381 45,460 50,428 45,528 47,630
Deposits................................. 87,152 101,790 122,363 137,415 167,958 145,345 157,014
FHLB advances and other borrowings....... 3,332 6,480 14,380 21,509 27,474 30,420 53,740
Stockholders' equity..................... 6,062 7,092 8,931 9,728 11,982 11,167 12,676
Book value............................... 4.42 5.18 6.52 6.85 8.19 7.60 8.72
INCOME STATEMENT DATA:
Interest income.......................... $ 8,042 $ 9,336 $ 10,643 $ 12,082 $ 16,184 $ 7,579 $ 9,101
Interest expense......................... 5,054 4,886 5,133 6,027 8,732 4,016 4,861
Net interest income...................... 2,988 4,450 5,510 6,055 7,452 3,563 4,240
Provision for loan losses................ 392 963 718 351 485 237 185
Net interest income after provision for
loan losses............................ 2,596 3,487 4,792 5,704 6,967 3,326 4,055
Gain (loss) on sale of assets............ 13 451 112 (117) 4 (17) 4
Non-interest income...................... 225 321 626 499 583 286 344
Non-interest expense..................... 2,624 3,225 3,786 4,698 5,099 2,435 2,799
Income before income taxes and
extraordinary credit................... $ 210 $ 1,034 $ 1,744 $ 1,388 $ 2,455 $ 1,160 $ 1,604
Income tax expense....................... 68 353 590 484 839 398 550
Income before extraordinary credit....... 142 681 1,154 904 1,616 762 1,054
Extraordinary credit-tax NOL............. 68 348 -- -- -- -- --
Net income............................... $ 210 $ 1,029 $ 1,154 $ 904 $ 1,616 $ 762 $ 1,054
Primary earnings per share(1)............ $ 0.10 $ 0.49 $ 0.83 $ 0.62 $ 1.07 $ 0.50 $ 0.69
Fully diluted earnings per share (1)..... $ 0.14 $ 0.48 $ 0.79 $ 0.61 $ 1.03 $ 0.48 $ 0.66
AVERAGE BALANCE SHEET DATA:
Total Amount of:
Assets................................... 85,095 108,690 134,480 163,320 193,578 182,903 217,136
Loans (2) and mortgage-backed
securities............................. 61,809 81,250 97,159 114,794 133,044 123,378 162,352
Investment securities and
interest-bearing deposits.............. 13,504 23,723 33,166 43,509 55,198 54,498 49,594
Deposits................................. 76,062 94,157 113,224 135,133 151,300 140,251 166,605
FHLB advances and other borrowings....... 1,288 6,247 11,830 17,002 28,765 29,688 34,554
Stockholders' equity..................... 6,043 6,585 7,685 9,355 11,001 10,592 12,424
Common shares outstanding-primary........ 1,397 1,397 1,397 1,465 1,515 1,522 1,518
Common shares outstanding-fully
diluted................................ 1,521 1,521 1,520 1,575 1,626 1,632 1,628
PERCENTAGES:
Net income to average total stockholders'
equity ................................ 3.48% 15.63% 15.02% 9.66% 14.69% 14.39% 16.97%
Net income to average assets............. 0.25% 0.95% 0.86% 0.55% 0.83% 0.83% 0.97%
Average stockholders' equity to average
assets................................. 7.10% 6.06% 5.71% 5.73% 5.68% 5.79% 5.72%
Allowance for loan losses to:
Net loans.............................. 1.09% 1.32% 1.50% 1.50% 1.50% 1.50% 1.45%
Non-performing loans................... 78.91% 41.66% 66.01% 67.30% 98.39% 60.26% 101.21%
Net charge-offs to average net loans..... 0.23% 0.72% 0.27% 0.18% (0.04%) 0.02% --
Total non-performing assets to total
assets(3).............................. 1.03% 2.39% 1.71% 1.56% 1.13% 1.84% 1.13%
Capital ratios:
Tangible capital....................... 6.08% 5.96% 6.04% 5.65% 5.65% 5.85% 5.56%
Leverage............................... 6.08% 5.96% 6.04% 5.65% 5.65% 5.85% 5.56%
Risk-based Capital..................... 11.45% 11.32% 11.65% 11.86% 10.95% 11.31% 9.99%
Net interest margin...................... 3.97% 4.33% 4.23% 3.82% 3.96% 4.04% 4.02%
</TABLE>
See footnotes on page 18.
15
<PAGE>
The following table sets forth selected unaudited pro forma condensed
combined financial data of Prime and First Sterling at the dates and for the
periods indicated, giving effect to the Merger using the pooling of interests
method of accounting. See 'The Merger-Accounting Treatment' and 'Pro Forma
Condensed Combined Financial Data.' The selected unaudited pro forma condensed
combined financial data set forth below should be read in conjunction with, and
are qualified in their entirety by, the historical consolidated financial
statements of Prime and First Sterling, including the related notes, which are
contained in Annex F hereto or incorporated herein by reference, and in
conjunction with the selected consolidated historical and other unaudited pro
forma condensed combined consolidated financial information appearing elsewhere
herein or therein. See 'Pro Forma Condensed Combined Financial Data' and
'Information Incorporated By Reference.' The data set forth below are not
necessarily indicative of the results of the future operations of New Prime upon
consummation of the Merger or the actual results that would have been achieved
had the Merger been consummated prior to the periods indicated.
See footnotes on page 18.
16
<PAGE>
SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA(4)
<TABLE>
<CAPTION>
6 MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995(8) 1996(8)
-------- -------- -------- -------- -------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:(6)(12)
Total Amount of:
Assets................................... $463,816 $512,404 $598,858 $739,231 $819,961 $759,047 $872,051
Loans (2) and mortgage-backed
securities............................. 362,972 409,361 493,779 566,514 639,671 580,692 703,991
Investment securities and
interest-bearing deposits.............. 76,802 68,367 66,113 117,193 122,936 116,616 104,871
Deposits................................. 381,992 439,796 491,163 585,066 644,497 614,786 656,795
FHLB advances and other borrowings....... 26,143 12,751 41,644 81,219 96,318 69,542 134,500
Stockholders' equity (10)(11)............ 47,387 52,001 58,629 57,369 68,229 65,408 69,771
Book value (10)(11)...................... 9.65 10.50 11.70 11.19 13.20 12.64 13.19
INCOME STATEMENT DATA:
Interest income.......................... $ 41,626 $ 40,027 $ 41,953 $ 47,068 $ 58,979 $ 28,623 $ 31,661
Interest expense......................... 24,652 19,830 18,283 21,280 30,557 14,615 15,929
Net interest income...................... 16,974 20,197 23,670 25,788 28,422 14,008 15,732
Provision for loan losses................ 1,712 2,163 2,160 1,594 1,129 593 835
Net interest income after provision for
loan losses............................ 15,262 18,034 21,510 24,194 27,293 13,415 14,897
Gain (loss) on sale of assets............ 333 671 391 (221) 732 311 202
Rental income............................ 227 214 350 321 174 54 143
Non-interest income...................... 1,927 1,989 1,859 2,077 2,537 1,095 1,377
Non-interest expense..................... 10,821 11,994 13,593 16,034 18,930 9,044 10,034
Income before income taxes and effect of
cumulative change in accounting
principle and extraordinary credit..... 6,928 8,914 10,517 10,337 11,806 5,831 6,585
Income tax expense....................... 2,652 3,182 3,939 3,625 4,337 2,107 2,283
Income before effect of cumulative change
in accounting principle and
extraordinary credit................... 4,276 5,732 6,578 6,712 7,469 3,724 4,302
Cumulative effect on prior years of
change in tax accounting method and
extraordinary credit (9)............... -- -- 1,055 -- -- -- --
Net income............................... $ 4,276 $ 5,732 $ 7,633 $ 6,712 $ 7,469 $ 3,724 $ 4,302
Primary earnings per share(1)(10)(11).... $ 0.88 $ 1.08 $ 1.30 $ 1.29 $ 1.42 $ 0.71 $ 0.80
Fully diluted earnings per
share(1)(10)(11)....................... $ 0.86 $ 1.05 $ 1.27 $ 1.27 $ 1.39 $ 0.70 $ 0.78
Dividends declared per share............. $ 0.22 $ 0.37 $ 0.50 $ 0.54 $ 0.62 $ 0.30 $ 0.34
AVERAGE BALANCE SHEET DATA:(6)(12)
Total Amount of:
Assets................................... $437,570 $473,842 $553,869 $662,250 $769,318 $748,222 $832,369
Loans(2) and mortgage-backed
securities............................. 356,932 377,121 456,561 523,645 598,239 576,894 669,545
Investment securities and
interest-bearing deposits.............. 58,455 71,327 65,131 95,703 118,828 118,198 108,427
Deposits................................. 366,605 400,736 462,119 541,411 612,635 591,710 653,100
FHLB advances and other borrowings....... 23,577 15,566 27,576 49,765 84,897 83,998 99,389
Stockholders' equity (10)(11)............ 45,812 49,702 54,989 58,025 62,945 61,533 68,619
Common shares outstanding-fully diluted
(10)(11)............................... 4,938 5,189 5,232 5,311 5,400 5,389 5,404
Common shares outstanding-primary
(10)(11)............................... 4,814 5,050 5,103 5,201 5,278 5,282 5,391
PERCENTAGES: (6)
Net income to average total stockholders'
equity................................. 9.33% 11.53% 13.88% 11.57% 11.87% 12.10% 12.54%
Net income to average assets............. 0.98% 1.21% 1.38% 1.01% 0.97% 1.00% 1.03%
Average stockholders' equity to average
assets................................. 10.47% 10.49% 9.93% 8.76% 8.18% 8.22% 8.24%
Allowance for loan losses to: (7)
Net loans.............................. 0.96% 1.19% 1.38% 1.37% 1.22% 1.21% 1.32%
Non-performing loans................... 84.63% 71.40% 83.16% 87.07% 113.98% 87.95% 103.59%
Net charge-offs to average net loans..... 0.24% 0.34% 0.24% 0.26% 0.24% 0.23% 0.13%
Total non-performing assets to total
assets(3).............................. 0.93% 1.29% 1.19% 0.99% 0.70% 1.00% 0.87%
Capital ratios:
Tangible capital....................... 9.32% 8.92% 8.70% 6.80% 7.02% 7.39% 6.89%
Leverage............................... 9.32% 8.92% 8.70% 6.80% 7.02% 7.39% 6.89%
Risk-based Capital..................... 16.25% 15.79% 16.58% 13.02% 13.18% 13.69% 11.83%
Net interest margin...................... 4.09% 4.50% 4.54% 4.44% 4.18% 4.26% 4.17%
</TABLE>
See footnotes on page 18.
17
<PAGE>
FOOTNOTES TO SELECTED FINANCIAL DATA (UNAUDITED)
(1) Earnings per share have been adjusted to reflect the stock split and stock
dividends declared and paid by Prime. The 1993 earnings per share of Prime
do not reflect the cumulative effect on prior years of a change in tax
accounting method. Earnings per share of Prime for 1993 after the
cumulative change in accounting principle were $1.75. First Sterling's 1991
and 1992 earnings per share do not reflect the extraordinary credit for the
recognition of the tax benefit of net operating loss carryforwards.
Earnings per share of First Sterling after the effect of the extraordinary
credit were: primary earnings per share of $0.19 and $0.77 and
fully-diluted earnings per share of $0.17 and $0.71 for 1991 and 1992,
respectively.
(2) Loans include loans receivable, net and loans held for sale.
(3) Excludes the impact of the $10.0 million condominium project which was
acquired by a deed in lieu of foreclosure and classified as land acquired
for development and resale as of February, 1995. The ratio of
non-performing assets to total assets would have been 2.2%, 2.5% and 2.3%
at December 31, 1995, June 30, 1995 and 1996, respectively if the
condominium project were included in non-performing assets.
(4) The pro forma information presented is not necessarily indicative of the
results of operations or the combined financial position that would have
resulted had the Merger been consummated at the beginning of the applicable
periods indicated, nor is it necessarily indicative of the results of
operations in future periods or the future financial position of the
combined entities. Pro forma financial information assumes the Merger was
consummated as of the beginning of each of the periods indicated.
(5) It is assumed that the Merger will be accounted for on a pooling of
interests accounting basis, and accordingly the related pro forma
adjustments herein reflect, where applicable, the Exchange Ratio of 1.00
share of Prime Stock for each outstanding share of First Sterling Stock. In
addition, upon consummation of the Merger, each outstanding share of PBI
Stock will become one (1) share of Prime Stock.
(6) The pro forma condensed combined income statement data do not reflect the
estimated $1.0 million addition to the provision for loan losses which New
Prime anticipates making, or charges and expenses of approximately $1.85
million attributable to the Merger since these charges are non-recurring.
The pro forma condensed combined balance sheet data at June 30, 1996
reflect approximately $1.85 million of charges, which include: $300
thousand for fixed asset and service contract write downs; $375 thousand
for the reduction of both the space and term on First Sterling's office
lease; $225 thousand for employee severance costs; and $950 thousand for
other expenses directly attributable to the Merger. Accordingly, pro forma
stockholders' equity has been reduced by $953 thousand, representing the
after tax effect of the charges and expenses attributable to the Merger and
the conversion of the Debentures.
(7) After the Merger, New Prime intends to modify its approach to the workout
of certain assets. This strategy involves the accelerated resolution of
problem assets which, New Prime believes, is more economical than a
long-term work out approach, and will allow management to concentrate its
resources on growth and revenue generation. As a result of this strategy,
New Prime will make an addition to the allowance for loan losses of
approximately $1.0 million, ($620 thousand after-tax).
(8) Interim data is calculated on an annualized basis for purposes of
comparability with full year data.
(9) In February, 1992, the Financial Accounting Standards Board ('FASB') issued
Statement of Financial Accounting Standards No. 109, 'Accounting for Income
Taxes' ('SFAS No. 109'). Under the asset and liability method provided for
by SFAS No. 109, deferred tax assets and liabilities are recognized for the
tax consequences of temporary differences by applying enacted statutory tax
rates applicable for future years to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under SFAS No. 109,
the effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date.
Prime adopted SFAS No. 109 as of January 1, 1993. The cumulative effect of
this change in accounting for income taxes of $1.06 million has been
calculated as of January 1, 1993 and is reported separately in the
consolidated statement of operations for the year ended December 31, 1993.
First Sterling also adopted SFAS No. 109 as of January 1, 1993; the impact
of SFAS No. 109 on First Sterling was immaterial.
(10) Reflects the cancellation of 15,800 shares of First Sterling Stock held as
treasury stock.
(11) Reflects the conversion of $1.05 million in principal amount of Debentures
to 110,510 shares of Prime Stock.
(12) Reflects deferred tax receivable at statutory rates totalling $847 thousand
related to approximately $1.2 million of expenses attributable to the
Merger and the addition of approximately $1.0 million to First Sterling
Bank's allowance for loan losses.
18
<PAGE>
CONSOLIDATED SUMMARY OF QUARTERLY EARNINGS
The following quarterly financial information for the eight quarters ended
June 30, 1996 is unaudited. However, in the opinion of management of First
Sterling, all adjustments, which include only normal recurring adjustments
necessary to present fairly the results of operations for the periods, are
reflected in conformity with generally accepted accounting principles. Results
of operations for the periods presented are not necessarily indicative of the
results for the entire year or for any other interim period.
FIRST STERLING BANK
SUMMARY OF QUARTERLY EARNINGS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
1994 1995 1996
------------------------ -------------------------------------------------- -----------
3RD QUARTER 4TH QUARTER 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER 1ST QUARTER
----------- ----------- ----------- ----------- ----------- ----------- -----------
Interest income.................... $3,119 $3,263 $3,640 $3,939 $4,243 $4,362 $4,434
Interest expense................... 1,608 1,686 1,892 2,124 2,288 2,428 2,428
------ ------ ------ ------ ------ ------ ------
Net interest income................ 1,511 1,577 1,748 1,815 1,955 1,934 2,006
Provision for loan losses.......... 201 22 67 170 204 44 63
------ ------ ------ ------ ------ ------ ------
Net interest income after provision
for loan losses.................. 1,310 1,555 1,681 1,645 1,751 1,890 1,943
Other income....................... 94 3 105 164 154 164 178
Other expenses..................... 1,270 1,234 1,209 1,226 1,349 1,315 1,380
------ ------ ------ ------ ------ ------ ------
Income before income taxes......... 134 324 577 583 556 739 741
Income tax expense................. 47 122 198 200 199 242 248
------ ------ ------ ------ ------ ------ ------
Net income......................... $ 87 $ 202 $ 379 $ 383 $ 357 $ 497 $ 493
====== ====== ====== ====== ====== ====== ======
Primary earnings per share......... $ 0.06 $ 0.13 $ 0.25 $ 0.25 $ 0.24 $ 0.33 $ 0.32
====== ====== ====== ====== ====== ====== ======
Fully diluted earnings per share... $ 0.06 $ 0.13 $ 0.24 $ 0.24 $ 0.23 $ 0.32 $ 0.31
====== ====== ====== ====== ====== ====== ======
</TABLE>
-----------
2ND QUARTER
-----------
Interest income.................... $4,667
Interest expense................... 2,433
------
Net interest income................ 2,234
Provision for loan losses.......... 122
------
Net interest income after provision
for loan losses.................. 2,112
Other income....................... 170
Other expenses..................... 1,419
------
Income before income taxes......... 863
Income tax expense................. 302
------
Net income......................... $ 561
======
Primary earnings per share......... $ 0.37
======
Fully diluted earnings per share... $ 0.35
======
FIRST STERLING MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This section presents First Sterling management's discussion and analysis
of the financial condition and results of operations of First Sterling,
including First Sterling Bank. This discussion and analysis should be read in
conjunction with the consolidated financial statements of First Sterling,
including the related notes thereto, contained in Annex F hereto.
RESULTS OF OPERATIONS
SUMMARY
First Sterling's net income for the six months ended June 30,1996 was
$1,054,000, which is an increase of $292,000 or 38% from the $762,000 earned in
the six months ended June 30, 1995. The major contributor to the increase was a
$677,000 increase in the net interest income which was partially offset by an
increase of $364,000 in operating expenses, primarily salaries and rent. Primary
per share earnings for the six month periods were $.69 for 1996 and $.50 for
1995. Fully diluted earnings per share for the six month periods were $0.66 for
1996 and $0.48 for 1995.
First Sterling recorded net income of $1,616,000 for the year ended
December 31, 1995, compared with $904,000 recorded in 1994. Primary per share
earnings were $1.07 in 1995 compared with $.62 in 1994 and $.83 in 1993. Fully
diluted earnings per share were $1.03, $0.61 and $0.79, respectively, for the
years ended December 31, 1995, 1994 and 1993.
19
<PAGE>
For the six months ended June 30, return on average total assets was .97%
for 1996 and .83% for 1995 and return on average equity was 16.97% and 14.39%,
respectively. For the year, return on average total assets was .83% for 1995,
compared with .55% for 1994 and .86% for 1993. Return on average equity was
14.69% for 1995 compared with 9.66% for 1994 and 15.02% for 1993.
Average earning assets for the six months ended June 30, 1996 increased
19.2% from the comparable period in 1995. Interest margin decreased to 4.02%
from 4.04% due primarily to the cost of interest bearing deposits growing faster
than the yield on earning assets.
For the entire year 1995 average earning assets increased 18.9% to
$188,242,000 and the interest margin increased to 3.96% from 3.82%. The increase
in the interest rate spread was primarily the result of the yield on earning
assets, especially loans, increasing faster than the cost of funds. The 1993
margin was 4.23%. The decrease in the net interest margin from 1993 to 1994
resulted from decreased mortgage closings and related fees, which were the
direct result of the rising interest rate market.
First Sterling believes it maintains a high quality loan portfolio. The
percentage of non-performing assets, comprised of non-accrual loans, loans past
due 90 or more days as to principal or interest payments, restructured loans and
other real estate owned, represented 1.50% of June 30, 1996 loans and other real
estate owned, down from 2.64% at June 30, 1995 and 1.55% of December 31, 1995
loans and other real estate owned, down from 2.27% at December 31, 1994. The
allowance for loan losses was 1.50% of year-end loans at December 31, 1995 and
December 31, 1994. The loan loss provision increased $134,000 in 1995 to
$485,000 which is less than might have been expected considering the loan
growth. This was due to recoveries exceeding charge-offs by $51,000.
Non-interest income increased $79,000 for the six months ended June 30,
1996 compared to the same period in 1995. A $25,000 advisory fee and a $21,000
increase in securities values were the main reasons for the increase.
Non-interest income increased from $383,000 in 1994 to $587,000 in 1995. This
resulted from a $121,000 increase in securities values, from a loss of $117,000
in 1994 to a gain of $4,000 in 1995, and an $83,000 increase in service charges.
The increased service charges resulted from greater activity rather than higher
fees.
For the six months ended June 30, 1996, non-interest expense items grew
$364,000 or 14.9% from the same period in 1995. Increased salaries and benefits
and occupancy costs were the primary reasons for the increase. For the year
ended December 31, 1995, First Sterling's assets grew 23%, while non-interest
expense items increased $401,000, or 9% compared to 1994. Salaries and benefits
accounted for $262,000 of the increase as First Sterling was able to minimize
additional hiring by improving the utilization of the employees hired in 1994 in
preparation for the expansion in 1995. Occupancy costs increased $96,000 in 1995
as the Bala Cynwyd office was open for a full year. Insurance costs decreased
$119,000 because of the reduction in FDIC premiums during the last seven months
of 1995. The $201,000 increase in other operating expenses is primarily
attributable to the settlement of various litigation matters.
NET INTEREST INCOME
Net interest income is the product of the volume of average earning assets
and the average rates earned on them, less the volume of average interest
bearing liabilities and the average rates paid thereon. The amount of net
interest income is affected by changes in interest rates, account balances or
volume, and the mix of earning assets and interest bearing liabilities.
For analytical purposes, net interest income is adjusted to a taxable
equivalent basis in tables 1 through 4. This adjustment facilitates performance
comparisons among taxable and tax exempt assets by increasing tax exempt income
by an amount equivalent to the federal income taxes which would have been paid
if this income were taxable at the federal statutory rate of 34%.
Table 1 presents average balances, taxable equivalent interest income and
expense and average rates earned and paid for First Sterling's assets and
liabilities. Table 3 analyzes the changes attributable to the volume and rate
components of net interest income. Table 2 presents the net interest income on a
20
<PAGE>
fully taxable equivalent basis for the six month periods ended June 30, 1996 and
1995 as well as for each of the years in the three year period ended December
31, 1995.
For the six months ended June 30, 1996, net interest income was $4,240,000
which is a 19% increase from the $3,563,000 for the same period in 1995. As
shown in table 3, the increase was the result of a $962,000 increase due to
volume, partially offset by a $285,000 decrease caused by rate changes. Average
earning assets increased to $211,946,000 for the six months ended June 30, 1996
from $177,876,000 for the same period in 1995. The interest rate spread for the
six months ended June 30, 1996 was 3.37% compared with 3.39% for the same period
in 1995. The net interest margin was 4.02% compared to 4.04%.
Net interest income on a fully taxable equivalent basis totaled $7,452,000
for the year ended December 31, 1995, an increase of $1,397,000 or 23% from
$6,055,000 in 1994. Net interest income in 1994 increased 10% from $5,510,000 in
1993.
During 1995 there was an increase in net interest income of $972,000 due to
changes in volume and an increase of $425,000 due to changes in rates. In 1994
there was an increase of $1,018,000 due to changes in volume and a decrease of
$473,000 due to changes in rates.
The change in the net interest margin attributable to interest rates can be
understood by analyzing the interest rate spread and the net interest margin on
earning assets. While the interest rate spread considers only the difference
between the average rate earned on earning assets and the average rate paid on
interest bearing liabilities, the net interest margin takes into account the
contribution of assets funded by interest free sources.
As reflected in Table 4, average earning assets were $188,242,000 in 1995,
$158,303,000 in 1994 and $130,325,000 in 1993. The interest rate spread for 1995
was 3.30% compared with 3.28% for 1994 and 3.66% for 1993. The net interest
margin for 1995 was 3.96% compared with 3.82% for 1994 and 4.23% for 1993.
Short-term interest rates (prime, federal funds, etc.) rose during the
first half of 1995 followed by a decline in the second half of 1995. Long-term
interest rates, in general, declined steadily for the entire year. The net
result of these interest rate movements was a slight flattening of the overall
yield curve. The average prime rate in 1995 was 8.83% compared with 7.17% in
1994. The average federal funds rate increased to 5.84% for 1995 compared with
4.23% for 1994. During 1995, compared with 1994, the average yield on earning
assets increased 97 basis points while the average cost of funds increased 95
basis points resulting in an increase in the interest rate spread of 2 basis
points. The yield on the investment portfolio increased 90 basis points due to
reinvestment at higher rates, when compared with the yield of the securities
maturing. Average loans, which represent the highest yielding earning assets,
increased $18,250,000 or 15.9% and produced a yield of 9.53% in 1995 compared
with 8.48% in 1994. Average loans represented 70.7% of the average earning
assets for 1995. The cost of interest bearing deposits increased to 5.10% in
1995 compared with 4.24% in 1994. Rates paid on interest bearing transaction
accounts decreased throughout 1995. Interest rates offered on time deposits have
been rising. Consequently, depositors have been shifting from transaction
accounts to higher yielding time deposits. This shift is of significance to
First Sterling, which is more dependent on time deposits than more seasoned
banks. The increase in the cost of short-term borrowings (292 basis points) was
caused primarily by the rise in the federal funds rate. The interest rate spread
increased 2 basis points, which when added to the increase in the value of
non-interest bearing funds of 12 basis points, resulted in a net 14 basis point
increase in the net interest margin.
21
<PAGE>
TABLE 1
AVERAGE BALANCES, RATES AND INTEREST INCOME AND EXPENSE SUMMARY
(TAXABLE EQUIVALENT BASIS -- DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR
DECEMBER
SIX MONTHS ENDED 31,
------------------------------------------------------------------------ ---------
JUNE 30, 1996 JUNE 30, 1995 1995
----------------------------------- ----------------------------------- ---------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE
--------- ----------- ----------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Short-term investments
Interest bearing deposits............... $ 320 $ 10 6.58% $ 184 $ 5 5.48% $ 316
Federal funds sold and securities
purchased under agreements to
resell................................ 2,508 68 5.44% 4,396 130 5.96% 4,351
Total short-term investments.......... 2,828 78 5.55% 4,580 135 5.94% 4,667
INVESTMENT SECURITIES
U.S. government obligations............. 32,848 1,018 6.20% 35,882 1,123 6.31% 33,689
U.S. government agencies................ 10,293 399 7.75% 10,818 339 6.32% 13,731
State and municipals.................... 400 19 9.55% 395 19 9.70% 398
Other securities........................ 3,225 99 6.14% 2,823 90 6.43% 2,713
Total investment securities........... 46,766 1,535 6.58% 49,918 1,571 6.35% 50,531
LOANS (1)
Commercial.............................. 100,076 4,797 9.64% 78,623 3,895 9.99% 83,533
Residential mortgages................... 49,987 2,097 8.44% 34,960 1,476 8.51% 39,272
Consumer (2)............................ 12,289 594 9.72% 9,795 502 10.34% 10,239
Total loans........................... 162,352 7,488 9.28% 123,378 5,873 9.60% 133,044
Total earning assets.................. 211,946 9,101 8.64% 177,876 7,579 8.59% 188,242
Other assets.............................. 5,190 5,027 5,336
Total assets.......................... $217,136 8.43% $182,903 8.36% $193,578
LIABILITIES AND SHAREHOLDER EQUITY
Interest bearing deposits
Demand deposits......................... $ 7,800 $ 95 2.45% $ 6,386 $ 83 2.62% $ 6,585
Savings deposits........................ 26,781 434 3.25% 23,699 389 3.31% 24,683
Time deposits of $100,000 or more....... 20,238 560 5.55% 13,418 368 5.53% 17,465
Other time deposits..................... 95,617 2,737 5.74% 82,689 2,257 5.50% 87,347
Total interest bearing deposits....... 150,436 3,826 5.10% 126,192 3,097 4.95% 136,080
Short-term borrowings................... 15,270 359 4.71% 4,718 121 5.17% 2,782
Long-term debt.......................... 19,284 676 7.03% 24,970 798 6.44% 25,983
Total interest-bearing liabilities.... 184,990 4,861 5.27% 155,880 4,016 5.20% 164,845
Non-interest bearing demand deposits.... 16,169 14,059 15,220
Other liabilities....................... 3,553 2,372 2,512
Shareholders' equity.................... 12,424 10,592 11,001
Total liabilities and shareholders'
equity.............................. $217,136 4.49% $182,903 4.43% $193,578
Interest rate spread.................... 3.37% 3.39%
Effect of non-interest bearing funds.... 0.65% 0.65%
Net interest income/margin.............. $4,240 4.02% $3,563 4.04%
</TABLE>
<TABLE>
<CAPTION>
1994 1993
---------------------- --------------------------------- --------------------
AVERAGE AVERAGE AVERAGE AVERAGE
INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST
--------- ----------- --------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Short-term investments
Interest bearing deposits............... $ 19 6.01% $ 169 $ 7 4.14% $ 445 $ 15
Federal funds sold and securities
purchased under agreements to
resell................................ 255 5.86% 3,969 181 4.56% 3,922 118
Total short-term investments.......... 274 5.87% 4,138 188 4.54% 4,367 133
INVESTMENT SECURITIES
U.S. government obligations............. 2,127 6.31% 28,300 1,599 5.65% 18,772 1,131
U.S. government agencies................ 891 6.49% 9,707 485 5.00% 8,628 516
State and municipals.................... 38 9.55%
Other securities........................ 178 6.56% 1,364 80 5.87% 1,399 103
Total investment securities........... 3,234 6.40% 39,371 2,164 5.50% 28,799 1,750
LOANS (1)
Commercial.............................. 8,346 9.99% 75,366 6,516 8.65% 67,391 5,676
Residential mortgages................... 3,354 8.54% 30,237 2,466 8.16% 21,506 2,315
Consumer (2)............................ 976 9.53% 9,191 748 8.14% 8,262 769
Total loans........................... 12,676 9.53% 114,794 9,730 8.48% 97,159 8,760
Total earning assets.................. 16,184 8.60% 158,303 12,082 7.63% 130,325 10,643
Other assets.............................. 5,017 4,155
Total assets.......................... 8.36% $163,320 7.40% $134,480
LIABILITIES AND SHAREHOLDER EQUITY
Interest bearing deposits
Demand deposits......................... $ 175 2.66% $ 5,675 $ 133 2.34% $ 4,862 $ 131
Savings deposits........................ 803 3.25% 25,724 728 2.83% 21,276 640
Time deposits of $100,000 or more....... 984 5.63% 17,616 760 4.31% 22,742 981
Other time deposits..................... 4,975 5.70% 72,522 3,528 4.86% 53,164 2,754
Total interest bearing deposits....... 6,937 5.10% 121,537 5,149 4.24% 102,044 4,506
Short-term borrowings................... 179 6.43% 2,906 102 3.51% 1,424 44
Long-term debt.......................... 1,616 6.22% 14,096 776 5.51% 10,406 583
Total interest-bearing liabilities.... 8,732 5.30% 138,539 6,027 4.35% 113,874 5,133
Non-interest bearing demand deposits.... 13,596 11,180
Other liabilities....................... 1,830 1,741
Shareholders' equity.................... 9,355 7,685
Total liabilities and shareholders'
equity.............................. 4.51% $163,320 3.69% $134,480
Interest rate spread.................... 3.30% 3.28%
Effect of non-interest bearing funds.... 0.66% 0.54%
Net interest income/margin.............. $ 7,452 3.96% $ 6,055 3.82% $ 5,510
</TABLE>
-----------
AVERAGE
RATE
-----------
ASSETS
Short-term investments
Interest bearing deposits............... 3.37%
Federal funds sold and securities
purchased under agreements to
resell................................ 3.01%
Total short-term investments.......... 3.05%
INVESTMENT SECURITIES
U.S. government obligations............. 6.02%
U.S. government agencies................ 5.98%
State and municipals....................
Other securities........................ 7.36%
Total investment securities........... 6.08%
LOANS (1)
Commercial.............................. 8.42%
Residential mortgages................... 10.76%
Consumer (2)............................ 9.31%
Total loans........................... 9.02%
Total earning assets.................. 8.17%
Other assets..............................
Total assets.......................... 7.91%
LIABILITIES AND SHAREHOLDER EQUITY
Interest bearing deposits
Demand deposits......................... 2.69%
Savings deposits........................ 3.01%
Time deposits of $100,000 or more....... 4.31%
Other time deposits..................... 5.18%
Total interest bearing deposits....... 4.42%
Short-term borrowings................... 3.09%
Long-term debt.......................... 5.60%
Total interest-bearing liabilities.... 4.51%
Non-interest bearing demand deposits....
Other liabilities.......................
Shareholders' equity....................
Total liabilities and shareholders'
equity.............................. 3.82%
Interest rate spread.................... 3.66%
Effect of non-interest bearing funds.... 0.57%
Net interest income/margin.............. 4.23%
- ------------------
(1) Includes fees on loans. Average loan balances include non-accruing loans.
(2) Includes home equity loans.
<PAGE>
TABLE 2
NET INTEREST INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30 YEAR ENDED DECEMBER 31,
---------------------------- -------------------------------
1996 1995 1995 1994 1993
------------- ------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Total interest income............................ $9,101 $7,579 $16,184 $12,082 $10,643
Total interest expense........................... 4,861 4,016 8,732 6,027 5,133
------ ------ ------- ------- -------
Net interest income (fully taxable equivalent)... $4,240 $3,563 $ 7,452 $ 6,055 $ 5,510
====== ====== ======= ======= =======
</TABLE>
TABLE 3
RATE-VOLUME ANALYSIS OF CHANGES IN NET INTEREST INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
----------------------------------- -----------------------------------------------------------
1996 VS. 1995 1995 VS. 1994 1994 VS. 1993
CHANGES DUE TO: TOTAL CHANGES DUE TO: TOTAL CHANGES DUE TO:
VOLUME RATE CHANGE VOLUME RATE CHANGE VOLUME RATE
----------- --------- ----------- ----------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(Taxable Equivalent)
Interest Income
Short-term investments....... $ (49) $ (8) $ (57) $ 26 $ 60 $ 86 $ (7) $ 62
Investment securities........ (113) 77 (36) 677 393 1,070 594 (180)
Loans........................ 1,792 (177) 1,615 1,655 1,291 2,946 1,518 (548)
------ ----- ------ ------ ------ ------ ------ -----
Total interest income...... 1,630 (108) 1,522 2,358 1,744 4,102 2,105 (666)
------ ----- ------ ------ ------ ------ ------ -----
Interest Expense
Interest bearing deposits.... 613 116 729 663 1,125 1,788 832 (189)
Short-term borrowings........ 249 (11) 238 (5) 82 77 51 7
Long-term debt............... (194) 72 (122) 728 112 840 204 (11)
------ ----- ------ ------ ------ ------ ------ -----
Total interest expense..... 668 177 845 1,386 1,319 2,705 1,087 (193)
------ ----- ------ ------ ------ ------ ------ -----
Net interest income............ $ 962 $(285) $ 677 $ 972 $ 425 $1,397 $1,018 $(473)
------ ----- ------ ------ ------ ------ ------ -----
</TABLE>
-----------
TOTAL
CHANGE
-----------
(Taxable Equivalent)
Interest Income
Short-term investments....... $ 55
Investment securities........ 414
Loans........................ 970
------
Total interest income...... 1,439
------
Interest Expense
Interest bearing deposits.... 643
Short-term borrowings........ 58
Long-term debt............... 193
------
Total interest expense..... 894
------
Net interest income............ $ 545
------
<TABLE>
<CAPTION>
TABLE 4
INTEREST RATE SPREAD AND NET INTEREST MARGIN ON EARNING ASSETS
(DOLLARS IN THOUSANDS)
FOR SIX MONTHS ENDED FOR YEAR ENDED DECEMBER 31,
---------------------------------------------- ---------------------------------------------------------
JUNE 30, 1996 JUNE 30, 1995 1995 1994 1993
---------------------- ---------------------- ---------------------- ---------------------- ---------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE BALANCE RATE BALANCE RATE BALANCE
--------- --- --------- --- --------- --- --------- --- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(Taxable Equivalent)
Earnings assets......... $211,946 8.64% $177,876 8.59% $188,242 8.60% $158,303 7.63% $130,325
======== ======== ======== ======== ========
Interest bearing
liabilities........... $184,990 5.27% $155,880 5.20% $164,845 5.30% $138,539 4.35% $113,874
Interest rate spread.... 3.37% 3.39% 3.30% 3.28%
Interest free sources
used to fund earning
assets................ 26,956 21,996 23,397 19,764 16,451
-------- -------- -------- -------- --------
Total sources of
funds................. $211,946 4.62% $177,876 4.55% $188,242 4.64% $158,303 3.81% $130,325
======== ======== ======== ======== ========
Net interest margin..... 4.02% 4.04% 3.96% 3.82%
</TABLE>
----
RATE
----
(Taxable Equivalent)
Earnings assets......... 8.17%
Interest bearing
liabilities........... 4.51%
Interest rate spread.... 3.66%
Interest free sources
used to fund earning
assets................
Total sources of
funds................. 3.94%
Net interest margin..... 4.23%
23
<PAGE>
Average interest rates rose during 1994 compared to 1993. The average prime
rate in 1994 was 7.17% compared with 6.00% in 1993. The average federal funds
rate increased to 4.23% for 1994 compared with 3.02% for 1993. During 1994,
compared with 1993, the average yield on earning assets decreased 54 basis
points while the average cost of funds decreased only 16 basis points resulting
in a decrease in the interest rate spread of 38 basis points. The yield on the
investment portfolio decreased 58 basis points due to reinvestment at
significantly lower rates when compared with the yield of the securities
maturing. Average loans, which represent the highest yielding earning assets,
increased $17,635,000 or 18.2% and produced a yield of 8.48% in 1994 compared
with 9.02% in 1993, which represents a decrease of 54 basis points. This
decrease was primarily the result of lower mortgage fee income which is included
in interest income. The reduction of fees was due to a reduction in the number
and dollar volume of refinancings of residential mortgages and fewer home
purchases as a result of rising interest rates. Average loans represented 72.5%
of the average earning assets for 1994. The cost of interest bearing deposits
decreased to 4.24% in 1994 compared with 4.42% in 1993. Rates paid on interest
bearing transaction accounts decreased in early 1994 and remained relatively
flat throughout the year despite the increasing rate environment. Interest rates
on time deposits had been rising. Consequently, depositors shifted from
transaction accounts to higher yielding time deposits, reversing the trend of
the prior three years. The increase in the cost of short-term borrowings (42
basis points) was caused primarily by the rise in the federal funds rate. The
interest rate spread decreased 38 basis points, which when added to the decrease
in the value of non-interest bearing funds, resulted in a 41 basis point decline
in the net interest margin.
First Sterling's cost of interest bearing funds is generally higher, and
its net interest margin is generally lower, when compared with banking companies
of First Sterling's asset size. This is due to First Sterling's having been in
existence for less time than the average of its peer group and having a limited
number of locations. The building of core deposits, which are lower cost funds,
is a very time consuming process. Since First Sterling has had significant
growth in its loan portfolio, the source of these funds has had to come from
time deposits and borrowings. The selectivity in loan underwriting necessitates
competitive pricing to obtain quality loan growth. With loan yields comparable
to peers and the cost of funds higher than peers, First Sterling's interest
margin is lower than its peers.
PROVISION FOR LOAN LOSSES
The provision for loan losses for the six months ended June 30, 1996 was
$185,000, down from $237,000 for the same period in 1995. The reduction was due
to management's estimate of the amount needed to maintain an adequate reserve.
One of the major factors in the decision that a lower reserve was needed was a
reduction in delinquent loans to 1.7% of outstanding loans from 2.7% at December
31, 1995. There were no charge-offs in the current period compared to $22,000 in
the prior year's period. Loans are charged off when there is no reasonable
expectation of payment of a significant portion of the loan or when the
regulators classify a loan as a loss.
The provision for loan losses charged against earnings for the year was
$485,000 in 1995 compared with $351,000 in 1994, an increase of 38.2%. The
increase was less than it would have been had not recoveries on charged-off
loans exceeded charge-offs for the year by $51,000. The provision was based on
management's estimate of the amount needed to maintain an adequate allowance for
loan losses. This estimate was based on management's review of the loan
portfolio, the level of net credit losses, past loan loss experience, the
general economic outlook and other factors that First Sterling management
considered appropriate.
Several improvements were seen from 1994 to 1995 in certain measures of
loan portfolio performance. The ratio of net charge-offs to average loans
decreased to (.04)% in 1995 from .18% in 1994 and the level of nonperforming
loans decreased to $2,356,000 (1.55% of year-end loans) at December 31, 1995
from $2,648,000 (2.27% of year-end loans) at December 31, 1994.
24
<PAGE>
NON-INTEREST INCOME
Non-interest income for the six months ended June 30, 1996 increased
$79,000 from the same period in 1995 to $348,000. The major reason for the
increase was a $25,000 advisory fee for assisting a client in evaluating his
business and a $21,000 increase in securities values.
Non-interest income increased from $383,000 in 1994 to $587,000 for the
year ended December 31, 1995. The $204,000 increase resulted from a $121,000
increase in securities values (from a loss of $117,000 in 1994 to a gain of
$4,000 in 1995) and an $83,000 increase in service charges. The increased
service charges resulted from greater activity rather than higher fees. The
service charges are primarily for account maintenance, overdrafts and check
charges. Non-interest income in 1994 was $355,000 less than in 1993 primarily
because of a $112,000 securities gain in 1993 as opposed to a $117,000
securities loss in 1994. Securities are sold primarily as the result of
decisions by the asset/liability committee to manage the interest rate
sensitivity of First Sterling Bank.
NON-INTEREST EXPENSE
Non-interest expense increased $364,000 or 15% for the six months ended
June 30, 1996 compared to the same period in 1995. Salaries and benefits
increased $195,000 due to additional hiring and normal increases. Occupancy
expense increased $190,000 as the result of leasing additional space. Insurance
expense was down $160,000 because of the reduction in FDIC premiums as explained
below.
Table 5 reflects First Sterling's non-interest expense which increased
$401,000 or 9% from 1994 to 1995 compared with an increase of $913,000 or 24%
from 1993 to 1994.
Salaries and benefits accounted for $262,000 of the 1995 increase as First
Sterling was able to minimize additional hiring by improving the utilization of
the employees hired in 1994 in preparation for the expansion in 1995. The 13.4%
growth in salary and employee benefit costs is less than the 18.5% growth in
average assets. Occupancy costs increased $96,000 primarily as the result of the
Bala Cynwyd office being open for a full year versus seven months in 1994.
Insurance costs decreased $119,000 because of the reduction in FDIC insurance
premiums during the last seven months of 1995. Because the FDIC insurance fund
is fully funded, an additional benefit is anticipated in 1996, although certain
pending legislation or other events may still preclude realization of this
anticipated benefit. The $201,000 increase in other operating expenses is
primarily attributable to the settlement of various litigation matters.
The 1994 increases were primarily in salaries and employee benefits, which
increased $428,000 in anticipation of increased volume and an effort to improve
market share, and in occupancy expense which increased $203,000 primarily as a
result of the opening of the Bala Cynwyd office. Advertising expenses also
increased $177,000 as a result of efforts to increase market share.
TABLE 5
NON-INTEREST EXPENSE
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, 1996 VS. 1995 1995 VS. 1994 1994 VS. 1993
-------------------------------------------- --------------------------------- ----------------------
CHANGE CHANGE CHANGE
1996 AMOUNT % 1995 1995 AMOUNT % 1994 AMOUNT
--------- ----------- --------- --------- --------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Salaries and
employee
benefits.......... $1,260 $ 195 18.31% $1,065 $2,215 $ 262 13.41% $1,953 $428
Net occupancy
expense........... 705 190 36.89% 515 1,046 96 10.10% 950 203
Advertising......... 110 8 7.84% 102 213 (39) -15.48% 252 77
Insurance........... 32 (160) -83.33% 192 224 (118) -34.50% 342 54
Other............... 692 131 23.35% 561 1,401 200 16.65% 1,201 151
------ ----- ------ ------ ------ ----- ------ ------ ----
Total............. $2,799 $ 364 14.95% $2,435 $5,099 $ 401 8.54% $4,698 $913
====== ===== ====== ====== ====== ===== ====== ====== ====
</TABLE>
--------------------
% 1993
--------- ---------
Salaries and
employee
benefits.......... 28.07% $1,525
Net occupancy
expense........... 27.18% 747
Advertising......... 44.00% 175
Insurance........... 18.75% 288
Other............... 14.38% 1,050
------ ------
Total............. 24.12% $3,785
====== ======
25
<PAGE>
PROVISION FOR INCOME TAXES
For the six months ended June 30, 1996, income tax expense was $550,000
compared to $398,000 for the same period in 1995. The effective rate was 34.3%
for both years.
Income tax expense amounted to $839,000 for the year ended December 31,
1995 as compared with $484,000 in 1994 and $590,000 in 1993. First Sterling's
effective tax rate for 1995 was 34.2% compared with 34.9% in 1994 and 33.8% in
1993. For a more comprehensive analysis of income tax expense, refer to Note 10
of the Notes to Consolidated Financial Statements of First Sterling in Annex F
hereto.
FINANCIAL CONDITION
SOURCES AND USES OF FUNDS
First Sterling's financial condition can be evaluated in terms of trends in
its sources and uses of funds. The comparison of average balances in Table 6
indicates how First Sterling has managed these elements. For the six months
ended June 30, 1996 compared to the like period in 1995, average funding
increased 19.2% to fund loan growth. Time deposits were the largest source of
funds but short-term borrowings played a more significant role than in the past.
Average funding uses increased $29.9 million or 18.9% in 1995 as compared with
an increase of $28.0 million or 21.5% in 1994. In 1995 and 1994, loans were the
biggest use of funds although there were significant increases in the investment
portfolio in both years. Time deposits contributed about half of the growth in
funds available in both years.
TABLE 6
SOURCES AND USES OF FUNDS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR SIX MONTHS ENDED JUNE 30 FOR YEAR ENDED DECEMBER 31,
-------------------------------------------- ---------------------------------------------------------
1996 1995 1995 1994
AVERAGE CHANGE AVERAGE AVERAGE CHANGE AVERAGE CHANGE
BALANCE AMOUNT % BALANCE BALANCE AMOUNT % BALANCE AMOUNT
--------- ----------- --------- --------- --------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Funding uses:
Short-term
investments......... $ 2,828 $(1,752) -38.25% $ 4,580 $ 4,667 $ 529 12.79% $ 4,138 $ (229)
Total investment
securities.......... 46,766 (3,152) -6.31% 49,918 50,531 11,160 28.34% 39,371 10,572
Loans................. 162,352 38,974 31.59% 123,378 133,044 18,250 15.90% 114,794 17,635
-------- ------- ------ -------- -------- ------- ------- -------- -------
Total uses.......... $211,946 $34,070 19.15% $177,876 $188,242 $29,939 18.91% $158,303 $27,978
======== ======= ====== ======== ======== ======= ===== ======== =======
Funding sources:
Interest bearing
demand
deposits............ $ 7,800 $ 1,414 22.14% $ 6,386 $ 6,585 $ 910 16.04% $ 5,675 $ 813
Savings
deposits............ 26,781 3,082 13.00% 23,699 24,683 (1,041) -4.05% 25,724 4,448
Time deposits......... 115,855 19,748 20.55% 96,107 104,812 14,674 16.28% 90,138 14,232
Short-term
borrowings.......... 15,270 10,552 223.65% 4,718 2,782 (124) -4.27% 2,906 1,482
Long-term
debt................ 19,284 (5,686) -22.77% 24,970 25,983 11,887 84.33% 14,096 3,690
Non-interest bearing
funds (net)(1)...... 26,956 4,960 22.55% 21,996 23,397 3,633 18.38% 19,764 3,313
-------- ------- ------ -------- -------- ------- ------- -------- -------
Total
sources........... $211,946 $34,070 19.15% $177,876 $188,242 $29,939 18.91% $158,303 $27,978
======== ======= ====== ======== ======== ======= ===== ======== =======
</TABLE>
--------------------
1993
AVERAGE
% BALANCE
--------- ---------
Funding uses:
Short-term
investments......... -5.24% $ 4,367
Total investment
securities.......... 36.71% 28,799
Loans................. 18.15% 97,159
------ --------
Total uses.......... 21.47% $130,325
===== ========
Funding sources:
Interest bearing
demand
deposits............ 16.72% $ 4,862
Savings
deposits............ 20.91% 21,276
Time deposits......... 18.75% 75,906
Short-term
borrowings.......... 104.07% 1,424
Long-term
debt................ 35.46% 10,406
Non-interest bearing
funds (net)(1)...... 20.14% 16,451
------ --------
Total
sources........... 21.47% $130,325
===== ========
- ------------------
(1) Non-interest bearing liabilities and stockholders' equity less non-interest
bearing assets.
26
<PAGE>
INVESTMENT SECURITIES AND OTHER SHORT-TERM INVESTMENTS
For the six months ended June 30, 1996 compared to the same period in 1995,
average short-term investments and investment securities decreased $4,904,000 to
$49,594,000. The decrease was primarily due to the maturity and redemption of
U.S. agency issues. At June 30, 1996, the portfolio was composed of U.S.
Treasuries (70.2%), U.S. agency issues (28.7%), collateralized mortgage
obligations ('CMOs') (.3%), and municipal bonds (.8%).
Average short-term investments and investment securities, in the aggregate,
increased $11.7 million or 26.9% during the year ended December 31, 1995 to
$55,198,000 compared with an increase of $10.3 million or 31.2% during 1994 to
$43,509,000. The investment objectives of First Sterling Bank's portfolio are to
maintain necessary liquidity to meet demand for funds due to deposit outflow or
increased loan demand without incurring a loss due to market risk, to provide
income during periods of slow loan demand, to provide an adequate supply of
investment securities for pledging, to reduce tax liabilities, and to maintain
high credit quality, diversification and an above average yield. Accordingly,
98.8% of First Sterling's investments are classified as available-for-sale to
provide the flexibility to achieve those objectives. The classification of
investment securities is explained below. The portfolio is structured to provide
maximum return on investment while meeting strict interest rate risk and credit
risk standards.
At December 31, 1995, the portfolio was comprised of U.S. Treasury issues
(66.1%), U.S. agency issues (32.7%), CMOs (.4%), and municipals (.8%), while at
December 31, 1994 the portfolio was comprised of 82% U.S. Treasuries, 16% U.S.
agencies and 2% CMOs. As shown in Table 7, the weighted average yield on the
portfolio was 6.75% with an average life of two years. For information on actual
investment balances as of December 31, 1995 and December 31, 1994, see the
footnotes to the financial statements appended hereto as Annex F.
At December 31, 1995, net unrealized gains in the portfolio were $653,000,
consisting of gross unrealized gains of $661,000 and gross unrealized losses of
$8,000. This compares with gross unrealized gains of $66,000 and gross
unrealized losses of $715,000 for a net unrealized loss of $639,000 at December
31, 1994. First Sterling accounts for investment securities in accordance with
the provisions of Statement of Financial Accounting Standards No. 115 ('SFAS
115'), 'Accounting for Certain Investments in Debt and Equity Securities.' SFAS
115 addresses the accounting and reporting for investments in equity securities
that have readily determinable fair values and for all investments in debt
securities. These investments are to be classified in one of three categories
and accounted for as follows: (1) debt securities that a company has the
positive intent and ability to hold to maturity are classified as
held-to-maturity securities and reported at amortized cost; (2) debt and equity
securities that are bought and held principally for the purpose of selling them
in the near term are classified as trading securities and reported at fair
value, with unrealized gains and losses included in earnings; and (3) debt and
equity securities not classified as either held-to-maturity or trading
securities are classified as available-for-sale securities and reported at fair
value, with unrealized gains and losses excluded from earnings and reported as a
separate component of stockholders' equity.
TABLE 7
ANALYSIS OF INVESTMENT SECURITIES
<TABLE>
<CAPTION>
JUNE 30, 1996 DECEMBER 31, 1995
------------------------------------- -------------------------------------
WEIGHTED WEIGHTED
FAIR AVERAGE FAIR AVERAGE
AVAILABLE FOR SALE VALUE COST YIELD VALUE COST YIELD
- ---------------------------------------- ---------- ---------- ------------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Less than 1 year........................ $16,919,176 $16,881,029 6.59% $10,132,501 $10,022,077 6.74%
1 to 5 years............................ 25,963,435 25,883,286 6.44% 35,678,424 35,192,643 6.61%
Greater than 10 years................... 3,912,366 4,012,792 8.02% 4,022,192 3,992,698 8.02%
----------- ----------- ---- ----------- ----------- ----
Total................................. $46,794,977 $46,777,107 6.66% $49,833,117 $49,207,418 6.75%
=========== =========== ==== =========== ============ ====
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
FAIR AVERAGE FAIR AVERAGE
HELD TO MATURITY VALUE COST YIELD VALUE COST YIELD
- ---------------------------------------- ---------- ---------- ------------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
5 to 10 years........................... $ 422,762 $ 400,000 9.26% $ 431,391 $ 400,000 9.26%
CMO's................................... 157,879 158,170 6.02% 190,852 194,525 6.02%
---------- ---------- ---- ---------- ---------- ----
Total................................. $ 580,641 $ 558,170 8.34% $ 622,243 $ 594,525 8.20%
========== ========== ==== ========== ========== ====
</TABLE>
27
<PAGE>
LOANS
Average loans outstanding increased $38,974,000 or 31.6% for the six months
ended June 30, 1996, compared to the like period in 1995. Mortgages increased
43% to $49,987,000 and commercial loans increased 27% to $100,076,000.
Average loans increased $18,250,000 or 15.9% during the year ended December
31, 1995 to $133,044,000 compared with an increase of $17,635,000 or 18.2% in
1994 to $114,794,000. Loan growth continued in 1995, primarily in the area of
commercial loans, as more emphasis was placed on this line of business.
The economy in First Sterling's market area is diversified and has been
relatively stable. This affords First Sterling the opportunity to select quality
commercial credits and selectively grow its mortgage and consumer business.
First Sterling believes it has been successful in growing its business by
providing flexibility in meeting customer needs and personal service while still
maintaining strict underwriting standards.
Loan balances during 1995 were influenced by the improving economy and, as
a result, balances in both the commercial and mortgage areas increased. First
Sterling sells in the secondary market a majority of the residential mortgages
it originates in order to avoid taking excessive interest rate risk.
First Sterling's policy is to make the vast majority of its loans and
commitments in the market area it serves. It believes that this tends to reduce
risk and gives First Sterling the opportunity to deliver multiple products to
the same customer base. First Sterling has never made loans outside of the
United States.
TABLE 8
LOANS OUTSTANDING, NET OF UNEARNED INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
-------------------- -----------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Commercial........................... $108,201 $ 84,609 $ 94,508 $ 75,947 $ 72,881 $64,904 $49,552
Mortgage............................. 50,551 38,841 48,413 32,772 27,881 16,418 15,452
Consumer:
Home equity........................ 9,718 8,079 9,356 7,914 5,690 5,296 5,982
Other.............................. 4,024 1,627 2,345 2,221 2,825 3,149 3,330
-------- -------- -------- -------- -------- ------- -------
Total.............................. $172,494 $133,156 $154,622 $118,854 $109,277 $89,767 $74,316
======== ======== ======== ======== ======== ======= =======
</TABLE>
TABLE 9
LOAN MATURITIES AND INTEREST SENSITIVITY (1)
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------------------------------------
OVER
ONE YEAR ONE THROUGH FIVE
OR LESS FIVE YEARS YEARS TOTAL
--------- ------------ --------- -----------
<S> <C> <C> <C> <C>
Commercial..................................................... $57,111 $30,469 $ 6,928 $ 94,508
Mortgage....................................................... 11,140 21,872 15,401 48,413
------- ------- ------- --------
Total........................................................ $68,251 $52,341 $22,329 $142,921
======= ======= ======= ========
Loans with predetermined interest rate......................... $14,560 $34,343 $21,914 $ 70,817
Loans with variable interest rate.............................. 53,691 17,998 415 72,104
------- ------- ------- --------
Total........................................................ $68,251 $52,341 $22,329 $142,921
======= ======= ======= ========
</TABLE>
- ------------------
(1) Excludes home equity and consumer loans.
28
<PAGE>
DEPOSITS
For the six months ended June 30, 1996, average deposits increased
$26,354,000 or 18.8% compared to the same period in 1995. In the same periods,
average non-interest bearing deposits increased 15% and were 9.7% of total
deposits compared to 10.0% at June 30, 1995.
Average deposits, including non-interest bearing demand deposits, increased
$16.2 million or 12.0% during the year ended December 31, 1995, compared with an
increase of $21.9 million or 19.4% in 1994. First Sterling, like many other
commercial banks, has experienced deposit growth even as the competition for
depositors' funds has become more intense. Competition for deposits has come
from other commercial banks, thrift institutions, credit unions, brokerage
houses and mutual funds. Deposit growth was primarily due to the increase in
average interest rates during 1995. While rates paid on interest bearing
transaction accounts decreased throughout 1995, rates paid on time deposits have
been increasing due to rising interest rates. Depositors appear to be shifting
from transaction accounts to time deposits.
During 1995 average time deposits increased $14.7 million compared with an
increase of $14.2 million during 1994. These deposits were used to fund loan
growth. Additionally, the growth of non-interest bearing deposits has been
relatively slow in recent years. The percentage of average non-interest bearing
demand deposits to average total deposits amounted to 10.1% in 1995 and 1994 and
9.9% in 1993. First Sterling believes it has remained interest rate competitive
and has introduced new deposit products to maintain and attract deposits. As can
be seen in Table 13, First Sterling attempts to keep the amount of time deposits
of $100,000 or more at what management feels are reasonable levels due to their
volatility.
SHORT-TERM BORROWINGS
For the six months ended June 30, 1996, average short term borrowings
increased 324% or $10,552,000 compared to the similar period in 1995. This
increase reflects a more extensive use of Federal Home Loan Bank repurchase
agreements. The balance at June 30, 1996 was $33,118,000 compared to $2,778,000
at December 31, 1995. The increase in short-term borrowings was intended to take
advantage of the lower rates. When rates begin to rise, borrowing maturities
will be extended.
Average short-term borrowings decreased $124,000 or 4.3% during the year
ended December 31, 1995 compared with an increase of $1,482,000 or 104.1% in
1994. Short-term borrowings are primarily represented by short-term Federal Home
Loan Bank borrowings and securities sold under agreements to repurchase. The
level of short-term borrowings is dependent upon many items such as loan growth,
deposit growth and the interest rates paid for these funds. The average cost of
short-term borrowings increased from 3.09% in 1993 to 3.51% in 1994 and to 6.43%
in 1995.
NON-PERFORMING ASSETS
At June 30, 1996, nonperforming assets totalled $2,581,000, a reduction of
26.6% from the $3,518,000 at June 30, 1995 which was unusually high because of a
few large loans which were current as to interest but which had matured and had
not yet been formally extended.
Table 10 reflects First Sterling's non-performing assets for the six month
periods ended June 30, 1996 and 1995 and the five years ended December 31, 1995.
First Sterling's policy is to discontinue the accrual of interest on loans on
which principal or interest is past due 90 days or more or where any portion of
a loan is classified loss by the regulatory authorities. When a loan is placed
on non-accrual status, any accrued and unpaid interest is generally charged
against income. Management believes that strict adherence to this policy with
regard to non-accruals and charge-offs provides assurance that the loan
portfolio is accurately valued and income is correctly recorded in First
Sterling's financial statements. Other real estate owned represents property
acquired through foreclosure.
29
<PAGE>
TABLE 10
NON-PERFORMING ASSETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
-------------------- -----------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Non-accrual loans................................ $ 1,957 $1,313 $1,858 $ 874 $1,450 $1,689 $1,024
Loans past due 90 or more days as to principal or
interest payments.............................. 272 1,751 248 645 1,033 1,153 --
Restructured loans............................... 250 250 250 1,129 -- -- --
------- ------ ------ ------ ------ ------ ------
Total non-performing loans..................... 2,479 3,314 2,356 2,648 2,483 2,842 1,024
Other real estate owned.......................... 102 204 49 49 49 -- --
------- ------ ------ ------ ------ ------ ------
Total non-performing assets.................... $ 2,581 $3,518 $2,405 $2,697 $2,532 $2,842 $1,024
------- ------ ------ ------ ------ ------ ------
------- ------ ------ ------ ------ ------ ------
Ratios:
Non-performing loans to total loans............ 1.44% 2.49% 1.52% 2.23% 2.27% 3.17% 1.38%
Non-performing assets to total loans and other
real estate owned............................ 1.50% 2.64% 1.55% 2.27% 2.32% 3.17% 1.38%
Allowance for loan losses to non-performing
loans.......................................... 101.21% 60.26% 98.39% 67.30% 66.01% 41.66% 78.91%
</TABLE>
Loan quality is maintained through diversification of risk, strict
enforcement of credit control practices and continued monitoring of the loan
portfolio. These efforts are reflected in the trend of non-performing loans. The
percentage of non-performing loans to total loans has shown a consistent
decrease over the last four years as the amount of non-performing loans has
remained fairly consistent while the total loan portfolio has grown
significantly.
At December 31, 1995, First Sterling had loans secured by commercial real
estate totaling 35% of total loans. There were no other loan concentrations.
Loan concentrations are considered to exist when there are amounts loaned to a
multiple number of borrowers engaged in similar activities which would cause
them to be similarly affected by economic or other industry specific conditions.
The balance of non-accrual and restructured loans was $2,108,000 at
December 31, 1995. If such loans were on the accrual basis, an additional
$120,000 of interest income would have been recognized.
In 1995, First Sterling adopted the provisions of Statement of Financial
Accounting Standards No. 114 ('SFAS 114'), 'Accounting by Creditors for
Impairment of a Loan,' as amended by Statement of Financial Accounting Standards
No. 118 ('SFAS 118'), 'Accounting by Creditors for Impairment of a Loan --
Income Recognition and Disclosures.' SFAS 114 addresses the accounting by
creditors for impairment of certain loans. SFAS 114 requires that impaired loans
that are within the scope of the Statement be measured based on the present
value of expected future cash flows discounted at the loan's effective interest
rate, except that all collateral-dependent loans are measured for impairment
based on the fair value of the underlying collateral. Commercial loans and
certain consumer loans with large balances are evaluated for impairment in
accordance with SFAS 114. Management considers a loan to be impaired when it is
probable that collection of all amounts due according to the contractual terms
of the loan agreement will not be made. This determination usually is made when
a loan becomes 90 days past due. However, in certain circumstances where the
loan is in collection or where loans have matured and have not been formally
extended, loans greater than 90 days past due may not be considered impaired.
On December 31, 1995 the balance of impaired loans was $1,830,000. The
impaired loans consist of loans where it is probable that First Sterling will be
unable to collect all amounts due according to the contractual terms of the loan
agreement. Interest income for impaired loans that are on nonaccrual status is
recognized using the cash basis.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is based on management's continuing
evaluation of the loan portfolio, assessment of economic conditions, the
diversification and size of the portfolio, adequacy of collateral, past and
anticipated loss experience and the amount and quality of nonperforming loans.
The specific allocations in any particular category may prove excessive or
inadequate and consequently
30
<PAGE>
may be re-allocated in the future to reflect then current conditions.
Accordingly, the entire allowance is considered available to absorb losses in
any category. At December 31, 1995, the specific reserves related to the
$1,830,000 of impaired loans were $533,000 and the remainder of the allowance
($1,785,000) represents the SFAS 5 allowance established on loans not considered
impaired under SFAS 114.
Management believes that the allowance for loan losses is adequate. While
management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review First Sterling Bank's allowance
for loan losses. Such agencies may require First Sterling Bank to recognize
additions to the allowance based on their judgments of information available to
them at the time of their examination.
Table 11 reflects an analysis of the allowance for loan losses for the six
month periods ended June 30, 1996 and 1995 and the five years ended December 31,
1995.
For the six months ended June 30, 1996 the allowance for loan losses
increased $191,000 to $2,509,000 as the result of the provision for loan losses
of $185,000 plus the recovery of charged-off loans of $6,000. The allowance at
June 30, 1996 is 1.54% of average loans and 1.45% of period end loans. The
provision for loan losses of $485,000 together with the net recoveries of
$51,000 increased the allowance for loan losses from $1,782,000 in 1994 to
$2,318,000 at December 31, 1995. The allowance for loan losses as a percentage
of year-end loans was 1.50% at December 31, 1995, December 31, 1994, and
December 31, 1993.
TABLE 11
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30 YEAR ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, beginning of period............. $ 2,318 $ 1,782 $ 1,782 $ 1,639 $ 1,184 $ 808 $ 558
Provision charged to operating expense... 185 237 485 351 718 963 392
Loans charged off:
Commercial............................. -- -- 82 -- 59 -- 142
Real estate............................ -- 17 17 197 201 583 --
Consumer............................... -- 5 5 12 3 4 --
-------- -------- -------- -------- -------- -------- --------
Total loans charged off.............. -- 22 104 209 263 587 142
-------- -------- -------- -------- -------- -------- --------
Recoveries:
Commercial............................. -- -- -- -- -- -- --
Real estate............................ 6 -- 155 -- -- -- --
Consumer............................... -- -- -- 1 -- -- --
-------- -------- -------- -------- -------- -------- --------
Total recoveries..................... 6 -- 155 1 -- -- --
-------- -------- -------- -------- -------- -------- --------
Net charge-offs.......................... (6) 22 (51) 208 263 587 142
-------- -------- -------- -------- -------- -------- --------
Balance, end of period................... $ 2,509 $ 1,997 $ 2,318 $ 1,782 $ 1,639 $ 1,184 $ 808
======== ======== ======== ======== ======== ======== ========
Total loans:
Average................................ $162,352 $123,378 $133,044 $114,794 $ 97,159 $ 81,250 $ 61,806
Year-end............................... 172,494 133,156 154,622 118,854 109,277 89,767 74,316
Ratios:
Net charge-offs to:
Average loans........................ 0.00% 0.02% -0.04% 0.18% 0.27% 0.72% 0.23%
Loans at year-end.................... 0.00% 0.02% -0.03% 0.18% 0.24% 0.65% 0.19%
Allowance for loan losses............ 0.00% 1.10% -2.20% 11.67% 16.05% 49.58% 17.57%
Provision for loan losses............ 0.00% 9.28% -10.52% 59.26% 36.63% 60.96% 36.22%
Allowance for loan losses to:
Average Loans........................ 1.54% 1.62% 1.74% 1.55% 1.69% 1.46% 1.31%
Loans at year-end.................... 1.45% 1.50% 1.50% 1.50% 1.50% 1.32% 1.09%
</TABLE>
31
<PAGE>
LIQUIDITY
The objective of First Sterling's liquidity plan is to maintain an adequate
and safe pattern of cash flow in order to meet all obligations. This includes
the ability to fund asset growth, repay maturing liabilities, and meet
customers' demands for funds. Liquidity is sustained through a diversified mix
of liabilities and a system tracking cash flows, repricing opportunities and
maturities for major assets.
Asset growth is measured using a variety of ratios and targets, all of
which are closely monitored and must remain within designated limits. The
monthly oversight by the Asset Liability Management Committee allows for minor
adjustments on a regular basis, to minimize the adverse impact on the major
operations of First Sterling Bank. Within the overall liquidity plan a detailed
prioritization strategy is addressed to maintain appropriate funding. The
strategy allows for overnight Federal Funds borrowing, availability through the
Federal Home Loan Bank for short-term, mid-term and long-term needs, investment
portfolio actions, asset securitization and availability of liability products.
The generation of deposit balances is the primary source of liquidity from
liability categories. Total deposits increased by $30.5 million or 22.2% from
year-end 1994 to year-end 1995. Table 12 reflects the change in the major
classifications of deposits by comparing the year-end balances for the past
three years and Table 13 reflects the maturity of large dollar deposits for the
same periods. As shown in Table 14, other forms of short-term borrowings are
also significant sources of liquidity. At June 30, 1996, extensive use was being
made of short-term repurchase agreements with the Federal Home Loan Bank, as
volatile certificates of deposit were allowed to decrease. This was a planned
move and First Sterling Bank still has significant borrowing capacity to cover
expected funding needs if necessary. First Sterling Bank continues to maintain
diverse liability funding sources.
As can be seen in the cash flow statements, cash used in investing
activities was $39,522,000, $26,412,000, and $28,584,000, respectively, in the
years ended December 31, 1995, 1994 and 1993 and $15,489,000 and $13,649,000 for
the six month periods ended, respectively, June 30, 1996 and June 30, 1995.
Except for 1994, when there was a significant increase in investments, the major
portion of the funds were used to increase loans. The funds were provided
primarily by financing activities with less than 10% being provided by operating
activities in every period except 1994.
As of June 30, 1996, First Sterling had commitments to extend credit of
$16,271,000 and $887,000 in standby letters of credit. Since some commitments
and letters of credit are expected to expire without being drawn down, they do
not necessarily represent future cash requirements. The necessary funding for
these commitments is available through anticipated deposit growth and
approximately $33,000,000 in unused borrowing capacity at the Federal Home Loan
Bank.
TABLE 12
DEPOSITS BY MAJOR CLASSIFICATION
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
------------------------ -------------------------------------
1996 1995 1995 1994 1993
---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Non-interest bearing deposits................... $ 19,541 $ 17,794 $ 16,858 $ 12,695 $ 16,581
Interest bearing demand deposits................ 7,452 6,497 7,546 5,887 5,106
Savings deposits................................ 2,125 2,096 2,242 1,799 1,262
Money market deposit accounts................... 26,727 23,085 22,178 22,291 21,106
Time deposits................................... 92,297 85,472 96,300 79,864 59,188
Time deposits of $100,000 or more............... 8,872 10,770 22,834 14,879 19,120
-------- -------- -------- -------- --------
Total......................................... $157,014 $145,714 $167,958 $137,415 $122,363
======== ======== ======== ======== ========
</TABLE>
32
<PAGE>
TABLE 13
MATURITY OF TIME DEPOSITS OF $100,000 OR MORE
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
-------------------- -------------------------------
1996 1995 1995 1994 1993
-------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Three months or less.................................... $4,983 $ 5,479 $ 8,565 $ 9,699 $10,354
Over three months through twelve months................. 1,692 3,439 12,540 3,149 6,731
Over twelve months...................................... 2,197 1,852 1,729 2,031 2,035
------ ------- ------- ------- -------
Total................................................. $8,872 $10,770 $22,834 $14,879 $19,120
====== ======= ======= ======= =======
</TABLE>
TABLE 14
SHORT-TERM BORROWINGS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
-------------------- -------------------------------
1996 1995 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Overnight federal funds purchased......................... $ -- $ -- $ -- $ -- $ --
Federal Home Loan Bank borrowings......................... 28,000 4,000 -- 5,000 3,000
Securities sold under agreement to repurchase............. 5,118 3,100 2,778 1,765 330
------- ------- ------- ------ ------
Total short-term borrowings............................... $33,118 $ 7,100 $ 2,778 $6,765 $3,330
======= ======= ======= ====== ======
Average amount outstanding................................ $15,270 $ 4,718 $ 2,782 $2,906 $1,424
Weighted average interest rate............................ 4.71% 5.17% 6.43% 3.51% 3.09%
Maximum outstanding of any month end...................... $33,118 $10,220 $10,200 $6,765 $3,330
</TABLE>
CAPITAL RESOURCES
In 1994, First Sterling sold 100,000 shares of common stock. The sale
netted $1,000,000, which was used to fund the opening of the Bala Cynwyd office.
Shareholder's equity increased $694,000 from December 31, 1995 to June 30,
1996. The increase was the result of net income of $1,054,000 and an unrealized
loss on investments of $360,000. Shareholder's equity increased $2,254,000 or
23.2% in 1995 compared to $797,000 or 8.9% in 1994. The 1995 increase resulted
from net income of $1,616,000 and the increase in the net unrealized gain(loss)
on securities of $835,000, partially offset by the purchase of $197,000 in
treasury stock. The increase in 1994 was adversely impacted by net unrealized
losses on investments available-for-sale of $1,107,000.
Common measures of adequate capitalization for banking institutions are
ratios of capital to assets. These ratios indicate the proportion of permanently
committed funds to the total asset base. Guidelines issued by federal regulatory
authorities require both banks and bank holding companies to meet minimum
risk-based capital ratios in an effort to make regulatory capital more
responsive to the risk exposure related to a bank's on- and off-balance sheet
items. Risk-based capital guidelines redefine the components of capital,
categorize assets into different risk classes and include certain off-balance
sheet items in the calculation of capital requirements. The components of
risk-based capital are segregated as Tier 1 and Tier 2 capital. Tier 1 capital
is composed of total stockholders' equity reduced by goodwill and other
intangible assets. Tier 2 capital is the allowance for loan losses (with certain
limitations) and qualifying debt obligations. Table 15 presents the capital
ratios for First Sterling for the past three years calculated at year-end in
accordance with these guidelines. At December 31, 1995, First Sterling and First
Sterling Bank exceeded all capital requirements and are considered to be 'well
capitalized' for bank regulatory purposes.
33
<PAGE>
TABLE 15
CAPITAL RATIOS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
----------- -------------------------------
1996 1995 1994 1993
----------- --------- --------- ---------
<S> <C> <C> <C> <C>
Risk-based capital Tier 1 ratio........................................ 8.19% 8.48% 9.61% 10.34%
Total capital ratio (Tier 1 and Tier 2)................................ 9.99 10.95 11.86 11.65
Leverage capital ratio................................................. 5.56 5.65 5.65 6.04
</TABLE>
INTEREST RATE SENSITIVITY
Through the use of balance sheet GAP management, as well as income
statement GAP management, combined with earnings change ratios, First Sterling
attempts to predict and monitor the impact on First Sterling Bank due to
changing interest rates. Balance sheet GAP, as generally defined, is the
difference between interest rate sensitive assets and interest rate sensitive
liabilities. This difference will produce either a positive or a negative GAP.
In a negative GAP environment, the institution is said to be liability
sensitive. This means that the liabilities will reprice more quickly than the
assets. In a declining interest rate environment, this would be a beneficial
position, producing additional income as the liabilities roll into lower rates.
Conversely, in a rising rate environment, having the liabilities reprice more
quickly will produce a higher interest expense level thereby reducing profits.
The inverse is true for a positive GAP position. Therefore, in general, having a
positive GAP position as you enter a rising rate market is preferred and
maintaining a negative GAP position to weather a declining rate market is
desirable.
Income statement GAP analysis is based on the assignment of an earnings
change ratio ('ECR') to each interest rate sensitive asset and liability. The
ECR represents the percentage of price change on each specific asset or
liability as it relates to the change in the base rate (such as the prime
lending rate). This analysis allows management to more accurately evaluate the
true impact of market rate changes.
The resultant product of both balance sheet GAP and income statement GAP is
in the form of a percentage. In an effort to maintain comfortable levels and
preparedness for market changes, First Sterling maintains both percentages
within target ranges to account for fluctuations in interest rates. Management
believes that with the limitations established and the monthly monitoring, there
is ample time to redirect strategies with minor adjustments to the asset
liability mix as rates change.
Management also engages in model simulation. This allows for instantaneous
interest rate changes ('shocks') to be assumed in order to simulate the impact
of various changes. On a regular basis, shocks are utilized to determine how
First Sterling Bank will be impacted if rates were to move up or down 100, 200,
or 300 basis points. The effects of each shock upon the bank as a whole as well
as specifically upon the investment portfolio are then analyzed. As of June 30,
1996, the impact of a 100 basis point shock to First Sterling Bank was not
material within the model simulation, having less than a 1% effect on net
income. Projections of income and expense levels, including budget information,
are entered on an ongoing basis, allowing management to be more aware of the
impact of interest rate changes on the financial condition of First Sterling
Bank at all times.
34
<PAGE>
Table 16 is a summary of the balance sheet GAP as of December 31, 1995.
TABLE 16
INTEREST RATE SENSITIVITY
DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
WITHIN 3 MONTHS 1 TO 5 AFTER
3 MONTHS TO 1 YEARS YEARS 5 YEARS TOTAL
--------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Assets
Investment securities............................ $ 4,377 $ 8,126 $ 33,308 $ 4,860 $ 50,671
Loans............................................ 56,873 18,620 53,147 25,982 154,622
------- -------- -------- -------- --------
Total rate sensitive assets...................... 61,250 26,746 86,455 30,842 205,293
Total cumulative assets.......................... 61,250 87,996 174,451 205,293
------- -------- -------- -------- --------
------- -------- -------- -------- --------
Liabilities
Savings deposits................................. -- 11,089 18,920 1,958 31,967
Time deposits less than $100,000................. 20,243 52,966 23,071 20 96,300
Time deposits over $100,000...................... 8,565 12,540 1,729 -- 22,834
Borrowings....................................... 10,802 15,024 1,648 -- 27,474
------- -------- -------- -------- --------
Total rate sensitive liabilities................. 39,610 91,619 45,368 1,978 178,575
Total cumulative liabilities..................... 39,610 131,229 176,597 178,575
======= ======== ======== ======== ========
Gap during period................................ 21,640 (64,873) 41,087 28,864 26,718
======= ======== ======== ======== ========
Cumulative gap................................... 21,640 (43,233) (2,146) 26,718
======= ======== ======== ======== ========
Cumulative gap/earning assets.................... 10.54% -21.06% -1.05% 13.01%
======= ======== ======== ======== ========
Cumulative gap ratio............................. 1.55 0.67 0.99 1.15
======= ======== ======== ======== ========
</TABLE>
EFFECTS OF INFLATION
The impact of inflation upon banks differs from the impact upon
non-financial institutions. Banks, as financial intermediaries, have assets
which are primarily monetary in nature and change corresponding to movements in
the inflation rate. The precise impact of inflation upon First Sterling is
difficult to measure. Inflation may cause non-interest expense items to increase
at a more rapid rate than earning sources. Inflation may also affect the
borrowing needs of consumers, thereby affecting the growth rate of First
Sterling's assets. Inflation may also affect the general level of interest
rates, which can have an effect on the profitability of First Sterling.
35
<PAGE>
MARKET PRICE AND DIVIDEND MATTERS
The PBI Stock is presently, and after the Merger is effected the Prime
Stock will be, traded on the Nasdaq National Market System under the symbol
'PSAB.' On September 1, 1996, there were 3,725,056 shares of PBI Stock
outstanding, which were held by approximately 750 stockholders of record. The
following table sets forth the high and low closing sale prices for the PBI
Stock, as quoted on the Nasdaq National Market System, and the dividends
declared per share, for the periods indicated.
<TABLE>
<CAPTION>
DIVIDENDS
DECLARED
FOR THE QUARTER ENDED HIGH LOW (PER SHARE)
- ------------------------------------------------------------ --------- --------- -------------
<S> <C> <C> <C>
March 31, 1993.............................................. $13.39 $10.23 $.10
June 30, 1993............................................... 15.08 12.19 .18
September 30, 1993.......................................... 15.08 13.23 .11
December 31, 1993........................................... 17.35 14.67 .11
------ ------ ----
March 31, 1994.............................................. $17.56 $15.91 $.13
June 30, 1994............................................... 17.97 16.95 .13
September 30, 1994.......................................... 15.91 14.87 .13
December 31, 1994........................................... 15.23 14.32 .15
------ ------ ----
March 31, 1995.............................................. $17.27 $16.14 $.15
June 30, 1995............................................... 16.36 15.68 .15
September 30, 1995.......................................... 19.09 18.18 .15
December 31, 1995........................................... 20.88 18.00 .17
------ ------ ----
March 31, 1996.............................................. $18.50 $17.50 $.17
June 30, 1996............................................... 18.75 17.50 .17
September 30, 1996.......................................... 19.75 18.75 .17
</TABLE>
The Board of Directors of Prime, on December 20, 1995, declared a special
10% stock dividend which was paid on February 1, 1996 to stockholders of record
on January 2, 1996. Prime also declared and paid 10% stock dividends in 1993 and
1994. The trading information set forth above has been adjusted to reflect the
10% stock dividends through and including December 31, 1995 for the purpose of
comparability.
It is Prime's current policy to pay quarterly cash dividends and its Board
of Directors currently intends to continue to pay quarterly dividends. Future
cash dividends will be subject to determination and declaration by the Board of
Directors of New Prime, which will take into account the company's financial
condition, results of operations, industry standards, economic conditions and
other factors including regulatory and tax considerations. Currently, Prime
relies on the payment of dividends by Prime Bank in order to generate cash and
income sufficient to pay a dividend. Funds for the payment of the dividends by
New Prime will be obtained from Prime Bank and First Sterling Bank. The Board of
Directors of New Prime may consider the payment of stock dividends from time to
time in addition to, or in lieu of, cash dividends.
The amount of dividends that may be declared or paid by the banks are
subject to certain restrictions. Banks may not declare or pay cash dividends on
their stock if the effect thereof would be to cause the bank's net worth to be
reduced below (1) the amount, if any, required for the liquidation account or
(2) the net worth requirements imposed by applicable bank regulatory
authorities. See Note 3 to the consolidated financial statements of Prime,
incorporated herein by reference.
First Sterling Stock is not traded on either a national securities
exchange, a consolidated transaction reporting system or an automated quotation
system of a registered securities association. As of September 1, 1996, First
Sterling had approximately 60 shareholders. There is no active trading in First
Sterling Stock which is subject to certain restrictions on transferability.
There has been some private trading on a sporadic basis since the initial stock
issuance in 1987. The most recent transaction involved the purchase by First
Sterling of 15,800 shares from William H. Bromley at $12.50 per share.
36
<PAGE>
This transaction took place in July, 1995. No dividends have ever been declared
or paid on the First Sterling Stock.
On June 11, 1996, the last trading day prior to the public announcement of
the execution of the Merger Agreement, the last reported sale price of a share
of PBI Stock was $17.75. On October 2, 1996, the last reported sale price of a
share of PBI Stock was $19.50.
No assurance can be given as to what the market price of PBI Stock, and
consequently Prime Stock will be if and when the Merger is consummated. Due to
the fixed exchange ratio for the Merger, and because the market price of Prime
Stock is subject to fluctuation, the value of the shares of Prime Stock that
holders of First Sterling Stock will receive in the Merger may increase or
decrease prior to and following the Merger. Stockholders of Prime and First
Sterling are advised to obtain current market quotations for PBI Stock. In
addition, past dividends paid in respect of PBI Stock are not necessarily
indicative of future dividends which may be declared and paid. No assurance can
be given concerning dividends to be declared and paid in respect of Prime Stock
before or after the Merger is effected.
THE FIRST STERLING SPECIAL MEETING
DATE, TIME AND PLACE
The First Sterling Special Meeting will be held at the Radnor Hotel, 591
East Lancaster Avenue, St. Davids, Pennsylvania, at 11:00 AM local time on
November 26, 1996.
MATTERS TO BE CONSIDERED AT THE FIRST STERLING SPECIAL MEETING
At the First Sterling Special Meeting, First Sterling shareholders will be
asked to consider and vote upon the Agreement and Plan of Reorganization dated
as of June 12, 1996, as amended, between Prime, New Prime and First Sterling and
the Merger described therein. This Prospectus/Joint Proxy Statement is being
mailed to all registered holders of First Sterling Stock along with copies of
(i) Prime's annual report on Form 10-K for the year ended December 31, 1995,
(ii) Prime's Annual Report 1995 to its stockholders for the year ended December
31, 1995, and (iii) Prime's quarterly report on Form 10-Q for the six months
ended June 30, 1996. On or about November 10, 1996, First Sterling shareholders
will also be mailed Prime's quarterly report on Form 10-Q for the nine months
ended September 30, 1996.
RECORD DATE; PROXIES
The close of business on October 15, 1996 (the 'First Sterling Record
Date') has been fixed by the Board of Directors of First Sterling as the record
date for the determination of holders of First Sterling Stock entitled to notice
of and to vote at the First Sterling Special Meeting. At the close of business
on the First Sterling Record Date, there were outstanding 1,454,203 shares of
First Sterling Stock. Holders of record of First Sterling Stock are entitled to
one vote per share on matters that come before the meeting. Shareholders of
First Sterling are entitled to exercise statutory dissenters' rights with
respect to the Merger. See 'The Merger -- Dissenters Rights.'
Proxies in the form enclosed, if duly signed, marked and received in time
for voting, will be voted in accordance with the directions of the shareholders
of First Sterling. The giving of a Proxy does not preclude the right to vote in
person should the shareholder so desire.
VOTE REQUIRED
The affirmative vote of a majority of all shares of First Sterling Stock
present in person or by proxy and voting at the First Sterling Special Meeting,
is required to approve the Merger. A majority of the outstanding shares of First
Sterling Stock must be present in person or by proxy to constitute a quorum for
the First Sterling Special Meeting.
37
<PAGE>
SOLICITATION, VOTING AND REVOCATION OF PROXIES
The Board of Directors of First Sterling by this Prospectus/Joint Proxy
Statement is soliciting proxies in the accompanying form for use at the First
Sterling Special Meeting. When proxies are returned properly executed, the
shares represented thereby will be voted in accordance with the shareholders'
directions. Shareholders are urged to specify their choices by marking the
appropriate box on the enclosed proxy card. IF NO CHOICE HAS BEEN SPECIFIED, THE
SHARES WILL BE VOTED IN FAVOR OF THE MERGER. A shareholder may vote for,
against, or abstain from voting on, any matter as may properly come before the
meeting.
Under the PBCL and the First Sterling Bylaws, the presence, in person or by
proxy, of shareholders entitled to cast at least a majority of the votes which
all shareholders are entitled to cast on the First Sterling Record Date
constitutes a quorum to take action at the First Sterling Special Meeting.
Shares which are present, or represented by proxy, at the First Sterling Special
Meeting will be counted for quorum purposes regardless of whether the holder of
the shares or proxy fails to vote on a matter ('abstentions'). For voting
purposes, only shares voted for the adoption of the Merger, and not abstentions,
will be counted as voting in favor in determining whether the Merger is approved
by the holders of shares of First Sterling Stock. As a consequence, abstentions
will not be counted as either a vote for or against the Merger.
The expense of soliciting proxies for the First Sterling Special Meeting
will be paid by First Sterling. The solicitation will be made by the use of the
mails and may also be made by officers and regular employees of First Sterling.
Proxies may be solicited by personal interview, mail, telephone and possibly by
facsimile transmission. Expenses incurred in connection with printing and
mailing this Prospectus/Joint Proxy Statement and related filing fees will be
shared with Prime.
Shareholders who execute proxies retain the right to revoke them at any
time before they are voted. A proxy may be revoked by written notice to the
Corporate Secretary of First Sterling at 80 West Lancaster Avenue, Devon, PA
19333; by submission of a proxy with a later date; by a request in person to
return the executed proxy; or by giving notice to the Corporate Secretary of
First Sterling in open meeting, but such revocation shall not affect any vote
previously taken.
CERTAIN BENEFICIAL OWNERS OF FIRST STERLING STOCK
First Sterling does not know of any person or group that is the beneficial
owner of more than five percent of the outstanding First Sterling Stock, except
as indicated herein. The following table reflects as of September 1, 1996 the
First Sterling Stock beneficially owned by beneficial owners of more than five
percent of the outstanding common stock, executive officers and directors and
all five percent shareholders, executive officers and directors as a group, and
the pro forma effect of the Merger on such ownership. Except as otherwise noted,
to First Sterling's knowledge each beneficial owner listed has sole investment
and voting power with respect to the First Sterling Stock owned by him.
38
<PAGE>
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY PERCENT PRO FORMA
OWNED OF EFFECT OF
BENEFICIAL OWNER (1)(2) CLASS (2) MERGER (3)
- ---------------------------------------------------------------- ------------ --------- -----------
<S> <C> <C> <C>
Arthur J. Kania Trust, Allen Speiser and Stanley J. Kania,
Trustees...................................................... 503,916(4) 32.21% 9.53%
William H. Bromley.............................................. 63,611(5) 3.92% 1.19%
Richard E. Caruso............................................... 107,684 6.88% 2.04%
William J. Cunningham........................................... 107,684(6) 6.88% 2.04%
James D. Kania.................................................. 43,961(7) 2.81% .83%
Arthur L. Powell................................................ 49,679(8) 3.17% .94%
Frank H. Reeves................................................. 16,933(9) 1.08% .32%
Thomas J. Scanlon, Jr........................................... 113,684 7.24% 2.15%
Allen Speiser................................................... 503,916(10) 32.21% 9.53%
R. Richard Williams............................................. 122,984 7.83% 2.32%
All directors, executive officers and 5% shareholders as a group
consisting of 10 persons...................................... 1,130,136 68.30% 21.01%
</TABLE>
39
<PAGE>
(1) The securities 'beneficially owned' by an individual are determined in
accordance with the definition of 'beneficial ownership' set forth in the
regulations of the Securities and Exchange Commission and, accordingly,
may include securities owned by or for, among others, the spouse and/or
minor children of the individual and any other relative who has the same
home as such individual, as well as other securities as to which the
individual has or shares voting or investment power or which the
individual has the right to acquire under outstanding stock options within
60 days after September 30, 1996. Beneficial ownership may be disclaimed
as to certain of the securities.
(2) Based on 1,564,713 shares outstanding, including shares issuable pursuant
to conversion of the Debentures, plus for each individual, shares issuable
upon exercise of vested stock options. The following persons own stock
options exercisable within 60 days of September 30, 1996, for the amounts
indicated: William H. Bromley--60,000; James D. Kania--12,000; R. Richard
Williams--6,000; Thomas J. Scanlon, Jr.--6,000 and Frank H. Reeves--5,833.
The following persons own Debentures convertible into First Sterling Stock
in the amounts indicated: Richard E. Caruso--7,684; William J.
Cunningham--7,684; William H. Bromley--631; James D. Kania--421; Arthur L.
Powell--5,894; Thomas J. Scanlon, Jr.--7,684; Allen Speiser--1,578; and R.
Richard Williams--7,684.
(3) Assumes issuance of 1,564,713 shares of Prime Stock issued to First
Sterling shareholders in the Merger (including 110,510 shares to be issued
upon conversion of the Debentures, assuming conversion prior to December
31, 1996) and 3,725,056 shares of PBI Stock outstanding as of September 1,
1996.
(4) Excludes shares owned directly by James D. Kania, a beneficiary of the
trust and director of First Sterling. Includes 466,500 shares owned by the
Trust, 27,748 shares owned by trusts for Allen Speiser's benefit, and
9,668 shares owned by a trust of which Mr. Speiser is trustee for the
benefit of third parties. Excludes 33,415 shares owned directly by
Mr. Arthur J. Kania, grantor of and counsel to the Arthur J. Kania Trust
either outright or by conversion of his Debentures.
(5) Includes a total of 710 shares owned by an IRA account for the benefit of
Lynne C. Bromley, the wife of William H. Bromley; excludes options on
33,000 shares to be provided Mr. Bromley in his Employment Agreement with
New Prime.
(6) Includes 7,684 shares owned by a pension plan for the benefit of
Mr. Cunningham.
(7) Excludes shares owned by the Arthur J. Kania Trust, of which James D.
Kania is a beneficiary. Includes $30,210 of Debentures convertible into
3,180 shares which Mr. Kania holds as trustee for the benefit of minor
nieces of his. Excludes a like amount of Debentures convertible into 3,180
shares which his sister, Karen Roland, holds as trustee for the benefit of
Mr. Kania's minor sons. Mr. Kania disclaims beneficial ownership of the
shares held for the benefit of his sons.
(8) Includes 19,702 shares owned by LRP Associates, a partnership of which
Mr. Powell's adult children are limited partners and of which Mr. Powell
and his wife are the general partners.
(9) Includes 11,100 shares in an IRA plan for the benefit of Mr. Reeves.
(10) Includes 27,748 shares held in trusts for Mr. Speiser's benefit.
Includes shares held by trusts of which Mr. Speiser is trustee but not a
beneficiary, namely 466,500 shares owed by the Arthur J. Kania Trust and
9,668 shares held by trusts for the benefit of unrelated parties.
Each First Sterling director and executive officer has indicated his
present intention to vote, or cause to be voted, the First Sterling Stock so
owned by him for approval of the Merger.
40
<PAGE>
THE PRIME SPECIAL MEETING
DATE, TIME AND PLACE
The Prime Special Meeting will be held at Somerton Springs, located at 50
Bustleton Pike, Feasterville, Pennsylvania, at 10:00 AM local time on November
26, 1996.
MATTERS TO BE CONSIDERED AT THE PRIME SPECIAL MEETING
At the Prime Special Meeting, Prime stockholders will be asked to consider,
vote upon and approve (i) the Merger Agreement dated as of June 12, 1996, as
amended, between Prime, New Prime and First Sterling and the merger described
therein and (ii) the Agreement and Plan of Merger dated September 12, 1996
between Prime and New Prime and the merger described therein. In this
Prospectus/Joint Proxy Statement, both mergers are collectively referred to as
the 'Merger.'
RECORD DATE; PROXIES
The close of business on September 27, 1996 (the 'Prime Record Date') has
been fixed by the Board of Directors of Prime as the record date for the
determination of holders of PBI Stock entitled to notice of and to vote at the
Prime Special Meeting. At the close of business on the Prime Record Date, there
were outstanding 3,725,066 shares of PBI Stock. Holders of record of shares of
PBI Stock are entitled to one vote per share on matters that come before the
meeting. Stockholders of Prime are not entitled to exercise dissenters' rights
with respect to the Merger. See 'The Merger -- Dissenters Rights' and 'Certain
Differences Between The Corporation Statutes Of Delaware And Pennsylvania --
Appraisal or Dissenters Rights.'
Proxies in the form enclosed, if duly signed, marked and received in time
for voting, will be voted in accordance with the directions of the stockholders
of Prime. The giving of a Proxy does not preclude the right to vote in person
should the stockholder so desire.
VOTES REQUIRED
The affirmative vote of a majority of all shares of PBI Stock outstanding
on the Prime Record Date is required to adopt the Merger. A majority of the
outstanding shares present or represented at the meeting will constitute a
quorum.
The merger with First Sterling (Annex A) and the merger with New Prime
(Annex D) will be voted on as separate matters. The merger with New Prime, if
approved, may be accomplished even if the merger with First Sterling is not
approved or completed. Likewise, the merger with First Sterling may, if
approved, be accomplished even if the merger with New Prime is not approved or
completed.
SOLICITATION, VOTING AND REVOCATION OF PROXIES
The Board of Directors of Prime are by this Prospectus/Joint Proxy
Statement soliciting proxies in the accompanying form for use at the Prime
Special Meeting. When proxies are returned properly executed, the shares
represented thereby will be voted in accordance with the stockholders'
directions. Stockholders are urged to specify their choices by marking the
appropriate box on the enclosed proxy card. IF NO CHOICE HAS BEEN SPECIFIED, THE
SHARES WILL BE VOTED IN FAVOR OF ADOPTION OF THE MERGER. A stockholder may vote
for, against, or abstain from voting on, any matter as may properly come before
the meeting. Under Delaware law, shares which abstain or constitute 'broker
non-votes' (i.e., shares held by a broker or nominee as to which a broker or
nominee does not have authority to vote on a particular matter) will be counted
as shares that are present and entitled to vote for purposes of determining the
presence of a quorum, but as not voted for purposes of determining the approval
of any matter submitted to the stockholders for a vote. Since the Merger must be
approved by a majority of outstanding shares, both abstentions and broker
non-votes will have the practical effect of a vote against the Merger.
41
<PAGE>
The expenses of soliciting proxies for the Prime Special Meeting will be
paid by Prime. The solicitation will be made by use of the mails and through
brokers and banking institutions, and may also be made by officers and regular
employees of Prime. Proxies may be solicited by personal interview, mail,
telephone and possibly by facsimile transmission. Expenses incurred in
connection with printing and mailing this Prospectus/Joint Proxy Statement and
related filing fees will be shared with First Sterling.
Stockholders who execute proxies retain the right to revoke them at any
time before they are voted. A proxy may be revoked by written notice to the
Corporate Secretary of Prime, at 6425 Rising Sun Avenue, Philadelphia, PA 19111;
by submission of a proxy with a later date; or by a request in person to return
the executed proxy; or by giving notice to the Corporate Secretary of Prime in
open meeting, but such revocation shall not affect any vote previously taken.
CERTAIN BENEFICIAL OWNERS OF PBI STOCK
Prime does not know of any person or group that is the beneficial owner of
more than five percent of the outstanding PBI Stock, except as indicated herein.
The following table reflects as of September 1, 1996 the PBI Stock beneficially
owned by beneficial owners of more than five percent of the outstanding common
stock, directors and all officers and directors as a group, and the pro forma
effect of the Merger on such ownership. Except as otherwise noted, to Prime's
knowledge each beneficial owner listed has sole investment and voting power with
respect to the PBI Stock owned by him or her.
42
<PAGE>
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY PERCENT PRO FORMA
OWNED OF EFFECT OF
BENEFICIAL OWNER (1)(2) CLASS (2) MERGER (3)
- ----------------------------------------------------------------- ------------ --------- -----------
<S> <C> <C> <C>
Erwin T. Straw................................................... 266,112(4) 7.05% 4.98%
Frederick G. Betz................................................ 48,946(5) 1.31% 0.92%
Joseph A. Fluehr, III............................................ 47,744(6) 1.28% 0.90%
Ernest Larenz.................................................... 139,023(7) 3.72% 2.62%
James J. Lynch................................................... 60,000 1.61% 1.12%
David H. Platt................................................... 18,768 0.50% 0.35%
Raymond L. Weinmann.............................................. 14,655 0.39% 0.28%
Walter L. Tillman, Jr............................................ 28,673 0.77% 0.54%
Michael J. Sexton................................................ 4,600 0.12% 0.09%
All directors and officers as a group, consisting of 14 persons
(8)............................................................ 790,888 20.02% 14.34%
</TABLE>
(1) The securities 'beneficially owned' by an individual are determined in
accordance with the definition of 'beneficial ownership' set forth in the
regulations of the Securities and Exchange Commission and, accordingly,
may include securities owned by or for, among others, the spouse and/or
minor children of the individual and any other relative who has the same
home as such individual, as well as other securities as to which the
individual has or shares voting or investment power or which the
individual has the right to acquire under outstanding stock options within
60 days after September 30, 1996. Beneficial ownership may be disclaimed
as to certain of the securities.
(2) Based on 3,725,056 shares outstanding on September 1, 1996, except when
the percentage reported relates to shares of common stock that a person
has a right to acquire, in which case it is based on the number of shares
of PBI Stock that would be outstanding after the exercise of such right.
The following persons own stock options, which are exercisable within 60
days after September 30, 1996, for the amount of shares indicated: Erwin
T. Straw -- 50,374; Frederick G. Betz -- 19,552; Joseph A. Fluehr, III --
7,368; Ernest Larenz -- 7,368; James J. Lynch -- 55,000; David H. Platt --
12,327; Raymond L. Weinmann -- 14,066; Walter L. Tillman, Jr. -- 20,966;
and Michael J. Sexton -- 3,355.
(3) Assumes issuance of 1,564,713 shares of Prime Stock issued to First
Sterling shareholders in the Merger, including 110,510 shares to be issued
upon conversion of the Debentures, assuming conversion prior to December
31, 1996.
(4) 93,833 shares are held jointly by Mr. Straw and his wife. 47,834 shares
are owned by Mr. Straw's wife. Also includes 20,368 shares of PBI Stock
held by Mr. Straw in an individual retirement account.
(5) 3,635 shares of PBI Stock are held by Fred Betz & Sons Profit Sharing
Trust of which Mr. Betz is the Trustee and 2,524 shares are held in an IRA
account for Mr. Betz's wife.
(6) 24,930 shares are held jointly by Mr. Fluehr and his wife.
(7) 17,820 shares are held jointly by Mr. Larenz and his wife and 3,807
shares are held in an IRA account of Mr. Larenz' wife.
(8) This amount includes an aggregate of 225,349 shares of PBI Stock issuable
upon the exercise of options held by certain officers and directors of
Prime.
Each Prime director and executive officer has indicated his present
intention to vote, or cause to be voted, the PBI Stock so owned by him for
approval of the Merger.
43
<PAGE>
THE MERGER
GENERAL
The following is a discussion of the material aspects of the proposed
transactions. It includes a summary of the principal terms of the Merger
Agreement and is qualified in its entirety by reference to the agreement
(including the First Amendment thereto), which is attached to this
Prospectus/Joint Proxy Statement as Annex A. It also describes the principal
terms of the Agreement and Plan of Merger between Prime and New Prime and is
qualified in its entirety by reference to the agreement, which is attached
hereto as Annex D. The description set forth below is qualified in its entirety
by reference to Annex A and Annex D. All stockholders of Prime and First
Sterling are urged to read Annex A and Annex D in their entirety.
The Boards of Directors of Prime and First Sterling have determined that
the Merger is fair to and in the best interests of the stockholders of Prime and
First Sterling, respectively, and have unanimously approved the Merger
Agreement. ACCORDINGLY, THE BOARDS OF DIRECTORS OF PRIME AND FIRST STERLING
UNANIMOUSLY RECOMMEND THAT THE STOCKHOLDERS OF PRIME AND FIRST STERLING,
RESPECTIVELY, VOTE 'FOR' APPROVAL OF THE MERGER.
EFFECT ON THE CORPORATE PARTIES
First Sterling and Prime will merge with and into New Prime, which will
survive the Merger, pursuant to the terms and conditions of the Merger Agreement
(Annex A) and the Agreement and Plan of Merger (Annex D). For the convenience of
the parties, and to minimize transaction expenses the two transactions are being
combined and completed together. First Sterling and Prime will cease to exist as
separate corporate entities at the effective time of the Merger and their
assets, liabilities and operations will transfer by operation of law to New
Prime. After the Merger is effected, New Prime will operate as both a bank
holding company and savings and loan holding company, and its wholly-owned
subsidiaries Prime Bank and First Sterling Bank will continue to exist as
separate corporate entities.
As a result of the Merger, the Articles of Incorporation of New Prime will
be amended to change the corporation's name to 'Prime Bancorp, Inc.' After the
Merger is effected, the Board of Directors of Prime will be expanded to ten,
with seven members to be the nominees of the Board of Directors of Prime and
three members to be the nominees of the Board of Directors of First Sterling.
The executive officers of Prime will become the executive officers of New Prime
with the addition of William H. Bromley, President of First Sterling who will
become an Executive Vice President of New Prime.
BACKGROUND OF THE MERGER
As the pace of change within the banking industry has accelerated over the
past decade, and as competition has increased, both Prime and First Sterling
have periodically evaluated their respective strategic alternatives and
long-term goals. In connection with this process, each has confirmed its
commitment to the five-county market (Philadelphia, Montgomery, Bucks, Delaware,
and Chester Counties) by focusing on becoming strong community banks offering
high quality basic banking services with a strong customer service orientation.
Prime has attempted to grow by building on existing strengths and expanding both
through internal growth as well as identifying appropriate acquisition
candidates. First Sterling, which only commenced operations in 1988, has grown
steadily through internal growth.
Prime's Board of Directors has, over a number of years, periodically
reviewed strategic alternatives including (a) remaining independent and
continuing its strategy of internal growth and expansion through acquisition,
(b) engaging in a merger-of-equals type transaction, or (c) a strategic
combination with a larger bank. Prime's Board determined that Prime should
continue its strategy of independence and seek growth internally and through
strategic acquisitions within its market area. It is in this context Prime
entered into the Merger Agreement with First Sterling.
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Similarly, First Sterling's Board of Directors has for some time recognized
the industry trends and anticipated that industry consolidation will continue.
As a commercial bank it recognized the void in the marketplace resulting from
the mergers of many large banks and the substantial opportunities for a
well-managed community bank which could deliver competitive products to the
individual consumer and small and mid-sized businesses. It is in that context
that First Sterling entered into the Merger Agreement with Prime.
The top management of Prime and First Sterling have known each other for
many years. Mr. Erwin T. Straw and Mr. William H. Bromley, on occasion and on an
informal basis, discussed the strategic direction of their respective
organizations. Prompted in part by the unprecedented consolidation in the
regional banking market which occurred during late 1994 and 1995, Mr. Straw met
on November 29, 1995 with Mr. Arthur J. Kania Esq., of Kania, Lindner, Lasak and
Feeney, counsel to First Sterling, to discuss opportunities which such
consolidation presented for Prime and First Sterling. At this meeting a possible
combination of Prime and First Sterling was discussed on a very preliminary
basis.
On February 6, 1996, Mr. James J. Lynch and Mr. Kania met to discuss
whether the combination of the two companies was feasible from a financial,
business, and cultural point of view. During this meeting, the participants
discussed a wide range of matters affecting a combination, including preliminary
discussions on the valuation of First Sterling. No final conclusion was reached
as to the feasibility of a possible combination as a result of these meetings;
however the parties exchanged financial information with respect to each
company.
On February 21, 1996, Mr. Lynch and Walter L. Tillman, Jr. presented
current information concerning First Sterling at a meeting of Prime's Board of
Directors. In addition to summary financial information on First Sterling, Mr.
Lynch reviewed a number of potential positive aspects to a combination with
First Sterling, including: expansion to the very desirable western suburbs,
acquisition of a quality commercial lending group and loan generation
capabilities, earnings growth through expansion and efficiencies, and quality
management. At the meeting, the Board authorized management to continue
discussions with First Sterling's representatives and management.
In early March, Prime engaged Berwind to assist in evaluating its strategic
alternatives and the potential First Sterling combination. At the March 20, 1996
meeting of the Prime Board of Directors, Berwind discussed the potential
transaction in detail and highlighted several major points: the identification
of First Sterling as the best strategic partner available for Prime, the
importance for thrift banks to become more active in the commercial banking
sector, the enhancement of return on equity, and the synergistic benefits which
Prime and First Sterling bring to each other. Berwind reviewed the price range
under discussion between the parties and the potential impact the transaction
might have on the price of PBI Stock. The Board then voted unanimously to
authorize management to continue discussions with First Sterling.
Subsequent exploratory discussions between Mr. Lynch and Messrs. Kania and
Bromley occurred on March 26, April 4, and April 10. These meetings focused on
non-financial terms and on reconciling different views on pricing and the
cost-savings and revenue-enhancement assumptions which might be considered
reasonable.
The Board of Directors of First Sterling met on February 22, 1996 and April
18, 1996 and reviewed the status of the discussions with management of Prime.
Also discussed were the results of preliminary due diligence, appropriate
combination ratios, market considerations, strategic alternatives and the
overall fairness of a potential transaction.
The parties agreed to commence formal due diligence starting Saturday,
April 20. Senior managers of both Prime and First Sterling met through April 28
to analyze the materials provided for due diligence review. At the meeting of
the Prime Board of Directors on May 15, Mr. Lynch and Prime's management
discussed the results of their due diligence investigation of First Sterling.
After the conclusion of the presentation, the Board authorized management to
negotiate the terms of a definitive agreement with First Sterling. In the
ensuing days, the parties and their respective
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representatives and advisors negotiated the terms of the transaction and
prepared and negotiated the required documentation.
On June 11, 1996, the Board of Directors of Prime met to consider the terms
of the definitive Merger Agreement and related documentation. At this meeting,
Prime's management, financial advisors, independent outside auditors, and legal
counsel detailed the negotiations which had taken place since the last meeting
of the Board of Directors, and the due diligence activities conducted by or on
behalf of Prime. Representatives of Berwind presented an updated financial
analysis of the proposed transaction and discussed in detail the negotiations
which resulted in the agreed upon Exchange Ratio. Management expressed its view
that the Exchange Ratio was fair to the stockholders of Prime from a financial
point of view. Legal counsel to Prime reviewed the Merger Agreement and related
documentation with the Board of Directors as well as other legal considerations.
The independent auditors for Prime reviewed certain matters relating to the
Merger. The Merger Agreement was unanimously approved by the Board of Directors
of Prime at this meeting.
On June 12, 1996, the Board of Directors of First Sterling met to consider
the offer of Prime and the definitive Merger Agreement and related
documentation. At this meeting, First Sterling's management and legal advisors
detailed the negotiations which had taken place since the prior meeting of the
Board of Directors and the due diligence activities conducted by or on behalf of
First Sterling. Management presented a financial analysis of the proposed
transaction, discussed in detail the negotiations which resulted in the agreed
upon Exchange Ratio and expressed their view that the Exchange Ratio was fair to
the stockholders of First Sterling from a financial point of view. Legal counsel
to First Sterling reviewed the Merger Agreement and related documentation with
the Board of Directors, as well as other legal considerations. The Merger
Agreement was unanimously approved by the Board of Directors of First Sterling
at this meeting.
On June 12, 1996, the Merger Agreement was executed by Prime and First
Sterling. After the close of business on June 12, Prime issued a press release
with respect to the Merger.
REASONS FOR THE MERGER -- FIRST STERLING
The Board of Directors of First Sterling, with the assistance of its
independent auditors and attorneys, evaluated the financial, legal and other
considerations bearing on the decision to approve the Merger Agreement. The
terms of the Merger Agreement, including the Exchange Ratio, are a result of
arm's length negotiations between representatives of Prime and First Sterling.
In reaching its determination to approve the Merger Agreement, the Board of
Directors considered a number of factors, including the following: (i) the
Exchange Ratio in relation to the market value, book value and earnings per
share of the First Sterling Stock, (ii) information relating to the business,
financial condition, results of operations, capital levels, asset quality,
credit policies, adequacy of loan loss reserves, interest rate risk profile and
prospects of Prime and First Sterling, as well as the ability of the combined
enterprise to compete in relevant banking markets, (iii) the current and
prospective environment for financial institutions generally, and the trend
toward consolidation in the financial services industry, (iv) the general
structure of the transaction, including the generally tax-free nature of the
transaction to stockholders of First Sterling, (v) the opinion of management as
to the fairness, from a financial point of view, of the Exchange Ratio to be
paid to the holders of the First Sterling Stock, (vi) the strength of senior
management of Prime, (vii) a review of alternatives to the Merger, including the
alternative of remaining independent and growing internally, (viii) a review of
the terms of the Merger Agreement with First Sterling's legal advisors, (ix) the
impact of the Merger and related transactions on the employees of First Sterling
and the customers and communities served by it and (x) opportunities to serve
the business and personal needs of small and medium sized businesses formerly
served by community banks which have been acquired by large regional banks
during the past few years.
The foregoing discussion of the information and factors considered by the
First Sterling Board of Directors is not intended to be exhaustive, but includes
all material factors considered by the Board. In reaching its determination to
approve the Merger Agreement, the Board did not assign any relative or specific
weights to the various factors considered nor did the Board specifically
characterize any factor
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as positive or negative (except as specifically stated above). Individual
directors may have given different weights to different factors and may have
viewed certain factors more positively or negatively than others.
REASONS FOR THE MERGER -- PRIME
At its meeting on June 11, 1996, the Board of Directors of Prime determined
the Merger and the Merger Agreement are fair to, and in the best interests of,
Prime, its employees and stockholders. In reaching its determination, the Prime
Board consulted with management as well as its financial and legal advisors and
independent auditors, and considered a number of factors including the
following: (i) the opportunity for geographic expansion into the growing suburbs
west of the City of Philadelphia, in Montgomery, Chester and Delaware counties;
(ii) the strong market recognition of the First Sterling franchise and the
profitability of First Sterling; (iii) First Sterling Bank's strength in
commercial lending which is a principal target area for growth by Prime; (iv)
the terms of the Merger Agreement and other documents to be executed in
connection with the Merger; (v) the Prime Board's review, based in part on
presentations of Prime's management, financial advisor, independent auditors and
legal counsel regarding (a) the due diligence review of First Sterling's
business, results of operations, asset quality, financial condition, credit
policies, adequacy of loan loss reserves, interest rate risk profile and
prospects of Prime and First Sterling, (b) the compatibility of management
philosophy and corporate objectives and the respective contributions that First
Sterling and Prime will each make to the combined entity, (c) the enhanced
opportunities for growth and improvement in competitive position that the Merger
makes possible as a result of the greater capitalization and geographic coverage
of the combined entity, and (d) certain opportunities for limited cost savings
and synergies; (vi) the current and prospective economic and competitive
environment in the banking industry generally; (vii) the expectation that the
Merger will be tax-free for federal income tax purposes to Prime and its
stockholders and will be accounted for as a pooling of interests; (viii) the
opportunity that the Merger provides to strengthen and deepen the strong
management team of Prime by integrating the senior executive management of First
Sterling; and (ix) the Merger is anticipated to become accretive to Prime's
earnings per share in 1997 based upon First Sterling's projected earnings and
potential cost savings.
The foregoing discussion of the information and factors considered by the
Prime Board of Directors is not intended to be exhaustive, but includes all
material factors considered by the Board. In reaching its determination to
approve the Merger Agreement, the Board did not assign any relative or specific
weights to the various factors considered nor did the Board specifically
characterize any factor as positive or negative (except as specifically stated
above). Individual directors may have given different weights to different
factors and may have viewed certain factors more positively or negatively than
others.
The reasons for the merger of Prime into New Prime are unrelated to the
transaction with First Sterling. The Board of Directors of Prime believes that
it is in the best interest of Prime and its stockholders to change the state of
incorporation of Prime from Delaware to Pennsylvania. The primary reasons for
this change are to conform the company's domicile to the state where its
principal business offices and business are located, to take advantage of the
modernized PBCL, to reduce state taxes on Prime by eliminating the annual cost
of Delaware franchise taxes, and to eliminate certain technical questions
relating to the initial issuance of the PBI Stock and the original organization
of Prime.
Since Prime has no particular nexus to the State of Delaware, and all of
its banking activities are located in the Commonwealth of Pennsylvania, Prime
derives no particular benefit from maintaining its corporate domicile in
Delaware. Since its banking focus is in the Philadelphia and southeastern
Pennsylvania area, New Prime will conform its legal domicile to its business
home and reinforce its commitment to the Pennsylvania business community.
The perceived advantages of being governed by the DGCL have been
substantially eliminated by the PBCL which is a comprehensive, modern and
flexible business corporation law designed to meet the changing corporate and
business needs of enterprises such as Prime. Under the amendment of the
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PBCL in 1988, New Prime will have the protection of certain anti-takeover
provisions which are not available to Prime under the DGCL. New Prime has
elected to have some of the optional anti-takeover provisions apply to New
Prime, but has elected not to have certain others apply since it does not
believe that it is presently in the best interest of New Prime and its
shareholders that all of these provisions apply. See 'Certain Differences
Between the Corporation Statutes of Delaware and Pennsylvania -- Anti-Takeover
Provisions.'
Prime is presently subject to both Delaware and Pennsylvania state taxes.
Upon approval of the merger into New Prime, New Prime will continue to be
subject to Pennsylvania taxes. However, New Prime will experience annual tax
savings by avoiding annual fees and franchise tax liability in Delaware, except
with respect to any wholly-owned subsidiary which it continues to maintain in
Delaware for other business reasons. New Prime also anticipates some minor
savings in administrative costs due to the elimination of certain Delaware
annual reports and tax returns.
Legal counsel to Prime has advised it that there are certain technical
questions relating to the initial issuance of the PBI Stock and the original
organization of Prime which can be effectively eliminated in connection with the
reincorporation of Prime into Pennsylvania. These questions have arisen
principally because an amendment to Prime's Certification of Incorporation to
reflect a change in par value of the PBI Stock to $1.00 per share was not filed
with Delaware Secretary of State prior to initial sale of PBI Stock in 1988. It
is expected that the Merger will eliminate these questions and that all of the
Prime Stock to be issued in connection with the Merger will be duly and validly
issued, fully paid and non-assessable.
In order to effectuate the merger into New Prime, Prime has issued ten (10)
shares of PBI Stock (the 'Trust Shares') to a trustee who holds the Trust Shares
under an irrevocable declaration of trust for the proportional benefit of all
the holders of the PBI Stock reflected on the stock transfer records of Prime as
outstanding immediately prior to the Effective Time. The Trust Shares have been
issued solely for the purpose of validating the corporate transactions described
in this Prospectus/Joint Proxy Statement and to assure the elimination of the
technical questions referred to above. Upon completion of the merger of Prime
into New Prime, each share of PBI Stock reflected on the stock transfer records
of Prime as outstanding immediately prior to the Effective Time, along with such
share's proportional interest in the Trust Shares, will be converted into one
share of Prime Stock. See 'The Merger -- The Merger Consideration.' Prime has
agreed to indemnify, defend and hold the trustee harmless against any liability,
claim, suit or expense arising out of the creation of administration of the
Declaration of Trust provided the trustee acts in good faith.
The merger under the Merger Agreement and the merger of Prime into New
Prime will be accomplished contemporaneously in order to minimize expenses to
Prime. In the event that for any reason the merger with First Sterling as
provided in the Merger Agreement is not consummated, the merger of Prime into
New Prime, if approved by stockholders and all regulatory authorities, will
nonetheless be consummated, unless in the opinion of the Board of Directors of
Prime, circumstances arise which make it inadvisable to proceed. If the
reincorporation in Pennsylvania is not approved by the Prime stockholders, the
merger with First Sterling may be consummated, in which case Prime will continue
as a Delaware corporation.
OPINION OF FINANCIAL ADVISOR TO PRIME
Prime has retained Berwind to act as its financial advisor and to render a
fairness opinion in connection with the Merger. Berwind has rendered its opinion
to the Board of Directors that, based upon and subject to the various
considerations set forth therein as of the date of this Prospectus/Joint Proxy
Statement, the consideration to be received in the Merger is fair, from a
financial point of view, to the holders of PBI Stock.
The full text of Berwind's opinion, which sets forth assumptions made,
matters considered and limitations of the review undertaken, is attached as
Annex B hereto, and should be read in its entirety by all Prime stockholders.
The summary of the opinion of Berwind set forth in this Prospectus/Joint
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Proxy Statement is qualified in its entirety by reference to the full text of
such opinion attached as Annex B.
Berwind was selected to act as Prime's financial advisor in connection with
the Merger based upon its qualifications, expertise and experience. Berwind has
knowledge of, and experience with, Pennsylvania banking markets and banking
organizations operating in those markets and was selected by Prime because of
its knowledge of, experience with, and reputation in the financial services
industry. Berwind, as part of its investment banking business, is engaged
regularly in the valuation of assets, securities and companies in connection
with various types of asset and security transactions, including mergers,
acquisitions, private placements, and valuations for various other purposes and
in the determination of adequate consideration in such transactions.
On June 11, 1996, Prime's Board of Directors approved the Merger Agreement
and on June 12, 1996, Prime and First Sterling executed the Merger Agreement. In
connection with and as a condition precedent to the Merger, Berwind delivered an
opinion (the 'Proxy Opinion') to Prime stating that, as of the date of this
Prospectus/Joint Proxy Statement, the Merger was fair to the shareholders of
Prime from a financial point of view. No limitations were imposed by Prime's
Board of Directors upon Berwind with respect to the investigations made or
procedures followed by Berwind in rendering its Proxy Opinion.
In rendering its Proxy Opinion, Berwind: (i) reviewed the historical
financial performances, current financial positions and general prospects of
Prime and First Sterling; (ii) reviewed the Merger Agreement; (iii) reviewed and
analyzed the stock market performance of Prime; (iv) studied and analyzed the
financial and operating data of Prime and First Sterling; (v) considered the
terms and conditions of the Merger to Prime; (vi) met and/or communicated with
certain members of Prime's and First Sterling's senior management to discuss its
operations, historical financial statements, and future prospects; (vii)
reviewed this Prospectus/Joint Proxy Statement, and (viii) conducted such other
financial analyses, studies and investigations as Berwind deemed appropriate.
In delivering its Proxy Opinion, Berwind assumed that in the course of
obtaining the necessary regulatory and governmental approval for the Merger, no
restriction will be imposed on First Sterling that would have a material adverse
effect on the contemplated benefits of the Merger.
Berwind relied, without independent verification, upon the accuracy and
completeness of all the financial and other information reviewed by it for
purposes of its opinion. In that regard, Berwind assumed that the financial
forecasts, including, without limitation, projected cost savings, have been
reasonably prepared on a basis reflecting the best currently available judgments
and estimates of the managements of Prime and First Sterling and that such
forecasts will be realized in the amounts and at the times contemplated hereby.
Berwind is not an expert in the evaluation of loan portfolios or the allowances
for loan losses with respect thereto, and it has assumed that all allowances for
loan and lease losses set forth in the balance sheets of Prime and First
Sterling were adequate and complied fully with applicable law, regulatory policy
and sound banking practice as of the date of such financial statements. In
addition, Berwind did not make an independent evaluation or appraisal of the
assets (including loans) or liabilities of Prime and First Sterling.
Set forth below is a summary of selected analyses prepared by Berwind in
connection with the delivery of its opinion:
Comparable Companies and Comparable Acquisition Transaction
Analyses. Berwind compared selected financial and operating data for First
Sterling with those of a peer group of: (i) Southeastern Pennsylvania and
Southwestern New Jersey based banks and bank holding companies with assets
between $100 million and $300 million as of the most recent period publicly
available, and (ii) Pennsylvania based banks and bank holding companies which
commenced operations after January 1, 1988. Financial data and operating ratios
compared in the analysis of the First Sterling peer group included: return on
average assets, return on average equity, shareholders' equity to assets ratios
and certain asset quality ratios. Berwind also compared selected financial,
operating and stock market data for Prime with those of a peer group of selected
thrifts and thrift holding companies with assets between $300 million and $1
billion as of the most recent period publicly available located in
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Pennsylvania and New Jersey. Financial, operating and stock market data, ratios
and multiples compared in the analysis of the Prime peer group included return
on average assets, return on average equity, shareholders' equity to assets
ratios, certain asset quality ratios, price to book value, and price to
earnings.
Berwind also compared the multiples of book value, tangible book value and
latest twelve months' earnings inherent to the Merger with the multiples paid in
recent acquisitions of banks and bank holding companies that Berwind deemed
comparable. The transactions deemed comparable by Berwind included both
interstate and intrastate acquisitions announced during the eighteen month
period ended October 8, 1996, in which the selling institution's assets were
between $150 million and $300 million as of the most recent period publicly
available. Berwind compared selected transactions based upon, among other
considerations, certain geographic and financial characteristics of First
Sterling. However, no company or transaction used in this analysis is identical
to Prime, First Sterling or the Merger. Accordingly, an analysis of the result
of the foregoing is not mathematical; rather, it involves complex considerations
and judgments concerning differences in financial and operating characteristics
of the companies and other factors that would affect the public trading values
of the companies or company to which they are being compared.
Pro Forma Contribution Analysis. Berwind analyzed the contribution of each
of First Sterling and Prime of selected balance sheet and income statement items
to the pro forma combined company (New Prime) as if the Merger had been
consummated on June 30, 1996. The analysis demonstrated that, among other
factors, First Sterling would have contributed 26% of total assets, 31% of total
loans, 35% of total loan loss reserve, 24% of deposits, 18% of shareholders'
equity and 24% of net income of New Prime, with Prime contributing the remaining
balance. Berwind did not consider estimated cost savings and earnings
improvements from the Merger in this Contribution Analysis.
In connection with rendering its Proxy Opinion, Berwind performed a variety
of financial analyses. Although the evaluation of the fairness, from a financial
point of view, of the consideration to be paid in the Merger was to some extent
a subjective one based on the experience and judgment of Berwind and not merely
the result of mathematical analysis of financial data, Berwind principally
relied on the previously discussed financial valuation methodologies in its
determinations. Berwind believes its analyses must be considered as a whole and
that selecting portions of such analyses and factors considered by Berwind
without considering all such analyses and factors could create an incomplete
view of the process underlying Berwind's opinion. In its analysis, Berwind made
numerous assumptions with respect to business, market, monetary and economic
conditions, industry performance and other matters, many of which are beyond
Prime's and First Sterling's control. Any estimates contained in Berwind's
analyses are not necessarily indicative of future results or values, which may
be significantly more or less favorable than such estimates.
In reaching its opinion as to fairness, none of the analyses performed by
Berwind was assigned a greater or lesser weighing by Berwind than any other
analysis. Although the foregoing summary describes the material provisions of
the analyses conducted by Berwind in connection with the delivery of the Proxy
Opinion, it does not purport to be a complete description of all the analyses
performed by Berwind and is qualified by reference to the written opinion of
Berwind set forth in Annex B hereto.
Berwind's Proxy Opinion was based solely upon the information available to
it and the economic, market and other circumstances as they existed as of the
date its Proxy Opinion was delivered; events occurring after the date of its
Proxy Opinion could materially affect the assumptions used in preparing its
Proxy Opinion. Berwind has not undertaken to reaffirm and revise its Proxy
Opinion or otherwise comment upon any events occurring after the date thereof.
Pursuant to the terms of the engagement letter dated March 12, 1996, Prime
has paid Berwind $50,000 for acting as financial advisor in connection with the
Merger including delivering the Proxy Opinion. In addition, Prime has also
agreed to pay Berwind $125,000 upon the consummation of the Merger and to
reimburse Berwind for its reasonable out-of-pocket expenses. Whether or not the
Merger is consummated, Prime has also agreed to indemnify Berwind and certain
related persons against certain liabilities relating to or arising out of its
engagement.
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The full text of Berwind's Proxy Opinion, dated as of the date of this
Prospectus/Joint Proxy Statement, which sets forth assumptions made and matters
considered, is attached hereto as Annex B. Prime's stockholders are urged to
read the Proxy Opinion in its entirety. Berwind's Proxy Opinion is directed only
to the fairness of the transaction, from a financial point of view, and does not
constitute a recommendation to any holder of PBI Stock as to how such holder
should vote at the Prime Special Meeting.
THE FOREGOING PROVIDES ONLY A SUMMARY OF THE PROXY OPINION OF BERWIND AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THAT OPINION WHICH
IS SET FORTH IN ANNEX B HERETO.
THE MERGER CONSIDERATION
In accordance with the terms of and subject to the conditions set forth in
the Merger Agreement and the Agreement and Plan of Merger set forth in Annex D
hereto, First Sterling and Prime together will be merged with and into New
Prime, with New Prime as the surviving corporation of the Merger. The Merger
Agreement provides that at the effective time of the Merger each outstanding
share of First Sterling Stock (other than any shares held by First Sterling,
First Sterling Bank, Prime or Prime Bank, but including shares held in trust,
managed, custodial or nominee accounts and the like, that are owned beneficially
by third parties (collectively 'trust account shares') or acquired in
satisfaction of a debt previously contracted) shall, by virtue of the Merger and
without any action on the part of the holder thereof, be automatically converted
into the right to receive 1.00 fully paid and non-assessable share of Prime
Stock.
No fractional shares of Prime Stock will be issued in connection with the
Merger and, in lieu thereof, First Sterling shareholders will be entitled to
receive cash based upon the average of the last quoted bid and ask prices of the
PBI Stock for each of the five trading days immediately preceding the effective
date of the Merger, as reported on the Nasdaq National Market, without interest.
No shareholder will be entitled to dividends, voting rights or any other rights
in respect of any fractional shares. If the outstanding shares of PBI Stock are
changed into a different number or class by virtue of any recapitalization,
split, stock dividend, or similar event, then the Exchange Ratio will be
adjusted proportionately. The issuance of PBI Stock for other corporate
purposes, such as for other acquisitions or pursuant to stock option plans, will
not result in an adjustment to the Exchange Ratio. From and after the effective
date of the Merger, First Sterling shareholders will cease to have any rights
with respect to such shares other than the right to receive the Merger
consideration (or their rights under the PBCL to the extent such shareholder
perfected his or her dissenter's rights), and such shares will thereafter be
deemed canceled and void. The sole rights of such shareholders will be to
receive the Merger consideration from New Prime. See 'The Merger -- Dissenters
Rights'.
In connection with the Merger, Prime has issued ten shares of PBI Stock to
a trustee for the proportional benefit of all of the holders of the PBI Stock
reflected on the official stock transfer records of Prime as outstanding
immediately prior to the Effective Time. These shares have been issued to the
trustee solely for the purpose of assuring the validity of the Prime Stock to be
issued to the Prime stockholders and the validity of the Merger, and to
eliminate the technical questions relating to the issuance of the PBI Stock and
the initial organization of Prime. See 'The Merger -- Reasons for the Merger --
Prime'. At the Effective Time, each share of PBI Stock, together with its
proportional interest in the shares issued to the trustee as provided in this
paragraph, shall automatically be converted into one fully paid and
non-assessable share of Prime Stock.
EXCHANGE OF STOCK CERTIFICATES
Each holder of certificates representing shares of First Sterling Stock
will, upon the surrender to an exchange agent designated by New Prime ('Exchange
Agent') of such certificates in proper form, be entitled to receive a
certificate or certificates representing the number of whole shares of Prime
Stock into which the surrendered certificates shall have been converted by
reason of the Merger. Until surrendered for exchange, New Prime shall be
entitled, but not be obligated, to treat each outstanding
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certificate of First Sterling Stock for all corporate purposes as evidencing the
ownership of the full number of shares of Prime Stock into which such shares
have been converted by reason of the Merger.
Until a First Sterling shareholder's outstanding certificates shall have
been surrendered, New Prime shall not be obligated to deliver with respect to
such First Sterling shareholder, as applicable (i) the certificates representing
the shares of Prime Stock into which such First Sterling Stock is converted by
reason of the Merger; and (ii) any and all dividends and payment for fractional
shares with respect to the Prime Stock to which the First Sterling shareholder
is entitled. Upon the delivery to New Prime or the Exchange Agent by a First
Sterling shareholder of the outstanding First Sterling certificates and
transmittal form and any other required documents, there will be delivered to
the record shareholder thereof the certificate representing the shares of the
Prime Stock to which the exchanging First Sterling holder is entitled, along
with any dividends thereon and any payment for fractional shares, all without
interest.
As soon as practicable after the Effective Time, the Exchange Agent will
send a transmittal form to each First Sterling shareholder. The transmittal form
will contain instructions with respect to the surrender of certificates
previously representing First Sterling Stock, including instructions with
respect to lost certificates and the issuance of certificates for Prime Stock in
a name other than the name in which the First Sterling Stock is registered.
Since New Prime is not obligated to pay dividends to any First Sterling
stockholder until such time as the certificates representing the First Sterling
Stock are surrendered in accordance with the conversion procedures outlined
herein, First Sterling shareholders are encouraged to submit the transmittal
letter and appropriate documentation to Exchange Agent promptly after the
Effective Time.
All stockholders of Prime will be entitled to surrender their stock
certificates for PBI Stock to the Exchange Agent for exchange for new stock
certificates for an equal number of shares of Prime Stock. A registered holder
of PBI Stock will be recognized as the registered holder of an equal member of
shares of Prime Stock, notwithstanding the failure to surrender the old stock
certificates. As soon as practicable after the Effective Time, the Exchange
Agent will send a transmittal form to each Prime stockholder. The transmittal
form will contain instructions with respect to the surrender of certificates of
PBI Stock, including instructions with respect to lost certificates and the
issuance of certificates for Prime Stock in a name other than the name in which
the PBI Stock is registered.
CERTIFICATES SHOULD NOT BE RETURNED TO EITHER PRIME OR FIRST STERLING WITH
THE ENCLOSED PROXY AND SHOULD NOT BE FORWARDED UNTIL AFTER RECEIPT OF A LETTER
OF TRANSMITTAL WHICH WILL BE PROVIDED TO SHAREHOLDERS BY AMERICAN STOCK TRANSFER
AND TRUST COMPANY, THE EXCHANGE AGENT FOR THE PRIME STOCK, UPON CONSUMMATION OF
THE MERGER.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
General. The following is a summary description of the material federal
income tax consequences of the Merger to stockholders of Prime and First
Sterling. This summary is not a complete description of all of the consequences
of the Merger and, in particular, may not address federal income tax
considerations, among others, that may affect the treatment of a First Sterling
shareholder which, at the Effective Time, already owns PBI Stock, is not a U.S.
citizen, is a tax-exempt entity, or an individual who acquired First Sterling
Stock pursuant to an employee stock option. In addition, no information is
provided herein with respect to the tax consequences of the Merger under
applicable foreign, state or local laws. Consequently, each stockholder of Prime
and First Sterling is advised to consult a tax advisor as to the specific tax
consequences of the transaction to that shareholder. The following discussion is
based on the Code, as in effect on the date of this Prospectus/Joint Proxy
Statement, without consideration of the particular facts or circumstances of any
holder of First Sterling Stock or PBI stock.
The Merger. Each party's obligation to effect the Merger is conditioned on
the delivery of an opinion to First Sterling from Kania, Lindner, Lasak and
Feeney, counsel to First Sterling, and the delivery of an opinion to Prime from
Stradley, Ronon, Stevens & Young, LLP, counsel to Prime, each
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dated as of the Effective Time, based upon certain representations and
assumptions set forth therein, with respect to certain federal income tax
consequences of the Merger. Assuming such opinions are delivered and the Merger
is consummated, the material federal income tax consequences of the Merger to
the stockholders of Prime and First Sterling will be as described below.
No gain or loss will be recognized by stockholders of Prime or First
Sterling upon the exchange of their PBI Stock or First Sterling Stock solely for
shares of Prime Stock (but see the next paragraph regarding fractional
shares) pursuant to the Merger. The basis of the Prime Stock received by a
Prime or First Sterling shareholder receiving solely Prime Stock will be the
same as his or her basis in the PBI Stock or First Sterling Stock surrendered in
exchange therefor. The holding period of the shares of Prime Stock received by a
Prime or First Sterling shareholder receiving solely Prime Stock will include
the period during which such Prime or First Sterling shareholder held the PBI
Stock or First Sterling Stock surrendered in exchange therefor, provided the
surrendered PBI Stock or First Sterling Stock was held by such shareholder as a
capital asset on the date of the Merger. The legal opinions with respect to
certain of such matters assume that the PBI Stock will be treated as 'stock or
securities' for federal income tax purposes. In addition, counsel to Prime is of
the opinion that the PBI Stock should be treated as 'stock or securities' for
federal income tax purposes. If, contrary to such opinion, the PBI Stock were
determined not to be 'stock or securities' for federal income tax purposes due
to the technical questions relating to the initial issuance of the PBI Stock in
1988, then gain or loss would be recognized by the stockholders of Prime upon
the exchange of their PBI Stock for Prime Stock in connection with the Merger.
See 'The Merger -- Reasons for the Merger -- Prime.'
Shareholders of First Sterling who receive cash in lieu of a fractional
share of Prime Stock are treated as if the shareholders actually receive the
fractional share from New Prime and then New Prime redeems it for cash. Such
cash payments are treated by the former First Sterling shareholders as having
been received as full payment in exchange for the fractional share interests so
redeemed. Gain or loss is realized and recognized by each such First Sterling
shareholder equal to the difference between the amount of cash received for the
fractional share and the tax basis of the fractional share. If the fractional
share is a capital asset in the hands of a First Sterling shareholder, then the
gain or loss recognized constitutes a capital gain or loss.
THE MERGER MAY HAVE CONSEQUENCES AFFECTING TAXES OTHER THAN THE FEDERAL
INCOME TAX CONSEQUENCES DISCUSSED ABOVE. SHAREHOLDERS SHOULD CONSULT THEIR TAX
ADVISORS CONCERNING ALL TAX CONSEQUENCES OF THE CONSUMMATION OF THE MERGER AS IT
RELATES TO THEIR OWN CIRCUMSTANCES, INCLUDING BUT NOT LIMITED TO CONSEQUENCES
UNDER FEDERAL, STATE AND LOCAL INCOME TAX AND OTHER TAX LAWS.
DISSENTERS RIGHTS
The holders of the PBI Stock are not entitled to any dissenters rights or
rights of appraisal under the DGCL in connection with the Merger. The holders of
the First Sterling Stock shall be entitled to exercise dissenters rights
pursuant to Section 1930(a) and Sections 1571 through 1580 ('Subchapter 15D') of
the PBCL, provided such shareholders comply with the provisions contained
therein. First Sterling will not give any notice of such requirements other than
as described in this Prospectus/Joint Proxy Statement and as required by the
PBCL. The following discussion is not a complete statement of the law relating
to dissenters rights and is qualified in its entirety by reference to Annex C
hereto. This discussion and Annex C should be reviewed carefully by any First
Sterling shareholder who wishes to exercise dissenters rights, or who wishes to
reserve the right to do so, as failure to comply with the procedures set forth
in the appropriate provisions of Subchapter 15D will result in the loss of
dissenters rights. Exercise of dissenters rights by a sufficient number of
shareholders of First Sterling could jeopardize the pooling of interests
accounting treatment for the Merger.
A holder of record of First Sterling Stock may assert dissenters rights as
to fewer than all of the First Sterling Stock registered in such holder's name
only if the holder dissents with respect to all the First Sterling Stock
beneficially owned by any one person and discloses the name and address of the
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person or persons on whose behalf the holder dissents. In that event, the
holder's rights shall be determined as if the shares as to which the holder has
dissented and the other shares were registered in the names of different
holders. A beneficial owner of First Sterling Stock, who is not also the record
holder of such shares, may assert dissenters rights with respect to shares held
on such owner's behalf and shall be treated as a dissenting shareholder under
the terms of Subchapter 15D if the beneficial owner submits to First Sterling
not later than the time of filing the Notice of Intention to Dissent (as defined
below) a written consent of the record holder. Such beneficial owner may not
dissent with respect to some but less than all First Sterling Stock owned by
such beneficial owner, whether or not any shares are registered in such owner's
name.
Holders of First Sterling Stock (or beneficial owners thereof as provided
above) who follow the procedures of Subchapter 15D will be entitled to receive
from First Sterling the fair value of their First Sterling Stock immediately
before the Effective Time, taking into account all relevant factors but
excluding any appreciation or depreciation in anticipation of the effectuation
of the Merger Agreement. Holders of First Sterling Stock (or beneficial owners
thereof) who elect to exercise their dissenters rights must comply with all of
the following procedures to preserve those rights.
Holders of First Sterling Stock (or beneficial owners thereof) who wish to
exercise dissenters rights must file a written notice of intention to demand the
fair value of their First Sterling Stock if the Merger Agreement is effectuated
(the 'Notice of Intention to Dissent'). SUCH DISSENTERS MUST FILE THE NOTICE OF
INTENTION TO DISSENT WITH THE SECRETARY OF FIRST STERLING PRIOR TO THE VOTE BY
SHAREHOLDERS ON THE MERGER AGREEMENT; THEY MUST MAKE NO CHANGE IN THEIR
BENEFICIAL OWNERSHIP OF FIRST STERLING STOCK FROM THE DATE OF SUCH FILING UNTIL
THE EFFECTIVE TIME; AND THEY MUST REFRAIN FROM VOTING THEIR FIRST STERLING STOCK
FOR THE ADOPTION OF THE MERGER AGREEMENT. Neither a proxy nor a vote against the
Merger Agreement will constitute the giving of the Notice of Intention to
Dissent.
If the Merger Agreement is approved by the required vote of the First
Sterling shareholders, First Sterling will mail a notice (the 'Notice of
Approval') to all dissenters who filed a Notice of Intention to Dissent prior to
the vote on the Merger Agreement and who refrained from voting for the adoption
of the Merger Agreement. First Sterling expects to mail the Notice of Approval
promptly after the Effective Time. The Notice of Approval will state where and
when (the 'Demand Deadline') a demand for payment must be sent and certificates
for First Sterling Stock must be deposited in order to obtain payment; it will
supply a form for demanding payment (the 'Demand Form') which includes a request
for certification of the date on which the holder, or the person on whose behalf
the holder dissents, acquired beneficial ownership of First Sterling Stock; and
it will be accompanied by a copy of Subchapter 15D. Dissenters must ensure that
the Demand Form and their certificates for First Sterling Stock are received by
First Sterling on or before the Demand Deadline. All mailings to First Sterling
are at the risk of the dissenter. However, if a shareholder desires to dissent,
First Sterling recommends that the Notice of Intention to Dissent, the Demand
Form and the holder's stock certificates be sent by certified mail.
Any holder (or beneficial owner) of First Sterling Stock who fails to file
a Notice of Intention to Dissent, fails to complete and return the Demand Form,
or fails to deposit stock certificates with First Sterling, each within the time
periods prescribed, will lose the holder's (or beneficial owner's) dissenters
rights under Subchapter 15D. A dissenter will retain all rights of a
shareholder, or beneficial owner, as the case may be, until those rights are
modified by effectuation of the Merger.
Upon timely receipt of the completed Demand Form, First Sterling is
required by the PBCL either to remit to dissenters who have returned the Notice
of Intention to Dissent and the completed Demand Form and have deposited their
certificates, each in a timely fashion, the amount First Sterling estimates to
be the fair value for their shares or to give written notice that no such
remittance will be made. First Sterling will determine whether to make such a
remittance or to defer payment for such shares until completion of the necessary
appraisal proceedings, after giving due consideration to the number of shares,
if any, with respect to which shareholders have dissented and any objections
that may be raised with respect to the standing of the dissenting shareholder.
The remittance or notice will be accompanied by:
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1. The closing balance sheet and statement of income of First Sterling
for the fiscal year ended December 31, 1995, together with the latest
available interim financial statements;
2. A statement of First Sterling's estimate of the fair value of the
First Sterling Stock; and
3. A notice of the right of the dissenter to demand payment or
supplemental payment, as the case may be, accompanied by a copy of
Subchapter 15D.
If First Sterling does not remit the amount of its estimate of the fair
value of the First Sterling Stock, it will return any certificates that have
been deposited, and may make a notation on any such certificates that a demand
for payment in accordance with Subchapter 15D has been made. If shares carrying
such notation are thereafter transferred, each new certificate issued therefor
may bear a similar notation, together with the name of the original dissenting
holder or owner of such shares. A transferee of such shares will not acquire by
such transfer any rights in First Sterling other than those which the original
dissenter had after making demand for payment of their fair value.
If First Sterling gives notice of its estimate of the fair value of the
shares as provided above without remitting such amount, or remits payment of its
estimate of the fair value of a dissenter's shares, and the dissenter believes
that the amount remitted or stated is less than the fair value of such shares,
the dissenter may send to First Sterling the dissenter's own estimate (the
'Holder's Estimate') of the fair value of the shares as contemplated by PBCL
1578, which will be deemed a demand for payment of the amount of the deficiency.
If a dissenter does not file a Holder's Estimate within 30 days after the
mailing by First Sterling of its remittance or notice, the dissenter will be
entitled to no more than the amount stated in the notice or remitted to the
dissenter by First Sterling.
If, within 60 days after the Effective Time or after the timely receipt by
First Sterling of any Holder's Estimate, whichever is later, any demands for
payment remain unsettled, First Sterling may file in the Court of Common Pleas
of Chester County an application for relief requesting that the fair value of
the shares be determined by the court. There is no assurance that First Sterling
will file such an application. All dissenters, wherever residing, whose demands
have not been settled will be made parties to any such appraisal proceeding. The
court may appoint an appraiser to receive evidence and recommend a decision on
the issue of fair value. Each dissenter who is made a party will be entitled to
recover the amount by which the fair value of the dissenter's shares is found to
exceed the amount, if any, previously remitted, plus interest. If First Sterling
fails to file an application for relief, any dissenter who has made a demand and
who has not already settled the dissenter's claim against First Sterling may do
so in the name of First Sterling at any time within 30 days after the expiration
of the 60-day period. If a dissenter does not file an application within the
30-days period, each dissenter entitled to file an application shall be paid
First Sterling's estimate of the fair value of the shares and no more, and may
bring an action to recover any amount not previously remitted.
The cost and expenses of such court proceedings, including the reasonable
compensation and expenses of the appraiser appointed by the court, will be
determined by the court and assessed against First Sterling, except that any
part of the costs and expenses may be apportioned and assessed as the court
deems appropriate against all or some of the dissenters who are parties and
whose action in demanding supplemental payment the court finds to be dilatory,
arbitrary or in bad faith. Fees and expenses of counsel and of experts of the
respective parties may be assessed as the court deems appropriate against First
Sterling, and in favor of any or all dissenters, if First Sterling fails to
comply substantially with the requirements of Subchapter 15D. Such fees and
expenses may be assessed against either First Sterling or a dissenter, if the
court finds that the party against whom the fees and expenses are assessed acted
in bad faith or in a dilatory or arbitrary manner. If the court finds that the
services of counsel for any dissenter were of substantial benefit to other
dissenters similarly situated and should not be assessed against First Sterling,
it may award such counsel reasonable fees to be paid out of the amounts awarded
to the dissenters who were benefitted.
Under the PBCL, a shareholder of First Sterling has no right to obtain, in
the absence of fraud or fundamental unfairness, an injunction against the
Merger, nor any right to valuation and payment of the fair value of the holder's
shares because of the Merger, except to the extent provided by the dissenters
rights provisions of Subchapter 15D. The PBCL also provides that absent fraud or
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fundamental unfairness, the rights and remedies provided by Subchapter 15D are
exclusive. This Prospectus/Joint Proxy Statement constitutes the notice of a
proposed corporate action which would give rise to dissenters rights as required
under PBCL Section1571(d).
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains customary representations and warranties of
Prime, New Prime and First Sterling relating to, among other things,
(a) corporate organization and similar corporate matters and capital structures,
(b) good standing and the authority to carry on business, (c) shares of capital
stock, (d) subsidiaries, (e) corporate power and authority, (f) the
authorization, execution and delivery of the Merger Agreement, (g) the absence
of violations of or defaults under applicable laws and such party's corporate
organization documents, (h) documents filed by Prime with the Commission and the
accuracy of the information included therein, (i) the absence of litigation,
(j) compliance with applicable laws and certain bank regulatory matters, (k) as
to First Sterling, the absence of defaults under various contracts and the
possession of good title to various properties, (l) brokers' and finders' fees,
(m) as to First Sterling, retirement and other employee plans and matters under
the Employee Retirement Income Security Act of 1974, as amended, (n) as to First
Sterling, the accuracy of the financial information provided to Prime, (o) the
absence of undisclosed liabilities, (p) as to First Sterling, transactions with
affiliates, (q) as to New Prime, the absence of any material liability not
recorded on the books of Prime or in the pro forma information contained herein
resulting from the Merger, which warranty will survive closing for four years,
(r) environmental matters, (s) the filing of tax returns and payment of taxes,
(t) the absence of knowledge of any reason why the Merger would not qualify for
a 'pooling of interests' accounting or as a 'reorganization' for purposes of
Section 368(a) of the Code and (u) the conduct of the business in the ordinary
course and the absence of material changes since March 31, 1996.
CONDITIONS TO CONSUMMATION OF THE MERGER
The Merger Agreement provides that consummation of the Merger is subject to
the satisfaction of certain conditions, or the waiver of such conditions by the
party or parties entitled to do so, at or before the Effective Time. Each of the
parties' obligations under the Merger Agreement is subject to the following
conditions: (i) all corporate action (including approval of stockholders of both
Prime and First Sterling) necessary to authorize the execution and delivery of
the Merger Agreement and consummation of the transactions contemplated thereby
shall have been duly and validly taken; (ii) the receipt of all necessary
regulatory approvals, consents or waivers required by any governmental authority
to consummate the Merger, and such approvals and consents shall not impose any
condition or restriction on New Prime which would reasonably be expected to
either (a) result in a material adverse effect on the financial condition,
results of operations, business or prospects of New Prime on a consolidated
basis, or (b) prevent the parties from realizing the major portion of the
economic benefits of the transactions contemplated by the Merger Agreement;
(iii) none of Prime, First Sterling or their respective subsidiaries shall be
subject to any statute, rule, regulation, order or decree which prohibits,
restricts or makes illegal the consummation of the Merger; (iv) the Registration
Statement shall have become effective under the Securities Act, and New Prime
shall have received all permits, authorizations or exemptions necessary under
all state securities laws to issue Prime Stock in connection with the Merger,
and neither the Registration Statement nor any such permit, authorization or
exemption shall be subject to a stop order or threatened stop order by any
governmental authority; (v) the shares of Prime Stock to be issued in connection
with the Merger shall have been approved for listing on the Nasdaq National
Market; (vi) each of Prime and First Sterling shall have received an opinion of
its respective counsel to the effect that the Merger will qualify as a
reorganization within the meaning of Section 368(a) of the Code and with respect
to certain other related federal income tax considerations; (vii) Coopers &
Lybrand, L.L.P, shall have issued a letter to First Sterling, and KPMG Peat
Marwick LLP shall have issued a letter to Prime, in each case dated as of the
date of this Prospectus/Joint Proxy Statement, to the effect that, based upon
the Merger Agreement and related agreements and the facts and circumstances then
known to it, the Merger shall be accounted for as a pooling of interests under
generally accepted accounting principles; and (viii) all consents or approvals
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of all persons (other than governmental authorities) required for completion of
the Merger shall have been obtained and be in full force and effect, unless the
failure to obtain any such consent or approval is not likely to have,
individually or in the aggregate, a material adverse effect on First Sterling,
Prime or New Prime.
In addition to the foregoing conditions, the obligations of Prime under the
Merger Agreement are conditioned upon (i) the accuracy in all material respects
as of the date of the Merger Agreement and as of the Effective Time of the
representations and warranties of First Sterling set forth in the Merger
Agreement, except as to any representation or warranty which specifically
relates to an earlier date and except as otherwise contemplated by the Merger
Agreement; (ii) the performance of all material covenants and obligations
required to be complied with and satisfied by First Sterling; (iii) the receipt
of a certificate from a specified officer of First Sterling with respect to
compliance with the conditions relating to (i) and (ii) immediately above as set
forth in the Merger Agreement; (iv) the receipt of certain legal opinions from
First Sterling's legal counsel, Kania, Lindner, Lasak and Feeney; and (v) the
receipt of the Proxy Opinion from Berwind. Any of the foregoing conditions may
be waived by Prime.
In addition to the other conditions set forth above, First Sterling's
obligations under the Merger Agreement are conditioned upon (i) the accuracy in
all material respects as of the date of the Merger Agreement and as of the
Effective Time of the representations and warranties of Prime and New Prime set
forth in the Merger Agreement, except as to any representation or warranty which
specifically relates to an earlier date and except as otherwise contemplated by
the Merger Agreement; (ii) the performance of all material covenants and
obligations required to be complied with and satisfied by Prime and New Prime;
(iii) the receipt of a certificate from a specified officer of Prime with
respect to compliance with the conditions relating to (i) and (ii) immediately
above as set forth in the Merger Agreement; and (iv) the receipt of certain
legal opinions from legal counsel to Prime, Stradley, Ronon, Stevens & Young,
LLP. Any of the foregoing conditions may be waived by First Sterling.
REGULATORY APPROVALS
Consummation of the Merger is subject to prior receipt of all required
approvals, consents or waivers of the Merger by all applicable federal and state
regulatory authorities. In order to consummate the Merger, New Prime, Prime,
First Sterling, Prime Bank and/or First Sterling Bank must obtain the prior
consent, approval or waiver, as applicable, of the FRB, the OTS, the U.S.
Department of Justice and the PADOB.
The Merger is subject to the prior approval of the FRB under Section 3 of
the Bank Holding Company Act ('BHCA') and the Bank Merger Act ('BMA') and of the
OTS under applicable provisions of the Homeowners' Loan Act ('HOLA') and the
Change in Bank Control Act ('CBCA'). Pursuant to the applicable provisions of
the BHCA and the BMA, the FRB will submit notice of the application to the U.S.
Department of Justice, the Federal Deposit Insurance Corporation ('FDIC'), and
the PADOB. These agencies have 30 days to submit their views and recommendations
to the FRB. The FRB is required to hold a public hearing in the event it
receives a written recommendation of disapproval of the application from any of
these agencies within such 30-day period. Furthermore, the BHCA and FRB
regulations require publication of notice of, and the opportunity for public
comment on, the application and authorize the FRB to hold a public hearing in
connection therewith if the FRB determines that such a hearing would be
appropriate. Any such hearing or comments provided by third parties could
prolong the period during which the application is subject to review by the FRB.
The FRB may not approve the Merger if (i) such transaction would result in a
monopoly or would be in furtherance of any combination or conspiracy to
monopolize or attempt to monopolize the business of banking in any part of the
United States; or (ii) the effect of such transaction, in any section of the
country, may be to substantially lessen competition, or tend to create a
monopoly, or in any other manner to restrain trade, unless the FRB finds that
the anticompetitive effects of the proposed transaction are clearly outweighed
in the public interests by the probable effect of the transaction in meeting the
convenience and needs of the community to be served. In conducting its review of
any application for approval, the FRB is required to consider whether the
financial and
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managerial resources of the acquiring bank holding company are adequate
(including consideration by a variety of means of the competence, experience and
integrity of the applicant's directors, officers and principal stockholders and
compliance with, among other things, laws dealing with community reinvestment
responsibility). The FRB has the authority to deny an application if it
concludes that the combined organization would have an inadequate capital
position or if the acquiring organization does not meet the requirements of the
Community Reinvestment Act of 1977, as amended.
Each of the BHCA and the BMA provides that a transaction approved by the
applicable federal banking agency generally may not be consummated until 30 days
after approval by such agency. If the U.S. Department of Justice and the
relevant agency otherwise agree, this 30-day period may be reduced to as few as
15 days. During such period, the U.S. Department of Justice may commence a legal
action challenging the transaction under the antitrust laws. The commencement of
an action would stay the effectiveness of the approval of the federal banking
agency unless a court specifically orders otherwise. If, however, the U.S.
Department of Justice does not commence a legal action during such waiting
period, it may not thereafter challenge the transaction except in an action
commenced under Section 2 of the Sherman Antitrust Act.
Under Section 4 of the BHCA and related regulations, the Federal Reserve
Board must consider whether the performance of Prime's nonbanking activities
comply with the requirements and limitations of Section 4 and the FRB
regulations applicable thereunder, and whether those activities can reasonably
be expected to produce benefits to the public (such as greater convenience,
increased competition and gains in efficiency) that outweigh possible adverse
effects (such as undue concentration of resources, decreased or unfair
competition, conflicts of interest and unsound banking practices). This
consideration includes an evaluation of the financial and managerial resources
of New Prime after the Merger and the effect of the proposed transaction on
those resources.
Pursuant to the provisions of the HOLA and the OTS savings and loan holding
company regulations, Prime's acquisition of First Sterling Bank is also subject
to the approval of the OTS. Prime is, and New Prime will be, deemed a 'savings
and loan holding company' by the OTS because the deposits of its savings bank
subsidiary, Prime Bank, are insured by the Savings Association Insurance Fund
('SAIF') administered by the FDIC, and because Prime has elected, and New Prime
is expected to continue to elect, to be treated as a 'savings and loan holding
company.' Because of the possibility that the Merger will cause a shareholder of
First Sterling to acquire more than 10% of the voting stock of New Prime and to
become the largest stockholder of Prime, the CBCA and applicable OTS regulations
also require that notice be given the OTS and that the Merger may not take place
until either the OTS notifies the parties in writing of its intent not to
disapprove the proposed transaction or 60 days (subject to extension by the OTS)
shall have passed without the OTS' objection. Under the applicable OTS
regulations, a shareholder who acquires more than 10% of a class of voting stock
and is subject to any of several control factors (including whether the acquiror
would be one of the two largest shareholders) is rebuttably presumed to be in
'control' of a savings and loan holding company. In connection with such
application and notice, it will be necessary for the parties to comply with any
conditions imposed by the OTS, or else alternatively for the parties to rebut
any presumption of control, or for the proposed acquiror to divest sufficient
shares to avoid a presumption of control and secure the nonobjection of the OTS.
If such shareholder is deemed by the OTS to be in control of New Prime, other
shareholders of First Sterling might also be deemed by the OTS to be in control
of New Prime because they bear relationships giving rise to a rebuttable
presumption, under applicable regulations, that they are 'acting in concert'
with a controlling shareholder.
The approval of the PADOB also is required for consummation of the Merger.
The factors that such state banking authorities will consider in determining
whether to grant their approval include the competitive effects of the Merger,
the principles of sound banking and the public interest and the needs of the
communities served by Prime and First Sterling.
Applications have been or will be filed with applicable regulatory
authorities for approval of the Merger. Although neither Prime nor First
Sterling is aware of any basis for disapproving the Merger, there can be no
assurance that all requisite approvals will be obtained, that such approvals
will be received on a timely basis or that such approvals will not impose
conditions or requirements which,
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individually or in the aggregate, would (i) result in a material adverse effect
on the financial condition, results of operations, business or prospects of New
Prime on a consolidated basis, or (ii) prevent the parties from realizing the
major portion of the economic benefits of the transactions contemplated by the
Merger Agreement.
CONDUCT OF BUSINESS PENDING THE MERGER
Pursuant to the Merger Agreement, each of Prime, New Prime and First
Sterling has made certain covenants, with respect to itself and its
subsidiaries, relating to the conduct of business pending consummation of the
Merger. Among other things, each has agreed (except as otherwise contemplated by
the Merger Agreement or with the written consent of the other party) not to do
any of the following:
(i) conduct its business other than in the ordinary and usual course,
or fail to use reasonable efforts to preserve its business organization,
assets, relations with customers, suppliers, employees, and business
associates or knowingly take any action which might reasonably be expected
to adversely affect the ability to obtain any necessary regulatory
approvals or its ability to perform any material obligation under the
Merger Agreement;
(ii) issue, sell or otherwise permit to become outstanding any
additional shares of its stock or give any person the right to acquire any
such shares, other than (a) pursuant to the exercise of stock options
outstanding on the date of the Merger Agreement, (b) issuance of First
Sterling Stock in connection with the conversion of First Sterling's
Debentures, or (c) pursuant to employee benefit plans or programs in effect
as of June 12, 1996;
(iii) make, declare or pay any dividends on shares of its stock other
than regular quarterly cash dividends of $.17 per share of PBI Stock
(provided, however, that Prime may increase its quarterly dividend
commencing in the last quarter of 1996) in accordance with past dividend
practice, or redeem or otherwise acquire any shares of its stock;
(iv) in the case of First Sterling, increase any salaries or employee
benefits or enter into or modify any employment, severance or similar
agreements or arrangements or grant any salary, wage or employee benefit
increases except for normal increases in the ordinary course of business
consistent with past practice, or other changes required by law or to
satisfy existing contractual obligations;
(v) in the case of First Sterling, enter into or modify any employee
benefit plan including pension, stock options, retirement, deferred
compensation, group insurance or other types of plans including the taking
of any action which would accelerate the vesting, exercise or payment of
any benefits payable thereunder;
(vi) engage in any acquisition or disposition of assets except in the
ordinary and usual course of business, except that Prime may enter into
business combination transactions in which the aggregate consideration does
not exceed $10,000,000 or the aggregate number of shares of PBI Stock
issuable does not exceed 10% of the number of shares outstanding at
December 31, 1995;
(vii) amend its charter documents, except that Prime may amend its
Certificate of Incorporation to increase its authorized common stock and
make any other changes which may be deemed necessary or appropriate for the
completion of the Merger;
(viii) implement or adopt any changes in accounting principles,
methods, or practices;
(ix) knowingly take any action that is likely to prevent or impede the
Merger from qualifying for a pooling of interests in accounting treatment,
or as a reorganization under Section 368(a) of the Code, or that is likely
to result in a breach of any representation or warranty or a condition of
the Merger Agreement;
(x) incur any indebtedness other than in the ordinary course of
business; or
(xi) agree or commit to do any matter prohibited by the above
provisions.
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Furthermore, each party agreed to provide the other party and its
representatives with such financial data and other information with respect to
its business and properties as such party shall from time to time reasonably
request. Each party will cause all non-public financial and business information
obtained by it from the other to be treated confidentially. If the Merger is not
consummated, each party will return to the other all non-public financial
statements, documents and other materials previously furnished by such party.
NO SOLICITATION
Without the prior written consent of the other, neither First Sterling nor
Prime, directly or through its officers, directors, employees, agents or other
representatives, shall solicit or encourage inquiries or proposals with respect
to, or engage in any negotiations concerning, or provide any confidential
information to, or have any discussions with, any person relating to, or enter
into any agreement with respect to, any Takeover Proposal (as defined in the
Merger Agreement). Each of Prime and First Sterling agrees to advise the other
orally within one (1) business day, of any such inquiry or proposal.
EFFECTIVE TIME OF THE MERGER; TERMINATION AND AMENDMENT
The Effective Time of the Merger shall be the date and time of the filing
of (i) the Certificate of Merger with the Secretary of State of Delaware and
(ii) Articles of Merger with the Secretary of State of Pennsylvania, unless a
different date and time is specified as the Effective Time in such Articles of
Merger and Certificate of Merger. The Effective Time shall be as set forth in
such Articles of Merger and Certificate of Merger, which will be filed only
after the receipt of all requisite regulatory approvals of the Merger, approval
of the Merger Agreement by the requisite vote of Prime stockholders and First
Sterling's shareholders and the satisfaction or waiver of all other conditions
to the Merger.
A closing (the 'Closing') shall take place immediately prior to the
Effective Time on a day no later than (5) business days following the
satisfaction or waiver (subject to applicable law) of all the conditions to
consummation of the Merger specified in the Merger Agreement (other than the
delivery of certificates, opinions and other instruments and documents to be
delivered at the Closing), or on such other date as the parties may mutually
agree upon. The Merger Agreement may be terminated by either party, if through
no fault of that party, the Closing is not held on or before March 31, 1997.
The Merger Agreement may be terminated, by action taken or authorized by
their respective Boards of Directors, either before or after approval by the
stockholders of First Sterling and Prime, as follows: (i) at any time at or
prior to the Effective Time by the mutual consent in writing of the parties;
(ii) at any time at or prior to the Effective Time in the event of a material
breach by the other party of any representation, warranty, material covenant or
agreement, which breach has not been cured within the time period specified in
the Merger Agreement; (iii) at any time by either party in writing if any
application for any required federal or state regulatory approval has been
denied by final action and the time period for appeals has run; (iv) at any time
by either party in writing if the stockholders of First Sterling or Prime fail
to approve the Merger Agreement at a meeting duly called for the purpose, unless
the failure of such occurrence is due to the failure of the party seeking to
terminate to perform or observe in any material respect its agreements set forth
in the Merger Agreement; or (v) at any time prior to the Effective Time, by
either party in writing upon the affirmative vote of a majority of its Board of
Directors, in the event that the Merger is not consummated by March 31, 1997,
except to the extent that the failure of the Merger to be consummated arises out
of or results from the knowing action or inaction of the party seeking to
terminate the Merger Agreement. In the event of termination, no party shall have
any further liability to the other under the Merger Agreement, except that
certain provisions thereof relating to confidentiality shall survive any such
termination and any such termination shall not relieve any breaching party from
liability for any willful breach of any covenant, undertaking, representation or
warranty giving rise to such termination.
To the extent permitted under applicable law, the Merger Agreement may be
amended or supplemented at any time by written agreement of the parties whether
before or after the approval of Prime's or First Sterling's stockholders,
provided that after any such approval the Merger Agreement may not be amended or
supplemented in a manner which (i) changes the Exchange Ratio, (ii) changes
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the principal terms of the Merger Agreement, or (iii) otherwise materially
adversely affects First Sterling's or Prime's stockholders, in each case,
without further approval of such stockholders.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of the Boards of Directors and management of Prime and
First Sterling may be deemed to have certain interests in the Merger in addition
to their interest generally as stockholders of Prime or First Sterling,
respectively. Such additional interests, to the extent material and to the best
knowledge of Prime and First Sterling, are described below. The Boards of
Directors of each of First Sterling and Prime were aware of these interests at
the time they approved the Merger Agreement and the transactions contemplated
thereby.
Board Membership. The Merger Agreement provides that the Board of
Directors of First Sterling shall have the right to nominate three nominees to
serve on the Board of Directors of New Prime after the Merger is effective.
Prime and New Prime are obligated to take all necessary actions to have such
nominees elected to the Board of Directors of New Prime. It is anticipated that
the Board of Directors of New Prime will consist of ten members. The remaining
seven members will be nominees of Prime.
Executive Employment Agreement. In order to ensure continuity of
management following consummation of the Merger, Prime has entered into an
Employment Agreement with William H. Bromley, President of First Sterling and
First Sterling Bank, which will take effect at the Effective Time. Under this
Employment Agreement Mr. Bromley will be employed as an Executive Vice President
of New Prime for a period of three (3) years at a base salary of $200,000 per
annum. It is anticipated that Mr. Bromley will also continue as a President of
First Sterling Bank. The agreement also provides for a bonus of $75,000, and an
award of incentive stock options to purchase 16,500 shares of Prime Stock which
will vest immediately at the Effective Time and another 16,500 shares which will
vest over the term of the Employment Agreement.
In the event that Mr. Bromley were to terminate his employment for 'good
reason' as defined in the agreement, he will be entitled to receive severance
benefits equal to twice his average annual aggregate compensation reportable as
gross income for federal income tax purposes during the three (3) calendar years
immediately preceding the year of such termination (or such lesser period of
time if he has not been employed for three (3) full calendar years). 'Good
reason' means the failure by New Prime to comply with any material provision of
the Employment Agreement which is not cured within ten (10) days of written
notice of such non-compliance, any purported termination of employment by New
Prime which is not effected pursuant to the procedures set forth in the
Employment Agreement, or termination by Mr. Bromley as a result of a change in
control of New Prime. The Agreement defines 'change in control' to include any
of the following: (1) any change in control required to be reported pursuant to
item 6(e) of Schedule 14A promulgated under the Exchange Act, (2) the
acquisition of beneficial ownership by any person (as defined in Sections 13(d)
and 14(d) of the Exchange Act) of 25% or more of the combined voting power of
Prime's then outstanding securities, or (3) during any period of two consecutive
years, there is a change in the majority of the Board of Directors for any
reason, unless the election of each new director was approved by at least
two-thirds of the directors then in office who were directors at the beginning
of the period. Based upon the compensation provided for Mr. Bromley during the
first year of his employment under the Employment Agreement, the maximum
severance payments he would be entitled to receive upon his election to
terminate in connection with a change in control, would be $500,000.
Certain Real Estate Leases. First Sterling Bank leases three (3) of its
five (5) branch offices from Dominion Properties, L.P. The Arthur J. Kania Trust
is the major shareholder of First Sterling and a limited partner in Dominion
Properties, L.P. Allen Speiser, a director of First Sterling, is a trustee of
the Arthur J. Kania Trust. James D. Kania, a director of First Sterling, is a
beneficiary of the Arthur J. Kania Trust and a General Partner of Dominion
Properties, L.P.
The leases with Dominion Properties, L.P. run for terms of ten (10) years
commencing January 1, 1996. The leases also provide certain renewal options with
annual increases in rent for two
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(2) of the branch office leases based on changes in the Consumer Price Index.
Prior to the execution of the Merger Agreement, First Sterling and Dominion
Properties, L.P. entered into an agreement with respect to the corporate offices
of First Sterling which agreement allows First Sterling, at its election, to
reduce both the space and term of its office tenancy upon payment of a fee in
the amount of $375,000.00 to the landlord. Prime believes that the fee
negotiated is consistent with that which would be paid in an arms length
transaction with an unaffiliated landlord.
Certain Prime Employment Agreements. Each of Messrs. Erwin T. Straw, James
J. Lynch and Walter L. Tillman, Jr., executive officers or directors of Prime
have entered into employment agreements with Prime which obligate Prime to make
certain payments to the individuals in the event that any of them elects to
terminate his employment for 'good reason', including upon a change in control
of Prime. The agreements define 'change in control' to include, without
limitation, any of the following: (1) any change in control required to be
reported pursuant to item 6(e) of Schedule 14A, promulgated under the Exchange
Act; (2) the acquisition of beneficial ownership by any person (as defined in
Sections 13(d) and 14(d) of the Exchange Act) of 25% or more of the combined
voting power of Prime's then outstanding securities; or (3) during any period of
two consecutive years, there is a change in the majority of the Board of
Directors for any reason, unless the election of each new director was approved
by at least two-thirds of the directors then in office who were directors at the
beginning of the period.
If Mr. Straw or Mr. Lynch were to terminate his employment for 'good
reason' in connection with a change in control, each would receive severance
payments covering the remaining term of his agreement equal to the product of
the number 2.99 multiplied by his average aggregate annual compensation
includable in his gross income for federal income tax purposes for the past five
calendar years. If Mr. Tillman similarly terminates his employment for 'good
reason', he is entitled to severance payments equal to two times his average
aggregate annual compensation includable in his gross income for federal income
tax purposes for the past three calendar years. All such severance payments will
be paid in a lump sum on or before the fifth day following the date of
termination. However, if the severance payments would be deemed to constitute
'parachute payments' under Section 280G of the Internal Revenue Code (the
'Code') of 1986, as amended, the severance payments will be reduced to the
extent necessary to ensure that no portion of the severance payments are subject
to the excise tax imposed by Section 4999 of the Code.
Assuming that Messrs. Straw, Lynch and Tillman continue to earn their 1996
base salaries, plus bonuses equal to those earned for 1995 (except as to Mr.
Lynch for whom a minimum bonus for 1996 based upon his employment agreement was
assumed), their maximum severance payments, upon a termination for good reason
in connection with a change in control, and without consideration of the excise
tax imposed by Section 4999 of the Code, would be, respectively, $950,222,
$1,196,000 and $320,000. Each of Messrs. Straw, Lynch and Tillman has waived any
right to claim that the Merger will constitute such a change in control.
TREATMENT OF STOCK OPTIONS AND DEBENTURES
Upon consummation of the Merger, the obligations with respect to the
outstanding options to purchase 89,833 shares of First Sterling Stock, which
have previously been granted to six officers or directors of First Sterling,
will be assumed by New Prime. In addition, all options to purchase PBI Stock
which are outstanding immediately prior to the effective time of the Merger will
also be assumed by New Prime. Each such option will remain an option to purchase
the same number of whole shares of Prime Stock as under the preexisting option,
and the exercise price, and other terms will remain the same as under the
preexisting option. Under the terms of the Merger Agreement, First Sterling
agrees that it will take all necessary action or refrain from taking such
action, in each case, which would result in the acceleration of the right to
exercise, or the removal of any or all restrictions on, the outstanding options
to purchase First Sterling Stock.
Upon consummation of the Merger, First Sterling's obligations with respect
to the Debentures shall become obligations of New Prime. The Debentures will be
convertible into 110,510 shares of Prime Stock if converted by the holders prior
to December 31, 1996. After December 31, 1996, the
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conversion price increases under the terms of the Debentures from $9.50 per
share to $11.00 per share, and the total number of shares issuable upon
conversion decreases to approximately 95,450.
MANAGEMENT AFTER THE MERGER
Directors. After the Merger, the Board of Directors of New Prime will
initially consist of ten (10) members. Seven (7) of those members will be
nominated by the Board of Directors of Prime and the remaining three (3)
directors will be nominated by the Board of Directors of First Sterling.
The Bylaws of New Prime provide that the Board of Directors shall consist
of not less than seven nor more than fifteen members, in accordance with the
Articles of Incorporation and the Bylaws, the Board of Directors is divided into
three classes as nearly equal in number as possible. One class of directors is
to be elected annually. The members of each class are to be elected for a term
of three years and until their successors are elected and qualified.
It is anticipated that the Board of Directors of New Prime will have a
number of standing committees including an Executive Committee, an Audit
Committee, a Compensation Committee, and a Nominating Committee. The Executive
Committee, except as limited by the PBCL and the Bylaws, will have the full
authority of the Board of Directors when the Board of Directors is not in
session. The Audit Committee will review the records and affairs of the company
to determine its financial condition and will review with management and the
independent auditors the systems of internal control. This Committee will
approve the scope of the audit procedures employed by the company's independent
auditors and will meet with the auditors to discuss the results of their audit.
The Audit Committee will report to the Board of Directors with respect to the
foregoing matters and will recommend annually the selection of independent
auditors.
The Compensation Committee will interpret and administer the company's
stock option plans, including the grant of options. The Nominating Committee's
duties will include the review of prospective candidates to be nominated as
Directors of the company if replacements are required and for future Board
expansion, the establishment of documented criteria to be used in consideration
of possible nominees for directorship, the documentation of procedures that the
Committee should review on an ongoing basis regarding the conduct of directors,
and the making of recommendations for management succession.
The present members of the Board of Directors of Prime are: Frederick G.
Betz, Joseph A. Fluehr, III, Ernest Larenz, James J. Lynch, David H. Platt,
Erwin T. Straw, and Raymond L. Weinmann. The business experience during at least
the last five years for each of the current Prime directors is as follows:
Mr. Betz has served as a director of Cheltenham Federal Savings and Loan
Association ('Cheltenham') and subsequently Prime since 1988. Presently he is
President of Fred Betz and Sons, Inc., a custom home building home company
located in Southampton, Pennsylvania.
Mr. Fluehr has served as a director of North East Federal Savings and Loan
Association ('North East') and subsequently Prime since 1983. He is a funeral
director and the owner of the Joseph A. Fluehr, III Funeral Home in Richboro,
Pennsylvania. He is also the Chairman of the Board of Trustees of St. Mary's
Medical Center, a division of the Franciscan Health System, in Langhorne, PA and
a Director of St. Joseph's Home for the Aged, Holland, PA.
Mr. Larenz has served as a director of North East and subsequently Prime
since 1976. He is the President of Medicare Management Nursing Homes which is
responsible for the operation of various nursing homes. He is also a
builder/developer of residential and commercial properties.
Mr. Lynch, age 46, served as Executive Vice President of MidLantic Bank
from 1994 to 1995. Prior thereto, Mr. Lynch has held various positions within
Continental Bank culminating as President from 1992 to 1994. He helped negotiate
and manage Continental's merger with MidLantic National Bank. Prior thereto, Mr.
Lynch was employed with First Pennsylvania bank from 1968 to 1976.
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Mr. Platt has served as a director of North East and subsequently Prime
since 1983. He is the President of Somerton Springs Pro-Golf Shoppes which has
ten golf shops and two golf facilities throughout the Delaware Valley area. He
is also President of the Ballroom at Somerton Springs, Inc. and Newtown Swim
Club Inc.
Mr. Straw has served as President and Chief Executive Officer of Cheltenham
and subsequently Prime since January, 1985. Prior to joining Cheltenham, Mr.
Straw was employed for 24 years with Cheltenham Bank, ultimately serving as a
Vice President. Prior thereto, Mr. Straw spent six years with Household
International as a manager in the consumer finance industry.
Mr. Weinmann has served as a director of Cheltenham and subsequently Prime
since 1986. Mr. Weinmann is President of The Weinmann Group, a company that
provides consulting services to developers and builders. In 1977, he co-founded
Meehan-Weinmann, Inc. which became one of the ten largest construction companies
in the Delaware Valley, building many of the notable projects in Philadelphia
and Atlantic City. In 1983, the company was designated as redeveloper of
Conshohocken and was a prime mover of that community's resurgence.
The present members of the Board of Directors of First Sterling are:
William H. Bromley, William J. Cunningham, James D. Kania, Arthur L. Powell,
Thomas J. Scanlon, Jr., Allen Speiser, and R. Richard Williams. The business
experience during at least the last five years for each of the First Sterling
directors and its chief financial officer is as follows:
Mr. Bromley, age 46, has served as President, Chief Executive Officer and a
director of First Sterling and First Sterling Bank since 1988. Before joining
First Sterling, Mr. Bromley was employed for seven years by Industrial Valley
Bank and Trust Company ('IVB') from 1979 through 1986 as a commercial loan
officer and as a Regional Vice President for Chester County, Lancaster County
and central and western Delaware County. Prior to joining IVB, Mr. Bromley
worked for three years (1976 to 1979) with Midlantic National Bank in
Haddonfield, N.J. Mr. Bromley currently serves as a member of the Board of
Directors of the Upper Main Line YMCA. He is Section Chairman of the
Pennsylvania Bankers Association.
William J. Cunningham, 53, has been a Director of First Sterling and First
Sterling Bank since 1988. He was a co-founder and managing partner of the Miami
Heat, a National Basketball Association (NBA) team from 1988 until the sale by
Cunningham of his interest in 1995. From 1986 to 1988 Mr. Cunningham was a
national analyst and sports commentator for CBS Inc. He served as the Coach of
the Philadelphia 76ers from 1977 through 1984, leading the team to an NBA
championship in 1983. Throughout the period from 1965 through 1978 he played
professionally for the Philadelphia 76ers, including for the 1967 NBA
Championship team.
James D. Kania, 36, has been a Director and Secretary of First Sterling and
First Sterling Bank since 1988. For the last ten years, Mr. Kania has been a
principal of Trikan Associates (real estate and management services). Since
1993, he has been general and/or managing partner of Whitehorse Business
Associates, Dominion Properties, L.P., Centerpoint I and II and DelaCastle
Associates (real estate development, management and/or ownership).
Arthur L. Powell, 74, has been a Director of First Sterling and the First
Sterling Bank since 1988. Mr. Powell is an owner of Kravco Company (developer of
commercial real estate in the Philadelphia area and one of the country's largest
privately held shopping center management companies), and a partner in certain
real estate partnerships managed by that firm. He joined that firm in 1956 and
served in various capacities, including President and Chairman of the Board and
continues as an active member of its Board of Directors. He is a founding member
of The Wharton Real Estate Center of the Wharton School at the University of
Pennsylvania.
Thomas J. Scanlon, Jr., 49, has been a Director of First Sterling and First
Sterling Bank since 1988. Mr. Scanlon had been President of Jordan Chemical
Company in Folcroft, Delaware County, for over ten years. Jordan Chemical
Company was acquired by PPG Industries, Inc., in 1985, and Mr. Scanlon became
and has remained a regional sales manager for that firm since then.
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Allen Speiser, 74, has been a Director of First Sterling and First Sterling
Bank since 1988. Mr. Speiser has been self-employed as a Certified Public
Accountant with offices in Bala Cynwyd, Pennsylvania and Florida.
R. Richard Williams, 50, has been a Director of First Sterling and First
Sterling Bank since 1988. In 1977, he founded Valquip Corporation, a marketer of
industrial valves and related products for the petrochemical industries. Mr.
Williams is currently President of that firm.
Frank H. Reeves, 59, has been Senior Vice President and Chief Financial
Officer of First Sterling and First Sterling Bank since 1988. Prior to that, Mr.
Reeves had been a Senior Vice President of IVB.
Executive Officers. After the Merger, the executive officers of New Prime
shall consist of the following persons:
James J. Lynch President and Chief Executive Officer
William H. Bromley Executive Vice President
Walter L. Tillman, Jr. Executive Vice President
Michael J. Sexton Treasurer and Chief Financial Officer
A brief biographical description of each of the above officers who are not
also directors of Prime or First Sterling is listed below.
Walter L. Tillman, Jr., age 45, has served as Executive Vice President and
Chief Operating Officer of Prime and of Prime Bank since January 1, 1991. From
March, 1990 until June 30, 1990, Mr. Tillman served as Vice President of Prime
and Prime Bank. Prior to joining Prime, Mr. Tillman was employed by Independence
Bancorp, Inc. where he was Vice President, Director, Asset/Liability Management
of a $2.8 billion multi-bank holding company from 1987 to November 1989. He was
initially hired by Independence Bancorp, Inc. in 1985 as a Vice
President/Planning Manager. Prior to joining Independence Bancorp, Inc., Mr.
Tillman was employed by Cheltenham Bank, a subsidiary of Independence Bancorp,
Inc., as Senior Vice President-Resource Management Division from 1984 to 1985.
Prior thereto, from 1981 to 1984, he was Vice President-Comptroller of
Cheltenham Bank. He was initially hired by Cheltenham in 1976 where he advanced
during that period to Assistant Vice President/Assistant Treasurer.
Michael J. Sexton, age 34, has served as Chief Financial Officer of Prime
since December, 1993 and as Vice President and Controller of Prime Bank since
April, 1989. Prior thereto, from April, 1988, he was Systems Analyst of
Cheltenham Federal Savings and Loan Association. Prior to joining Cheltenham,
Mr. Sexton was employed by Liberty Bank as an Assistant Vice President of
Financial Systems responsible for management information systems.
RESALE OF PRIME STOCK
The Prime Stock issued pursuant to the Merger will be freely transferable
under the Securities Act, except for shares issued to any First Sterling
shareholder who may be deemed to be an affiliate of New Prime for purposes of
Rule 144 promulgated under the Securities Act ('Rule 144') or an affiliate of
First Sterling for purposes of Rule 145 promulgated under the Securities Act
('Rule 145') (each an 'Affiliate'). Affiliates may not sell their Prime Stock
acquired in connection with the Merger except pursuant to an effective
registration statement under the Securities Act covering such shares, or in
compliance with Rule 145 under the Securities Act or other applicable exemption
from the registration requirements of the Securities Act. Persons who may be
deemed to be Affiliates of First Sterling generally include individuals or
entities that control, are controlled by or are under common control with, First
Sterling and may include certain officers, directors, and principal shareholders
of First Sterling.
Pursuant to the Merger Agreement, First Sterling has agreed to use its
reasonable best efforts to cause each Affiliate to execute and deliver to Prime
a written agreement to the effect that such person will not offer to sell, sell
or otherwise dispose of any shares of Prime Stock to be issued in connection
with the Merger except pursuant to an effective registration statement or an
exemption from registration under the Securities Act. SEC guidelines regarding
qualifying for the pooling of interests
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method of accounting also limit sales of shares of the acquiring and acquired
company by Affiliates of either company in a business combination. SEC
guidelines indicate further that the pooling of interests method of accounting
generally will not be challenged on the basis of sales by Affiliates of the
acquiring or acquired company if they do not dispose of any of the shares of the
corporation they received in connection with a merger during the period
beginning 30 days before the merger and ending when financial results covering
at least 30 days of post-merger operations of the combined entity have been
published.
In addition to the foregoing restrictions, in connection with the tax
opinions to be provided to Prime and First Sterling in connection with the
Merger, each holder of 5% or more of the issued and outstanding First Sterling
Stock will be requested to sign a letter confirming that each has no present
intention to sell the Prime Stock each will receive in the Merger. Similar
representations will be requested of the officers and directors of Prime and
holders of 5% or more of the issued and outstanding PBI Stock.
ACCOUNTING TREATMENT
It is anticipated that the Merger, when effected, will be accounted for as
a pooling of interests, and it is a condition of Closing of the Merger that the
parties receive letters from their respective independent auditors, KPMG Peat
Marwick LLP for Prime and Coopers & Lybrand, L.L.P. for First Sterling, to the
effect that the Merger qualifies for such accounting treatment. Under this
method of accounting, the historical book value of the assets, liabilities and
stockholders' equity of First Sterling, as reported on its consolidated balance
sheets, will be carried over to the consolidated balance sheets of New Prime and
no goodwill or other intangible assets will be created. New Prime will include
on its consolidated statements of operations the consolidated results of
operations of First Sterling for the entire fiscal year in which the
consummation of the Merger occurs and will combine and restate its results of
operations for prior periods to include the reported consolidated results of
operations of First Sterling for prior periods. The unaudited pro forma
condensed combined financial information contained in this Prospectus/Joint
Proxy Statement has been prepared using the pooling of interests accounting
method to account for the Merger. See 'Selected Consolidated Financial Data' and
'Pro Forma Condensed Combined Financial Data.'
PRIME BANCORP., INC.
RECENT DEVELOPMENTS
Prime Bank converted from a federally chartered savings bank to a
Pennsylvania chartered stock savings bank under the name 'Prime Bank, a savings
bank' effective March 19, 1996. As a result of this conversion, the regulatory
framework within which Prime and Prime Bank operate changed significantly.
Current information with respect to these changes is contained in Prime's
Quarterly Report on Form 10-Q for the period ended June 30, 1996, incorporated
herein by reference.
On August 20, 1996, federal legislation was passed which will require
thrift institutions such as Prime Bank to recapture federal income tax benefits
associated with post-1987 excess bad debt reserve deductions, whether or not
such thrift institutions merge with or convert into commercial banks. However,
federal tax benefits associated with pre-1988 excess bad debt reserve deductions
are now protected from recapture, including in cases of merger with or
conversion into a commercial bank. As a result of this legislation, the primary
obstacle to the conversion of many thrift institutions into commercial banks has
been eliminated. Prime has already reserved for the recapture of post-1987
excess bad debt reserve tax benefits.
While the August 1996 legislation did not resolve the disparity in
assessment rates for members of the SAIF deposit insurance fund such as Prime
Bank, as compared to the assessment rates for members of the BIF insurance fund
such as First Sterling Bank, on September 30, 1996, the U.S. Congress passed and
the President signed, as part of the omnibus appropriation legislation, a
BIF-SAIF rescue package which included the following provisions, among others:
(1) with certain exceptions, SAIF
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member institutions such as Prime Bank will be obligated to pay, within 60 days
after passage of the legislation, a one-time special assessment based on their
deposits as of March 31, 1995 (industry observers have estimated that this
assessment will be at a rate of approximately 65 basis points), and, as a result
of this recapitalization of the SAIF fund it is expected that the differential
between the basic deposit insurance assessment rate between BIF and SAIF members
will be reduced substantially, if not eliminated; (2) BIF and SAIF members would
begin sharing the costs of payments to the Financing Corporation ('FICO') for
debt service on FICO obligations, but at different rates, with BIF members
paying at a rate estimated to be approximately 1.3 basis points on their
insurable deposits, in contrast to SAIF members which would be paying at a rate
of approximately 6.4 basis points, resulting in a deposit insurance disparity as
between BIF and SAIF members of slightly over 5 basis points until the date that
the BIF and SAIF funds merge; (3) the BIF and SAIF funds would merge to form a
new 'Deposit Insurance Fund' on January 1, 1999 (provided there are 'no savings
association'--as opposed to state savings bank such as Prime Bank--on that
date); (4) the Treasury Department would be directed to report to Congress by
March 31, 1997 on issues relating to the possible merger of the OTS and the OCC
and a combination of federal thrift charters and national bank charters into a
single federal banking charter; (5) the federal banking regulators would be
authorized to prohibit SAIF insured institutions from inducing customers to
shift their deposits to affiliated BIF-insured institutions; and (6) a number of
regulatory relief provisions were included.
In addition, in September 1996, legislation was introduced in Congress
which would provide for a common federal charter for banks and savings
associations, but would not apply to state chartered commercial banks such as
First Sterling Bank or state chartered savings banks such as Prime Bank. As
introduced, the legislation would also liberalize the powers of 'financial
services holding companies', which could include New Prime, whether they are
bank holding companies or savings and loan holding companies. However, the
prospects for passage of that legislation and its possible effects on New Prime
are uncertain and not possible to assess with any certainty at this time.
While the passage of the pending federal BIF-SAIF legislation will require
a cash payment by Prime Bank in the approximate amount of $2.9 million and will
result in a charge to pre-tax earnings for the period ended September 30, 1996,
it is not otherwise expected to have significant impact on the financial
position or results of operations of Prime Bank. With the passage of this
legislation, the competitive disadvantages presented to a SAIF member such as
Prime Bank have been substantially eliminated. Furthermore, the passage of that
legislation, together with the August 1996 federal bad debt reserve tax
legislation will increase the strategic options available to New Prime in
choosing charters for its subsidiary institutions. Management of Prime has not
made any decisions relating to possible mergers of Prime Bank and First Sterling
Bank, issues relating to charters of any subsidiary institutions, or issues
relating to disparities in costs of maintaining BIF deposits versus SAIF
deposits, during periods following completion of the Merger.
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FIRST STERLING BANCORP, INC.
GENERAL
First Sterling is a Pennsylvania business corporation which is registered
as a bank holding company under the Federal Bank Holding Company Act of 1956, as
amended (the 'BHCA'). First Sterling was incorporated on January 15, 1987 for
the purpose of organizing First Sterling Bank and thereby enabling First
Sterling Bank to operate within a bank holding company structure. First Sterling
became an active bank holding company on June 1, 1988, when First Sterling Bank
received the authority to begin operations from the PADOB and it received
permission from the FRB to commence activity as a bank holding company. First
Sterling Bank is a wholly owned subsidiary of First Sterling.
First Sterling's sole activity consists of owning and supervising First
Sterling Bank, which engages in the commercial and consumer banking business.
First Sterling, through First Sterling Bank, derives all of its income from the
furnishing of banking and bank related services.
First Sterling is a legal entity separate and distinct from First Sterling
Bank. The rights of First Sterling, and thus the rights of First Sterling's
creditors and shareholders, to participate in the distribution of the assets or
earnings of First Sterling Bank, are necessarily subject to the prior claims of
First Sterling Bank, except to the extent that claims of First Sterling itself
as a creditor may be recognized. Such claims on First Sterling Bank by creditors
other than First Sterling include obligations in respect of federal funds
purchased and certain other borrowings, as well as deposit liabilities.
First Sterling directs the policies and coordinates the financial resources
of First Sterling Bank. First Sterling provides and performs various technical,
advisory and auditing services for First Sterling Bank, coordinates First
Sterling Bank's general policies and activities and participates in First
Sterling Bank's major business decisions.
As of June 30, 1996, First Sterling, on a consolidated basis had total
assets of $227,944,000, total deposits of $157,014,000 and total shareholder's
equity of $12,676,000.
FIRST STERLING BANK
First Sterling Bank is a Pennsylvania state chartered banking institution
and member of the Federal Reserve System. On March 14, 1987, an Application to
Establish a State Chartered Banking Institution was filed and accepted by the
PADOB, which granted preliminary approval of the application on May 21, 1987. On
May 26, 1988, the PADOB granted First Sterling Bank a Certificate of Authority
to conduct business. First Sterling Bank commenced banking operations pursuant
to its charter on June 1, 1988.
First Sterling Bank offers a broad range of commercial banking services
from its Devon, Pennsylvania headquarters as well as from its branch offices.
First Sterling Bank's Primary Service Area ('PSA') encompasses the counties of
Chester, Delaware and Montgomery.
As of October 1, 1996, First Sterling Bank operated a total of five (5)
locations: Devon, Chester County; St. David's, Delaware County; Bryn Mawr,
Montgomery County; Bala Cynwyd, Montgomery County; and Media, Delaware County.
SERVICES
First Sterling Bank serves the needs of its customers by offering a wide
range of credit and deposit services. Credit services, predominantly to small
and medium sized businesses and their owners, include lines of credit, term
loans, mortgage loans, revolving credit lines and letters of credit. First
Sterling Bank also offers Merchant Credit Card services, consumer credit
services including personal credit lines, VISA cards, automobile loans,
installment loans, and home improvement loans. Deposit services include a full
range of commercial and personal deposit services including checking accounts,
NOW accounts, money market accounts, certificates of deposit, statement savings,
sweep
68
<PAGE>
accounts, zero balance accounts, automatic and telephone transfers, individual
retirement accounts, and direct deposit.
All deposits, up to the full extent permitted by law, are insured by the
FDIC. First Sterling Bank is a member of the MAC automated teller network and
operates MAC machines at the St. David's and Bryn Mawr office locations. Other
services include safe deposit boxes, Series EE bonds, traveler's checks, money
orders, and VISA cash advances. Trust services are not offered by First Sterling
Bank.
COMPETITION
In all phases of its business, First Sterling Bank competes with numerous
regionally based commercial banks, most of which have assets, capital and
lending limits larger than those of First Sterling Bank. There are several other
community commercial banks in First Sterling Bank's PSA. First Sterling Bank,
along with other commercial banks, competes with respect to its lending
activities and in attracting demand deposits with savings banks, credit unions,
savings and loan associations, insurance companies, regulated small loan
companies and with non-bank issuers of commercial paper and other securities,
such as shares in money market funds.
In order to compete with the other financial institutions located both
within and outside of its PSA, First Sterling Bank uses, to the fullest extent
possible, the flexibility provided by its ability to make lending decisions
locally. This includes an emphasis on specialized services for small and medium
sized businesses and their owners, professionals, and personal contacts by First
Sterling Bank's officers, directors and employees. If there are customers whose
loan demands exceed First Sterling Bank's lending limit, First Sterling Bank
seeks to arrange for such loans on a participation basis with other financial
institutions.
First Sterling Bank attempts to be competitive with the other financial
institutions in its PSA with respect to interest rates paid on certificates of
deposit and money market accounts and interest rates charged on loans.
OFFICES
As of October 1, 1996, First Sterling Bank operated a headquarters office
and branch containing approximately 9,500 square feet at 80 West Lancaster
Avenue, Devon, Pennsylvania and four other branch locations. One branch,
containing 3,124 square feet, is located in St. David's at the corner of Radnor
Chester Road and Route 30; the second branch, containing 2,250 square feet, is
located in Bryn Mawr at 22 North Bryn Mawr Avenue. The third branch has 4,500
square feet and is located at 50 Monument Road in Bala Cynwyd. First Sterling
Bank's fifth location contains approximately 7,000 square feet and is located at
101 West Baltimore Pike in Media.
PRIME NEWCO, INC.
New Prime has been formed solely for the purposes of effecting the Merger.
It has no assets and has had no business or operations since its incorporation
in September, 1996 and will not have any business or operations until such time
as the Merger is effected.
Consequently, New Prime has no financial statements to file or report on,
no results of operation for management to discuss and analyze and no properties.
It is not a party to any legal proceedings. Its shares are not presently
registered under the Securities Exchange Act of 1934, and are not traded on any
exchange or automated quotation system. No dividends have been paid on the
outstanding shares of New Prime's common stock.
Upon completion of the Merger, New Prime will change its name to 'Prime
Bancorp, Inc.' and will succeed to the business and assets of Prime and First
Sterling and the Prime Stock is intended to be registered under the Securities
Exchange Act of 1934 and traded on the Nasdaq National Market System under the
symbol 'PSAB.'
69
<PAGE>
PRO FORMA CONDENSED COMBINED FINANCIAL DATA
The following table sets forth selected unaudited consolidated pro forma
financial data of Prime and First Sterling at the dates and for the periods
indicated, after giving effect to the Merger using the pooling of interests
method of accounting. See 'The Merger -- Accounting Treatment.' The unaudited
pro forma condensed combined financial data set forth below should be read in
conjunction with, and is qualified in its entirety by, the historical
consolidated financial statements of Prime and First Sterling, including the
related notes, which are contained in Annex F hereto or incorporated herein by
reference, and in conjunction with the selected consolidated historical and
other unaudited pro forma combined condensed consolidated financial information
appearing elsewhere herein. See 'Selected Consolidated Financial Data.' The data
set forth below is not necessarily indicative of the results of the future
operations of New Prime upon consummation of the Merger or the actual results
that would have been achieved had the Merger been consummated prior to the
periods indicated.
PRO FORMA COMBINED BALANCE SHEET
(UNAUDITED)
JUNE 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FIRST PRO FORMA
PRIME STERLING ADJUSTMENTS BALANCE
--------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Assets
Cash in Banks................................................. $ 17,338 $ 4,595 $ $ 21,933
Interest-bearing deposits..................................... 3,286 192 3,478
Federal funds sold............................................ -- 1,100 1,100
--------- --------- ----------- -----------
Cash and cash equivalents................................... 20,624 5,887 26,511
--------- --------- ----------- -----------
Investment securities......................................... 10,368 643 11,011
Investment securities available for sale at market value...... 43,587 46,795 90,382
Mortgage-backed securities.................................... 96,403 158 96,561
Mortgage-backed securities available for sale at market
value....................................................... 55,544 -- 55,544
Loans receivable.............................................. 380,064 172,494 552,558
Deferred fees, net.......................................... (80) -- (80)
Allowance for loan losses................................... (3,737) (2,509) (1,000)(4) (7,246)
--------- --------- ----------- -----------
Loans receivable, net..................................... 376,247 169,985 (1,000) 545,232
--------- --------- ----------- -----------
Loans held for sale........................................... 6,654 -- 6,654
Accrued interest receivable................................... 4,894 2,101 6,995
Real estate owned, at cost.................................... 481 102 583
Land acquired for development and resale...................... 10,107 -- 10,107
Property and equipment........................................ 9,200 1,031 (300)(4) 9,931
Goodwill...................................................... 3,623 -- 3,623
Other assets.................................................. 6,828 1,242 847(8) 8,917
--------- --------- ----------- -----------
$ 644,560 $ 227,944 $ (453) $ 872,051
--------- --------- ----------- -----------
--------- --------- ----------- -----------
Liabilities and Stockholders' Equity
Liabilities:
Deposits.................................................... $ 499,781 $ 157,014 $ $ 656,795
Advances from Federal Home Loan Bank of Pittsburgh.......... 12,000 48,622 60,622
Other borrowed money........................................ 68,760 6,168 (1,050)(7) 73,878
Advance payments by borrowers for taxes and insurance....... 2,163 279 2,442
Other liabilities........................................... 3,808 3,185 1,550(4) 8,543
--------- --------- ----------- -----------
586,512 215,268 500 802,280
--------- --------- ----------- -----------
Stockholders' equity
Common stock................................................ 3,909 1,470 95(6,7) 5,474
Additional paid-in capital.................................. 30,637 6,622 829(6,7) 38,088
Retained earnings........................................... 26,257 4,729 (2,075)(4,6) 28,911
Valuation adjustment for debt securities net of taxes....... (1,940) 53 -- (1,887)
Treasury Stock.............................................. (815) (198) 198(6) (815)
--------- --------- ----------- -----------
58,048 12,676 (953) 69,771
--------- --------- ----------- -----------
$ 644,560 $ 227,944 $ (453) $ 872,051
--------- --------- ----------- -----------
--------- --------- ----------- -----------
Book value per share.......................................... $ 15.58 $ 8.72 $ 13.19
</TABLE>
See footnotes on page 75.
70
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FIRST PRO FORMA
PRIME STERLING BALANCE
----------- ------------ -----------
<S> <C> <C> <C>
Interest income........................................................... $ 22,560 $ 9,101 $ 31,661
Interest expense.......................................................... 11,068 4,861 15,929
----------- ------------ -----------
Net interest income....................................................... 11,492 4,240 15,732
Provision for loan losses................................................. 650 185 835
----------- ------------ -----------
Net interest income after provision for loan losses....................... 10,842 4,055 14,897
Gain (loss) on sale of assets............................................. 198 4 202
Rental income............................................................. 143 -- 143
Other income.............................................................. 1,033 344 1,377
Non-interest expense...................................................... 7,235 2,799 10,034
----------- ------------ -----------
Income before income taxes................................................ 4,981 1,604 6,585
Income tax expense........................................................ 1,733 550 2,283
----------- ------------ -----------
Net income................................................................ $ 3,248 $ 1,054 $ 4,302
----------- ------------ -----------
----------- ------------ -----------
Earnings per share:
Primary................................................................. $ .86 $ .69 $ .80
Fully diluted........................................................... $ .86 $ .66 $ .78
Weighted average number of shares outstanding:
Primary................................................................. 3,777,707 1,517,647 5,390,064
Fully diluted........................................................... 3,780,589 1,628,157 5,503,456
</TABLE>
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FIRST PRO FORMA
PRIME STERLING BALANCE
----------- ------------ -----------
<S> <C> <C> <C>
Interest income........................................................... $ 21,044 $ 7,579 $ 28,623
Interest expense.......................................................... 10,599 4,016 14,615
----------- ------------ -----------
Net interest income....................................................... 10,445 3,563 14,008
Provision for loan losses................................................. 356 237 593
----------- ------------ -----------
Net interest income after provision for loan losses....................... 10,089 3,326 13,415
Gain (loss) on sale of assets............................................. 328 (17) 311
Rental income............................................................. 54 -- 54
Other income.............................................................. 809 286 1,095
Non-interest expense...................................................... 6,609 2,435 9,044
----------- ------------ -----------
Income before income taxes................................................ 4,671 1,160 5,831
Income tax expense........................................................ 1,709 398 2,107
----------- ------------ -----------
Net income................................................................ $ 2,962 $ 762 $ 3,724
----------- ------------ -----------
----------- ------------ -----------
Earnings per share:
Primary................................................................. $ .79 $ .50 $ .71
Fully diluted........................................................... $ .79 $ .48 $ .70
Weighted average number of shares outstanding:
Primary................................................................. 3,759,949 1,521,836 5,281,785
Fully diluted........................................................... 3,761,713 1,632,346 5,394,059
</TABLE>
See footnotes on page 75.
71
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FIRST PRO FORMA
PRIME STERLING BALANCE
----------- ------------ -----------
<S> <C> <C> <C>
Interest income........................................................... $ 42,795 $ 16,184 $ 58,979
Interest expense.......................................................... 21,825 8,732 30,557
----------- ------------ -----------
Net interest income....................................................... 20,970 7,452 28,422
Provision for loan losses................................................. 644 485 1,129
----------- ------------ -----------
Net interest income after provision for loan losses....................... 20,326 6,967 27,293
Gain (loss) on sale of assets............................................. 728 4 732
Rental income............................................................. 174 -- 174
Other income.............................................................. 1,954 583 2,537
Non-interest expense...................................................... 13,831 5,099 18,930
----------- ------------ -----------
Income before income taxes................................................ 9,351 2,455 11,806
Income tax expense........................................................ 3,498 839 4,337
----------- ------------ -----------
Net income................................................................ $ 5,853 $ 1,616 $ 7,469
----------- ------------ -----------
----------- ------------ -----------
Earnings per share:
Primary................................................................. $1.56 $1.07 $1.42
Fully diluted........................................................... $1.55 $1.03 $1.39
Weighted average number of shares outstanding:
Primary................................................................. 3,762,728 1,515,253 5,277,981
Fully diluted........................................................... 3,773,808 1,625,763 5,399,571
</TABLE>
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FIRST PRO FORMA
PRIME STERLING BALANCE
----------- ------------ -----------
<S> <C> <C> <C>
Interest income........................................................... $ 34,986 $ 12,082 $ 47,068
Interest expense.......................................................... 15,253 6,027 21,280
----------- ------------ -----------
Net interest income....................................................... 19,733 6,055 25,788
Provision for loan losses................................................. 1,243 351 1,594
----------- ------------ -----------
Net interest income after provision for loan losses....................... 18,490 5,704 24,194
Gain (loss) on sale of assets............................................. (104) (117) (221)
Rental income............................................................. 321 -- 321
Other income.............................................................. 1,578 499 2,077
Non-interest expense...................................................... 11,336 4,698 16,034
----------- ------------ -----------
Income before income taxes................................................ 8,949 1,388 10,337
Income tax expense........................................................ 3,141 484 3,625
----------- ------------ -----------
Net income................................................................ $ 5,808 $ 904 $ 6,712
----------- ------------ -----------
----------- ------------ -----------
Earnings per share:
Primary................................................................. $1.55 $ .62 $1.29
Fully diluted........................................................... $1.55 $ .61 $1.27
Weighted average number of shares outstanding:
Primary................................................................. 3,736,405 1,464,598 5,201,003
Fully diluted........................................................... 3,736,405 1,575,108 5,311,513
</TABLE>
See footnotes on page 75.
72
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
YEAR ENDED DECEMBER 31, 1993
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FIRST PRO FORMA
PRIME STERLING BALANCE
----------- ------------ -----------
<S> <C> <C> <C>
Interest income........................................................... $ 31,310 $ 10,643 $ 41,953
Interest expense.......................................................... 13,150 5,133 18,283
----------- ------------ -----------
Net interest income....................................................... 18,160 5,510 23,670
Provision for loan losses................................................. 1,442 718 2,160
----------- ------------ -----------
Net interest income after provision for loan losses....................... 16,718 4,792 21,510
Gain (loss) on sale of assets............................................. 279 112 391
Rental income............................................................. 350 -- 350
Other income.............................................................. 1,233 626 1,859
Non-interest expense...................................................... 9,807 3,786 13,593
----------- ------------ -----------
Income before income taxes and effect of cumulative change in accounting
principle............................................................... 8,773 1,744 10,517
Income tax expense........................................................ 3,349 590 3,939
----------- ------------ -----------
Income before effect of cumulative change in accounting principle......... 5,424 1,154 6,578
Cumulative effect on prior years of change in tax accounting method....... 1,055 -- 1,055
----------- ------------ -----------
Net income................................................................ $ 6,479 $ 1,154 $ 7,633
----------- ------------ -----------
----------- ------------ -----------
Primary earnings per share:
Income before effect of cumulative change in accounting principle....... $1.46 $0.83 $1.30
Cumulative effect on prior years of change in tax accounting method..... 0.28 -- 0.21
Net income.............................................................. $1.75 $0.83 $1.51
Fully diluted earnings per share:
Income before effect of cumulative change in accounting principle....... $1.46 $0.79 $1.27
Cumulative effect on prior years of change in tax accounting method..... 0.28 -- 0.20
Net income.............................................................. $1.75 $0.79 $1.47
Weighted average number of shares outstanding:
Primary................................................................. 3,706,276 1,396,503 5,102,779
Fully diluted........................................................... 3,712,344 1,520,032 5,232,376
</TABLE>
See footnotes on page 75.
73
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
YEAR ENDED DECEMBER 31, 1992
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FIRST PRO FORMA
PRIME STERLING BALANCE
----------- ------------ -----------
<S> <C> <C> <C>
Interest income........................................................... $ 30,691 $ 9,336 $ 40,027
Interest expense.......................................................... 14,944 4,886 19,830
----------- ------------ -----------
Net interest income....................................................... 15,747 4,450 20,197
Provision for loan losses................................................. 1,200 963 2,163
----------- ------------ -----------
Net interest income after provision for loan losses....................... 14,547 3,487 18,034
Gain (loss) on sale of assets............................................. 220 451 671
Rental income............................................................. 214 -- 214
Other income.............................................................. 1,668 321 1,989
Non-interest expense...................................................... 8,769 3,225 11,994
----------- ------------ -----------
Income before income taxes and extraordinary credit....................... 7,880 1,034 8,914
Income tax expense........................................................ 3,177 353 3,530
----------- ------------ -----------
Income before extraordinary credit........................................ 4,703 681 $ 5,384
Extraordinary credit...................................................... -- 348 348
Net income................................................................ $ 4,703 $ 1,029 $ 5,732
----------- ------------ -----------
----------- ------------ -----------
Primary earnings per share:
Income before extraordinary credit...................................... $1.29 $ .52 $1.08
Extraordinary credit.................................................... -- .25 .07
Net income.............................................................. 1.29 .77 1.15
Fully diluted earnings per share:
Income before extraordinary credit...................................... $1.28 $ .48 $1.05
Extraordinary credit.................................................... -- .23 .06
Net income.............................................................. $1.28 $ .71 $1.11
Weighted average number of shares outstanding:
Primary................................................................. 3,652,951 1,397,169 5,050,120
Fully diluted........................................................... 3,668,406 1,520,698 5,189,104
</TABLE>
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
YEAR ENDED DECEMBER 31, 1991
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FIRST PRO FORMA
PRIME STERLING BALANCE
----------- ------------ -----------
<S> <C> <C> <C>
Interest income........................................................... $ 33,584 $ 8,042 $ 41,626
Interest expense.......................................................... 19,598 5,054 24,652
----------- ------------ -----------
Net interest income....................................................... 13,986 2,988 16,974
Provision for loan losses................................................. 1,320 392 1,712
----------- ------------ -----------
Net interest income after provision for loan losses....................... 12,666 2,596 15,262
Gain (loss) on sale of assets............................................. 320 13 333
Rental income............................................................. 227 -- 227
Other income.............................................................. 1,702 225 1,927
Non-interest expense...................................................... 8,197 2,624 10,821
----------- ------------ -----------
Income before income taxes and extraordinary credit....................... 6,718 210 6,928
Income tax expense........................................................ 2,652 68 2,720
----------- ------------ -----------
Income before extraordinary credit........................................ 4,066 142 4,208
Extraordinary credit...................................................... -- 68 68
----------- ------------ -----------
Net income................................................................ $ 4,066 $ 210 $ 4,276
----------- ------------ -----------
----------- ------------ -----------
Primary earnings per share:
Income before extraordinary credit...................................... $1.19 $ .14 $ .88
Extraordinary credit.................................................... -- .05 .01
Net income.............................................................. 1.19 .19 .89
Fully diluted earnings per share:
Income before extraordinary credit...................................... $1.19 $ .13 $ .86
Extraordinary credit.................................................... -- .04 .01
Net income.............................................................. 1.19 .17 .87
Weighted average number of shares outstanding:
Primary................................................................. 3,416,974 1,397,169 4,814,143
Fully diluted........................................................... 3,416,974 1,520,698 4,937,672
</TABLE>
See footnotes on page 75.
74
<PAGE>
FOOTNOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL DATA
(UNAUDITED)
(1) The pro forma information presented is not necessarily indicative of the
results of operations or the combined financial position that would have
resulted had the Merger been consummated at the beginning of the applicable
periods indicated, nor is it necessarily indicative of the results of
operations in future periods or the future financial position of the
combined entities. Pro forma financial information assumes the Merger was
consummated as of the beginning of each of the periods indicated.
(2) It is assumed that the Merger will be accounted for on a pooling of
interests accounting basis, and accordingly, the related pro forma
adjustments herein reflect, where applicable, the Exchange Ratio of 1.00
share of Prime Stock for each outstanding share of First Sterling Stock. In
addition, upon consummation of the Merger, each outstanding share of PBI
Stock will become one (1) share of Prime Stock.
(3) The pro forma condensed combined income statement data does not reflect
the estimated $1.0 million addition to the provision for loan losses which
New Prime anticipates making, or charges and expenses of approximately
$1.85 million attributable to the Merger since these charges are
non-recurring.
(4) After the Merger, New Prime intends to modify its approach to the workout
of certain assets. This strategy involves the accelerated resolution of
problem assets which, New Prime believes, is more economical than a
long-term work out approach, and will allow management to concentrate its
resources on growth and revenue generation. As a result of this strategy,
New Prime will make an addition to the allowance for loan losses of
approximately $1.0 million ($620 thousand after-tax).
The pro forma combined balance sheet data at June 30, 1996 reflects
approximately $1.85 million of charges, which includes: $300 thousand for
fixed asset and service contract write downs; $375 thousand for the
reduction of both the space and term on First Sterling's office lease; $225
thousand for employee severance costs; and $950 thousand for other expenses
directly attributable to the Merger. Accordingly, pro forma stockholders'
equity has been reduced by $953 thousand, representing the after tax effect
of the charges and expenses attributable to the Merger and the conversion
of the Debentures.
(5) In February 1992, the FASB issued Statement of Financial Accounting
Standards No. 109, 'Accounting for Income Taxes' ('SFAS No. 109'). Under
the asset and liability method provided for by SFAS No. 109, deferred tax
assets and liabilities are recognized for the tax consequences of temporary
differences by applying enacted statutory tax rates applicable for future
years to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. Under SFAS No. 109, the effect on
deferred tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date.
Prime adopted SFAS No. 109 as of January 1, 1993. The cumulative effect of
this change in accounting for income taxes of $1,055,000 has been
calculated as of January 1, 1993 and is reported separately in the
consolidated statement of operations for the year ended December 31, 1993.
First Sterling also adopted SFAS No. 109 as of January 1, 1993; the impact
of SFAS No. 109 on First Sterling was immaterial.
(6) Reflects the cancellation of 15,800 shares of First Sterling Stock held as
treasury stock.
(7) Reflects the conversion of $1.05 million in principal amount of Debentures
to 110,510 shares of Prime Stock.
(8) Reflects deferred tax receivable at statutory rates totalling $847 thousand
related to approximately $1.2 million of expenses attributable to the
Merger and the addition of approximately $1.0 million to First Sterling
Bank's allowance for loan losses.
75
<PAGE>
COMPARISON OF STOCKHOLDERS' RIGHTS
Upon consummation of the Merger, the stockholders of Prime and the
shareholders of First Sterling will become shareholders of New Prime, and their
rights as such will cease to be defined and governed by the Certificate of
Incorporation and Bylaws of Prime and the Articles of Incorporation and Bylaws
of First Sterling, respectively, and as to Prime the DGCL, and will be defined
instead by the Articles of Incorporation and Bylaws of New Prime and the
provisions of the PBCL. Certain provisions of the Articles of Incorporation and
Bylaws of New Prime materially alter the rights of shareholders of First
Sterling from those that First Sterling shareholders presently have. In
addition, while the Articles of Incorporation and Bylaws of New Prime are
substantially similar to the present Certificate of Incorporation and Bylaws of
Prime, there are some differences, including a provision protecting directors
against personal liability for money damages for breaches of fiduciary duty not
involving self-dealing, recklessness or willful misconduct. The most significant
differences are summarized below. This summary is qualified in its entirety by
reference to the full text of the Articles of Incorporation and Bylaws of First
Sterling, the Certificate of Incorporation and Bylaws of Prime, and the Articles
of Incorporation and Bylaws of New Prime, all as amended from time to time. The
Articles of Incorporation and Bylaws of New Prime are attached as exhibits to
New Prime's Registration Statement on Form S-4 of which this Prospectus/Joint
Proxy Statement forms a part. In addition, there are certain differences between
the corporate laws of the State of Delaware and the Commonwealth of Pennsylvania
which could be implemented by New Prime or which otherwise affect the management
and internal affairs of New Prime. For a discussion of such provisions, see
'Certain Differences Between the Corporation Statutes of Delaware and
Pennsylvania.'
CAPITAL STOCK
Prime. Prime has the authority to issue 10,000,000 shares of common stock,
par value $1.00 per share, and 5,000,000 shares of preferred stock, par value
$1.00 per share. No shares of preferred stock of Prime are currently issued or
outstanding. The Board of Directors of Prime has the power to set the rights,
preferences, privileges and designations with respect to each class or series of
Prime preferred shares. The Board of Directors of Prime could designate
additional classes and series of, and issue additional shares of, preferred
stock without shareholder approval.
New Prime. New Prime has the authority to issue 13,000,000 shares of
common stock, par value $1.00 per share, and 2,000,000 shares of preferred
stock, par value $1.00 per share. The Board of Directors of New Prime will have
the power to set the rights, preferences, privileges and designations with
respect to each class or series of New Prime preferred shares. The Board of
Directors of New Prime could designate additional classes and series of, and
issue additional shares of, preferred stock without shareholder approval. See
'Description of New Prime Capital Stock.'
First Sterling. First Sterling has the authority to issue 5,000,000 shares
of common stock, par value $1.00 per share. No preferred stock is authorized.
VOTING POWER
Based upon the current capitalization of First Sterling and Prime, after
consummation of the Merger, Prime shareholders will hold approximately 3,725,056
shares of the common stock of New Prime and First Sterling shareholders will
hold approximately 1,454,203 shares of the common stock of New Prime. Prime
shareholders and First Sterling shareholders will hold approximately 72% and
28%, respectively, of the voting power of New Prime after the Merger. Assuming
all of the Debentures are converted to First Sterling Stock before December 31,
1996, then First Sterling shareholders would hold approximately 1,564,713 shares
of the common stock of New Prime or approximately 30% of the voting power of New
Prime after the Merger. No shareholder of either company will possess the same
relative voting power in matters put to a vote of shareholders of New Prime as
he or she had possessed prior to the transaction. See 'The First Sterling
Special Meeting -- Certain Beneficial Owners of First Sterling Stock' and 'The
Prime Special Meeting -- Certain Beneficial Owners of PBI Stock.'
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BOARD OF DIRECTORS
New Prime. The Articles of Incorporation and Bylaws of New Prime provide
for a classified Board of Directors of not less than seven nor more than 15
members with staggered terms which will run for three years, after the initial
term. Shareholders of New Prime do not have the right to vote cumulatively in
the election of Directors.
Prime. The Board of Directors of Prime currently has seven members,
divided into three classes. The Certificate of Incorporation and Bylaws of Prime
provide for a classified Board of Directors of seven members with staggered
terms which will run for three years, after the initial term. Shareholders of
Prime do not have the right to vote cumulatively in the election of Directors.
First Sterling. The Board of Directors of First Sterling currently has
seven members; its Bylaws provide for no fewer than five and no more than ten
Directors. The Articles of Incorporation and Bylaws of First Sterling currently
do not provide for a classified Board of Directors. Shareholders of First
Sterling currently do not have the right to vote cumulatively in the election of
Directors.
LIMITATION ON DIRECTORS' LIABILITY
Prime. The Certificate of Incorporation and Bylaws of Prime include no
provision limiting monetary liability on the part of Directors for breach of
fiduciary duty.
New Prime. The Bylaws of New Prime contain a provision consistent with
PBCL Section 1713 limiting the liability of Directors of New Prime for monetary
damages for any action or omission unless the Director breached or failed to
perform his fiduciary duties under Chapter 17B of the PBCL and the breach or
failure constituted self-dealing, willful misconduct or recklessness. The
limitation on liability shall not apply to liabilities for taxes or violation of
any criminal statute. APPROVAL OF THE MERGER BY HOLDERS OF THE PBI STOCK AND
FIRST STERLING STOCK WILL CONSTITUTE APPROVAL OF THIS DIRECTOR LIABILITY
PROVISION.
First Sterling. The Articles of Incorporation and Bylaws of First Sterling
include no provision limiting monetary liability on the part of Directors for
breach of fiduciary duty.
SUPERMAJORITY VOTE ON CERTAIN MATTERS
Prime. The Certificate of Incorporation of Prime prohibits the acquisition
of control of Prime, which is deemed to mean sole or shared acquisition of more
than 10% of the voting power of Prime, unless such acquisition of control was
approved by at least two-thirds of the then current Directors or at least
two-thirds of the outstanding voting securities of Prime. Furthermore, so long
as PBI Stock continues to be traded on the Nasdaq or a national securities
exchange, no offer to acquire sole or shared control of over 10% of the voting
power of Prime may be made, unless it has received either prior approval of at
least two-thirds of the directors then in office or prior approval by certain
regulatory authorities. The Certificate of Incorporation of Prime also contains
provisions that eliminate certain rights with respect to shares in excess of 10%
of the voting power of Prime ('Excess Shares') acquired by shareholders in
violation of the aforementioned supermajority voting provisions.
The Certificate of Incorporation of Prime also requires that certain
mergers, consolidations, asset transfers, transfers of voting securities of
Prime or of any of its subsidiaries, proposals for liquidation or dissolution,
or certain other transactions involving interested shareholders or their
affiliates (i.e. a shareholder holding directly or indirectly 10% or more of the
voting power of the outstanding Prime securities) will require both the
affirmative vote of 75% of all eligible voting power and over half of the voting
power excluding the interested shareholders of Prime, unless such transaction
has received the affirmative vote of a majority of certain disinterested
Directors or the value of the consideration to be received by shareholders of
Prime meets certain specified valuation tests. Lastly, the Certificate of
Incorporation of Prime contains a prohibition against the payment of 'greenmail'
to certain specified shareholders.
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New Prime. The Articles of Incorporation of New Prime contain
substantially the same provisions as described above in the Certificate of
Incorporation of Prime, except that the Articles of Incorporation of New Prime
contain no provisions relating to Excess Shares. In addition to such
supermajority vote provisions, (i) New Prime has elected initially to be covered
by the anti-takeover protective provisions of Chapter 25F (relating to business
combinations) of the PBCL and (ii) Section 2538 of the PBCL requires the
affirmative vote of a majority of shareholders, excluding shares held by an
interested shareholder, to approve certain fundamental transactions. New Prime
has elected not to be covered by certain other anti-takeover provisions of the
PBCL, namely Chapter 25E (relating to control transactions), Chapter 25G
(relating to control-share acquisitions) and Chapter 25H (relating to
disgorgement by certain controlling shareholders following attempts to acquire
control). See 'Certain Differences Between the Corporation Statutes of Delaware
and Pennsylvania -- Shareholder Protective Provisions.'
First Sterling. The Articles of Incorporation and Bylaws of First Sterling
contain no supermajority voting provisions pertaining to acquisition of control
of First Sterling, or certain mergers, consolidations, asset transfers,
transfers of voting securities of First Sterling or any of its subsidiaries,
proposals for liquidation or dissolution, or similar types of transactions.
INFORMAL SHAREHOLDER ACTION
Prime. The Certificate of Incorporation and Bylaws of Prime do not
prohibit action by shareholders by partial or unanimous written consent, which
is permissible under the DGCL.
New Prime. The Articles of Incorporation and Bylaws of New Prime do not
authorize shareholder action by partial written consent and the PBCL prohibits
such action without express authorization in the Bylaws. The Articles of
Incorporation and Bylaws of New Prime do not prohibit action by unanimous
written consent of shareholders. Thus under the PBCL such actions are permitted.
First Sterling. The Bylaws of First Sterling explicitly prohibit
shareholder action by written consent without a meeting.
MODIFICATION OF CHARTER DOCUMENTS AND BYLAWS
New Prime and Prime. In general, the Certificate of Incorporation of Prime
may be amended, as proposed by the Board of Directors, upon the affirmative vote
by a majority of the outstanding voting shares at a duly called meeting. The
Bylaws may be amended at a meeting called for such purpose upon the affirmative
vote of two-thirds of the Directors then in office or two-thirds of the
outstanding voting shares at a duly called meeting. However, amendments to
Article 8 ('Certain Business Combinations') of the Certificate of Incorporation
of Prime concerning supermajority voting requirements applicable to certain
business transactions may only be effected upon proposal by the Board of
Directors of Prime and an affirmative vote of 75% of outstanding voting shares
at a duly called meeting. The terms of the Bylaws and Articles of Incorporation
of New Prime are substantially similar to those of Prime with respect to the
aforementioned terms. See 'Comparison of Stockholders' Rights -- Supermajority
Vote on Certain Matters.'
First Sterling. The Articles of Incorporation of First Sterling may be
amended as proposed by the Board of Directors, upon the affirmative vote of a
majority of the shares present and voting at a duly called meeting, the notice
for which included notice of such proposed amendments. The Bylaws of First
Sterling may be amended upon the affirmative vote of either a majority of the
Directors or a majority of the shareholders of First Sterling entitled to vote
thereupon in each case at a duly called meeting the notice for which included
notice of such proposed amendments.
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CERTAIN DIFFERENCES BETWEEN THE CORPORATION
STATUTES OF DELAWARE AND PENNSYLVANIA
Although the DGCL and the PBCL are similar in many respects, there are a
number of differences between the two statutes which should be carefully
considered by both Prime stockholders and First Sterling shareholders in
evaluating the proposed Merger. The Articles of Incorporation and Bylaws of New
Prime also contain various provisions which modify the statutory provisions and
differ from the charter provisions of both Prime and First Sterling and,
accordingly, should be carefully considered by both Prime and First Sterling
shareholders. The following summary, which sets forth certain material
differences between the two statutes, does not purport to be a complete
statement of all differences between the DGCL and the PBCL, nor does it purport
to be a complete statement of the provisions of the two statutes which it
compares, nor the modifying provisions in the Articles of Incorporation and
Bylaws of New Prime.
All statements contained in the following summary are qualified in their
entirety by the laws of Delaware and Pennsylvania and reference is made to those
laws for a complete statement of their provisions. Certain provisions of the
PBCL are made applicable only to 'registered corporations,' which is defined to
include corporations that have, and will have, a class or series of shares
entitled to vote generally in the election of directors of a corporation, which
shares are registered with the Securities and Exchange Commission under the
Securities Exchange Act of 1934, as amended. New Prime will be a 'registered
corporation.' Among the more significant differences affecting the rights,
obligations and relationships between a corporation and its shareholders are the
following.
FIDUCIARY DUTIES OF DIRECTORS
Both the DGCL and PBCL provide that the board of directors has the ultimate
responsibility for managing the business and affairs of a corporation. In
discharging this function, directors owe fiduciary duties of care and loyalty to
the corporation and to its shareholders.
Delaware courts have held that the duty of care requires the directors to
exercise an informed business judgment. An informed business judgment means that
the directors have informed themselves of all material information reasonably
available to them. Delaware courts have also imposed a heightened standard of
conduct upon directors in matters involving a contest for control of the
corporation.
Similar to Delaware law, Pennsylvania law requires that directors perform
their duties in good faith, in a manner they reasonably believe to be in the
best interests of the corporation, and with such care, including reasonable
inquiry, skill and diligence, as a person of ordinary prudence would use under
similar circumstances. The PBCL, however, contains a provision specifically
permitting (not requiring) directors, in discharging their duties, to consider
the effects of any action taken by them upon any or all affected groups
(including, e.g. shareholders, employees, customers, creditors and certain
communities) as well as all other pertinent factors. While Prime's Certificate
of Incorporation contains a similar provision, it is unclear how such provision
would be interpreted by Delaware courts. Furthermore, unlike Delaware law, the
PBCL expressly makes clear that a director has no greater obligation to justify,
or higher burden of proof with respect to, any act relating to an actual or
potential take-over of the corporation than he or she has with respect to any
other act as a director.
LIMITATION OF DIRECTOR LIABILITY
Both the DGCL and the PBCL permit a corporation's certificate or articles
of incorporation (or bylaws in Pennsylvania) to limit a director's exposure to
monetary liability for breach of fiduciary duty. Under the DGCL, Delaware
corporations have the power to eliminate a director's personal liability for
monetary damages, except for liability for (i) breach of the duty of loyalty,
(ii) acts or omissions not in good faith or constituting intentional misconduct
or knowing violation of law, (iii) declaration of an improper dividend or an
improper redemption of stock, or (iv) any transaction from which the director
derived an improper personal benefit. There is no provision in the Prime
Certificate of Incorporation electing this limitation.
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Under the PBCL, a corporation, by the vote of its shareholders, has the
power to absolve its directors from monetary liability for actions taken or
omissions, unless (i) the director breached or failed to perform his or her
duties under the PBCL, and (ii) the breach or failure constitutes self-dealing,
willful misconduct, or recklessness. In addition, a director under Pennsylvania
law will remain personally liable pursuant to any criminal statute or for the
payment of taxes. The Bylaws of New Prime contain this protection of directors.
APPROVAL OF THE MERGER BY THE HOLDERS OF THE PBI STOCK AND FIRST STERLING STOCK
WILL CONSTITUTE APPROVAL OF THIS DIRECTOR LIABILITY PROVISION. The Articles of
Incorporation and Bylaws of First Sterling include no provision limiting
monetary liability on the part of Directors for breach of fiduciary duty.
INDEMNIFICATION
The Bylaws of New Prime and Prime, respectively, provide for
indemnification of their directors and officers consistent with Pennsylvania and
Delaware law, respectively. The Articles of Incorporation and Bylaws of First
Sterling include no provisions for indemnification of directors or officers.
Both the DGCL and the PBCL permit a corporation to indemnify any person
involved in a third party action by reason of his being an officer or director
of the corporation, against expenses, judgments, fines and settlement amounts
paid in such third party action (and against expenses incurred in any derivative
action), if such person acted in good faith and reasonably believed that his
actions were in or not opposed to the best interests of the corporation and,
with respect to any criminal proceeding, had no reasonable cause to believe that
his conduct was unlawful. Furthermore, the laws of both states provide that a
corporation may advance expenses incurred in defending any action upon receipt
of an undertaking by the person to repay the amount advanced if it is ultimately
determined that he is not entitled to indemnification.
In general, no indemnification for expenses in derivative actions is
permitted under the laws of either state in situations in which the person has
been adjudged liable to the corporation, unless a court finds him entitled to
such indemnification. If, however, the person has been successful in defending a
third party or derivative action, indemnification for expenses incurred is
mandatory under the laws of both states.
In both states, the statutory provisions for indemnification are
non-exclusive with respect to any other rights, such as contractual rights (and,
in the case of a Pennsylvania corporation, under a bylaw or vote of shareholders
or disinterested directors), to which a person seeking indemnification may be
entitled. Unlike Delaware law, however, Pennsylvania law expressly permits such
contractual or other rights to provide for indemnification against judgments and
settlements paid in a derivative or other action unless a court determines that
the act or omission giving rise to the claim for indemnification constituted
willful misconduct or recklessness. The Bylaws of New Prime do not contain such
a provision.
SHAREHOLDER PROTECTIVE PROVISIONS
While Delaware law permits corporations to adopt various charter provisions
to provide protection to shareholders, Chapter 25 of the PBCL contains certain
shareholder protective provisions which apply to a registered corporation, such
as New Prime, unless the registered corporation elects not to be governed by
such provisions. New Prime has elected in its Articles of Incorporation only to
have Chapter 25F and Section 2538 be applicable to it. The provisions, which
were added to the PBCL with the intent of protecting Pennsylvania corporations
against many abusive hostile acquisition and takeover techniques, are briefly
described below.
Chapter 25E provides that in the event a shareholder becomes a
controlling shareholder of a registered company by, individually or as part
of a group, directly or indirectly, acquiring 20% or more of the share
voting power of the company, then any remaining shareholders who object to
the transaction are entitled to compel the acquirer to purchase all
remaining shares for their fair market value in cash, including a pro-rata
share of any control premium enjoyed by the
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controlling shareholder, although non-controlling shareholders are not
precluded from selling their shares to the controlling shareholder at any
other price. There are certain exceptions to the statutory determination of
acquisition of control relating, among other circumstances, to share
acquisitions by bequest or in the course of fulfilling duties as an agent,
broker, nominee, trustee, or similar third-party. The controlling
shareholder must give notice to every voting shareholder of record of the
company when a control transaction has occurred. In the event that the
controlling shareholder and any dissenting shareholders cannot agree on the
fair market value of company shares within the proper statutory time
period, or if the controlling shareholder fails to provide proper statutory
notice of a control transaction, then the statute also provides for a
court-supervised valuation procedure and appraiser, of which dissenting
shareholders may avail themselves.
Chapter 25F generally prohibits business combinations for a period of
five years with a 20% shareholder unless all disinterested directors
approve. Subject to certain exceptions, any investor who acquires 20% or
more of the stock of a registered Pennsylvania corporation ('Interested
Shareholder') may not engage in any 'business combination' with the
corporation for a five-year period. In addition, shares which are issuable
under any agreement or upon exercise of conversion or option rights or with
respect to shares acquired in a stock split, stock dividend or
recapitalization are not included as owned by an interested shareholder for
purposes of calculating the 20% threshold. By comparison, in Delaware an
interested shareholder is defined as an acquiror of 15% or more of a
corporation's voting stock and such shareholder is subject to only a three
year moratorium on 'business combinations' with the corporation.
Both the PBCL and the DGCL define a 'business combination' to include
a merger of the corporation with the interested shareholder, a mortgage or
sale of assets having a market value of ten percent or more of the
aggregate market value of the assets or stock of the corporation to the
interested shareholder, the liquidation of the corporation as proposed by
the interested shareholder, an issuance of shares equal to five percent or
more of the market value of all outstanding shares of the corporation, and
certain other transactions which may disproportionately benefit the
interested shareholder. However, the PBCL also includes certain lease and
mortgage transactions in the definition of business combinations.
Under the PBCL, a 'business combination' with an Interested
Shareholder may occur if any of the following conditions are met: (1) if
prior to the 20% acquisition, the Board of Directors approves such
acquisition of stock or the 'business combination;' (2) following the 20%
acquisition, all holders of common stock consent; or (3) if the interested
shareholder owns 80% of the corporation's voting stock and a majority of
disinterested shareholders consent to the proposed 'business combination'
at a meeting called no earlier than three months after the 20% acquisition
and all shareholders receive a price for their shares in accordance with a
'fair price' valuation procedure provided in the PBCL. After five years,
any 'business combination' must be approved by holders of a majority of
shares other than those held by the Interested Shareholder, or all
shareholders other than the Interested Shareholder must receive a price for
their shares in accordance with a 'fair price' valuation procedure.
By contrast, the three year moratorium of the DGCL does not apply if
(1) prior to the date the acquiror becomes an interested shareholder, the
target corporation's board of directors approves the 'business combination'
or the acquisition of stock; (2) the acquiror owns 85% of the target
corporation's outstanding voting stock at the time of the transaction; or
(3) on or subsequent to the date the acquiror becomes an interested
shareholder, the 'business combination' is approved by the board of
directors and is authorized by a vote of at least two-thirds of the
outstanding stock not including stock owned by the interested shareholder.
Under the 'fair price' provisions of the PBCL, (a) the aggregate of
the cash and non-cash consideration per common share to be received by the
shareholders shall be at least equal to the higher of: (i) the highest per
share price paid by the interested shareholder at the time he was a five
percent shareholder for any common shares acquired by him within five years
prior to either
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the announcement date of the 'business combination' or the transaction by
which he became an Interested Shareholder, plus interest, minus dividends
paid during such period up to the amount of such interest; or (ii) the
higher of the market value per share on the date of announcement of the
'business combination' or on the date he first became an Interested
Shareholder, plus interest, and minus dividends, as aforesaid; and (b) the
aggregate of the cash and non-cash consideration to be paid per share,
other than on common shares, shall be at least equal to the higher of the
amounts determined under the foregoing clauses (i) and (ii), as applied to
shares other than common shares, or the highest preferential amount upon
liquidation plus the amount of dividends to which holders of shares of such
class are entitled; and (c) the consideration for the common or other
shares shall be paid promptly to all shareholders other than the interested
shareholder in cash or in the same form as paid by the Interested
Shareholder to acquire the largest number of shares previously acquired by
him or her. Section 2556 of the PBCL should be consulted for the exact
terms of the fair price provisions.
As with the DGCL, the PBCL may have the effect of encouraging would-be
acquirors of the company to negotiate directly with the board of directors.
Further, the 'fair price' provisions of the PBCL may provide in the
circumstances indicated above benefits to the company's shareholders.
Chapter 25G provides that a shareholder loses his voting rights in a
control share acquisition, i.e. the purchase of more than 20% of the
company's stock, unless and until the remaining shareholders of the company
vote to restore voting rights after a detailed information statement is
provided to all shareholders, and the company is also provided a right to
redeem the stock for a period of two years.
Chapter 25H provides for the disgorgement of greenmail profits, i.e.
any profits earned over the original purchase price during a certain period
of time.
Section 2538 concerns transactions involving interested shareholders,
which are defined to be shareholders that are a party to a transaction, or
that are treated differently from other shareholders in a transaction, or
persons acting in concert with, under common control with, or controlling,
directly or indirectly, the interested shareholder, with the exception of
certain agents and other such third-parties. Section 2538 requires the
affirmative vote of a majority of all shareholders, excluding shares held
by an interested shareholder, to approve certain fundamental transactions
such as a merger, consolidation, share exchange, sale of a substantial
portion of the company's assets, division, voluntary dissolution,
winding-up, or reclassification of the company. However, such shareholder
approval provisions do not apply (1) when the transaction has been approved
by a majority of the board of directors, excluding directors who have a
material equity interest in the interested shareholder or who were
nominated for election by the interested shareholder and were first elected
to the board within 24 months of the transaction; (2) if the consideration
to be received by shareholders of any class in the transaction is at least
equal to the highest amount paid by the interested shareholder in acquiring
shares of the same class; or (3) if the plan of merger or consolidation
relating to the transaction does not require the approval of company
shareholders under PBCL Section 1924(b)(1)(ii) because immediately prior to
the adoption of the plan and continuously until the effective date of the
transaction another party to the merger or consolidation directly or
indirectly owns at least 80% of the outstanding shares of each class of the
company. These provisions are cumulative and apply in addition to any other
approvals and procedures required by state law or the articles of
incorporation and bylaws of the company.
In addition, Pennsylvania law permits corporations such as New Prime to
adopt various charter provisions to provide protection to shareholders, which
New Prime has done and which are summarized above. See 'Comparison of
Stockholders' Rights -- Supermajority Vote on Certain Matters'.
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AMENDMENTS TO CHARTER
Under Delaware law, amending the Certificate of Incorporation of Prime
generally requires the approval of the holders of a majority of the shares
entitled to vote. Pennsylvania law, which applies to New Prime and First
Sterling, only requires the affirmative vote of a majority of the votes actually
cast on a proposed amendment, unless the articles of incorporation or bylaws
require a greater percentage. Pennsylvania law also eliminates the need for
shareholder approval of certain non-material amendments to the articles of
incorporation (such as a change in the corporate name) and eliminates the need
for class votes in order to change the par value of, or decrease the number of
authorized shares of, any class of stock.
MERGERS AND MAJOR TRANSACTIONS
Under Delaware law, fundamental corporate transactions (such as mergers,
sales of all or substantially all of the corporation's assets, dissolutions,
etc.) require the approval of the holders of a majority of the shares of Prime.
Pennsylvania law, which applies to New Prime and First Sterling, presents a
lower approval threshold by requiring only a majority of the votes actually cast
by the shareholders at the meeting. Delaware and Pennsylvania laws each permit a
corporation to increase the minimum percentage vote required above the statutory
minimums described above. As described above, the Articles of Incorporation and
Bylaws of New Prime impose higher approval requirements for certain transactions
(including mergers, interested party transactions and other fundamental
transactions). See 'Comparison of Stockholders' Rights -- Supermajority Vote on
Certain Matters.'
DIVIDENDS
Delaware law permits dividends to be paid out of (i) surplus (the excess of
net assets of the corporation over capital) or (ii) net profits for the current
or immediately preceding fiscal year, unless the net assets are less than the
capital of any outstanding preferred stock. Pennsylvania law permits the payment
of dividends unless they would render the corporation insolvent, meaning either
(i) the corporation would be unable to pay its debts as they become due in the
ordinary course of business, or (ii) the total assets of the corporation would
be less than the sum of its total liabilities plus the amount that would be
needed upon dissolution of the corporation to pay the holders of shares having a
liquidation preference.
STOCK REPURCHASES
Under the DGCL, a Delaware corporation may not purchase or redeem its own
shares when the capital of the corporation is impaired or when such purchase or
redemption would cause an impairment of the capital of the corporation. A
Delaware corporation may, however, purchase or redeem out of capital any of its
preferred shares if such shares will be retired upon acquisition, thereby
reducing the capital of the corporation. In contrast, Pennsylvania law permits a
corporation to redeem any and all classes of its shares and treats such
redemption or repurchase like a dividend, subject to the same limitations
described above.
VOTING RIGHTS
Under Delaware law, cumulative voting in the election of directors is only
permitted if expressly authorized in the charter of a corporation. The
Certificate of Incorporation of Prime does not authorize cumulative voting.
Under Pennsylvania law, however, shareholders automatically have cumulative
voting rights unless the Pennsylvania charter provides otherwise. Under the
Articles of Incorporation and Bylaws of First Sterling and of New Prime,
shareholders do not have cumulative voting rights.
APPRAISAL OR DISSENTERS RIGHTS
The rights of shareholders to demand payment in cash by a corporation of
the fair value of their shares under certain circumstances are called appraisal
rights under the DGCL and dissenters rights under the PBCL. Delaware law does
not afford appraisal rights to holders of shares which are either
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listed on a national securities exchange, quoted on the Nasdaq National Market
or held of record by more than 2,000 shareholders, unless the plan of merger or
consolidation converts such shares into anything other than stock of the
surviving corporation or stock of another corporation which is either listed on
a national securities exchange, quoted on the Nasdaq National Market or held of
record by more than 2,000 shareholders. For this reason, shareholders of Prime
will not have appraisal rights in connection with the Merger.
Pennsylvania law is substantially the same as Delaware law regarding
appraisal rights, except that (i) Pennsylvania law does not automatically deny
dissenters rights to holders of shares quoted on the Nasdaq National Market and
(ii) where shares are listed on a national exchange or held of record by more
than 2,000 shareholders, dissenters rights will nevertheless be available under
Pennsylvania law unless the plan converts such shares into stock of the
surviving or new corporation. As a result of the Merger, since First Sterling
will not be the surviving corporation, the shareholders of First Sterling will
have dissenters rights with respect to the Merger.
AMENDMENTS TO BYLAWS
Under Delaware law, if the certificate of incorporation confers on the
board of directors the power to amend the bylaws, the DGCL does not limit the
power of the board to make changes in the bylaws. Under Pennsylvania law,
however, the board's power to adopt or amend bylaw provisions on specified
subjects is limited absent a contrary provision in the articles.
Under Delaware law, a corporation's bylaws may be amended by the
shareholders at any annual meeting, without the need to obtain the consent of
the board of Directors or to give prior notice that such action would be taken
at the meeting. Pennsylvania law is more restrictive to shareholders, as it
requires that a copy of any proposed amendment to the bylaws, or a summary
thereof, be included with the notice of the meeting at which the shareholders
wish to amend a Pennsylvania corporation's bylaws.
ACTION BY WRITTEN CONSENT
Delaware law permits a majority of shareholders to consent in writing to
any action without a meeting, unless the certificate of incorporation prohibits
such written consent, which is not the case with Prime as the Bylaws of Prime
are silent on this subject. The PBCL permits shareholders of a non-registered
Pennsylvania business corporation to act by unanimous written consent, unless
restricted by the by-laws. In addition, if the bylaws so provide, the PBCL also
permits shareholders to act by written consent of the minimum number of votes
that would be necessary to authorize the action at a meeting at which all
shareholders entitled to vote thereon were present and voting, provided that
shareholders who did not consent to the action were given at least ten days
written notice prior to the effectiveness of the action. However, the bylaws of
First Sterling explicitly prohibit shareholder action by written consent without
a meeting. With respect to registered corporations such as New Prime,
Pennsylvania law also permits action by less than unanimous written consent of
its shareholders, but only when specifically authorized in the articles of
incorporation of the registered company. No such express authorization is
contained in the articles of incorporation of New Prime.
SPECIAL MEETINGS OF SHAREHOLDERS
Both Delaware and Pennsylvania laws permit a special meeting of the
shareholders to be called by the board of directors or such other person as may
be authorized by the corporation's charter or bylaws. In addition, the PBCL
permits a special meeting of the shareholders of a non-registered business
corporation to be called by shareholders entitled to cast at least 20% of the
votes that all shareholders are entitled to cast at the particular meeting,
unless otherwise provided in the articles of incorporation. However, the PBCL
explicitly states that the shareholders of a registered business corporation do
not have a statutory right to call special meetings of the shareholders,
although such a right may be granted by the bylaws or charter of the
corporation.
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ANNUAL MEETING OF SHAREHOLDERS
Under Delaware law, if the annual meeting for the election of directors is
not held on the designated date the directors are required to cause such meeting
to be held as soon thereafter as may be convenient. If they fail to do so for a
period of 80 days after the designated date, or if no date has been designated,
for a period of 18 months after the organization of the corporation or after its
annual meeting, the Court of Chancery may summarily order a meeting to be held
upon application of any shareholder or director.
Under Pennsylvania law, if the annual meeting of shareholders for election
of directors is not called and held within six months after the designated time,
any shareholder may call such meeting at any time thereafter without application
to the court.
CASE LAW AND COURT SYSTEMS
There is a substantial body of case law in Delaware interpreting the
corporation law of that state. A comparable body of judicial interpretations
does not exist in Pennsylvania. Delaware also has established a system of
Chancery Courts to adjudicate matters arising under its corporation law.
Pennsylvania is considering but has not yet established an equivalent court
system. As a result of these factors there may be less certainty as to the
outcome of matters governed by Pennsylvania corporation law, and therefore it
may be more difficult to obtain legal guidance as to such matters than would be
the case under Delaware law.
DESCRIPTION OF NEW PRIME CAPITAL STOCK
GENERAL
New Prime has the authority to issue 13,000,000 shares of common stock, par
value $1.00 per share, and 2,000,000 shares of preferred stock, par value $1.00
per share. Based on the current capitalization of First Sterling and Prime,
5,179,259 shares of the common stock of New Prime are expected to be issued and
outstanding as of the Effective Time. In the event the First Sterling Debentures
are converted prior to the Effective Time, an additional 110,510 shares of Prime
Stock will be issued and outstanding as of the Effective Time for a total of
5,289,769 shares. No shares of preferred stock of New Prime are currently issued
or outstanding.
The authorized but unissued shares of the common stock and preferred stock
of New Prime will be available for future corporate purposes, such as raising
capital, stock dividends, employee incentive plans, acquisitions and other
purposes as determined by the Board of Directors of New Prime. It is not the
intention of the Board of Directors of New Prime to seek approval of the holders
of shares of the capital stock of New Prime for future issuance of any of the
additional shares, except as may be required by applicable laws or rules of the
National Association of Securities Dealers, Inc. (the 'NASD'). Presently, NASD
rules require prior shareholder approval of transactions (other than a public
offering for cash) in which there will be issued common stock, or securities
convertible into or exercisable for common stock, having voting power equal to
or in excess of 20% of the voting power outstanding prior to the issuance of
such securities.
The following summary does not purport to be complete and is subject in all
respects to the applicable provisions of the PBCL, and the Articles of
Incorporation and Bylaws of New Prime.
THE FOLLOWING DESCRIPTIONS OF THE CAPITAL SECURITIES OF NEW PRIME SHOULD BE
READ CAREFULLY BY SHAREHOLDERS OF FIRST STERLING AND PRIME SINCE, AT THE
EFFECTIVE TIME, EACH ISSUED AND OUTSTANDING SHARE OF FIRST STERLING STOCK AND OF
PBI STOCK WILL BE CONVERTED INTO 1.00 FULLY PAID AND NONASSESSABLE SHARES OF THE
COMMON STOCK OF NEW PRIME.
85
<PAGE>
COMMON STOCK
Voting Rights. Each holder of the common stock of New Prime has one vote
on matters presented for consideration by the shareholders for each share held.
There are no cumulative voting rights in the election of directors. All issued
and outstanding shares of the common stock of New Prime will be fully paid and
non-assessable. In certain circumstances, if the directors of New Prime from
time to time decide to designate or issue any class or series of preferred stock
with such rights, preferences, privileges and designations as they may
determine, any such class or series of preferred stock issued by New Prime may
affect voting rights of the common stock of New Prime. Super-majority voting
provisions apply in certain situations; for a discussion of such provisions see
'Comparison of Stockholders' Rights -- Supermajority Vote on Certain Matters'.
Dividends. Each holder of the common stock of New Prime is entitled to
share ratably in dividends out of funds legally available therefor, when and as
declared by the Board of Directors of New Prime, after full cumulative dividends
on any class or series of preferred stock ranking superior as to dividends to
the common stock of New Prime have been paid or declared and funds sufficient
for the payment thereof set apart, and after the payment of the full amount of
sinking fund, retirement fund, or other retirement payments, if any, to which
holders of shares of the preferred stock of New Prime may be entitled in
preference to the common stock.
Preemptive Rights. The holders of the common stock of New Prime have no
preemptive rights to acquire any new or additional unissued shares or treasury
shares of the capital stock of New Prime.
Liquidation. In the event of a liquidation, dissolution or winding up of
New Prime, whether voluntary or involuntary, the holders of common stock of New
Prime will be entitled to share ratably in any assets or funds of New Prime that
are available for distribution to its shareholders after the satisfaction of its
liabilities (or after adequate provision is made therefor) and after preferences
on any outstanding preferred stock.
PREFERRED STOCK
The Board of Directors of New Prime has the authority, without further
action by the holders of the outstanding shares of common stock of New Prime, to
issue shares of preferred stock of New Prime from time to time in one or more
classes or series and to fix the number of shares constituting any class or
series. The Board of Directors of New Prime shall have the power to fix the
terms of any such series or class, including designations, preferences, and
relative, participating, optional or other special rights, and the
qualifications, limitations or restrictions relating thereto, including voting
rights, dividends, rights on liquidation, dissolution or winding up, conversion
or exchange rights and redemption provisions (including sinking fund
provisions), if any. The designations, rights and preferences of any class or
series of preferred shares of New Prime which may be issued would be set forth
in a statement which would be filed with the Secretary of State of Pennsylvania.
The issuance in the future of shares of preferred stock of New Prime, or
the designation of authorized but unissued shares of preferred stock of New
Prime with voting and other rights which may be established by the Board of
Directors in its discretion without shareholder approval, may be used by the
Board of Directors of New Prime to create voting impediments or otherwise delay
or prevent a change in control of New Prime. By issuance of preferred shares of
New Prime, the Board of Directors could modify the rights of holders of the
common stock of New Prime. There is no current intention to issue any preferred
shares of New Prime.
EXPERTS
The consolidated statements of financial position of Prime as of December
31, 1995 and 1994, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1995, included in Prime's Annual Report on Form 10-K
and incorporated by reference herein, have been incorporated by reference herein
in reliance upon the report of KPMG Peat Marwick LLP, independent certified
public accountants,
86
<PAGE>
incorporated by reference herein, and upon the authority of said firm as experts
in accounting and auditing. The aforementioned report of KPMG Peat Marwick LLP
covering Prime's consolidated financial statements refers to changes in the
method of accounting for income taxes and investments in 1993.
The consolidated financial statements of First Sterling at December 31,
1995 and 1994, and for each of the three years in the period ended December 31,
1995, included in this Prospectus/Joint Proxy Statement and the Registration
Statement, have been audited by Coopers & Lybrand, L.L.P. as set forth in their
report thereon included herein. The consolidated financial statements of First
Sterling referred to above are included or incorporated herein in reliance upon
such reports and given upon the authority of Coopers & Lybrand, L.L.P. as
experts in accounting and auditing.
LEGAL MATTERS
The validity of the shares of common stock of New Prime to be issued by New
Prime under the Merger Agreement and certain tax and other matters relating to
the Merger will be passed upon by counsel to New Prime, Stradley, Ronon, Stevens
& Young, LLP, 2600 One Commerce Square, Philadelphia, Pennsylvania 19103.
Certain other matters relating to the Merger will be passed upon for First
Sterling by its counsel, Kania, Lindner, Lasak and Feeney, Two Bala Plaza, Suite
525, Bala Cynwyd, PA 19004.
STOCKHOLDER PROPOSALS
New Prime expects to hold its 1997 Annual Meeting on or before April 20,
1997. Stockholder proposals intended to be presented at the next Annual Meeting
must be submitted by November 20, 1996 to receive consideration for inclusion in
the proxy materials relating to that meeting. Any such proposal will be subject
to Rule 14a-8 of the rules and regulations of the Securities and Exchange
Commission.
In addition, New Prime's Bylaws provide that any stockholder wishing to
nominate a candidate for election to the Board of Directors or to bring any
other business before a meeting of stockholders must give notice of such
nomination or item of business to the company in writing received by the company
at its executive offices not less than 30 days nor more than 90 days prior to
the meeting, together with certain information concerning the stockholder making
such nomination or proposing such business and concerning the nominee or the
business proposed to be conducted, as the case may be. However, that if less
than 40 days notice or prior public disclosure of the meeting is given or made
to stockholders, such notice, to be timely, must be received no later than the
10th day following such notice or public disclosure.
87
<PAGE>
INDEX TO FINANCIAL STATEMENTS OF
FIRST STERLING BANCORP, INC. AND SUBSIDIARY
Annual Financial Statements
Report of Independent Accountants............................... F-2
Consolidated Balance Sheets at
December 31, 1995 and 1994................................... F-3
Consolidated Statements of Income
for the Years Ended
December 31, 1995, 1994 and 1993............................. F-4
Consolidated Statements of Shareholders'
Equity for the Years Ended
December 31, 1995, 1994 and 1993............................. F-5
Consolidated Statements of Cash Flows
for the Years Ended
December 31, 1995, 1994 and 1993............................. F-6
Notes to Consolidated Financial Statements...................... F-7
Interim Financial Statements
Consolidated Balance Sheets at June 30, 1996
and December 31, 1995....................................... F-22
Consolidated Statements of Income (Unaudited)
for the Three and Six Months Ended
June 30, 1996 and 1995....................................... F-23
Consolidated Statements of Cash Flows
(Unaudited) for the Six Months Ended
June 30, 1996 and 1995....................................... F-24
Notes to Consolidated Financial Statements (Unaudited).......... F-25
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
BOARD OF DIRECTORS OF
FIRST STERLING BANCORP, INC.:
WE HAVE AUDITED THE ACCOMPANYING CONSOLIDATED BALANCE SHEETS OF FIRST
STERLING BANCORP, INC. AND SUBSIDIARY (THE COMPANY) AS OF DECEMBER 31, 1995 AND
1994, AND THE RELATED CONSOLIDATED STATEMENTS OF INCOME, SHAREHOLDERS' EQUITY
AND CASH FLOWS FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31,
1995. THESE FINANCIAL STATEMENTS ARE THE RESPONSIBILITY OF THE COMPANY'S
MANAGEMENT. OUR RESPONSIBILITY IS TO EXPRESS AN OPINION ON THESE FINANCIAL
STATEMENTS BASED ON OUR AUDITS.
WE CONDUCTED OUR AUDITS IN ACCORDANCE WITH GENERALLY ACCEPTED AUDITING
STANDARDS. THOSE STANDARDS REQUIRE THAT WE PLAN AND PERFORM THE AUDIT TO OBTAIN
REASONABLE ASSURANCE ABOUT WHETHER THE FINANCIAL STATEMENTS ARE FREE OF MATERIAL
MISSTATEMENT. AN AUDIT INCLUDES EXAMINING, ON A TEST BASIS, EVIDENCE SUPPORTING
THE AMOUNTS AND DISCLOSURES IN THE FINANCIAL STATEMENTS. AN AUDIT ALSO INCLUDES
ASSESSING THE ACCOUNTING PRINCIPLES USED AND SIGNIFICANT ESTIMATES MADE BY
MANAGEMENT, AS WELL AS EVALUATING THE OVERALL FINANCIAL STATEMENT PRESENTATION.
WE BELIEVE THAT OUR AUDITS PROVIDE A REASONABLE BASIS FOR OUR OPINION.
IN OUR OPINION, THE CONSOLIDATED FINANCIAL STATEMENTS REFERRED TO ABOVE
PRESENT FAIRLY, IN ALL MATERIAL RESPECTS, THE FINANCIAL POSITION OF FIRST
STERLING BANCORP, INC. AND SUBSIDIARY AS OF DECEMBER 31, 1995 AND 1994 AND THE
CONSOLIDATED RESULTS OF THEIR OPERATIONS AND THEIR CASH FLOWS FOR EACH OF THE
THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1995, IN CONFORMITY WITH GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES.
AS DISCUSSED IN NOTE 2 TO THE CONSOLIDATED FINANCIAL STATEMENTS, THE
COMPANY ADOPTED STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 115, 'ACCOUNTING
FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES' AS OF DECEMBER 31, 1993.
COOPERS & LYBRAND L.L.P.
2400 ELEVEN PENN CENTER
PHILADELPHIA, PENNSYLVANIA
FEBRUARY 23, 1996
F-2
<PAGE>
FIRST STERLING BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1994
ASSETS:
1995 1994
------------- -------------
Cash and due from banks......... $ 4,861,330 $ 926,529
Federal funds sold.............. -- 4,800,000
Investments available for sale.. 49,833,117 30,339,944
Investments held to maturity.... 594,525 15,119,841
Federal Reserve Bank stock...... 242,800 242,800
Loans:
Commercial................... 94,507,827 75,947,150
Mortgage..................... 48,412,745 32,772,205
Consumer..................... 11,701,227 10,135,032
------------- -------------
Total loans.................. 154,621,799 118,854,387
Allowance for loan losses.... (2,318,001) (1,781,627)
------------- -------------
Loans, net................... 152,303,798 117,072,760
------------- -------------
Accrued interest and fees
receivable................. 2,143,807 1,362,593
Premises and equipment, at cost:
Leasehold improvements....... 1,042,817 1,020,497
Furniture, fixtures and
equipment.................. 995,360 991,055
Computer equipment and
software................... 926,888 819,074
------------- -------------
2,965,065 2,830,626
Accumulated depreciation..... (1,915,584) (1,551,950)
------------- -------------
Premises and equipment, net..... 1,049,481 1,278,676
Federal income taxes
receivable................... -- 24,831
Deferred income taxes........... 614,478 856,072
Prepaid expenses and other
assets....................... 342,237 302,770
------------- -------------
Total assets............... $ 211,985,573 $ 172,326,816
------------- -------------
------------- -------------
LIABILITIES:
Deposits:
Demand....................... $ 24,404,024 $ 18,581,626
Savings and money market..... 24,420,762 24,090,249
Certificates of deposit less
than $100,000.............. 96,299,709 79,863,378
Certificates of deposit of
$100,000 or more........... 22,833,811 14,879,265
------------- -------------
167,958,306 137,414,518
Repurchase agreements........... 2,778,000 1,765,000
Income taxes payable............ 16,948 --
Accrued interest payable........ 2,976,922 1,886,888
Accrued liabilities............. 1,577,325 1,788,502
Subordinated debentures......... 1,050,000 1,050,000
FHLB advances................... -- 5,000,000
FHLB notes payable.............. 23,646,201 13,694,067
------------- -------------
Total liabilities.......... 200,003,702 162,598,975
------------- -------------
Commitments and contingencies
(Note 11)
Shareholders' equity:
Common stock, par value $1
per share; 5,000,000 shares
authorized; 1,470,003
and 1,470,003 shares
outstanding at December 31,
1995 and 1994,
respectively................. 1,470,003 1,470,003
Additional paid-in capital..... 6,621,747 6,621,747
Retained earnings.............. 3,674,660 2,058,196
Unrealized gains (losses) on
investments available for
sale, net of taxes........... 412,961 (422,105)
Treasury stock, 15,800
shares, at cost.............. (197,500) --
------------- -------------
Total shareholders'
equity..................... 11,981,871 9,727,841
------------- -------------
Total liabilities and
shareholders' equity....... $ 211,985,573 $ 172,326,816
------------- -------------
------------- -------------
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
FIRST STERLING BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
-------------- -------------- --------------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans.................................... $ 12,675,922 $ 9,730,124 $ 8,760,194
Interest on investment securities and federal funds sold...... 3,285,861 2,282,644 1,765,125
Other interest and dividends.................................. 222,650 69,491 118,075
-------------- -------------- --------------
Total interest income...................................... 16,184,433 12,082,259 10,643,394
-------------- -------------- --------------
Interest expense:
Interest on savings and money market deposits................. 977,218 861,003 770,942
Interest on certificates of deposit less than
$100,000................................................... 4,975,017 3,527,942 2,754,294
Interest on certificates of deposit of $100,000 or more....... 984,241 760,045 981,273
Interest on Federal Home Loan Bank borrowings................. 1,637,419 748,669 535,155
Interest on repurchase agreements............................. 79,576 50,908 13,279
Interest on subordinated debt................................. 78,750 78,750 78,750
-------------- -------------- --------------
8,732,221 6,027,317 5,133,693
-------------- -------------- --------------
Net interest income........................................ 7,452,212 6,054,942 5,509,701
Provision for loan losses....................................... 485,000 351,000 718,000
-------------- -------------- --------------
Net interest income after provision for loan
losses.................................................. 6,967,212 5,703,942 4,791,701
Other income:
Service charges and other fees................................ 583,219 499,494 626,148
Gain (loss) on sale of investment securities.................. 4,139 (116,972) 112,048
-------------- -------------- --------------
Net interest income and other income....................... 7,554,570 6,086,464 5,529,897
-------------- -------------- --------------
Operating expenses:
Salaries and employee benefits................................ 2,214,586 1,953,316 1,525,000
Occupancy..................................................... 1,046,415 950,121 747,252
Advertising................................................... 213,000 252,033 174,653
Insurance..................................................... 223,806 342,301 288,235
Other......................................................... 1,401,585 1,200,831 1,050,278
-------------- -------------- --------------
Total operating expenses................................... 5,099,392 4,698,602 3,785,418
-------------- -------------- --------------
Income before income taxes...................................... 2,455,178 1,387,862 1,744,479
Provision for income taxes...................................... 838,714 483,700 590,414
-------------- -------------- --------------
Net income................................................. $ 1,616,464 $ 904,162 $ 1,154,065
-------------- -------------- --------------
-------------- -------------- --------------
Earnings per share:
Primary....................................................... $ 1.07 $ .62 $ .83
-------------- -------------- --------------
-------------- -------------- --------------
Weighted average shares outstanding -- Primary................ 1,515,253 1,464,598 1,396,503
-------------- -------------- --------------
-------------- -------------- --------------
Fully-diluted................................................. $ 1.03 $ .61 $ .79
-------------- -------------- --------------
-------------- -------------- --------------
Weighted Average shares outstanding --
fully-diluted.............................................. 1,625,763 1,575,108 1,520,032
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
FIRST STERLING BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
ADDITIONAL UNREALIZED TOTAL
COMMON PAID-IN ACCUMULATED SECURITIES TREASURY SHAREHOLDERS'
STOCK CAPITAL EARNINGS GAINS STOCK EQUITY
----------- ----------- ------------ ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1992.......................... $ 1,370,003 $ 5,721,747 $ (31) -- $ 7,091,719
Net income...................... -- -- 1,154,065 -- 1,839,337
Unrealized appreciation on
available-for-sale securities,
net of deferred taxes......... -- -- -- $ 685,272 --
----------- ----------- ------------ ----------- ---------- ------------
Balance, December 31,
1993.......................... 1,370,003 5,721,747 1,154,034 685,272 -- 8,931,056
Net income...................... 904,162 904,162
Issuance of common
stock......................... 100,000 900,000 1,000,000
Unrealized depreciation on
available for sale securities,
net of deferred taxes......... (1,107,377) (1,107,377)
----------- ----------- ------------ ----------- ---------- ------------
Balance, December 31,
1994.......................... 1,470,003 6,621,747 2,058,196 (422,105) -- 9,727,841
Net income...................... 1,616,464 1,616,464
Unrealized appreciation on
available for sale securities,
net of deferred taxes......... 835,066 835,066
Treasury stock.................. $ (197,500) (197,500)
----------- ----------- ------------ ----------- ---------- ------------
Balance, December 31,
1995.......................... $ 1,470,003 $ 6,621,747 $3,674,660 $ 412,961 $ (197,500) $ 11,981,871
----------- ----------- ------------ ----------- ---------- ------------
----------- ----------- ------------ ----------- ---------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
FIRST STERLING BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
-------------- -------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income...................................................... $ 1,616,464 $ 904,162 $ 1,154,065
Adjustments to reconcile net income to cash:
Provision for loan losses.................................... 485,000 351,000 718,000
Depreciation and amortization................................ 363,634 341,483 307,537
Deferred income tax benefit.................................. (188,591) (33,350) (168,790)
Amortization of premium (discount) on investments............ (26,482) 97,304 138,159
(Gain)/loss on sale of investment securities................. (4,139) 116,972 (112,048)
Increase in accrued interest receivable...................... (781,214) (252,058) (98,429)
(Increase) decrease in prepaid expenses and other assets..... (39,467) 184,954 (495,343)
Increase in accrued interest payable......................... 1,090,034 511,053 253,890
Increase (decrease) in accrued liabilities................... (211,177) 866,971 (1,530,723)
Increase in taxes payable.................................... 41,779 -- --
-------------- -------------- --------------
Net cash provided by operating activities.................. 2,345,841 3,088,491 166,318
-------------- -------------- --------------
Cash flows from investing activities:
Net increase in loans........................................... (35,716,038) (9,785,108) (19,773,260)
Additions to premises and equipment............................. (134,439) (625,488) (265,877)
Purchase of investments, available for sale..................... (30,871,431) (52,030,893) (18,862,908)
Purchase of securities, held to maturity........................ (6,958,125) (2,817,637) --
Purchase of FRB stock........................................... -- (29,900) --
Purchases of FHLB stock......................................... (572,300) (1,770,000) --
Proceeds from sales of securities available for sale............ 26,020,201 40,500,129 10,317,919
Proceeds from maturities of securities held to maturity......... 8,499,918 -- --
Principal receipts on securities available for sale............. 209,752 147,218 --
-------------- -------------- --------------
Net cash used in investing activities...................... (39,522,462) (26,411,679) (28,584,126)
-------------- -------------- --------------
Cash flows from financing activities:
Net increase in deposits........................................ 30,543,788 15,051,618 20,573,230
Increase in securities sold under agreement to repurchase....... 1,013,000 1,435,000 (100,000)
(Decrease) increase in advances under line of credit............ (5,000,000) 2,000,000 3,000,000
Increase in notes payable to Federal Home Loan Bank............. 9,952,134 3,694,067 5,000,000
Proceeds from issuance of bank stock............................ -- 1,000,000 --
Purchase of treasury stock...................................... (197,500) -- --
-------------- -------------- --------------
Net cash provided by financing activities.................. 36,311,422 23,180,685 28,473,230
-------------- -------------- --------------
Net (decrease) increase in cash and cash equivalents.............. (865,199) (142,503) 55,422
Cash and cash equivalents at beginning of year.................... 5,726,529 5,869,032 5,813,610
-------------- -------------- --------------
Cash and cash equivalents at end of year.......................... $ 4,861,330 $ 5,726,529 $ 5,869,032
-------------- -------------- --------------
-------------- -------------- --------------
Supplemental disclosures of cash flow information:
Interest paid................................................... $ 7,642,187 $ 5,515,264 $ 4,879,803
-------------- -------------- --------------
-------------- -------------- --------------
Taxes paid...................................................... $ 950,000 $ 603,922 $ 1,151,000
-------------- -------------- --------------
-------------- -------------- --------------
Noncash transactions:
Transfers to other real estate owned............................ -- -- 50,000
Change in unrealized gain/(loss) on securities, available for
sale, net of taxes of $430,185, $(570,496) and $353,000,
respectively................................................. $ 835,066 $ (1,107,377) $ 685,272
-------------- -------------- --------------
-------------- -------------- --------------
Transfer of securities from available for sale to held to
maturity..................................................... $ -- $ 6,216,704 $ --
-------------- -------------- --------------
-------------- -------------- --------------
Transfer of securities from held to maturity to available for
sale at fair value, amortized cost of $12,654,152............ $ 12,681,936 -- --
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
FIRST STERLING BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND REPORTING ENTITY
First Sterling Bancorp, Inc. (the Company) is a bank holding company
organized under the laws of the Commonwealth of Pennsylvania on January 15, 1987
to engage in commercial banking business through its wholly-owned subsidiary,
First Sterling Bank (the Bank), a Pennsylvania state-chartered bank insured by
the Federal Deposit Insurance Corporation. On May 26, 1988, the Bank was granted
a Certificate of Authority to conduct business and commenced commercial banking
operations on June 1, 1988.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary, First Sterling Bank. All intercompany balances
and transactions have been eliminated in consolidation.
Interest Rate Risk
The earnings of the Company depend on the earnings of the Bank. The Bank is
dependent primarily upon the level of net interest income, which is the
difference between interest earned on its interest earning assets, such as loans
and investments, and the interest paid on its interest-bearing liabilities, such
as deposits and borrowings. Accordingly, the operations of the Bank are subject
to risks and uncertainties surrounding its exposure to change in the interest
rate environment. The bank manages interest rate risk through its
asset/liability management strategies with the primary objective to maximize net
interest margin in current and anticipated rate environments, while balancing
interest-sensitive assets and liabilities and providing adequate liquidity for
projected needs.
Use of Estimates
In addition, the preparation of financial statements in conformity with
generally accepted accounting principles requires management to make significant
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. These significant estimates include the allowance
for loan losses. Actual results could differ from those estimates.
Investment Securities
As of December 31, 1993, the Bank elected to adopt FAS 115, 'Accounting for
Certain Investments in Debt and Equity Securities.' The impact of adopting this
standard, net of the related income tax effect, was $685,272 as of December 31,
1993. The statement requires management to make a determination as to which of
the three categories that they will classify their investments in:
Held-to-Maturity, Trading or Available-for-Sale.
Held to Maturity -- Securities identified as 'Held to Maturity' must be
held with the positive intent and ability to hold them to maturity. These
securities are reported at amortized cost.
Trading Securities -- Securities held with the intent for quick resale at a
trading profit. Trading securities are reported at fair value, with changes in
unrealized gains or losses included in current earnings.
Available for Sale -- Securities not included in the above two categories
are reported at fair value, with unrealized gains or losses, net of taxes,
excluded from earnings and reported directly as a separate component of
shareholders' equity. Securities classified as available for sale include
investments which management intends to use as part of its asset/liability
management strategy and that may be sold in response to changes in interest
rates or other factors.
F-7
<PAGE>
FIRST STERLING BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
Realized gains and losses on sale of investment securities are recognized
using the specific identification method.
On November 16, 1995, the bank restructured their investment portfolios in
connection with the amnesty window provided by the Financial Accounting
Standards Board (FASB). The Bank transferred, from its held to maturity
portfolio to its available for sale portfolio, government agency securities with
amortized cost and market values of $12,654,152 and $12,681,936, respectively,
and recorded unrealized gains and losses of $73,036 and $54,699, respectively,
net of taxes, as a separate component of shareholders' equity.
Loans and Allowances for Loan Losses
Loans are stated at the amount of unpaid principal, reduced by an allowance
for loan losses. Interest on loans is calculated by using the simple interest
method on daily balances of the principal amount outstanding.
Loans, including impaired loans, are generally classified as nonaccrual if
they are past due as to maturity or payment of principal or interest for a
period of more than 90 days, unless such loans are well-secured and in the
process of collection. If a loan or a portion of a loan is classified as
doubtful or is partially charged off, the loan is classified as nonaccrual.
Loans that are on a current payment status or past due less than 90 days may
also be classified as nonaccrual if repayment in full of principal and/or
interest is in doubt.
Loans may be returned to accrual status when all principal and interest
amounts contractually due are reasonably assured of repayment within an
acceptable period of time, and there is a sustained period of repayment
performance (generally a minimum of six months) by the borrower, in accordance
with the contractual terms of interest and principal.
While a loan is classified as nonaccrual and the future collectibility of
the recorded loan balance is doubtful, collections of interest and principal are
generally applied as a reduction to principal outstanding. When the future
collectibility of the recorded loan balance is expected, interest income may be
recognized on a cash basis. In the case where a nonaccrual loan had been
partially charged off, recognition of interest on a cash basis is limited to
that which would have been recognized on the recorded loan balance at the
contractual interest rate.
The allowance for possible loan losses is established through a provision
for loan losses charged to operations. Loans are charged against the allowance
when management believes that the collectibility of the loan principal is
unlikely. Recoveries on loans previously charged off are credited to the
allowance.
The allowance is an estimate that management believes will be adequate to
absorb possible loan losses on existing loans that may become uncollectible,
based on evaluations of the collectibility of loans and prior loan loss
experience. The evaluations take into consideration such factors as changes in
the nature and volume of the loan portfolio, overall portfolio quality and
diversification, review of specific problem loans, the adequacy of the
underlying collateral or present value of future cash flows, the results of the
most recent regulatory examination, current economic conditions and trends that
may affect the borrower's ability to pay. While management uses the best
information available to make such evaluations, future adjustments to the
allowance may be necessary if circumstances differ substantially from
assumptions used in making evaluations.
The Company adopted Statement of Financial Accounting Standards No. 114,
'Accounting by Creditors for Impairment of a Loan' ('SFAS 114') on January 1,
1995. SFAS 114 requires an adjustment to the carrying value of a loan through
the provision for possible credit losses when it is
F-8
<PAGE>
FIRST STERLING BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
'probable' that a creditor will be unable to collect all amounts due according
to the contractual terms of the loan. SFAS 114 was subsequently amended by
Statement of Financial Accounting Standards No. 118, 'Accounting by Creditors
for Impairment of a Loan -- Income Recognition and Disclosure' ('SFAS 118') to
allow a creditor to use existing methods for recognizing interest income on an
impaired loan. Impaired loans are measured based on the present value of
expected future cash flows discounted at the loan's effective interest rate or,
as a practical expedient, at the loan's observable market price or the fair
value of the collateral if the loan is collateral dependent. Impairment criteria
are applied to the loan portfolio exclusive of small homogeneous loans such as
residential mortgage and consumer loans which are evaluated collectively for
impairment. The adoption of SFAS Nos. 114 and 118 resulted in no additional
provision for loan losses.
Deferred Loan Fees
Fees for loan originations, commitments and origination costs are deferred
and recognized as an interest income yield adjustment over the terms of the
loans.
Premises and Equipment
Leasehold improvements, furniture, equipment and software are stated at
cost less accumulated depreciation and amortization. Depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are amortized over the shorter of the lease term or the
lives of the improvements on the straight-line basis. Maintenance and repairs
and minor improvements are charged to current operations as incurred. Gain or
loss on retirement or disposal of individual assets is recorded as income or
expense in the period of retirement or disposal.
Real Estate Owned
Real estate owned consists of foreclosed assets and is stated at the lower
of cost or estimated fair value minus estimated costs to sell the property.
Income Taxes
In 1993, the Company adopted Statement of Financial Accounting Standards
No. 109, 'Accounting for Income Taxes,' which requires recognition of deferred
tax liabilities and assets for the expected future tax consequences of events
that have been included in the financial statements or tax returns. Under this
method, deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse (see Note 10).
Net Income Per Share
Net income per share is calculated on the basis of the weighted average
number of shares outstanding during the period, including the assumed exercise
of dilutive stock options using the treasury stock method. The convertible
subordinated debt is not considered a common stock equivalent. Fully diluted per
share data includes the assumed conversion of the convertible subordinated debt
using the 'If Converted' method. Fully diluted earnings per share, as presented,
includes the effect of the dilutive stock options and the convertible
subordinated debt.
F-9
<PAGE>
FIRST STERLING BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents includes
cash on hand, amounts due from banks and federal funds sold. Generally, federal
funds are sold for a one-day period. The bank is required to maintain certain
average reserve balances as established by the Federal Reserve Board. The
amounts of those balances for the reserve computation periods which included
December 31, 1995 and 1994 were $478,000 and $487,000, respectively. These
requirements were satisfied through the restriction of vault cash and a balance
at the Federal Reserve Bank of Philadelphia.
Recently Issued Accounting Standards
In May 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 122 'Accounting for
Mortgage Servicing Rights' which is effective for the Company beginning January
1, 1996. The statement requires the recognition of separate assets relating to
the rights to service mortgage loans for others based on their fair value if it
is practicable to estimate the value. The statement applies prospectively to
transactions entered into in 1996, therefore there will be no cumulative effect
upon adoption of this statement. In addition, this statement is not expected to
have a significant effect on the financial position or results of operations of
the Company.
In October 1995, the FASB issued SFAS No. 123 'Accounting for Stock Based
Compensation,' which is effective for the Corporation beginning January 1, 1996.
SFAS No. 123 provides an alternative method of accounting for stock-based
compensation arrangements, based on fair value of the stock-based compensation
utilizing various assumptions regarding the underlying attributes of the options
and the Corporation's stock, rather than the existing method of accounting for
stock based compensation which is provided in Accounting Principles Board
Opinion No. 25, 'Accounting for Stock Issued to Employees' (APB 25). The FASB
encourages entities to adopt the fair value based method, but does not require
the adoption of this method. For those entities that continue to apply APB 25,
pro forma disclosure of the effect, if adopted, of SFAS 123 on net income and
earnings per share would be required in the 1996 notes to consolidated financial
statements. The Company anticipates that it will continue its current accounting
policy.
3. INVESTMENTS
Investments available for sale as of December 31, 1995 are as follows:
<TABLE>
<CAPTION>
1995
--------------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED
AGGREGATE FAIR HOLDING HOLDING
VALUE GAINS LOSSES AMORTIZED COST
-------------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
U.S. Treasury Notes......................... $ 33,358,140 $ 443,130 $ 3,966 $ 32,918,976
Agencies -- MBS............................. 14,105,077 186,535 -- 13,918,542
FHLB Stock.................................. 2,369,900 -- -- 2,369,900
-------------- ----------- ----------- --------------
Total..................................... $ 49,833,117 $ 629,665 $ 3,966 $ 49,207,418
-------------- ----------- ----------- --------------
-------------- ----------- ----------- --------------
</TABLE>
F-10
<PAGE>
FIRST STERLING BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. INVESTMENTS -- (CONTINUED)
Investments held to maturity as of December 1995 are as follows:
<TABLE>
<CAPTION>
1995
--------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED
AGGREGATE HOLDING HOLDING AMORTIZED
FAIR VALUE GAINS LOSSES COST
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Municipal bonds..................................... $ 431,391 $ 31,291 $ -- $ 400,000
Agencies............................................ 190,852 -- 3,673 194,525
----------- ----------- ----------- -----------
Total............................................. $ 622,243 $ 31,291 $ 3,673 $ 594,525
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
Investments available for sale as of December 31, 1994 are as follows:
<TABLE>
<CAPTION>
1994
-----------------------------------------------------------
GROSS
GROSS UNREALIZED
AGGREGATE FAIR UNREALIZED HOLDING
VALUE HOLDING GAINS LOSSES AMORTIZED COST
-------------- ------------- ------------ --------------
<S> <C> <C> <C> <C>
Treasuries................................. $ 27,548,126 $ -- $ (592,769) $ 28,140,895
Agencies -- CMO's.......................... 994,218 -- (5,782) 1,000,000
FHLB Stock................................. 1,797,600 -- -- 1,797,600
-------------- ----- ------------ --------------
Total.................................... $ 30,339,944 $ -- $ (598,551) $ 30,938,495
-------------- ----- ------------ --------------
-------------- ----- ------------ --------------
</TABLE>
Investments held to maturity as of December 31, 1994 are as follows:
<TABLE>
<CAPTION>
1994
---------------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED
AGGREGATE FAIR HOLDING HOLDING
VALUE GAINS LOSSES AMORTIZED COST
-------------- ----------- ------------ --------------
<S> <C> <C> <C> <C>
Treasuries................................. $ 7,931,250 $ -- $ (33,160) $ 7,964,410
Agencies................................... 7,137,759 65,614 (83,286) 7,155,431
-------------- ----------- ------------ --------------
Total.................................... $ 15,069,009 $ 65,614 $ (116,446) $ 15,119,841
-------------- ----------- ------------ --------------
-------------- ----------- ------------ --------------
</TABLE>
The maturity distribution, by contractual maturity, of the aggregate fair
value and amortized cost of debt securities at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
AVAILABLE FOR SALE FAIR VALUE COST
------------------ -------------- --------------
<S> <C> <C>
Less than 1 year........................................... $ 10,132,501 $ 10,022,077
1 to 5 years............................................... 35,678,424 35,192,643
Greater than 10 years...................................... 4,022,192 3,992,698
-------------- --------------
Total.................................................... $ 49,833,117 $ 49,207,418
-------------- --------------
-------------- --------------
</TABLE>
<TABLE>
<CAPTION>
HELD TO MATURITY FAIR VALUE COST
---------------- ----------- -----------
<S> <C> <C>
5 to 10 years..................................................... $ 431,391 $ 400,000
CMO's............................................................. 190,852 194,525
----------- -----------
Total........................................................... $ 622,243 $ 594,525
----------- -----------
----------- -----------
</TABLE>
F-11
<PAGE>
FIRST STERLING BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. INVESTMENTS -- (CONTINUED)
Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without
prepayment penalty.
In 1995, 1994 and 1993, proceeds from the sale of securities available for
sale were $26,020,201, $40,500,129 and 10,317,919, respectively, resulting in
gross gains of $28,474 and gross losses of ($24,335) for 1995, gross losses of
($116,972) for 1994 and gross gain of $112,048 for 1993.
As of December 31, 1995 and 1994, approximately $13,000,000 and $4,000,000
of investment securities were pledged and segregated at the Federal Reserve Bank
to collateralize deposits of public funds and for other purposes.
As of December 31, 1995 and 1994, securities sold under agreements to
repurchase amounted to approximately $2,778,000 and $1,765,000, respectively.
The repurchase agreements were collateralized by U.S. Treasury securities that
have been pledged in an amount equal to the fair value of the repurchase
agreements or $2,778,000 and $1,765,000, as of December 31, 1995 and 1994,
respectively.
The bank is required to own shares of capital stock in the Federal Reserve
Bank (FRB) and Federal Home Loan Bank (FHLB) as part of doing business with
these institutions. The bank owned $242,800 of FRB stock and $2,369,900 and
$1,797,600 of FHLB stock at December 31, 1995 and 1994, respectively.
4. LOANS
At December 31, 1995, the recorded investment in loans for which impairment
has been recognized in accordance with FAS 114 totalled $1,829,502, of which
$717,451 related to loans with no valuation allowance because the loans have
been partially paid down or written down through charge-offs, and $1,112,051
related to loans with a corresponding valuation allowance of $532,591. For the
year ended December 31, 1995, the average recorded investment in impaired loans
was approximately $1,372,600. The Company recognized interest on impaired loans
of approximately $31,000 during 1995.
Loans on which the accrual of interest has been discontinued or reduced
amounted to approximately $1,858,000, $874,000 and $1,450,498 at December 31,
1995, 1994 and 1993, respectively. If interest on those loans had been accrued,
such income would have approximated $119,660, $80,850 and $110,403 for 1995,
1994 and 1993, respectively. Interest income was recognized on nonaccrual loans
in 1995, 1994 and 1993 of $30,698, $35,216 and $110,403, respectively.
Designation of loans as nonaccrual or partial accrual loans does not relieve the
borrowers of their contractual obligations. In addition, at December 31, 1994
one loan was restructured with an aggregate balance of $1,129,254. The majority
of the outstanding principal balance on this loan was paid off during 1995. The
remaining $250,000 outstanding balance at December 31, 1995 is adequately
collateralized. If interest on this loan had been accrued in accordance with its
original terms, such income would have approximated $90,340 in 1994. Interest
income recognized on this loan was $33,878 in 1994. Unearned loan fee income was
$157,267, $108,635 and $63,634 as of December 31, 1995, 1994 and 1993
respectively.
F-12
<PAGE>
FIRST STERLING BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
Balance at beginning of year............................. $ 1,781,627 $ 1,638,312 $ 1,183,547
Provision charged to operations.......................... 485,000 351,000 718,000
Net loans (charged off), recovered....................... 51,374 (207,685) (263,235)
------------- ------------- -------------
$ 2,318,001 $ 1,781,627 $ 1,638,312
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
During 1995 approximately $104,000 in loans were charged off, while
recoveries from loans previously written off amounted to $155,374.
6. CONVERTIBLE SUBORDINATED DEBENTURES
The Company issued $1,001,000 of 7.5% Convertible Subordinated Debentures
due December 31, 2000 during December 1990, and an additional $49,000 of such
debentures in 1991. The debentures are subordinated to any future senior
indebtedness of the Company and are convertible by the holders into the
Company's common stock at any time until December 31, 2000 at a conversion price
of $9.50 through 1996 and $11 per share thereafter until the maturity date. The
debentures are redeemable at any time at the option of the Company at a premium
of 3% until the maturity date.
The Company can require the holders to convert the principal, including any
redemption premium, into common stock at any time at a conversion price of $7.50
per share. The debentures are also payable upon the merger or transfer of
substantially all of the Company's assets, unless assumed by the acquiring
company.
Interest on the debentures is payable quarterly commencing on April 15,
1991. The debentures represent a primary capital investment as defined by the
Federal Reserve System Capital Adequacy Guidelines Regulation.
7. BORROWINGS FROM FEDERAL HOME LOAN BANK:
Line of Credit:
As of December 31, 1995 and 1994, the Bank had a line of credit with the
FHLB of approximately $17.83 million and $14.77 million, respectively. Advances
under this credit facility are payable on demand, bear interest at the Federal
funds rate plus .25% (6.05% at December 31, 1995 and 6.61% at December 31,
1994). Advances outstanding as of December 31, 1995 and 1994 are $0 and
$5,000,000, respectively.
F-13
<PAGE>
FIRST STERLING BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. BORROWINGS FROM FEDERAL HOME LOAN BANK: -- (CONTINUED)
Notes Payable:
As of December 31, 1995 the Bank has the following fixed rate loans with
the FHLB:
AMOUNT TERM RATE MATURITY DATE
- -------------- ------------------ ------------------ ------------------
$ 5,000,000 3 years 4.82% February 1996
3,000,000 2 years 5.25% March 1996
15,000,000 1.5 years 7.40% August 1996
23,933 2 years 4.69% January 1996
23,933 2.5 years 4.85% July 1996
23,933 3 years 5.01% January 1997
23,933 3.5 years 5.22% July 1997
23,933 4 years 5.43% January 1998
23,933 4.5 years 5.57% July 1998
502,603 2 years 5.70% January 1999
- --------------
$ 23,646,201
- --------------
- --------------
All borrowings from the FHLB are collateralized by a pledge of the Bank's
entire portfolio of unencumbered investment securities, mortgage-backed
securities, certain mortgage loans and a lien on the Bank's FHLB stock.
8. SHAREHOLDERS' EQUITY
The Federal Reserve Board's risk-based capital guidelines require all
state-chartered member banks to maintain total capital equal to at least 8.0% of
risk-weighted total assets and Tier 1 capital (common stock, additional paid-in
capital and retained earnings) equal to 4.0% of risk-weighted total assets for
the years ended December 31, 1995 and 1994.
The risk-weighting process permits banks to discount the value of certain
high quality assets by varying percentages in computing the value of total
assets for the purpose of calculating the ratio of required capital. At December
31, 1995 and 1994, the Bank's total capital was 10.95% and 11.86% of
risk-weighted total assets and Tier 1 capital equals 8.48% and 9.61% of
risk-weighted total assets.
During 1995, the Company repurchased 15,800 shares of its $1 par common
stock at a price of $12.50 per share, shown as a deduction from the total of
capital stock, paid-in capital and retained earnings.
During 1994, the holding company offered and sold 100,000 shares of its $1
par common stock at $10.50 to the directors and other shareholders of the
Company. The transaction resulted in an additional 100,000 shares outstanding
and an increase in additional paid-in capital of $900,000, net of underwriting
and legal fees.
During 1988 and 1990, the Company issued options to purchase common stock
of the Company to selected directors and officers. The options price per share
is based on the estimated fair value on the date granted.
F-14
<PAGE>
FIRST STERLING BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. SHAREHOLDERS' EQUITY -- (CONTINUED)
The following is a summary of options granted:
<TABLE>
<CAPTION>
SHARES OPTION PRICE EXPIRATION
UNDER OPTION PER SHARE DATE
<S> <C> <C> <C>
------------- ------------- ------------
Options granted 1988
(Vesting -- 5 years)..................................... 50,000 $ 5.00 5/31/97
Options granted 1988
(Vesting -- 5 years)..................................... 24,000 5.00 5/31/98
Options granted 1988
(Vesting -- 4 years)..................................... 9,166 6.00 5/31/97
Options granted 1990
(Vesting -- 5 years)..................................... 10,000 7.00 5/31/97
Options canceled 1993...................................... (3,333) 6.00
-------------
Balance December 31, 1993, 1994 and 1995................... 89,833 5.29 1.69 years
------------- ------------- ------------
------------- ------------- ------------
</TABLE>
9. PENNSYLVANIA SHARES TAX
Effective July 1, 1989, Pennsylvania enacted legislation creating the bank
shares tax and a new bank tax credit allowing a one-time tax credit for banks
chartered after January 1, 1979. The maximum amount of the credit that can be
used in any year is limited to 80% of the tax liability for that year. Under the
revised statute, the Bank's share of the tax liability was reduced by aggregate
credits of approximately $500,000 for the years 1989 through 1991.
Subsequent to July 1, 1989, several lawsuits were brought against the
Pennsylvania Department of Revenue requesting the new bank shares tax and the
new bank tax credit be declared invalid.
On April 22, 1995 the Pennsylvania Department of Revenue negotiated a
settlement with the bank allowing in full the maximum amount of credit to be
applied to the tax liability. As of December 31, 1994 the bank had utilized all
of its tax credits. At December 31, 1995 the bank neither has nor is permitted
by law to have tax credits available to offset future shares tax liability.
10. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and income tax purposes.
F-15
<PAGE>
FIRST STERLING BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. INCOME TAXES -- (CONTINUED)
The components of the deferred tax asset recognized in the 1995, 1994 and
1993 balance sheets are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Deferred tax assets:
Deferred loan fees........................................... $ 25,969 $ 36,936 $ 21,636
Loan loss reserve............................................ 658,432 508,378 478,648
Depreciation................................................. 92,496 80,422 73,352
Deferred rent................................................ 16,436 18,715 21,816
Other real estate owned...................................... 6,800 6,800 6,800
Other........................................................ 27,081 -- 2,962
Unrealized depreciation on available for sale investments.... -- 217,449 --
----------- ----------- -----------
Gross deferred tax asset....................................... 827,214 868,700 605,214
----------- ----------- -----------
Deferred tax liabilities:
Unrealized (appreciation) on available for sale
investments............................................... (212,736) -- (353,000)
Other........................................................ -- (12,628) --
----------- ----------- -----------
Gross deferred tax liability................................... (212,736) (12,628) (353,000)
----------- ----------- -----------
Net deferred tax assets........................................ $ 614,478 $ 856,072 $ 252,214
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The components of income tax expense attributed to operations are as
follows:
1995 1994 1993
------------- ----------- -----------
Federal:
Current.......................... $ 1,027,305 $ 517,050 $ 759,204
Deferred......................... (188,591) (33,350) (168,790)
------------- ----------- -----------
$ 838,714 $ 483,700 $ 590,414
------------- ----------- -----------
------------- ----------- -----------
Total income tax expense attributable to operations differed from the
amounts computed by applying the U.S. federal statutory tax rates to pre-tax
income from operations as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Provision computed by applying the U.S. statutory rate.... $ 834,761 $ 471,908 $ 595,922
Officer's life insurance.................................. 438 438 438
Business and entertainment expenses....................... 15,595 12,224 3,236
Tax-exempt interest income................................ 4,415 -- --
Loss on asset disposition................................. -- -- (1,546)
Tax credit -- low income.................................. (15,000) -- (3,500)
Other..................................................... (1,495) (870) (4,136)
----------- ----------- -----------
$ 838,714 $ 483,700 $ 590,414
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
11. COMMITMENTS AND CONTINGENCIES
The Bank has entered into certain noncancellable leases for bank premises
which are accounted for as operating leases. All lease agreements for office and
banking facilities are with an affiliate of a principal shareholder, except for
the Bala Cynwyd Branch office lease, which is with a nonaffiliate. The lease
terms are for ten years with renewal options for two additional five-year
periods.
F-16
<PAGE>
FIRST STERLING BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
Future minimum rental payments, excluding real estate taxes, insurance and
maintenance required under noncancellable operating leases that have initial or
remaining lease terms in excess of one year at December 31, 1995, are as
follows:
1996................................................ $ 395,730
1997................................................ 395,730
1998................................................ 235,570
1999................................................ 177,186
2000................................................ 179,842
Thereafter.......................................... 525,312
-------------
Total............................................. $ 1,909,370
-------------
-------------
The total minimum rent expense for the initial lease term is being expensed
on a straight-line basis over the term of the lease. The difference between
rental expense recognized in the period and actual rental payments is recorded
as a deferred liability. The leases also require the Bank to pay its pro rata
portion of increases over the base year in direct expense such as maintenance,
taxes and insurance.
Rent expense for leases for the years ended December 31, 1995, 1994 and
1993 was $395,730, $348,892 and $293,846, respectively. Of these amounts,
$282,730, $267,720 and $293,846 were for leases with a related party.
Effective January 1, 1992, the Company entered into a five-year employment
agreement with an officer of the Company. The agreement provides for an annual
salary plus increases resulting from merit review.
12. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
AND CONCENTRATIONS OF CREDIT RISK
The Bank is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to originate and/or purchase
residential, consumer, commercial and construction loans and standby letters of
credit to guarantee performance of a customer to a third party. Such instruments
generally have fixed expiration dates or termination clauses and may require
payment of a fee to the Bank. The Bank uses the same credit policies in
making commitments and issuing standby letters of credit as it does for
on-balance- sheet instruments. However, these instruments are properly not
recorded on the Bank's financial statements. Credit risk is defined as the
possibility of sustaining a loss due to the failure of the other parties to a
financial instrument to perform in accordance with the terms of the contract.
The maximum exposure to credit loss under commitments to extend credit and
standby letters of credit is represented by the contractual amount of these
instruments.
Since some commitments and letters of credit are expected to expire without
being drawn down, the amounts summarized below as of December 31, 1995 and 1994,
respectively, do not necessarily represent future cash requirements.
1995 1994
-------------- --------------
Commitments to extend credit.............. $ 16,319,000 $ 17,183,000
Standby letter of credit.................. 794,000 724,000
Commitments to extend credit are agreements to lend to a customer as long
as they are not in violation of any condition established in the contract.
Commitments generally have fixed expiration
F-17
<PAGE>
FIRST STERLING BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
AND CONCENTRATIONS OF CREDIT RISK -- (CONTINUED)
dates or other termination clauses and many require the payment of a fee. The
Company evaluates each customer's creditworthiness on a case-by-case basis. The
amount of collateral obtained upon extension of credit is based on management's
credit evaluation of the customer. Collateral held varies but may include real
estate, marketable securities, pledged deposits, equipment and accounts
receivable.
Standby letters of credit are conditional commitments issued that guarantee
the performance of a customer to a third party. The credit risk and collateral
policy involved in issuing letters of credit is essentially the same as that
involved in extending loan commitments. The amount of collateral obtained is
based on management's credit evaluation of the customer. Collateral held varies
but may include real estate, marketable securities, pledged deposits, equipment
and accounts receivable.
It is the practice of the Bank to lend primarily in its trade area, which
is principally the Greater Delaware Valley area. The Bank, to a large extent,
extends credit collateralized by real estate. This includes residential and
commercial mortgages, residential and commercial construction loans, home equity
loans and commercial loans collateralized by real estate. These lending
activities could be similarly affected by a downturn in the general economy, the
regional economy or real estate values.
13. OTHER RELATED PARTY TRANSACTIONS
Certain directors, executive officers and their associates and bank
employees are indebted to the Bank. At December 31, 1995 and 1994, the loans
outstanding to these parties amounted to $5,405,000 and $8,780,146,
respectively.
The following table presents a rollforward of the loans outstanding to
these parties, for the year ended December 31, 1995:
Balance, December 31, 1994................................... $ 8,780,146
New loans.................................................... 1,167,663
Repayments and other changes................................. (4,542,809)
-------------
Balance, December 31, 1995................................... $ 5,405,000
-------------
-------------
A law firm affiliated with a principal shareholder serves as counsel to the
Company. Fees and expenses of $183,465, $136,242 and $81,784, respectively, have
been paid or accrued for professional services for the years ended December 31,
1995, 1994 and 1993.
14. LITIGATION
In the normal course of business, litigation and claims may be brought
against the bank. Management, after reviewing developments with legal counsel,
establishes loss contingency reserves as deemed necessary. No such reserves have
been established as of December 31, 1995.
15. RETIREMENT PLANS
The Bank has a defined contribution plan pursuant to the provision of
401(k) of the Internal Revenue Code. The plan covers all employees who meet the
age and service requirements. The plan provides for elective employment
contributions up to 15% of compensation and a 40% matching company contribution
limited to 6%. The total expense relating to current retirement plans was
$31,021, $25,793 and $15,593, for 1995, 1994 and 1993, respectively.
F-18
<PAGE>
FIRST STERLING BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, 'Disclosure about Fair
Value of Financial Instruments,' requires disclosure of fair value information
about financial instruments, whether or not recognized on the balance sheet, for
which it is practical to estimate fair value. In cases where quoted market
prices are not available, fair values are based on assumptions including future
cash flows and discount rates. Accordingly, the fair value estimates cannot be
substantiated, may not be realized, and do not represent the underlying value of
the Company.
The Company used the following methods and assumptions to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate that value:
Cash and Cash Equivalents:
The carrying value is a reasonable estimate of fair value.
Investment Securities and Securities Available for Sale:
For investment securities with a quoted market price, fair value is equal
to quoted market prices. If a quoted market price is not available, fair value
is estimated using quoted market prices for similar securities.
Loans:
For variable-rate loans that reprice frequently and with no significant
change in credit risk, fair value is the carrying value. For other homogeneous
categories of loans such as fixed rate commercial loans, residential mortgages
and consumer loans, fair value is estimated based on discounting the estimated
future cash flows using the current rates at which similar loans would be made
to borrowers with similar collateral and credit ratings and for similar
remaining maturities.
Deposit Liabilities:
For checking, savings and money market accounts, fair value is the amount
payable on demand at the reporting date. For time deposits, fair value is
estimated using the rates currently offered for deposits of similar remaining
maturities.
Subordinated Debentures:
Fair value is estimated using the quoted average of the broker bid and ask
price at year end.
Commitments to Extend Credit and Standby Letters of Credit:
For commitments and standby letters of credit expiring within 90 days or
with a variable rate, the settlement amount is a reasonable estimate of fair
value. For commitments and standby letters of credit expiring beyond 90 days or
with a fixed rate, the fair value is the present value of the obligations based
on current loan rates.
F-19
<PAGE>
FIRST STERLING BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. FAIR VALUE OF FINANCIAL INSTRUMENTS -- (CONTINUED)
At December 31, 1995, the carrying amount and the estimated fair value of
the Company's financial instruments are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------------------------
RECORDED
BANK FAIR
AMOUNT VALUE
---------------- ----------------
<S> <C> <C>
Financial assets:
Cash and cash equivalents........................................ $ 4,861,330 $ 4,861,330
Investment securities available for sale......................... 49,833,417 49,833,117
Investments held to maturity..................................... 594,525 622,243
FRB stock........................................................ 242,800 242,800
Net loans........................................................ 152,303,798 152,281,999
Financial liabilities:
Deposits
Demand........................................................... 24,404,024 24,404,024
Savings and money market......................................... 24,420,762 24,420,762
Certificates of deposit.......................................... 119,133,520 118,981,600
Subordinate debentures........................................... 1,050,000 1,050,000
Repurchase agreements............................................ 2,778,000 2,778,000
Off balance sheet financial instruments:
Commitments to extend credit..................................... 16,319,000 16,319,000
Standby letters of credit........................................ 794,000 794,000
</TABLE>
17. PARENT COMPANY FINANCIAL INFORMATION
Condensed financial statements for First Sterling Bancorp, Inc. only:
Balance Sheets as of December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
-------------- --------------
<S> <C> <C>
Assets:
Cash................................................................ -- --
Investment in debt of subsidiary.................................... $ 1,050,000 $ 1,050,000
Investment in subsidiary, at equity................................. 11,981,870 9,727,840
-------------- --------------
Total assets............................................... $ 13,031,870 $ 10,777,840
-------------- --------------
-------------- --------------
Liabilities:
Subordinated debentures............................................. 1,050,000 1,050,000
-------------- --------------
Total liabilities.......................................... 1,050,000 1,050,000
-------------- --------------
Shareholders' equity:
Common stock........................................................ 1,470,003 1,470,003
Additional paid-in capital.......................................... 6,621,746 6,621,746
Retained earnings................................................... 3,674,660 2,058,196
Unrealized gains (losses) on investments available for sale, net of
taxes............................................................ 412,961 (422,105)
Treasury stock...................................................... (197,500) --
-------------- --------------
Total shareholders' equity................................. 11,981,870 9,727,840
-------------- --------------
Total liabilities and shareholders' equity................. $ 13,031,870 $ 10,777,840
-------------- --------------
-------------- --------------
</TABLE>
F-20
<PAGE>
FIRST STERLING BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17. PARENT COMPANY FINANCIAL INFORMATION -- (CONTINUED)
Statements of Operations for the years ended December 31, 1995, 1994 and
1993:
<TABLE>
<CAPTION>
1995 1994 1993
------------- ----------- -------------
<S> <C> <C> <C>
Income..................................................... $ 78,750 $ 78,750 $ 78,750
Expense.................................................... (78,750) (78,750) (78,750)
Equity in undistributed income of subsidiary............... 1,668,621 956,137 1,206,040
------------- ----------- -------------
Income before income taxes............................... 1,668,621 956,137 1,206,040
Income taxes............................................... -- -- --
------------- ----------- -------------
Net income............................................... $ 1,668,621 $ 956,137 $ 1,206,040
------------- ----------- -------------
------------- ----------- -------------
</TABLE>
Statements of Cash Flows for the years ended December 31, 1995, 1994 and
1993:
<TABLE>
<CAPTION>
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
Operating activities:
Net income............................................. $ 1,668,621 $ 956,137 $ 1,206,040
Adjustments to reconcile net income to cash used by
operating activities:
Equity in undistributed earnings of
subsidiary....................................... (1,668,621) (956,137) (1,206,040)
------------- ------------- -------------
Net cash used by operating activities............... -- -- --
Investing activities:
Investments in Subsidiary.............................. -- (1,000,000) --
------------- ------------- -------------
Financing activities:
Proceeds from issuance of Stock........................ -- 1,000,000 --
------------- ------------- -------------
Increase in cash....................................... -- -- --
Cash, beginning of year................................ -- -- --
------------- ------------- -------------
Cash, end of year...................................... -- -- --
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
F-21
<PAGE>
FIRST STERLING BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
as of June 30, 1996 and December 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
---------------- ----------------
<S> <C> <C>
ASSETS:
Cash and due from banks....................................................... $ 4,786,755 $ 4,861,330
Fed funds sold................................................................ 1,100,000 0
Investments available for sale................................................ 46,794,977 49,833,117
Investments held to maturity.................................................. 558,170 594,525
Fed Reserve bank stock........................................................ 242,800 242,800
Loans:
Commercial.................................................................. 108,200,710 94,507,827
Mortgage.................................................................... 50,550,846 48,412,745
Consumer.................................................................... 13,742,659 11,701,227
---------------- ----------------
Total loans........................................................... 172,494,215 154,621,799
Allowance for loan loss....................................................... (2,509,006) (2,318,001)
Loans, net............................................................ 169,985,209 152,303,798
Accrued interest receivable................................................... 2,101,247 2,143,807
Premises and equipment, at cost:
Leasehold improvements...................................................... 1,083,330 1,042,817
Furniture, fixtures and equipment........................................... 1,040,470 995,360
Computer equipment and software............................................. 995,980 926,888
---------------- ----------------
3,119,780 2,965,065
Accumulated depreciation...................................................... (2,088,360) (1,915,584)
---------------- ----------------
Premises and equipment, net........................................... 1,031,420 1,049,481
Deferred income taxes......................................................... 827,214 614,478
Prepaid expenses and other assets............................................. 516,446 342,237
---------------- ----------------
Total assets.......................................................... $ 227,944,238 $ 211,985,573
---------------- ----------------
---------------- ----------------
LIABILITIES:
Deposits:
Demand...................................................................... 26,993,002 24,404,024
Savings & money market...................................................... 28,852,448 24,420,762
Certificates of deposit less than $100,000.................................. 92,296,745 96,299,709
Certificates of deposit greater than $100,000............................... 8,872,256 22,833,811
---------------- ----------------
157,014,451 167,958,306
Repurchase agreements....................................................... 5,118,000 2,778,000
Accrued interest payable.................................................... 2,118,397 2,976,922
Accrued liabilities......................................................... 1,345,429 1,594,273
Subordinated debentures..................................................... 1,050,000 1,050,000
FHLB advances............................................................... 28,000,000 0
FHLB notes payable.......................................................... 20,622,268 23,646,201
---------------- ----------------
Total liabilities..................................................... 215,268,545 200,003,702
Shareholders' equity:
Common stock, par value $1 per share; 5,000,000 shares authorized;
1,454,203 shares outstanding................................................ 1,470,003 1,470,003
Additional paid-in capital.................................................... 6,621,747 6,621,747
Retained earnings............................................................. 4,728,915 3,674,660
Unrealized gains (losses) on investments available for sale,
net of taxes................................................................ 52,528 412,961
Treasury stock, 15,800 shares, at cost........................................ 197,500 197,500
---------------- ----------------
Total shareholders' equity............................................ 12,675,693 11,981,871
---------------- ----------------
Total liabilities and shareholders' equity............................ $ 227,944,238 $ 211,985,573
---------------- ----------------
---------------- ----------------
</TABLE>
F-22
<PAGE>
FIRST STERLING BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
For the Three and Six Months Ended June 30, 1996 and June 30, 1995
(Unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Interest Income:
Interest and fees on loans......................... $ 3,885,167 $ 3,067,088 $ 7,488,409 $ 5,872,675
Interest on investment securities and
federal funds................................... 709,796 806,343 1,484,247 1,591,778
Other interest & dividends......................... 72,486 65,602 128,545 114,150
------------- ------------- ------------- -------------
Total interest income........................ 4,667,449 3,939,033 9,101,201 7,578,603
------------- ------------- ------------- -------------
Interest expense:
Interest on savings and money market deposits...... 277,628 233,402 529,327 472,359
Interest on certificates of deposit
less than $100,000.............................. 1,297,254 1,208,384 2,737,100 2,257,203
Interest on certificates of deposit
greater than $100,000........................... 225,986 177,336 559,794 367,671
Other interest..................................... 632,560 504,692 1,035,046 918,374
------------- ------------- ------------- -------------
Total interest expense....................... 2,433,428 2,123,814 4,861,267 4,015,607
------------- ------------- ------------- -------------
Net interest income.......................... 2,234,021 1,815,219 4,239,934 3,562,996
Provision for loan losses............................ 122,000 170,000 185,000 237,000
------------- ------------- ------------- -------------
Net interest income after provision for
loan losses............................... 2,112,021 1,645,219 4,054,934 3,325,996
Other income:
Service charges and other fees..................... 165,800 160,552 343,779 286,003
Gain (loss) on sale of investment
securities...................................... 4,062 3,282 4,062 (17,034)
------------- ------------- ------------- -------------
Net interest income and other
income.................................... 2,281,883 1,809,053 4,402,775 3,594,965
------------- ------------- ------------- -------------
Operating expenses:
Salaries and employee benefits..................... 624,061 531,545 1,260,298 1,065,154
Occupancy.......................................... 374,253 262,461 704,340 514,833
Advertising........................................ 45,000 51,000 110,000 102,000
Insurance.......................................... 17,858 95,967 31,603 191,844
Other.............................................. 357,313 285,099 692,279 561,071
------------- ------------- ------------- -------------
Total operating expenses..................... 1,418,485 1,226,072 2,798,520 2,434,902
------------- ------------- ------------- -------------
Income before income taxes........................... 863,398 582,981 1,604,255 1,160,063
Provision for income taxes........................... 302,000 200,000 550,000 398,000
------------- ------------- ------------- -------------
Net income................................... $ 561,398 $ 382,981 $ 1,054,255 $ 762,063
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Net income per share -- Primary...................... $ .37 $ .25 $ .69 $ .50
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Weighted average shares outstanding.................. 1,517,647 1,521,836 1,517,647 1,521,836
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Net income per share assuming full dilution.......... $ .35 $ .24 $ .66 $ .48
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Weighted average shares -- fully diluted............. 1,628,157 1,632,346 1,628,157 1,632,346
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
F-23
<PAGE>
FIRST STERLING BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 1996 and 1995
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income...................................................................... $ 1,054,255 762,063
Adjustments to reconcile net income to cash provided by operating activities:
Provision for loan losses..................................................... 185,000 237,000
Depreciation and amortization................................................. 172,776 147,595
Deferred income tax provision (benefit)....................................... (27,058) (60,001)
Loss (gain) on sale of investments............................................ (4,062) 17,034
(Increase) decrease in accrued interest receivable............................ 42,560 (230,955)
Increase in prepaid expenses and other assets................................. (174,209) (163,686)
Decrease in accrued interest payable.......................................... (858,525) (178,496)
Increase (decrease) in accrued liabilities.................................... (248,844) 497,671
-------------- --------------
Net cash provided by operating activities.................................. 141,893 1,028,225
-------------- --------------
Cash flows used in investing activities:
Net increase in loans........................................................... (17,866,411) (14,576,215)
Purchases of premises and equipment............................................. (154,714) (46,352)
Purchases of securities, available for sale..................................... (11,890,486) (10,107,006)
Purchases of securities, held to maturity....................................... -- (2,965,625)
Proceeds from sales of securities, available for sale........................... 14,391,226 13,462,485
Proceeds from maturities of securities, held to maturity........................ -- 499,918
Principal receipts on securities available for sale............................. 31,705 83,346
-------------- --------------
Net cash used in investing activities...................................... (15,488,680) (13,649,449)
-------------- --------------
Cash flows from financing activities:
Net increase (decrease) in deposits............................................. (10,943,855) 7,930,190
Increase in securities sold under repurchase agreements......................... 2,340,000 (65,000)
Borrowings from Federal Home Loan Bank.......................................... 24,976,067 8,976,067
-------------- --------------
Net cash provided by financing activities.................................. 16,372,212 16,841,257
-------------- --------------
Net increase in cash and cash equivalents....................................... 1,025,425 4,220,033
Cash and cash equivalents at beginning of year.................................. 4,861,330 5,726,529
-------------- --------------
Cash and cash equivalents at end of year........................................ $ 5,886,755 $ 9,946,562
-------------- --------------
-------------- --------------
Supplemental disclosures of cash flow information:
Interest paid................................................................. $ 3,292,000 $ 2,302,000
-------------- --------------
-------------- --------------
Taxes paid.................................................................... $ 655,000 $ 500,000
-------------- --------------
-------------- --------------
Non-cash transactions:
Transfers to other real estate owned.......................................... $ 53,000 $ 155,000
-------------- --------------
-------------- --------------
Change in unrealized gain (loss) on securities available for sale, net of
taxes of ($185,677) and $347,633........................................... $ (360,433) $ 674,817
-------------- --------------
-------------- --------------
</TABLE>
F-24
<PAGE>
FIRST STERLING BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996 and 1995, and December 31, 1995
(Unaudited)
1. REPORTING AND ACCOUNTING POLICIES
The accompanying consolidated financial statements include the accounts of
First Sterling Bancorp, Inc. (the 'Company') and its wholly owned subsidiary,
First Sterling Bank, (the 'Bank'). All significant intercompany accounts and
transactions are eliminated in the consolidated statements.
The consolidated balance sheet as of June 30, 1996, as well as the
respective statements of income and cash flows for the three and six month
periods ended June 30, 1996 and 1995, are unaudited. The consolidated balance
sheet as of December 31, 1995 is derived from the Company's audited 1995 Annual
Report and the related footnotes are referenced to the Company's 1995 Annual
Report.
The financial statements reflect all adjustments, which in the opinion of
management are necessary for a fair presentation of the results of the interim
periods and are of a normal and recurring nature. The results for the periods
presented are not necessarily indicative of the full year.
2. ADOPTION OF FINANCIAL ACCOUNTING STANDARDS
The Company adopted Statement of Financial Accounting Standards No. 122
(SFAS 122), 'Accounting for Mortgage Servicing Rights.' The statement requires
the recognition of separate assets relating to the rights to service mortgage
loans for others based on their fair value if it is practicable to estimate
their value. The statement applied prospectively to transactions entered into
during 1996, therefore, there was no cumulative effect upon adoption of this
statement. In addition, this statement did not have a significant effect on the
financial position or results of the Company as of June 30, 1996.
The Company did not adopt Statement of Financial Accounting Standards No.
123 (SFAS 123), 'Accounting for Stock Based Compensation,' but, rather continues
to apply its existing method of accounting for stock-based compensation which is
provided in Accounting Principal Opinion No. 25, 'Accounting for Stock Issued to
Employees' (APB 25). SFAS 123 provides an alternative method of accounting for
stock-based compensation arrangements, based on fair value of the stock-based
compensation utilizing various assumptions regarding the underlying attributes
of the options and the Corporation's stock. The Company will provide pro forma
disclosure of the effect as if SFAS 123 was adopted on net income and earnings
per share in the 1996 notes to consolidated financial statements.
3. MERGER AGREEMENT
On June 12, 1996 the Company entered into an Agreement and Plan of
Reorganization ('Agreement') with Prime Bancorp, Inc. Under the terms of the
Agreement, the Company and Prime Bancorp, Inc. will merge into a newly-formed
Holding Company, New Prime. As a result of the Merger, each share of the
Company's stock shall be converted into the right to receive one share of Prime
stock. The Merger is subject to various conditions, including stockholder
approvals, regulatory approvals from the Board of Governors of the Federal
Reserve System, the banking authorities of the Commonwealth of Pennsylvania and
the Office of Thrift Supervision as well as certain other federal and state
governmental authorities.
4. RELATED PARTY LEASES
During the first quarter of 1996, the Company entered into extended
noncancellable lease agreements for bank premises with an affiliate of a
principal shareholder. The lease arrangements pertain to space currently
occupied by the Bank and consist of three branches and the Company's
headquarters. As part of entering into these lease arrangements, the Company
significantly increased its space in the headquarters building to allow for
future growth. The lease terms are for a period of 10 years with renewal options
for two additional five year periods. The Company also leases space for its Bala
Cynwyd Branch from a non-affiliate.
F-25
<PAGE>
FIRST STERLING BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996 and 1995, and December 31, 1995 -- (Continued)
(UNAUDITED)
4. RELATED PARTY LEASES -- (CONTINUED)
Future minimum rental payments, excluding real estate taxes, insurance and
maintenance required under noncancelable operating leases that have initial or
remaining lease terms in excess of one year at June 30, 1996 are as follows:
AFFILIATED TOTAL
------------- -------------
Six month period ended December 31, 1996...... $ 278,257 $ 335,108
Years ended December 31,
1997..................................... 573,772 689,748
1998..................................... 591,570 709,866
1999..................................... 609,926 730,587
2000..................................... 628,856 751,931
Thereafter.................................... 3,449,672 3,878,270
------------- -------------
Total.................................... $ 6,132,053 $ 7,095,509
------------- -------------
------------- -------------
The leases also require the Company to pay its pro rata portion of
increases over the base year in direct expenses such as maintenance, taxes and
insurance.
Rent expense for leases for the six months ended June 30, 1996 and 1995 was
$397,903 and $215,104, respectively. Of these amounts, $340,903 and $158,479
were for leases to the related party described above.
The Company has entered into an Agreement with the affiliate of the
principal shareholder with respect to the corporate office lease. The Agreement
allows the Company, at its election, to reduce its corporate office tenancy upon
payment of a fee in the amount of $375,000 to the Landlord. Such Agreement, if
exercised, will reduce the expansion space at corporate headquarters by
approximately one-half and reduce the lease term for the balance of such space
from ten years to five years.
It is probable that the Company will exercise its option to reduce its
corporate office tenancy in the event that the pending merger with Prime
Bancorp, Inc. is consummated.
F-26
<PAGE>
Annex A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION ("Agreement"), is
dated as of June 12, 1996 is made by and between PRIME BANCORP, INC., a Delaware
corporation ("PRIME") and FIRST STERLING BANCORP, INC., a Pennsylvania
corporation ("FIRST STERLING").
BACKGROUND:
First Sterling is a privately owned bank holding company with
its principal executive offices in Devon, Pennsylvania. First Sterling owns all
of the issued and outstanding capital stock of First Sterling Bank, a
Pennsylvania chartered banking organization ("Bank"), consisting solely of
90,000 authorized shares of common stock, each having a par value of $10.00, all
of which shares are issued and outstanding as of the date hereof (collectively
the "Bank Common Stock"). The authorized capitalization of First Sterling
consists solely of 5,000,000 authorized shares of common stock ("First Sterling
Common Stock"), each having a par value of $1.00, of which 1,454,203 shares are
issued and outstanding as of the date hereof.
Prime is a non-diversified saving and loan holding company
with its principal executive offices located in Philadelphia, Pennsylvania. The
authorized capitalization of Prime consists solely of 10,000,000 authorized
shares of common stock, each having a par value of $1.00 ("Prime Common Stock"),
of which 3,723,353 shares are issued and outstanding as of the date hereof, and
5,000,000 authorized shares of preferred stock, each having a par value of $1.00
("Prime Preferred Stock"), of which none are issued and outstanding.
First Sterling has awarded to certain key employees, officers
and directors of the Bank and First Sterling, options to purchase First Sterling
Common Stock ("First Sterling Stock Options"). In connection with the
transactions contemplated hereby, the parties desire that Prime assume as
provided herein the obligations of First Sterling with respect to the First
Sterling Stock Options outstanding as of the date of this Agreement, as such
number may be reduced through exercise or cancellation.
The Board of Directors of each of Prime and First Sterling
deem it advisable and in the best interest of their respective stockholders that
First Sterling merge with and into Prime pursuant to the Merger (as hereafter
defined) hereinafter provided for, and desire to make certain representations,
warranties and agreements in connection with such Merger. The parties intend
that the transactions contemplated by this Agreement shall (i) constitute a
reorganization as described in Section 368(a)(1)(A) of the Internal Revenue Code
of 1986, as amended, and the regulations thereunder (the "Code"), and (ii) be
accounted for as a "pooling of interests" under generally accepted accounting
principles.
NOW, THEREFORE, in consideration of the foregoing, the
representations, warranties, covenants and agreements set forth herein and other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, intending to be legally bound, the parties agree as follows:
ARTICLE I
THE MERGER
1.01 The Merger.
(a) First Sterling and Prime will execute and
deliver, and agree subject to the terms and conditions of this Agreement,
to submit to their respective shareholders for adoption and approval as required
under the Delaware General Corporation Law ("DGCL"), or the Pennsylvania
Business Corporation Law ("PBCL"), as applicable, together with this Agreement,
the Plan of Merger in the form attached hereto as Exhibit 1.01, with such
further changes as may be mutually agreed upon by the parties hereto ("Merger
Agreement"), providing for the merger of First Sterling with and into Prime
("Merger") and the conversion of each of the outstanding shares of First
Sterling Common Stock into shares of Prime Common Stock as provided herein and
in the Merger Agreement. From and after the Effective Time (as defined below),
the identity and separate existence of First Sterling shall cease, and Prime
shall succeed, without other transfer, to all the rights, properties, debts and
liabilities of First Sterling.
(b) In connection with the Merger, Prime shall
take such actions as may be necessary to reserve sufficient shares of Prime
Common Stock, prior to the Merger, to permit the issuance of shares of Prime
Common Stock
<PAGE>
to the holders of the outstanding shares of First Sterling Common Stock as of
the Effective Time in accordance with the terms of the Merger Agreement and this
Agreement and upon exercise of the First Sterling Stock Options to be assumed by
Prime pursuant to the terms of this Agreement.
1.02 Effective Time of the Merger. Promptly after all
conditions to this Agreement have been satisfied or waived, a certificate and
articles of merger pertaining to the Merger (collectively the "Merger
Documents"), or such other documents reasonably necessary to effect the Merger
shall be executed and filed in accordance with the DGCL and the PBCL, as the
case may be, and the Merger shall become effective substantially simultaneously
in accordance with the terms of the Merger Agreement (such time and date are
referred to herein as the "Effective Time"). The Merger shall have all of the
effects as are set forth in the Merger Agreement, the DGCL and the PBCL.
1.03 Merger Consideration.
(a) Subject to the provisions of this Agreement,
at the Effective Time, automatically by virtue of the Merger, each share of
Prime Common Stock issued and outstanding immediately prior to the Effective
Time, shall be unchanged and shall remain issued and outstanding common stock of
Prime after the Effective Time. The shares of Prime Common Stock owned by First
Sterling or any of its subsidiaries (other than shares held in trust, managed,
custodial or nominee accounts and the like or held by mutual funds for which
First Sterling or any Subsidiary acts as investment advisor, that in any such
case are beneficially owned by third-parties (any such shares, "trust account
shares") and shares acquired in respect of debts previously contracted (any such
shares, "DPC shares")) shall become treasury shares of Prime.
(b) Subject to the provisions of this Agreement,
at the Effective Time, automatically by virtue of the Merger, each share
(excluding shares held by First Sterling or any of its Subsidiaries ("Treasury
Shares") or Prime or any of its Subsidiaries (in each case other than trust
account shares or DPC shares)) of First Sterling Common Stock issued and
outstanding immediately prior to the Effective Time shall become and be
converted into the right to receive one share (subject to possible adjustment as
set forth in Section 1.05 hereof) (the "Exchange Ratio") of Prime Common Stock.
All shares of First Sterling Common Stock owned by First Sterling or its
Subsidiaries as Treasury Shares and all shares of First Sterling Common Stock
owned by Prime or its Subsidiaries (in each case other than trust account shares
or DPC shares) shall be canceled and retired and shall cease to exist, and no
shares of Prime Common Stock or other consideration shall be deliverable in
exchange therefor.
1.04 Fractional Shares. Notwithstanding any other provision
hereof, no fractional shares of Prime Common Stock and no certificates or scrip
therefor, or other evidence of ownership thereof, will be issued in connection
with the Merger. In lieu of any fractional shares, Prime shall pay to each
holder of First Sterling Common Stock who would otherwise be entitled to a
fractional share an amount in cash determined by multiplying such fraction by
the average of the last quoted bid and ask prices for Prime Common Stock for the
five trading days immediately preceding the Effective Time, as the same are
reported on the Nasdaq National Market System.
1.05 Anti-Dilution Provisions. In the event Prime changes (or
establishes a record date for changing) the number of shares of Prime Common
Stock issued and outstanding prior to the Effective Time as a result of a stock
split, stock dividend, recapitalization or similar transaction with respect to
the outstanding Prime Common Stock and the record date therefor shall be prior
to the Effective Time, the Exchange Ratio shall be proportionally adjusted.
1.06 Exchange Procedures.
(a) As of the Effective Time, Prime shall cause
to be deposited with American Stock Transfer & Trust Company (or another
bank or institution selected by Prime and reasonably acceptable to First
Sterling) ("Exchange Agent"), for the benefit of the holders of the then issued
and outstanding shares of First Sterling Common Stock, for exchange in
accordance with this Article I, certificates representing the Prime Common Stock
and cash in lieu of any fractional shares to be issued in exchange for the
issued and outstanding shares of First Sterling Common Stock.
(b) From and after the Effective Time, each
holder of a certificate which immediately prior to the Effective Time,
represented a share of First Sterling Common Stock (other than Treasury Shares
or shares held by Prime or First Sterling excluding trust account shares or DPC
shares), shall be entitled to receive in exchange therefor (or upon provision of
an appropriate affidavit of lost certificate and indemnity bond), upon surrender
thereof to the Exchange Agent (i) a certificate or certificates representing a
number of whole shares of Prime Common Stock into which such holder's First
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Sterling Common Stock were converted pursuant to the Merger, and (ii) the cash
payment, if any, in lieu of the issuance of fractional shares as provided in
Section 1.04 hereof. From and after the Effective Time, Prime shall be entitled
to treat each certificate representing the issued and outstanding shares of
First Sterling Common Stock immediately prior to the Effective Time (each a
"First Sterling Certificate"), which has not yet been surrendered for exchange,
as evidencing the ownership of the number of full shares of Prime Common Stock
into which the First Sterling Common Stock represented by such First Sterling
Certificate shall have been converted pursuant to this Article I,
notwithstanding the failure to surrender such First Sterling Certificate.
However, notwithstanding any other provision of this Agreement, until holders or
transferees of First Sterling Certificates formerly representing First Sterling
Common Stock shall have surrendered them for exchange as provided herein (y) no
dividend or other distribution shall be paid with respect to any shares of Prime
Common Stock represented by such First Sterling Certificates and no payment for
fractional shares shall be made, and (z) without regard to when such First
Sterling Certificates are surrendered for exchange as provided herein, no
interest shall be paid or payable on any dividends, if any, or any amount
payable in respect of fractional shares of Prime Common Stock pursuant to
Section 1.04 hereof. Upon surrender of a First Sterling Certificate which
immediately prior to the Effective Time represented First Sterling Common Stock,
there shall be paid to the holder of such First Sterling Certificate, the amount
of any dividends, if any, which theretofore became payable, but which were not
paid by reason of the holder's failure to surrender such First Sterling
Certificate, with respect to the number of whole shares of Prime Common Stock
represented by such First Sterling Certificate issued upon such surrender. If
any certificate for Prime Common Stock is to be issued in a name other than that
in which the First Sterling Certificate surrendered in exchange therefor is
registered, it shall be a condition of such an exchange that the person
requesting such exchange shall pay any transfer or other taxes required by
reason of the issuance of such certificate for shares of Prime Common Stock in a
name other than that of the registered holder of the First Sterling Certificate
surrendered, or shall establish to the satisfaction of Prime that such tax has
been paid or is not applicable.
(c) As soon as practicable after the Effective
Time, Prime shall make available to the Exchange Agent stock certificates
for the Prime Common Stock required to effect the exchange referred to in this
Article I. The shares of Prime Common Stock into which the shares of First
Sterling Common Stock shall be converted in the Merger shall be deemed to have
been issued at the Effective Time.
(d) Promptly after the Effective Time, Prime
shall cause the Exchange Agent to mail to each holder of record of First
Sterling Certificates the following: (i) a letter of transmittal specifying that
delivery shall be effected and risk of loss and title to the First Sterling
Certificates shall pass, only upon delivery of the First Sterling Certificates
to the Exchange Agent, which letter shall be in a form and contain such
provisions as are mutually agreeable to Prime and First Sterling, and
(ii) instructions for use in effecting the surrender of the First Sterling
Certificates in exchange for certificates representing shares of Prime Common
Stock and cash in lieu of fractional shares. Upon the proper surrender of the
First Sterling Certificate to the Exchange Agent, together with a properly
completed and duly executed letter of transmittal, the holder of such First
Sterling Certificate shall be entitled to receive in exchange therefor (y) a
certificate representing that number of whole shares of Prime Common Stock into
which the First Sterling Common Stock represented by the First Sterling
Certificates surrendered shall have been converted pursuant to the Merger and
(z) a check representing the amount of cash in lieu of any fractional shares and
unpaid dividends and distributions, if any, which such holder has the right to
receive in respect of such First Sterling Certificate surrendered. Each First
Sterling Certificate so surrendered shall forthwith be canceled.
(e) In the event that any shares or funds held
by the Exchange Agent remain unclaimed by the holders of record of First
Sterling Common Stock at the Effective Time for a period of six (6) months after
the Effective Time, such shares and funds shall be redelivered to Prime. Any
shareholders of First Sterling who have not theretofore complied with the
exchange procedures set forth in this Section 1.06, shall thereafter look only
to Prime for payment of their shares of Prime Common Stock, cash in lieu of
fractional shares, and any unpaid dividends and distributions on the Prime
Common Stock deliverable in respect of each share of First Sterling Common
Stock, such shareholder held at the Effective Time, without any interest
thereon. If any outstanding First Sterling Certificates are not surrendered or
the payment for them not claimed prior to the date on which such payments would
otherwise escheat to or become the property of any governmental unit or agency,
the unclaimed items shall, to the extent permitted by abandoned property and
other applicable law, become the property of Prime (and to the extent not in its
possession shall be paid over to it), free and clear of all claims or interest
of any person previously entitled to such claims. Notwithstanding the foregoing,
none of Prime, the Exchange Agent or other person shall be liable to any former
holder of First Sterling Common Stock for any amounts delivered to a public body
or official pursuant to applicable abandoned property, escheat or similar laws.
1.07 Options. Notwithstanding any provision to the contrary
therein, from and after the Effective Time, all First Sterling Stock Options
which are then outstanding and unexercised, shall be converted into and become
options to
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purchase shares of Prime Common Stock, and Prime shall assume each such First
Sterling Stock Option in accordance with the terms of the agreement which
evidences such option; provided, however, that from and after the Effective Time
(i) each First Sterling Stock Option assumed by Prime may be exercised solely to
purchase shares of Prime Common Stock, (ii) the number of shares of Prime Common
Stock purchasable upon exercise of any such First Sterling Stock Option shall be
equal to the number of shares of First Sterling Common Stock that were
purchasable under such First Sterling Stock Option immediately prior to the
Effective Time multiplied by the Exchange Ratio and rounding up to the nearest
whole share, and (iii) the per share exercise price under each such First
Sterling Stock Option shall be adjusted by dividing the per share exercise price
of each such First Sterling Stock Option by the Exchange Ratio and rounding to
the nearest cent. It is intended that the foregoing assumption by Prime of the
obligations with respect to outstanding First Sterling Stock Options shall be
effected in a manner which is consistent with the requirements of Section 424 of
the Code as to any First Sterling Stock Option that is an incentive stock option
as defined in Section 422 of the Code.
ARTICLE II
CLOSING
2.01 Closing. Unless otherwise agreed in writing, the closing
of the Merger ("Closing") shall take place at 2600 One Commerce Square,
Philadelphia, Pennsylvania, on a date not later than five (5) business days
after satisfaction or waiver (subject to applicable law) of the conditions
(excluding the conditions that by their terms cannot be satisfied until the
Closing Date) set forth in Article VI ("Closing Date"), unless another time or
date is agreed to in writing by the parties. If, through no fault of either
Prime, First Sterling or the Bank, Closing is not held on or before March 31,
1997, this Agreement may be terminated by Prime or First Sterling by written
notice to the other.
2.02 Deliveries. In addition to the instruments and
certificates to be delivered and the payments to be made at Closing as provided
in Article I hereof, there shall be delivered, the opinions, certificates,
consents and other documents required to be delivered pursuant to Article VI
hereof.
2.03 Effectiveness. All transactions, deliveries and payments
to take place at the Closing shall be deemed to take place simultaneously and no
transaction, delivery, certificate, consent or other document or payment shall
be deemed made until all transactions, deliveries and payments at the Closing
are completed. All such transactions, deliveries and payments shall be given
effect as of the commencement of business on the Closing Date.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF FIRST STERLING
Except as disclosed in a disclosure schedule which
specifically refers to the section to which such disclosure relates and is
delivered prior to the execution of this Agreement ("First Sterling Disclosure
Letter"), First Sterling represents and warrants to Prime as follows:
3.01 Organization, Power, Etc., of the Bank. The Bank is a
chartered banking organization duly organized, validly existing and in good
standing under the laws of the Commonwealth of Pennsylvania, has all requisite
power and authority to own, lease and operate its properties and to carry on its
business as now being conducted and is duly qualified or licensed and is in good
standing to do business as a foreign corporation in each jurisdiction in which
the property owned, leased or operated by it or the nature of its business, as
now being conducted, makes such qualification necessary, except where the
failure to be so qualified or licensed would not have a material adverse effect
on the business, operations or financial condition of the Bank. The First
Sterling Disclosure Letter sets forth a complete list of the jurisdictions in
which the Bank is qualified or licensed to do business. Prime has heretofore
received true and complete copies of the Articles of Incorporation and Bylaws as
currently in effect, of the Bank.
3.02 Organization, Power, Etc., of First Sterling. First
Sterling is a corporation duly organized, validly existing and in good standing
under the laws of the Commonwealth of Pennsylvania, has all requisite power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted and is duly qualified or licensed and is in good standing
to do business as a foreign corporation in each jurisdiction in which the
property owned, leased or operated by it or the nature of its business, as now
being conducted, makes such qualification necessary, except where the failure to
be so qualified or licensed would not have a material adverse effect on the
business, operations or financial condition of First Sterling. The First
Sterling Disclosure Letter sets forth a complete list of the jurisdictions in
which First Sterling is qualified
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or licensed to do business. Prime has heretofore received true and complete
copies of the Articles of Incorporation and Bylaws as currently in effect, of
First Sterling.
3.03 Subsidiaries; Joint Ventures. The Bank has no
Subsidiaries and is not engaged in any joint ventures or partnerships with third
parties. Other than the Bank, First Sterling has no Subsidiaries and is not
engaged in any joint ventures or partnerships with third parties. "Subsidiary"
or "Subsidiaries" shall mean an affiliate (as defined under the federal
securities laws) controlled directly or indirectly through one or more
intermediaries.
3.04 Authorization and Effect of Agreement.
(a) First Sterling has all requisite power and
authority to execute, deliver and perform this Agreement; the execution,
delivery and performance of this Agreement by First Sterling have been duly
authorized by all requisite corporate action; and this Agreement has been duly
executed and delivered by First Sterling and constitutes the legal, valid and
binding obligation of First Sterling, enforceable in accordance with its terms,
except as enforceability may be limited by applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium or similar laws affecting
creditors' rights generally, or by the principles governing the availability of
equitable remedies.
(b) The execution, delivery and performance by
First Sterling of this Agreement will not violate or conflict with any
provision of law or regulation, any order of any court or other agency of
government, the Articles of Incorporation or Bylaws of First Sterling, the Bank
or any Subsidiary, any judgment, award or decree or any material indenture,
agreement or other instrument to which First Sterling, the Bank or any
Subsidiary is a party, or by which they or any of their properties or assets is
bound or affected, or result in a breach of or constitute (with notice or lapse
of time or both) a default under any such indenture, agreement or other
instrument, or result in the creation or imposition of any lien, charge or
encumbrance of any nature whatsoever upon any of the properties or assets of
First Sterling, the Bank or any Subsidiary.
3.05 Capital Stock of the Bank. The authorized capital stock
of the Bank consists solely of 90,000 authorized shares of common stock, each
having a par value of $10.00, all of which are duly authorized, validly issued
and outstanding, fully paid and nonassessable, and no shares are held as
treasury shares by the Bank. None of the Bank Common Stock has been issued in
violation of any preemptive rights of any past or present stockholder of the
Bank or any stock purchase agreement or other agreement to which the Bank or
First Sterling was or is a party or by which either was or is bound. No
subscription, warrant, option, convertible security or other right (contingent
or otherwise) to purchase or acquire any shares of any class of capital stock of
the Bank, or any instrument or securities convertible into capital stock, is
authorized or outstanding. No shares of Bank Common Stock have been reserved for
issuance and neither the Bank nor First Sterling has any obligation or
commitment to authorize, issue, sell, repurchase or redeem any shares of Bank
Common Stock. There is no commitment of the Bank to distribute to holders of any
class of its capital stock any evidences of indebtedness or assets and the Bank
has no obligation (contingent or otherwise) to purchase, redeem or otherwise
acquire any shares of its capital stock or any interest therein or to pay any
dividend or make any other distribution in respect thereof. All shares of Bank
Common Stock are owned legally and beneficially by First Sterling, free and
clear of all Liens (as defined in Section 3.11 hereof).
3.06 Capital Stock of First Sterling. The authorized capital
stock of First Sterling consists solely of 5,000,000 authorized shares of common
stock, each having a par value of $1.00, of which 1,454,203 shares are duly
authorized, validly issued and outstanding, fully paid and nonassessable, and
15,800 shares are held as treasury shares by First Sterling. None of the issued
and outstanding shares of First Sterling Common Stock has been issued in
violation of any preemptive rights of any past or present stockholder or any
stock purchase agreement or other agreement to which First Sterling was or is a
party or by which it was or is bound. No subscription, warrant, option,
convertible security or other right (contingent or otherwise) to purchase or
acquire any shares of any class of capital stock of First Sterling, or any
instrument or securities convertible into capital stock, is authorized or
outstanding other than the First Sterling Stock Options and First Sterling
Debentures (as defined in Section 5.02). No shares of First Sterling Common
Stock have been reserved for issuance and First Sterling has no obligation or
commitment to authorize, issue, sell, repurchase or redeem any First Sterling
Common Stock, except pursuant to the First Sterling Stock Options and the First
Sterling Debentures. There is no commitment of First Sterling to distribute to
holders of any class of its capital stock any evidences of indebtedness or
assets and First Sterling has no obligation (contingent or otherwise) to
purchase, redeem or otherwise acquire any shares of its capital stock or any
interest therein or to pay any dividend or make any other distribution in
respect thereof. There is not now, and at Closing there will not be, any
stockholder agreement, voting trust or other agreement or understanding to which
First Sterling or, to the best of its knowledge, any of its shareholders is a
party or bound relating to the voting of First Sterling Common Stock. All of the
issued and outstanding shares of First Sterling Common Stock have been issued
pursuant to proper and effective exemptions from registration under applicable
federal and state
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securities laws. The First Sterling Disclosure Letter sets forth a true,
accurate and complete list of each First Sterling Stock Option with the name of
the holder, number of shares, term, vesting schedule, grant date, expiration
date and exercise price. No Subsidiary of First Sterling holds any shares of
First Sterling Common Stock.
3.07 Governmental Requirements. The Merger will require
(insofar as the Bank and First Sterling are concerned) the approval or
non-objection of the Pennsylvania Banking Department (the "PADOB"), the Board of
Governors of the Federal Reserve (the "Federal Reserve"), the Federal Deposit
Insurance Corporation ("FDIC") and the U.S. Department of Justice. No other
consent, approval, authorization or permit of, or filing with or notification
to, any governmental entity or Regulatory Agency (except for the filing of
articles of merger and a certificate of merger under the PBCL and DGCL) is
required in order to authorize First Sterling or the Bank to complete the
transactions contemplated by this Agreement. "Regulatory Agency (Agencies)"
shall mean the PADOB, the Federal Reserve, the FDIC, the U.S. Department of
Justice, the Office of Thrift Supervision, the U.S. Securities and Exchange
Commission, the Pennsylvania Securities Commission, the Office of the
Comptroller of the Currency, and each other federal or state governmental agency
or authority charged with the supervision or regulation of financial
institutions or their holding companies or the issuance of securities or engaged
in the insurance of deposits. Neither First Sterling nor any of its Subsidiaries
or any of their respective assets, is a party to or subject to any order,
decree, agreement, memorandum of understanding or similar arrangement with, or a
commitment letter or similar submission to, or has adopted any board resolution
at the request of, any Regulatory Agency.
3.08 Financial Information. First Sterling has previously
delivered to Prime its audited consolidated balance sheets as of December 31,
1993, December 31, 1994 and December 31, 1995, and the related audited
consolidated statements of operations and shareholders' equity and of
consolidated cash flows for the years ended December 31, 1993, December 31, 1994
and December 31, 1995, including the notes thereto (collectively, the "Financial
Statements"), together with the reports thereon of First Sterling's and the
Bank's independent accountants. First Sterling has previously delivered to Prime
its unaudited consolidated balance sheet as of March 31, 1996 and the related
unaudited consolidated statements of operations for the three months ended March
31, 1996 (collectively, the "Interim Financial Statements"). The Financial
Statements and Interim Financial Statements (i) were prepared from the books and
records of First Sterling, the Bank and the Subsidiaries and (ii) present fairly
the consolidated financial position of First Sterling and the Bank,
respectively, as of the respective dates specified therein, and the consolidated
results of operations and retained earnings and of consolidated cash flows of
First Sterling and the Bank, respectively, for the respective periods then
ended, all in conformity with generally accepted accounting principles applied
on a consistent basis (subject in the case of the Interim Financial Statements
to normal, recurring audit adjustments).
3.09 Absence of Undisclosed Liabilities.
(a) Except as and to the extent reflected or
reserved against in the respective Interim Financial Statements of First
Sterling and the Bank and except for other liabilities or obligations which in
the aggregate would not have a material adverse effect on First Sterling, its
financial condition, business or assets, as of March 31, 1996 neither the Bank
nor First Sterling had any liabilities or obligations, secured or unsecured
(whether known or unknown, accrued, absolute, contingent or otherwise) of a
nature customarily accrued, reserved against or disclosed in a balance sheet
prepared in conformity with generally accepted accounting principles, including,
without limitation, (i) any tax liabilities due or to become due, or whether
incurred in respect of or measured by the assets, sales or income of First
Sterling, the Bank or the Subsidiaries for any period to March 31, 1996, or
arising out of transactions entered into or any state of facts existing at such
date, and (ii) any loss contingencies as may be required by generally accepted
accounting principles to be disclosed, if not accrued; and there is no basis for
the assertion against First Sterling, the Bank or any Subsidiary as of March 31,
1996 of any liabilities or obligations not adequately reflected or reserved
against in their respective Interim Financial Statements.
(b) On the Closing Date neither First Sterling,
the Bank nor any Subsidiary will have (i) any loss contingency of a nature
customarily accrued, reserved against or disclosed in a balance sheet prepared
in conformity with generally accepted accounting principles, nor (ii) any other
liabilities or obligations, except as will have been incurred from and after
March 31, 1996 in the ordinary course of business, and consistent with the terms
of this Agreement, in aggregate amounts not materially greater than those
incurred in the comparable period during the prior fiscal year and except for
other liabilities or obligations which in the aggregate would not have a
material adverse effect on First Sterling, its financial condition, business or
assets.
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3.10 Absence of Certain Changes. Since March 31, 1996:
(a) neither First Sterling, the Bank nor any
Subsidiary has conducted its business other than in the ordinary course;
(b) neither First Sterling, the Bank nor any
Subsidiary has suffered any change in its condition (financial or
otherwise), assets, liabilities (accrued, absolute, contingent or otherwise),
earnings, prospects or business, except for changes which have been in the
ordinary course of business and which have not, individually or in the
aggregate, been materially adverse;
(c) neither First Sterling, the Bank nor any
Subsidiary has (i) experienced any labor- management dispute or work
stoppage or any strike which has had or is likely to have a material adverse
effect on First Sterling or (ii) suffered any casualty loss (whether or not
insured) in excess of $50,000 in amount individually;
(d) neither First Sterling, the Bank nor any
Subsidiary has permitted or allowed any of its properties or assets to be
mortgaged, pledged or subjected to any security interest, lien or encumbrance
securing indebtedness or obligations, other than for Liens securing purchase
money debt the aggregate payments on which on any individual obligation do not
exceed $50,000;
(e) neither First Sterling, the Bank nor any
Subsidiary has canceled any material debts or claims, or waived any rights
of substantial value, or sold, leased or transferred any material properties or
assets except for a fair consideration in the ordinary course of business and
consistent with past practice;
(f) neither First Sterling, the Bank nor any
Subsidiary has transferred or granted any rights under any material
concessions, leases, licenses, agreements, patents, inventions, trademarks,
tradenames, servicemarks, brand names or copyrights or with respect to any
know-how owned or used by, or benefitting it other than in the ordinary course
of business;
(g) neither First Sterling, the Bank nor any
Subsidiary has granted any increase in the compensation of its employees
other than in the ordinary course of business consistent with past practice
(including, without limitation, any increase pursuant to any bonus, pension,
profit-sharing or other plan or commitment);
(h) neither First Sterling, the Bank nor any
Subsidiary has made any capital expenditure or commitment for additions to
its property, plant or equipment in excess of $50,000 in the aggregate;
(i) there has not been any change in the
authorized, issued or outstanding capital stock of First Sterling, the Bank
or any Subsidiary, any granting of any stock option or right to purchase shares
of capital stock or the issuance of any security convertible into shares of
capital stock of First Sterling, the Bank or any Subsidiary, any purchase,
redemption, retirement or other acquisition of any shares of capital stock of
First Sterling, the Bank or any Subsidiary, or any agreement to do any of the
foregoing, or any declaration, setting aside, or payment of any dividend or the
making of any other distribution or payment in respect of the capital stock of
First Sterling, the Bank or any Subsidiary;
(j) neither First Sterling, the Bank nor any
Subsidiary has failed to extend credit to any customers or other third
parties doing business with it except in the ordinary course of business
consistent with past practice;
(k) neither First Sterling, the Bank nor any
Subsidiary has failed to use its best efforts to operate its business in
the ordinary course so as to preserve its business intact, to keep available to
Prime the services of the Bank's employees, and to preserve for Prime the
goodwill of the Bank's suppliers, customers and others having business relations
with it;
(l) neither First Sterling, the Bank nor any
Subsidiary has changed any of its accounting principles or the methods of
applying such principles;
(m) no event or circumstance has occurred or
has arisen which may require the Bank or any of its Subsidiaries to write
down or write off all or part of the value of any asset or to establish or
increase any general or specific reserves for losses on any assets; and
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(n) neither First Sterling, the Bank nor any
Subsidiary has agreed, whether in writing or otherwise, to take any of the
actions set forth in this Section 3.10.
3.11 Title, Assets, Absence of Liens, Etc. First Sterling, the
Bank and each of its Subsidiaries has, with respect to all assets and properties
owned or used by it, good and valid, and with respect to all owned real property
marketable and insurable, title, free and clear of all liens, encumbrances,
encroachments, defects, mortgages, pledges, liabilities, options, security
interests, conditional sale or other title retention agreements, assessments,
licenses, covenants, restrictions, reservations, claims, burdens, charges and
rights and interests whatsoever of third parties (collectively, "Liens"), except
for Liens adequately disclosed in the Financial Statements or Interim Financial
Statements.
3.12 Tax Matters. (A) First Sterling, the Bank and the
Subsidiaries have each duly and timely filed (taking into account any extensions
of time to file) with the appropriate federal, state, county, local and foreign
governmental tax authorities all tax returns required to be filed by or with
respect to First Sterling, the Bank and the Subsidiaries pursuant to any
applicable federal, state, county, local or foreign tax laws ("Tax Returns");
(B) such Tax Returns correctly reflect in all material respects all taxes due
and such Tax Returns have not been amended by First Sterling, the Bank or the
Subsidiaries; (C) First Sterling, the Bank and the Subsidiaries (i) have each
paid or properly accrued on the Financial Statements and Interim Financial
Statements, and for periods through March 31, 1996 on their respective books and
records (x) all taxes shown as due and payable on such Tax Returns, (y) all
assessments in respect of any such taxes and (z) all other taxes upon any of
them or upon any of the respective properties, assets, revenues, income or
franchises due and payable in respect of all periods through March 31, 1996, and
(ii) have each paid or properly accrued on their respective books and records
all taxes for any period from the date of the last reporting period covered by
such Tax Returns until the date hereof; (D) there are no tax liens upon any
property of First Sterling, the Bank or any Subsidiary and neither the Bank nor
any Subsidiary has been advised by any tax authority of any proposal to file a
tax lien against it or to claim or assess any deficiency or adjustment to tax;
(E) there is no pending tax examination, or other proceeding with respect to
taxes, involving First Sterling, the Bank or any Subsidiary; (F) the Federal
Income Tax Returns of First Sterling, the Bank and the Subsidiaries have never
been audited and no extensions of the applicable statutes of limitation for any
prior period or periods have been granted; (G) neither First Sterling, the Bank
nor any Subsidiary has disclosed on Form 8275, or on any other form of
disclosure statement included with a Tax Return filed with the Internal Revenue
Service, the existence of any item for purposes of avoiding a substantial
understatement or negligence penalty pursuant to Section 6661 or Section 6662 of
the Code; (H) there are no agreements, waivers or other arrangements providing
for any extension of time with respect to the filing of any Tax Returns by First
Sterling, the Bank or any Subsidiary or the payment by, or assessment against,
First Sterling, the Bank or any Subsidiary of any tax; and (I) First Sterling,
the Bank and each Subsidiary have withheld or collected from each payment made
to each of its respective employees (or has otherwise paid or made provision
for) the amount of all taxes (including but not limited to Federal Income Taxes,
Federal Insurance Contribution Act taxes, state and local income and wage dues,
payroll taxes, workers' compensation and unemployment compensation taxes)
required to be withheld or collected therefrom and has paid (or caused to be
paid) the same in respect of its respective employees, in each case when due.
For purposes of this Agreement, the terms "tax" and "taxes" shall include all
federal, state, county, local and foreign taxes, assessments, duties and
tariffs, including without limitation all income, franchise, property,
production, sales, use, payroll, license, windfall profits, severance,
withholding, excise, gross receipts and other taxes, as well as any interest,
additions or penalties relating thereto and any interest in respect of such
additions or penalties.
No agreement or consent pursuant to Section 341(f) of
the Code has ever been made with respect to First Sterling, the Bank or any
Subsidiary, to any of the assets or properties thereof or to any predecessor
corporation thereof. Further, neither First Sterling nor the Bank nor any
Subsidiary shall make any agreement or consent pursuant to Section 341(f) in
respect of any such corporation or as a result of the transactions contemplated
hereby or otherwise.
None of the assets of First Sterling, the Bank or
the Subsidiaries is required to be treated as being owned by any other
person pursuant to the "safe harbor" leasing provisions of Section 168(f)(8) of
the Internal Revenue Code of 1954 as in effect prior to the repeal of said
leasing provisions.
3.13 Use of Real and Personal Property. The owned and leased
or licensed real and personal property of First Sterling, the Bank and each
Subsidiary are used and operated in compliance and conformity in all material
respects with all applicable material leases, contracts, commitments, licenses
and Permits (as defined in Section 3.14), and conform in all material respects
with all applicable laws, regulations, ordinances and codes, and in each case
are in good operating condition and repair and are adequate and sufficient for
the operation of their respective businesses as presently conducted. The First
Sterling Disclosure Letter sets forth a complete and accurate description of all
owned real property and leased real property and
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material leased personal property, including the principal terms of such leases.
No law, regulation, ordinance or agreement presently in effect precludes or
materially restricts continuation (presently or after Closing) of the present
use of such property in the manner heretofore used by First Sterling, or any
Subsidiary. For these purposes, materiality shall mean leases or other contracts
or commitments where First Sterling or its Subsidiaries are obligated to make
future payments on any such item in excess of $50,000. There are no
nonconforming uses or variances in effect with respect to any plant, facility,
structure or building owned and/or used by First Sterling or any Subsidiary.
Neither First Sterling, the Bank nor any Subsidiary has received notice from any
governmental entity of any material violation of any applicable zoning or
building regulation, ordinance or law, Permit, any health or safety statute,
order, rule, regulation or requirement, or any other law or statute relating to
the use by First Sterling, the Bank and the Subsidiaries of their assets or the
conduct of their businesses in connection therewith, and, so far as is known to
First Sterling and the Bank, there is no such violation. First Sterling and the
Bank know of no pending or threatened condemnation proceedings relating to any
of the owned or leased properties of First Sterling or any Subsidiary which
would have a material adverse effect on First Sterling.
3.14 Conduct of Operations. All permits, licenses, approvals,
consents, franchises and authorizations ("Permits") which are material to the
business, assets or financial condition of First Sterling, the Bank or any
Subsidiary and are required by administrative agencies and other governmental
authorities to be obtained by First Sterling, the Bank or any Subsidiary in
connection with the ownership of their assets and the conduct of their
businesses have been duly obtained and are in effect. First Sterling, the Bank
and each Subsidiary are in good standing under all Permits, and the businesses
of First Sterling, the Bank and each Subsidiary are being conducted in
substantial compliance and conformity with all such Permits. There is not under
any Permit, any existing default or breach which, with notice or lapse of time
or both, would constitute a default. Neither First Sterling, the Bank nor any
Subsidiary has received any claim or notice that any of them is not in
compliance with, or is in violation of, and each of First Sterling, the Bank and
the Subsidiaries are in compliance in all material respects with, all applicable
federal, state, county, local and foreign laws, ordinances and regulations,
reporting and record-keeping requirements, except for such minor violations
which in the aggregate would not have a material adverse effect on First
Sterling, its financial condition, business or assets. Without limiting the
foregoing: the Bank is not conducting any activities, or conducting activities
to a degree or in scope, which it is not permitted to conduct, and the Bank is
not in violation of any "insider loan" requirements or any other lending or
"loans to one borrower" limits.
3.15 Validity of Leases and Contracts. Each material (as
defined in Section 3.13) lease pursuant to which First Sterling, the Bank or any
Subsidiary leases real or personal property, and each other material contract or
commitment of First Sterling, the Bank or any Subsidiary, is valid and
enforceable in all material respects in accordance with its terms, and neither
First Sterling, the Bank or any Subsidiary is in default under any provision of
any such lease or contract or commitment, nor is there any event which, with
notice or lapse of time or both, would constitute a default, whereby cure cannot
be effected without jeopardy to the realization of the benefits of such lease or
contract or commitment or whereby such default would have a material adverse
effect on the business, assets or financial condition of First Sterling, the
Bank or any Subsidiary.
3.16 Validity of Proprietary Rights; Infringement. First
Sterling and the Bank own, possess or lawfully use in the operation of their
respective businesses, all trademarks, trademark applications, copyrights,
tradenames, servicemarks, franchises and other rights of a proprietary nature
(including without limitation, rights to software and rights to trade secrets
and proprietary information, processes and know how) and other authorizations
(collectively, the "Rights") which are utilized in or reasonably necessary to
the conduct of their respective businesses as now or theretofore conducted, free
and clear of all Liens. All of the Rights which are material to First Sterling
or its business not owned exclusively by First Sterling or the Bank are
described in the First Sterling Disclosure Letter. To the best knowledge of
First Sterling and the Bank, no other person is infringing or violating the
Rights, and the use thereof by First Sterling, the Bank and any Subsidiary does
not infringe or violate the rights of any third party. To the best knowledge of
First Sterling and the Bank, they do not violate or infringe the proprietary
rights of any third party in the conduct of their businesses.
3.17 Insurance. First Sterling, the Bank and each Subsidiary,
currently maintains, and has in the past maintained insurance coverages adequate
in kind and amount to cover all reasonably expected risks for all past periods
and any costs for the defense of claims arising from such risks, in each case
consistent with industry practice. All current policies maintained by First
Sterling and the Bank are in full force and effect on the date hereof, and no
notice or threatened notice of cancellation has been received with respect to
any of such policies. All such policies are accurately summarized in the First
Sterling Disclosure Letter. All outstanding claims in excess of 25,000 in amount
with respect to any current or prior insurance policies are accurately and
completely listed in the First Sterling Disclosure Letter. All such policies
having retrospective rating
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plans or paid loss retrospective rating plans have been accounted for in the
Financial Statements and Interim Financial Statements and on the books of the
Bank.
3.18 Loans. All loans included in the numbers reported in the
Interim Financial Statements, and all loans reflected on the Bank's books and
records, are (except where otherwise indicated in the First Sterling Disclosure
Letter) performing, not past due, not classified, not subject to treatment as
"in substance foreclosures", and have not been the subject of restructurings or
workouts, except to the extent reserved for or identified in the Interim
Financial Statements and Financial Statements. Information pertaining to each
loan contained in the related loan file is true and complete in all material
respects.
3.19 Legal Proceedings. There are no actions, suits,
proceedings, arbitrations or investigations, either administrative or judicial
pending or to the knowledge of First Sterling and the Bank threatened or
contemplated by or against First Sterling, the Bank or any Subsidiary or
affecting any of their assets, properties or prospects, at law or in equity or
otherwise, whether or not covered by insurance before or by any court or
governmental entity, domestic or foreign, nor to the best knowledge of First
Sterling and the Bank any disputes or claims threatened which could result in
such proceedings. Neither First Sterling, the Bank nor any Subsidiary is subject
to, or in default with respect to, any indictment, order, injunction, degree or
award of any court, arbitrator or governmental entity, domestic or foreign and
neither First Sterling, the Bank nor any of their respective officers has any
knowledge of any state of facts or the occurrence of any event which might
reasonably form the basis of a claim against First Sterling, the Bank or any
Subsidiary with respect thereto.
3.20 Books of Account, Minute Books and Stock Record Books.
The books of account of First Sterling, the Bank and each Subsidiary
substantially and accurately reflect all of its items of income and expense, and
all of its assets, liabilities and accruals. The corporate minute books and
stock record books of First Sterling, the Bank and each Subsidiary are complete
and correct, accurately reflect action taken at all meetings of their
stockholders and Boards of Directors and each committee (if any) of such Boards
of Directors, and properly and accurately record the issuance and transfer of
all shares of capital stock of First Sterling, the Bank and each Subsidiary.
3.21 Employee Benefits Plans. Except as disclosed in the First
Sterling Disclosure Letter, First Sterling and its Subsidiaries do not and did
not sponsor, maintain, support or contribute to, nor are they or were they
otherwise a party to, or in default under, and do not have and have not had any
liability or accrued obligations under, any plan, program, fund or arrangement,
either qualified or non-qualified for federal income tax purposes, for one or
more employees, their dependents and/or their beneficiaries, including but not
limited to pension or welfare benefit plans, incentive or other benefit
arrangement for any employee ("Plans"). There does not exist any "accumulated
funding deficiency" (within the meaning of Section 412 of the Code, with respect
to any plan sponsored or maintained by First Sterling or its Subsidiaries, and
no contributions have been made, nor benefits accrued, with respect to any plan
or pension which exceed the applicable limitations of Code Section 415. There
does not exist any unfulfilled obligation to contribute with respect to any such
plan for any plan year ending on or before the date hereof, and a favorable
letter of determination or opinion letter has been issued with respect to each
such Plan. There is no unfunded past service liability for any period prior to
April 30, 1996, except for current contributions not made but fully accrued. No
"prohibited transaction" (as defined in either the Employee Retirement Income
Security Act of 1974 as amended ("ERISA"), or Code Section 4978) has occurred
with respect to any Plan, nor is any person contractually bound to enter into
any such transaction. At no time since September 2, 1974 has First Sterling or
its Subsidiaries sponsored, adopted, maintained, contributed to, or been
obligated to contribute to, any single employer, multi-employer or multiple
employer qualified defined benefit plan (as such terms are defined in ERISA
Section 4001). First Sterling and its Subsidiaries have filed or caused to be
filed on a timely basis all returns, reports, statements, notices, declarations
and other documents required by any governmental entity, local, state or federal
(including, without limitation, the Internal Revenue Service, the Department of
Labor and the Pension Benefit Guaranty Corporation), with respect to each Plan.
The representations and warranties of this Section are accurate not only with
respect to First Sterling and the Bank but also with respect to each member of
any "controlled group of corporations" or any group of "trades or businesses
under common control" (as such terms are used in Code Section 414) of which
First Sterling and the Bank is a member.
First Sterling has provided to Prime true and complete copies
of the following: (i) each of the Plans; (ii) summary plan descriptions, if any,
for each of the Plans; (iii) each trust agreement, insurance policy or other
instrument relating to the funding of each of the Plans; (iv) the two most
recent Annual Report (Form 5500 Series) and accompanying schedules filed with
the Internal Revenue Service or United States department of Labor with respect
to each of the Plans; (v) the most recent audited financial statement, if
required by Section 103 of ERISA, for each of the Plans; (vi) the most recent
actuarial report of each Plan, if any, which is a defined benefit plan within
the meaning of Section 414(j) of the Code; (vii) each policy of fiduciary
liability insurance (and agreements related thereto) maintained in connection
with the Plans, and (viii) the most
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recent determination letter issued by the Internal Revenue Service with respect
to each of the Plans that is intended to qualify under Section 401(a) of the
Code.
3.22 Pooling; Reorganization. As of the date hereof, neither
First Sterling, the Bank nor any Subsidiary is aware of any reason why the
transactions contemplated by this Agreement will fail to qualify (i) for pooling
of interests accounting treatment under generally accepted accounting principles
or (ii) as a reorganization under Section 368(a)(1)(A) of the Code.
3.23 Transactions with Affiliates. Neither First Sterling, the
Bank nor any Subsidiary has any contract or commitment or obligation to or with
any affiliate (as defined under the Securities Act of 1933), executive officer
(as defined under Section 16 of the Securities Exchange Act of 1934) or director
of First Sterling that will survive the Closing or that will be required under
item 404 of Regulation S-K of the Securities and Exchange Commission to be
disclosed in the Joint Proxy Statement (as defined in Section 7.03 below),
except for immaterial items such as credit card accounts.
3.24 Environmental Matters. Except as disclosed in the First
Sterling Disclosure Letter, (i) the operations of First Sterling and its
Subsidiaries have not involved the generation, manufacture, refining, transport,
treatment, storage, disposal or release of any substance, waste or combination
of wastes which poses a present or potential threat to human health, living
organisms or environment, or is deemed to be "hazardous" under any federal,
state or local law (collectively "Hazardous Substances"); (ii) there are no
Hazardous Substances located on or under any properties owned or leased by First
Sterling or any Subsidiary; (iii) First Sterling and its Subsidiaries have not
received any notification that it is a "potentially responsible party" with
respect to any potential cleanup at any proposed federal or state "superfund"
location; (iv) First Sterling and its Subsidiaries maintain all material Permits
required under any federal, state or local law relating to the protection of the
environment, and are in compliance with all material terms of such Permits;
(v) First Sterling and its Subsidiaries have not received any written notice of
the existence or pendency of any investigation, claim, suit or legal,
administrative or regulatory proceeding, or any similar action, arising in whole
or in part under any federal, state or local laws relating to the protection of
the environment, with respect to any properties owned or leased by First
Sterling or any Subsidiary or in any way affecting the business, assets, or
operations of First Sterling or any Subsidiary; (vi) First Sterling and its
Subsidiaries have not caused or permitted to exist as a result of an intentional
or unintentional action or omission on its part, a releasing, spilling, leaking,
pumping, emitting, dumping, or discharging of any Hazardous Substances into the
air, ground or ground water of or surrounding any properties owned or leased by
First Sterling or any Subsidiary or any other lands; (vii) there are no
agreements, orders, judgments, decrees, letters or memoranda by or with any
court or governmental entity imposing any liability or obligation on First
Sterling, the Bank or any of its Subsidiaries under any applicable law relating
to the protection of the environment; and (viii) there are no reasonably
anticipated future events, conditions, circumstances, practices, plans or legal
requirements that could give rise to obligations on First Sterling, the Bank or
any of its Subsidiaries under any applicable law relating to the protection of
the environment.
3.25 No Brokers. All negotiations relative to this Agreement
and the transactions contemplated hereby have been carried on by First Sterling
with Prime and its representatives (i) without the intervention of any other
person retained by First Sterling and (ii) in such manner as not to give rise to
any valid claim against any of the parties hereto for a brokerage commission,
finder's fee or other like payment. First Sterling expressly agrees to
indemnify, defend and hold Prime harmless of, from and against any and all
claims for brokers, finders or similar fees, commissions or expenses in
connection with the transactions contemplated by this Agreement asserted by any
person claiming by, through or under First Sterling, the Bank, or any Subsidiary
of First Sterling.
3.26 Disclosure. No representation or warranty of First
Sterling contained in this Agreement, and no statement contained in any
certificate or the First Sterling Disclosure Letter furnished or to be furnished
by or on behalf of First Sterling to Prime or any of its representatives
pursuant hereto, contains or will contain any untrue statement of a material
fact, or omits or will omit to state any material fact necessary, in light of
the circumstances under which it was or will be made, in order to make the
statements herein or therein not misleading or necessary in order to fully and
fairly provide the information required to be provided in any such document,
certificate or letter.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PRIME
Except as disclosed in a disclosure schedule which
specifically refers to the section to which such disclosure relates and is
delivered prior to the execution of this Agreement ("Prime Disclosure Letter"),
Prime represents and warrants to First Sterling as follows:
4.01 Organization, Power, Etc., of Prime. Prime is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, has all requisite power and authority to own, lease
and operate its properties and to carry on its business as now being conducted
and is duly qualified or licensed and is in good standing to do business as a
foreign corporation in each jurisdiction in which the property owned, leased or
operated by it or the nature of its business, as now being conducted, makes such
qualification necessary, except where the failure to be so qualified or licensed
would not have a material adverse effect on the business, operations or
financial condition of Prime. The Prime Disclosure Letter sets forth a complete
list of the jurisdictions in which Prime is qualified or licensed to do
business. First Sterling has heretofore received true and complete copies of the
Certificate of Incorporation and Bylaws, as currently in effect, of Prime.
4.02 Organization, Power, Etc., of Prime Bank. Prime Bank, a
savings bank ("Prime Bank"), is a Pennsylvania chartered stock savings bank duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania, has all requisite power and authority to own,
lease and operate its properties and to carry on its business as now being
conducted and is duly qualified or licensed and is in good standing to do
business as a foreign corporation in each jurisdiction in which the property
owned, leased or operated by it or the nature of its business, as now being
conducted, makes such qualification necessary, except where the failure to be so
qualified or licensed would not have a material adverse effect on the business,
operations or financial condition of Prime. The Prime Disclosure Letter sets
forth a complete list of the jurisdictions in which Prime Bank is qualified or
licensed to do business. First Sterling has heretofore received true and
complete copies of the Articles of Incorporation and Bylaws as currently in
effect, of Prime Bank.
4.03 Authorization and Effect of Agreement.
(a) Prime has all requisite power and authority
to execute, deliver and perform this Agreement; the execution, delivery and
performance of this Agreement by Prime have been duly authorized by all
requisite corporate action; and this Agreement has been duly executed and
delivered by Prime and constitutes the legal, valid and binding obligation of
Prime, enforceable in accordance with its terms, except as enforceability may be
limited by applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or similar laws affecting creditors' rights
generally, or by the principles governing the availability of equitable
remedies.
(b) The execution, delivery and performance by
Prime of this Agreement will not violate or conflict with any provision of
law or regulation, any order of any court or other agency of government, the
Certificate of Incorporation or Bylaws of Prime, Prime Bank or any Subsidiary,
any judgment, award or decree or any material indenture, agreement or other
instrument to which Prime, Prime Bank or any Subsidiary is a party, or by which
they or any of their properties or assets is bound or affected, or result in a
breach of or constitute (with notice or lapse of time or both) a default under
any such indenture, agreement or other instrument, or result in the creation or
imposition of any lien, charge or encumbrance of any nature whatsoever upon any
of the properties or assets of Prime, Prime Bank or any Subsidiary.
4.04 Capital Stock of Prime. The authorized capital stock of
Prime consists solely of (i) 10,000,000 authorized shares of common stock, each
having a par value of $1.00, being the Prime Common Stock, and (ii) 5,000,000
authorized shares of preferred stock, each having a par value of $1.00, being
the Prime Preferred Stock. There are no shares of Prime Preferred Stock issued
and outstanding. As of June 6, 1996, there are 3,723,353 shares of Prime Common
Stock issued and outstanding, all of which are duly authorized, validly issued
and outstanding, fully paid and non-assessable (the "Prime Shares"), and 184,063
shares are held as treasury shares by Prime. None of the Prime Shares has been
issued in violation of any preemptive rights of any past or present stockholder
or any stock purchase agreement or other agreement to which Prime was or is a
party or by which it was or is bound. No subscription, warrant, option,
convertible security or other right (contingent or otherwise) to purchase or
acquire any shares of any class of capital stock of Prime, or any instrument or
securities convertible into capital stock, is authorized or outstanding, except
for stock options as disclosed in the SEC Documents (as defined in Section
4.06). No shares of Prime Common Stock have been reserved for issuance and Prime
has no obligation or commitment to authorize, issue, sell, repurchase or redeem
any Prime Common Stock, except as disclosed in the SEC Documents. There is no
commitment of Prime to distribute to holders of any class of its capital stock
any evidences of
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indebtedness or assets, other than regularly declared dividends, and Prime has
no obligation (contingent or otherwise) to purchase, redeem or otherwise acquire
any shares of its capital stock or any interest therein or to pay any dividend
or make any other distribution in respect thereof. There are no stockholder
agreements, voting trusts or other agreements or understandings to which Prime
or, to the best of its knowledge, any of its stockholders, is a party or bound,
relating to the voting of Prime Shares.
4.05 Governmental Requirements. The Merger will require
(insofar as Prime is concerned) the approval or non-objection of the PADOB, the
Office of Thrift Supervision (the "OTS"), the U.S. Department of Justice, the
FDIC, and the Federal Reserve. Prime will be required to register the issuance
of the Prime Common Stock in connection with the Merger with the Securities
Exchange Commission ("SEC"). Prime will also be required to register the
issuance of the Prime Common Stock with, or secure permits or approvals for its
issuance from, or file appropriate notifications with, any applicable state
securities regulatory agencies. No other consent, approval, authorization or
permit of, or filing with or notification to, any governmental entity or
Regulatory Agency (except for the filing of articles of merger and a certificate
of merger under the PBCL and DGCL) is required in order to authorize Prime or
Prime Bank to complete the transactions contemplated by this Agreement. Neither
Prime nor any of its Subsidiaries or any of their respective assets, is a party
to or subject to any order, decree, agreement, memorandum of understanding or
similar arrangement with, or a commitment letter or similar submission to, or
has adopted any board resolution at the request of, any Regulatory Agency.
4.06 Financial Reports and SEC Documents. Its Annual Report on
Form 10-K for the fiscal year ended December 31, 1995, and all other reports,
registration statements, definitive proxy statements or information statements
filed or to be filed by it or any of its subsidiaries subsequent to December 31,
1995 under the Securities Act of 1933, as amended (together with the rules and
regulations thereunder, the "Securities Act"), or under Sections 13(a), 13(c),
14 and 15(d) of the Securities Exchange Act of 1934, as amended (together with
the rules and regulations thereunder, the "Exchange Act"), in the form filed, or
to be filed (collectively, its "SEC Documents"), with the SEC (i) complied or
will comply as of the date of filing thereof in all material respects as to form
with the applicable requirements under the Exchange Act and (ii) did not and
will not contain as of the date of filing thereof any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements made therein, in light of the circumstances
under which they were made, not misleading; and each of the balance sheets in or
incorporated by reference into any such SEC Document (including the related
notes and schedules thereto) fairly presents and will fairly present the
financial position of the entity or entities to which it relates as of its date
and each of the statements of income and changes in shareholders' equity and
cash flows or equivalent statements in such report and documents (including any
related notes and schedules thereto) fairly presents and will fairly present the
results of operations, changes in shareholders' equity and changes in cash
flows, as the case may be, of the entity or entities to which it relates for the
periods set forth therein, in each case in accordance with generally accepted
accounting principles consistently applied during the periods involved, except
in each case as may be noted therein, subject to normal and recurring year-end
audit adjustments in the case of unaudited statements. All material agreements,
contracts and other documents required to be filed by it as exhibits to any SEC
Document have been so filed.
4.07 Absence of Certain Changes. Since March 31, 1996, there
has not occurred or arisen any event, individually or in the aggregate, having
or which, insofar as reasonably can be foreseen, in the future is likely to
have, a material adverse effect upon Prime or its financial condition, assets or
business.
4.08 Tax Matters. Prime and its Subsidiaries have each duly
and timely filed (taking into account any extensions of time to file) all Tax
Returns required to be filed by each of them with the appropriate federal,
state, county, local and foreign governmental tax authorities. All such Tax
Returns correctly reflect in all material respects all taxes due and such Tax
Returns have not been amended by Prime or its Subsidiaries. All taxes required
to be paid in respect of periods covered by the Tax Returns, and in respect of
all periods subsequent to the last reporting period covered by the Tax Returns,
have either been paid or fully accrued on the books of Prime and each of its
Subsidiaries, and have been accurately reflected in the financial statements
contained in the SEC Documents. There are no tax liens upon any property of
Prime or any of its Subsidiaries, and Prime has not been advised by any tax
authority of any proposal to file a tax lien against it or any of its
Subsidiaries or to claim or assess any deficiency or adjustment to tax. There is
no pending tax examination, or other proceeding with respect to taxes, involving
Prime or any Subsidiary. The Federal Income Tax Returns of Prime have been
audited and settled through December 31, 1981, however Prime is awaiting final
assessment of tax and interest in connection with such audit. No extensions of
the applicable statutes of limitation for any prior period or periods have been
granted except in connection with the 1981 Federal Income Tax audit. Neither
Prime nor any Subsidiary has disclosed on Form 8275, or on any other form of
disclosure statement included with a Tax Return filed with the Internal Revenue
Service, the existence of any item for purposes of avoiding a substantial
understatement or negligence penalty pursuant to Sections 6661 or 6662 of the
Code. There are no agreements,
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waivers or other arrangements providing for any extension of time with respect
to the filing of any Tax Returns by Prime or any of its Subsidiaries or the
payment by, or assessment against, Prime or any Subsidiary of any tax. Prime and
each Subsidiary have withheld or collected from each payment made to each of its
respective employees (or has otherwise paid or made provision for) the amount of
all taxes (including but not limited to Federal Income Taxes, Federal Insurance
Contribution Act taxes, state and local income and wage dues, payroll taxes,
workers' compensation and unemployment compensation taxes) required to be
withheld or collected therefrom and has paid (or caused to be paid) the same in
respect of its respective employees, in each case when due.
No agreement or consent pursuant to Section 341(f) of
the Code has ever been made with respect to Prime or any Subsidiary, to any of
the assets or properties thereof or to any predecessor corporation thereof.
Neither Prime nor any Subsidiary shall make any agreement or consent pursuant to
Section 341(f) in respect of any such corporation or as a result of the
transactions contemplated hereby or otherwise.
None of the assets of Prime or the Subsidiaries is
required to be treated as being owned by any other person pursuant to the
"safe harbor" leasing provisions of Section 168(f)(8) of the Internal Revenue
Code of 1954 as in effect prior to the repeal of said leasing provisions.
4.09 Conduct of Operations. All Permits which are material to
the business, assets or financial condition of Prime or any Subsidiary and are
required by administrative agencies and other governmental authorities to be
obtained by Prime or any Subsidiary in connection with the ownership of their
assets and the conduct of their businesses have been duly obtained and are in
effect. Prime and each Subsidiary is in good standing under all Permits, and the
businesses of Prime and each Subsidiary are being conducted in substantial
compliance and conformity with all such Permits. There is not under any Permit,
any existing default or breach which, with notice or lapse of time or both,
would constitute a default. Neither Prime nor any Subsidiary has received any
claim or notice that any of them is not in compliance with, or is in violation
of, and each of Prime and the Subsidiaries are in compliance in all material
respects with, all applicable federal, state, county, local and foreign laws,
ordinances and regulations, reporting and record-keeping requirements, except
for such minor violations which in the aggregate would not have a material
adverse effect on Prime, its financial condition, business or assets. Without
limiting the foregoing: Prime Bank is not conducting any activities, or
conducting activities to a degree or in scope, which it is not permitted to
conduct, and the Bank is not in violation of any "insider loan" requirements or
any other lending or "loans to one borrower" limits.
4.10 Legal Proceedings. There are no actions, suits,
proceedings, arbitrations or investigations, either administrative or judicial
pending or to the knowledge of Prime threatened or contemplated by or against
Prime or any Subsidiary or affecting any of their assets, properties or
prospects, at law or in equity or otherwise, before or by any court or
governmental entity, domestic or foreign, nor to the best knowledge of Prime any
disputes or claims threatened which could result in such proceedings, in each
case which is reasonably likely to have a material adverse effect on Prime, its
financial condition, assets or business. Neither Prime nor any Subsidiary is
subject to, or in default with respect to, any indictment, order, injunction,
degree or award of any court, arbitrator or governmental entity, domestic or
foreign, and neither Prime nor any of its officers has any knowledge of any
state of facts or the occurrence of any event which might reasonably form the
basis of a material claim against Prime or any Subsidiary with respect thereto.
4.11 Pooling; Reorganization. As of the date hereof, Prime is
not aware of any reason why the transactions contemplated by this Agreement will
fail to qualify (i) for pooling of interests accounting treatment under
generally accepted accounting principles or (ii) as a reorganization under
Section 368(a)(1)(A) of the Code.
4.12 Environmental Matters. Except as disclosed in the Prime
Disclosure Letter, (i) the operations of Prime and its Subsidiaries have not
involved the generation, manufacture, refining, transport, treatment, storage,
disposal or release of any Hazardous Substances; (ii) there are no Hazardous
Substances located on or under any properties owned or leased by Prime or any
Subsidiary; (iii) Prime and its Subsidiaries have not received any notification
that it is a "potentially responsible party" with respect to any potential
cleanup at any proposed federal or state "superfund" location; (iv) Prime and
its Subsidiaries maintains all material Permits required under any federal,
state or local law relating to the protection of the environment, and is in
compliance with all material terms of such Permits; (v) Prime has not received
any written notice of the existence or pendency of any investigation, claim,
suit or legal, administrative or regulatory proceeding, or any similar action,
arising in whole or in part under any federal, state or local laws relating to
the protection of the environment, with respect to any properties owned or
leased by Prime or any Subsidiary or in any way affecting the business, assets,
or operations of Prime or any Subsidiary; (vi) Prime and its Subsidiaries have
not caused or permitted to exist as a result of an intentional or unintentional
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action or omission on its part, a releasing, spilling, leaking, pumping,
emitting, dumping, or discharging of any Hazardous Substances into the air,
ground or ground water of or surrounding any properties owned or leased by Prime
or any Subsidiary or any other lands; (vii) there are no agreements, orders,
judgments, decrees, letters or memoranda by or with any court or governmental
entity imposing any liability or obligation on Prime or any of its Subsidiaries
under any applicable law relating to the protection of the environment; and
(viii) there are no reasonably anticipated future events, conditions,
circumstances, practices, plans or legal requirements that could give rise to
obligations on Prime or any of its Subsidiaries under any applicable law
relating to the protection of the environment.
4.13 No Brokers. All negotiations relative to this Agreement
and the transactions contemplated hereby have been carried on by Prime with
First Sterling and their representatives (i) without the intervention of any
other person retained by Prime, other than its financial advisor Berwind
Financial Group, L.P. and (ii) in such manner as not to give rise to any valid
claim against any of the parties hereto for a brokerage commission, finder's fee
or other like payment. Prime expressly agrees to indemnify, defend and hold
First Sterling harmless of, from and against any and all claims for brokers,
finders or similar fees, commissions or expenses in connection with the
transactions contemplated by this Agreement asserted by any person claiming by,
through or under Prime, Prime Bank, or any Subsidiary of Prime.
4.14 Books of Account, Minute Books and Stock Record Books.
The books of account of Prime and each Subsidiary substantially and accurately
reflect all of its items of income and expense, and all of its assets,
liabilities and accruals. The corporate minute books and stock record books of
Prime and each Subsidiary are complete and correct, accurately reflect action
taken at all meetings of their stockholders and Boards of Directors and each
committee (if any) of such Boards of Directors, and properly and accurately
record the issuance and transfer of all shares of capital stock of Prime and
each Subsidiary.
4.15 Absence of Undisclosed Liabilities.
(a) Except as and to the extent reflected or
reserved against in the SEC Documents and except for other liabilities or
obligations which in the aggregate would not have a material adverse effect on
Prime, its financial condition, business or assets, as of March 31, 1996, Prime
had no liabilities or obligations, secured or unsecured (whether known or
unknown, accrued, absolute, contingent or otherwise) of a nature customarily
accrued, reserved against or disclosed in a balance sheet prepared in conformity
with generally accepted accounting principles, including, without limitation,
(i) any tax liabilities due or to become due, or whether incurred in respect of
or measured by the assets, sales or income of Prime or the Subsidiaries for any
period to March 31, 1996, or arising out of transactions entered into or any
state of facts existing at such date, and (ii) any loss contingencies as may be
required by generally accepted accounting principles to be disclosed, if not
accrued; and there is no basis for the assertion against Prime or any Subsidiary
as of March 31, 1996 of any liabilities or obligations not adequately reflected
or reserved against in the SEC Documents.
(b) On the Closing Date neither Prime nor any
Subsidiary will have (i) any loss contingency of a nature customarily
accrued, reserved against or disclosed in a balance sheet prepared in conformity
with generally accepted accounting principles, or (ii) any other liabilities or
obligations, except as will have been incurred from and after March 31, 1996 in
the ordinary course of business, and consistent with the terms of this
Agreement, in aggregate amounts not materially greater than those incurred in
the comparable period during the prior fiscal year and except for other
liabilities or obligations which in the aggregate would not have a material
adverse effect on Prime, its financial condition, business or assets.
4.16 Loans. All loans included in the numbers reported in the
SEC Documents, and all loans reflected on Prime Bank's books and records, are
(except where otherwise indicated in the Prime Disclosure Letter) performing,
not past due, not classified, not subject to treatment as "in substance
foreclosures", and have not been the subject of restructurings or workouts,
except to the extent reserved for or identified in the SEC Document. Information
pertaining to each loan contained in the related loan file is true and complete
in all material respects.
4.17 Disclosure. No representation or warranty of Prime
contained in this Agreement and in no statement contained in any certificate or
the Prime Disclosure Letter furnished or to be furnished by or on behalf of
Prime to First Sterling or any of its representatives pursuant hereto, contains
or will contain any untrue statement of a material fact, or omits or will omit
to state any material fact necessary, in light of the circumstances under which
it was or will be made, in order to make the statements herein or therein not
misleading or necessary in order to fully and fairly provide the information
required to be provided in any such document, certificate or letter.
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ARTICLE V
CONDUCT OF BUSINESS PRIOR TO CLOSING
From the date hereof until the Closing, except as expressly
contemplated in this Agreement, (i) without the prior written consent of Prime
(which consent shall not be unreasonably withheld or delayed) First Sterling
will not, and will cause each of its Subsidiaries not to, and (ii) without the
prior written consent of First Sterling (which consent shall not be unreasonably
withheld or delayed) Prime will not, and will cause each of its Subsidiaries not
to:
5.01 Ordinary Course. Conduct the business of it and its
Subsidiaries other than in the ordinary and usual course or, to the extent
consistent therewith, fail to use reasonable efforts to preserve intact their
business organizations and assets and maintain their rights, franchises and
existing relations with customers, suppliers, employees and business associates,
or knowingly take any action that would, or might reasonably be expected to
(unless such action is required by law or sound banking practice) (i) adversely
affect the ability of any party to obtain any necessary approvals of any
Regulatory Agencies required for the transactions contemplated hereby without
the imposition of any burdensome condition of the type referred to in Section
6.02 or (ii) adversely affect its ability to perform any of its material
obligations under this Agreement.
5.02 Capital Stock. Other than (i) pursuant to the exercise of
stock options outstanding on the date hereof, or (ii) in the case of First
Sterling, the issuance of First Sterling Common Stock in connection with the
conversion of First Sterling's 7.5% Convertible Subordinated Debentures ("First
Sterling Debentures"), or (iii) in the case of Prime, pursuant to employee
benefit plans or programs in effect on the date of this Agreement, issue, sell
or otherwise permit to become outstanding any additional shares of capital
stock, any stock appreciation rights, or any options, warrants, convertible
security or other right (contingent or otherwise) to purchase or acquire any
such securities, enter into any agreement with respect to the foregoing, or make
any new grants of employee stock options, stock appreciation rights, or similar
stock-based employee rights prior to the Closing; provided however, Prime shall
be permitted to make grants of stock options to key employees in accordance with
past practice without being in violation of this Section 5.02.
5.03 Dividends; Changes in Stock. (1) Make, declare or pay any
dividend on or in respect of, or declare or make any distribution on any shares
of its capital stock, except Prime may continue the declaration and payment of
regular quarterly cash dividends not in excess of $.17 per share of Prime Common
Stock (provided, however, that commencing with the last dividend paid in 1996,
Prime may increase the amount of regular quarterly cash dividends per share)
with usual record and payment dates for such dividends in accordance with past
dividend practice, and (2) directly or indirectly combine, redeem, reclassify,
purchase or otherwise acquire, any shares of its capital stock (other than
acquisition of trust account shares in the ordinary course of business).
5.04 Compensation; Employment Agreements; Etc. In the case of
First Sterling and its Subsidiaries, enter into or amend any employment,
severance or similar agreements or arrangements with any of its directors,
officers or employees, or grant any salary or wage increase or increase any
employee benefit (including incentive or bonus payments), except for (i) normal
individual increases in compensation to employees in the ordinary course of
business consistent with past practice (including taking into account deferred
increases) or (ii) other changes as may be required by law or to satisfy
contractual obligations existing as of the date hereof consistent with past
practice, which to the extent practicable, have been disclosed in the First
Sterling Disclosure Letter.
5.05 Benefit Plans. In the case of First Sterling and its
Subsidiaries, enter into or modify (except as may be required by applicable law
or to satisfy contractual obligations existing as of the date hereof, which have
been disclosed in First Sterling Disclosure Letter) any pension, retirement,
stock option, stock purchase, savings, profit sharing, deferred compensation,
consulting, bonus, group insurance or other employee benefit, incentive or
welfare contract, plan or arrangement, or any trust agreement related thereto,
in respect of any of its directors, officers or other employees, including
without limitation taking any action that accelerates the vesting, exercise or
payment of any benefits payable thereunder.
5.06 Acquisitions and Dispositions. Except as disclosed in
their respective Disclosure Letters and except for dispositions and acquisitions
of assets in the ordinary and usual course of business consistent with past
practice, dispose of or discontinue any portion of its assets, business or
properties, which is material to it and its Subsidiaries taken as a whole, or
merge or consolidate with, or acquire (other than by way of foreclosures or
acquisitions of control in a bona fide fiduciary capacity or in satisfaction of
debts previously contracted in good faith, in each case in the ordinary and
usual course of business consistent with past practice) all or any portion of,
the business or property of any other entity (any of the foregoing, a "Business
Combination Transaction"), except that Prime may enter into an agreement or
agreements for, and may consummate, Business
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Combination Transactions in which the aggregate purchase price or prices paid by
Prime and/or its Subsidiaries does not exceed $10 million or the aggregate
number of shares of Prime Common Stock issuable does not exceed 10% of the
number of such shares outstanding on December 31, 1995 (the "10% Limit").
Notwithstanding the foregoing, with the prior consent of a majority of the First
Sterling Board of Directors, Prime may enter into an agreement or agreements for
Business Combination Transactions in which the aggregate purchase price or
prices paid exceeds $10 million or includes shares of Prime Common Stock in
excess of the 10% Limit.
5.07 Amendment. Amend its articles or certificate of
incorporation or by-laws (or similar constitutive documents), except that Prime
may amend its Certificate of Incorporation to increase its authorized common
stock or to make any other amendments which it may deem necessary or appropriate
to complete the transactions contemplated by this Agreement.
5.08 Accounting Methods. Implement or adopt any change in its
accounting principles, practices or methods, other than as may be required by
generally accepted accounting principles.
5.09 Adverse Actions. (1) Knowingly take any action that
would, or is reasonably likely to, prevent or impede the transactions
contemplated hereby from qualifying (i) for pooling of interests accounting
treatment or (ii) as a reorganization within the meaning of Section 368(a) of
the Code; or (2) knowingly take any action that is intended or is reasonably
likely to result in (x) any of its representations and warranties set forth in
this Agreement being or becoming untrue in any material respect at any time
prior to the Closing, (y) any of the conditions to the transactions contemplated
hereby set forth in Article VI not being satisfied, or (z) a material violation
of any provision of this Agreement, except in each case, as may be required by
applicable law; provided however, in the event that any action required to be
taken by applicable law would have a material adverse effect upon the financial
position, business or operations of either party hereto, the other party shall
have the right to terminate its obligations under this Agreement without further
penalty or obligation on either party (but only if such required action was not
due to some other fact or circumstance which itself constitutes a breach of
warranty or covenant contained herein, otherwise the provisions of Article VIII
shall apply), by giving written notice of its election to terminate this
Agreement within ten (10) days after it is given notice of the taking of the
required action having the material adverse effect.
5.10 Indebtedness. No party shall, or shall permit any of its
Subsidiaries to, incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or warrants or rights to
acquire any debt securities of such party or any of its Subsidiaries or
guarantee any debt securities of such party or any of its subsidiaries or
guarantee any debt securities of others other than (i) in replacement for
existing or maturing debt, (ii) indebtedness of any Subsidiary of Prime to Prime
or to another subsidiary of Prime, (iii) indebtedness of any Subsidiary of First
Sterling to First Sterling or to another Subsidiary of First Sterling,
(iv) short-term indebtedness in the ordinary course of business consistent with
prior practice, or (v) gap management transactions entered into in the ordinary
course of business consistent with past practice.
5.11 Agreements. Agree or commit to do anything prohibited by
Sections 5.01 through 5.10.
ARTICLE VI
PRE-CONDITIONS TO CLOSING
The obligation of each of the parties to consummate the
transactions contemplated hereby is conditioned upon the satisfaction at or
prior to the Closing of each of the following (except that only First Sterling's
obligations are conditioned upon satisfaction of Section 6.06 and only Prime's
obligations are conditioned upon satisfaction of Sections 6.07, 6.12, 6.14 and
6.15):
6.01 Shareholder Vote. Approval of (i) this Agreement by the
requisite votes of the shareholders of First Sterling and Prime and (ii) in the
case of Prime, any necessary or appropriate amendment to its Certificate of
Incorporation by the requisite vote of the shareholders of Prime;
6.02 Regulatory Approvals. Procurement by Prime and First
Sterling of all requisite approvals and consents of Regulatory Agencies, and the
expiration of the statutory waiting period or periods relating thereto, and such
approvals and consents shall not impose any condition or restriction upon Prime
or its Subsidiaries which would be reasonably expected either (i) to have a
material adverse effect after the Closing on the present or prospective
consolidated financial
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condition, business or operating results of Prime, or (ii) to prevent the
parties from realizing the major portion of the economic benefits of the
transactions contemplated hereby that they currently anticipate obtaining
therefrom;
6.03 Third Party Consents. All consents or approvals of all
persons (other than Regulatory Agencies) required for the completion of the
transactions contemplated hereby shall have been obtained and shall be in full
force and effect, unless the failure to obtain any such consent or approval is
not reasonably likely to have, individually or in the aggregate, a material
adverse effect on First Sterling or Prime;
6.04 No Injunction, Etc. No order, decree or injunction of any
court or agency of competent jurisdiction shall be in effect, and no law,
statute or regulation shall have been enacted or adopted, that enjoins,
prohibits or makes illegal consummation of the transactions contemplated hereby
(each party agreeing to use its best efforts to have such order, decree or
injunction lifted);
6.05 Pooling Letters. First Sterling shall have received from
Coopers & Lybrand, L.L.P. independent auditors for First Sterling, and Prime
shall have received from KPMG Peat Marwick LLP, independent auditors for Prime,
letters, dated the date of or shortly prior to the mailing date of the Joint
Proxy Statement (as defined in Section 7.03 below), to the effect that, if
consummated in accordance with this Agreement, the transaction contemplated
hereby qualifies for pooling of interests accounting treatment;
6.06 Representations, Warranties and Covenants of Prime.
(i) Each of the representations and warranties contained herein of Prime
shall be true and correct as of the date of this Agreement and upon the Closing
Date with the same effect as though all such representations and warranties had
been made on the Closing Date, except for any such representations and
warranties made as of a specified date, which shall be true and correct as of
such date, (ii) each and all of the agreements and covenants of Prime to be
performed and complied with pursuant to this Agreement on or prior to the
Closing Date shall have been duly performed and complied with in all material
respects, and (iii) First Sterling shall have received a certificate signed by
the Chief Executive Officer of Prime, dated the Closing Date, to the effect set
forth in clauses (i) and (ii);
6.07 Representations, Warranties and Covenants of First
Sterling. (i) Each of the representations and warranties contained herein of
First Sterling shall be true and correct as of the date of this Agreement and
upon the Closing Date with the same effect as though all such representations
and warranties had been made on the Closing Date, except for any such
representations and warranties made as of a specified date, which shall be true
and correct as of such date, (ii) each and all of the agreements and covenants
of First Sterling to be performed and complied with pursuant to this Agreement
on or prior to the Closing Date shall have been duly performed and complied with
in all material respects, and (iii) Prime shall have received a certificate
signed by the Chief Executive Officer of First Sterling, dated the Closing Date,
to the effect set forth in clauses (i) and (ii);
6.08 Effective Registration Statement. The Registration
Statement (as defined in Section 7.03 below) shall have become effective and no
stop order suspending the effectiveness of the Registration Statement shall have
been issued and no proceedings for that purpose shall have been initiated or
threatened by the SEC or any other governmental entity;
6.09 Blue-Sky Permits. Prime shall have received all state
securities laws and "blue sky" permits necessary to consummate the transactions
contemplated hereby;
6.10 Tax Opinion. Prime shall have received an opinion from
Stradley, Ronon, Stevens & Young, and First Sterling shall have received an
opinion from its tax counsel, to the effect that (i) the transactions
contemplated hereby constitute a reorganization under Section 368 of the Code,
and (ii) no gain or loss will be recognized by shareholders of First Sterling
who receive shares of Prime Common Stock in exchange for their shares of First
Sterling Common Stock upon the consummation of the Merger, except that gain or
loss may be recognized as to cash received in lieu of fractional share
interests; in rendering their respective opinions, each such counsel may require
and rely upon representations and agreements contained in certificates of
officers of Prime, First Sterling, and others and investment intent letters from
executive officers and one percent shareholders of First Sterling;
6.11 Nasdaq/National Market Listing. The shares of Prime
Common Stock issuable pursuant to this Agreement shall have been approved
for listing on the Nasdaq/National Market, subject to official notice of
issuance;
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6.12 Legal Opinions. Prime shall have received an opinion from
Kania, Lindner, Lasak and Feeney, and First Sterling shall have received an
opinion from Stradley, Ronon, Stevens & Young, LLP and such other legal counsel
chosen by Prime to provide opinions on Delaware law matters, in each case in
form and substance reasonably satisfactory to the recipient, covering such
matters as are customary for transactions of the nature contemplated by this
Agreement; and
6.13 Opinion of Financial Advisor. Prime shall have received
from its financial advisor an opinion, as of a date no earlier than three
business days prior to the mailing of the Joint Proxy Statement to its
shareholders, as to the fairness of the consideration to be received by Prime
from a financial point of view, as contemplated by this Agreement, and shall
include such opinion in the Joint Proxy Statement.
ARTICLE VII
ADDITIONAL COVENANTS AND AGREEMENTS
First Sterling hereby covenants to and agrees with Prime, and
Prime hereby covenants to and agrees with First Sterling, that:
7.01 Reasonable Best Efforts. Subject to the terms and
conditions of this Agreement, it shall use its reasonable best efforts in good
faith to take, or cause to be taken, all actions, and to do, or cause to be
done, all things necessary, proper or desirable, or advisable under applicable
laws, so as to permit consummation of the Merger as promptly as reasonably
practicable and shall cooperate fully with the other party hereto to that end.
7.02 Shareholder Approvals. Each of them shall take, in
accordance with applicable law, National Association of Securities Dealers
Automated Quotation ("Nasdaq") National Market System ("NMS") rules in the case
of Prime, and its respective articles or certificate of incorporation and
by-laws, all action necessary to convene, respectively, (i) an appropriate
meeting of shareholders of Prime to consider and vote upon (A) any amendment to
the certificate of incorporation of Prime as may be necessary or appropriate to
consummate the Merger and (B) the approval of the Merger (the "Prime Meeting"),
and (ii) an appropriate meeting of shareholders of First Sterling to consider
and vote upon the approval of the Merger (the "First Sterling Meeting"; each of
the Prime Meeting and the First Sterling meeting, a "Meeting"), respectively, as
promptly as practicable after the Registration Statement is declared effective.
The Board of Directors of each of Prime and First Sterling will recommend
approval of such matters, and each of Prime and First Sterling will take all
reasonable lawful action to solicit such approval by its respective
shareholders. First Sterling and Prime shall coordinate and cooperate with
respect to the timing of such meetings and shall use their best efforts to hold
such meetings on the same day.
7.03 Registration Statement.
(a) Each of Prime and First Sterling agrees to
cooperate in the preparation of a registration statement on Form S-4 (the
"Registration Statement") to be filed by Prime with the SEC in connection with
the issuance of Prime Common Stock pursuant to the Merger (including the joint
proxy statement and prospectus and other proxy solicitation materials of Prime
and First Sterling constituting a part thereof (the "Joint Proxy Statement")).
Each of First Sterling and Prime agrees to use all reasonable efforts to cause
the Registration Statement to be declared effective under the Securities Act as
promptly as reasonably practicable after filing thereof. Prime also agrees to
use all reasonable efforts to obtain all necessary state securities law or "Blue
Sky" permits and approvals required to carry out the transactions contemplated
by this Agreement. First Sterling agrees to furnish to Prime all information
concerning First Sterling, its Subsidiaries, officers, directors and
shareholders as may be reasonably requested in connection with the foregoing,
including but not limited to consolidated audited financial statements of First
Sterling for all necessary periods meeting the accounting requirements of the
SEC.
(b) Each of First Sterling and Prime agrees, as
to itself and its Subsidiaries, that none of the information supplied or to
be supplied by it for inclusion or incorporation by reference in (i) the
Registration Statement will, at the time the Registration Statement and each
amendment thereto, if any, becomes effective under the Securities Act, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading, and (ii) the Joint Proxy Statement and any amendment or supplement
thereto will, at the date of mailing to shareholders and at the times of the
Prime Meeting and the First Sterling Meeting, contain any statement which, in
the light of the circumstances under which such statement is made, is false or
misleading with respect to any material fact, or which will omit to state any
material fact necessary in order to make the statements therein not false or
misleading or necessary to correct any statement in any earlier communication
with respect to the solicitation of any proxy for the same
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meeting in the Joint Proxy Statement or any amendment or supplement thereto.
Each of First Sterling and Prime agrees that the Joint Proxy Statement (except,
in the case of First Sterling, with respect to portions thereof prepared by
Prime, and except, in the case of Prime, with respect to portions thereof
prepared by First Sterling) will comply as to form in all material respects with
the requirements of the Exchange Act and the rules and regulations of the SEC
thereunder, and the Registration Statement (except, in the case of First
Sterling, with respect to portions thereof prepared by Prime, and except, in the
case of Prime, with respect to portions thereof prepared by First Sterling) will
comply as to form in all material respects with the requirements of the
Securities Act and the rules and regulations of the SEC thereunder.
(c) In the case of Prime, Prime will advise
First Sterling, promptly after Prime receives notice thereof, of the time
when the Registration Statement has become effective or any supplement or
amendment has been filed, of the issuance of any stop order or the suspension of
the qualification of the Prime Common Stock for offering or sale in any
jurisdiction, of the initiation or threat of any proceeding for any such
purpose, or of any request by the SEC for the amendment or supplement of the
Registration Statement or for additional information.
7.04 Press Releases. Immediately upon execution of this
Agreement, the parties shall issue a joint press release in such form as is
mutually agreeable. Thereafter, except as otherwise required by applicable law
or the rules of the Nasdaq/NMS, neither Prime nor First Sterling shall, or shall
permit any of its Subsidiaries to, issue or cause the publication of any press
release or other public announcement with respect to, or otherwise make any
public statement concerning, the transactions contemplated by this Agreement
without the consent of the other party, which consent shall not be unreasonably
withheld.
7.05 Access; Information. Upon reasonable notice, it shall
afford the other party and its officers, employees, counsel, accountants and
other authorized representatives, access, during normal business hours
throughout the period prior to the Closing Date, to all of its properties,
books, contracts, commitments and records and, during such period, it shall
furnish promptly to it (i) a copy of each material report, schedule and other
document filed by it pursuant to the requirements of federal or state securities
or banking laws, and (ii) all other information concerning the business,
properties and personnel of it as the other may reasonably request. It will not
use any information obtained pursuant to this Agreement for any purpose
unrelated to the consummation of the transactions contemplated hereby and, if
this Agreement is terminated, will hold all information and documents obtained
pursuant to this Section in confidence (as provided in Section 9.06) unless and
until such time as such information or documents become publicly available other
than by reason of any action or failure to act by it or as it is advised by
counsel that any such information or document is required by law or applicable
Nasdaq/NMS rules to be disclosed. No investigation by either party of the
business and affairs of another shall affect or be deemed to modify or waive any
representation, warranty, covenant or agreement in this Agreement, or the
conditions to either party's obligation to complete the transactions
contemplated by this Agreement.
7.06 Acquisition, Proposals. Without the prior written consent
of the other, neither First Sterling nor Prime shall, and each of them shall
cause its respective Subsidiaries not to, and each of them shall direct its
officers, directors and employees and bankers, financial advisors, attorneys,
accountants and other representatives ("Representatives") not to, solicit or
encourage inquiries or proposals with respect to, or engage in any negotiations
concerning, or provide any confidential information to, or have any discussions
with, any person (other than the other party hereto) relating to, or enter into
any agreement with respect to or take any action to endorse or recommend a
Takeover Proposal. As used herein, the term "Takeover Proposal" shall mean any
proposal for a merger, consolidation or other business combination involving
such party or such Subsidiary or any tender or exchange offer or other plan,
proposal or offer by any person (other than the other party hereto) to acquire
in any manner 10% or more of the shares of any class of voting securities of, or
20% or more of the assets of, such party or any of its significant Subsidiaries,
other than pursuant to the transactions contemplated by this Agreement. Each of
Prime and First Sterling shall advise the other orally (within one business day)
and in writing (as promptly as practicable), in reasonable detail, of any such
inquiry or proposal which it or any of its Subsidiaries or any Representative
may receive and if such inquiry or proposal is in writing, then Prime or First
Sterling, as the case may be, shall deliver to the other a copy of such inquiry
or proposal as promptly as practicable after the receipt thereof.
7.07 Affiliate Agreements. Not later than the 15th day prior
to the mailing of the Joint Proxy Statement, First Sterling shall deliver to
Prime, a schedule of each person that, to the best of its knowledge, is or is
reasonably likely to be, as of the date of the relevant Meeting, deemed to be an
"affiliate" of First Sterling (each, an "Affiliate") as that term is used in
Rule 145 under the Securities Act or SEC Accounting Series Releases 130 and 135.
First Sterling shall use its respective reasonable best efforts to cause each
person who may be deemed to be an Affiliate of First Sterling to execute and
deliver to First Sterling and Prime on or before the Closing Date, a written
agreement to the effect that such person will not offer to sell,
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sell or otherwise dispose of any shares of Prime Common Stock to be issued
pursuant to this Agreement, except pursuant to an effective registration
statement or in compliance with Rule 145, as amended from time to time, or in a
transaction which in the opinion of legal counsel satisfactory to Prime, is
exempt from the registration requirements of the Securities Act.
7.08 Takeover Laws. No party shall take any action that would
cause the transactions contemplated by this Agreement to be subject to
requirements imposed by any takeover law, and each of them shall take all
necessary steps within its control to exempt (or ensure the continued exemption
of) the transactions contemplated by this Agreement from, or if necessary
challenge the validity or applicability of, any applicable Takeover Law, as now
or hereafter in effect.
7.09 Shares Listed. In the case of Prime, Prime shall use its
reasonable best efforts to cause to be approved for listing, prior to the
Effective Time, on the Nasdaq/NMS, upon official notice of issuance, the shares
of Prime Common Stock to be issued to the holders of First Sterling Common Stock
under this Agreement.
7.10 Regulatory Applications.
(a) Each party shall promptly (i) prepare and
submit applications to the appropriate Regulatory Agencies and (ii) make
all other appropriate filings to secure all other approvals, consents and
rulings, which are necessary for it to complete the Merger.
(b) Each of Prime and First Sterling agrees to
cooperate with the other and, subject to the terms and conditions set forth
in this Agreement, use its reasonable best efforts to prepare and file all
necessary documentation, to effect all necessary applications, notices,
petitions, filings and other documents, and to obtain all necessary permits,
consents, orders, approvals and authorizations of, or any exemption by, all
third parties and Regulatory Agencies necessary or advisable to complete the
Merger, including without limitation the regulatory approvals referred to in
Section 6.02. Each of Prime and First Sterling shall have the right to review in
advance, and to the extent practicable each will consult with the other, in each
case subject to applicable laws relating to the exchange of information, with
respect to all material written information submitted to, any third party or any
Regulatory Agencies in connection with the transactions contemplated by this
Agreement. In exercising the foregoing right, each of the parties hereto agrees
to act reasonably and as promptly as practicable. Each party hereto agrees that
it will consult with the other party hereto with respect to the obtaining of all
material permits, consents, approvals and authorizations of all third parties
and Regulatory Agencies necessary or advisable to complete the Merger and each
party will keep the other party apprised of the status of material matters
relating to completion of the transactions contemplated hereby.
(c) Each party agrees, upon request, to furnish
the other party with all information concerning itself, its Subsidiaries,
directors, officers and shareholders and such other matters as may be reasonably
necessary or advisable in connection with any filing, notice or application made
by or on behalf of such other party or any of its Subsidiaries to any Regulatory
Agency.
7.11 Accountants' Letters. Each of Prime and First Sterling
shall use its best efforts to cause to be delivered to Prime from KPMG Peat
Marwick LLP and to First Sterling from Coopers & Lybrand L.L.P., letters dated a
date within two business days before the date on which the Registration
Statement becomes effective, in form and substance reasonably satisfactory to
Prime and First Sterling, respectively, and customary in scope and substance for
letters delivered by independent auditors in connection with registration
statements on Form S-4.
7.12 Employee Benefits. Prime expressly agrees to provide to
employees of Bank and its Subsidiaries after the Closing Date and for an
indefinite period thereafter, employee benefits which are substantially similar
to the benefits presently available to employees of the Bank. In the ordinary
course of business after the Closing Date, Prime will evaluate its employee
benefits programs for all employees, and expressly reserves the right to make
such modifications to any and all such programs, including programs maintained
after the Closing Date for the benefit of Bank's employees. Such modifications
may include the elimination of any particular benefits as Prime believes
reasonable. Prime agrees that in connection with any changes in benefits, the
impact of such changes on the employees of Bank shall be equitable in comparison
with the impact of such changes on the employees of Prime's other Subsidiaries
which existed prior to the date of this Agreement. Nothing contained in this
Agreement is intended, nor shall anything herein be construed, to confer any
legal rights upon, or any third party beneficiary interest in, any employee of
Prime, Prime Bank, Bank, any Subsidiary, or any other third party.
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7.13 Governance Matters. Prime shall take all actions
reasonably necessary to expand the size of its Board of Directors to ten (10)
members and to cause three (3) nominees selected by First Sterling's Board of
Directors to be elected to the Prime Board of Directors as promptly as
practicable after the Effective Time. The remaining seven (7) directors shall be
designees of Prime. Bank shall elect James J. Lynch to its Board of Directors
and shall cause him to be elected chief executive officer of the Bank promptly
after the Effective Time.
7.14 Notification of Certain Matters. Each of First Sterling
and Prime shall give prompt notice to the other of any fact, event or
circumstance known to it that (i) is reasonably likely, individually or taken
together with all other facts, events and circumstances known to it, to result
in any material adverse effect with respect to it or (ii) would cause or
constitute a material breach of any of its representations, warranties,
covenants or agreements contained herein.
7.15 First Sterling Stock Options. To the extent that
acceleration of the exercisability of any First Sterling Stock Option, or the
removal of any or all restrictions on any outstanding First Sterling Stock
Option, is permitted but not required by the applicable governing instruments,
then First Sterling agrees that it shall take all necessary action or refrain
from taking any action, in each case with the result that such acceleration or
removal shall not occur. After the Closing Date, Prime shall issue to each
holder of an outstanding First Sterling Stock Option a document evidencing the
assumption of said option by Prime and the conversion thereof to options to
purchase Prime Common Stock.
7.16 Bromley Employment Agreement. Prime and William H.
Bromley will enter into and at the Effective Time, Prime will cause Bank to
enter into the employment agreement in the form attached hereto as Exhibit 7.16.
ARTICLE VIII
TERMINATION
8.01 Termination. This Agreement may be terminated, and the
transactions contemplated hereby may be abandoned:
(a) Mutual Consent. At any time prior to the
Effective Time, by the mutual written consent of Prime and First Sterling,
if the Board of Directors of each so determines by vote of a majority of the
members of its entire Board.
(b) Delay. At any time prior to the Effective
Time, by Prime or First Sterling, if its Board of Directors so determines
by vote of a majority of the members of its entire Board, in the event that the
Merger is not consummated by March 31, 1997, except to the extent that the
failure of the Merger then to be consummated arises out of or results from the
knowing action or inaction of the party seeking to terminate pursuant to this
Section 8.01(b).
(c) No Approval. By First Sterling or Prime,
if its Board of Directors so determines by a vote of a majority of the
members of its entire Board, in the event that (i) the consent of the Regulatory
Agencies for consummation of the transactions contemplated by this Agreement
shall have been denied by final action of any such agency and the time for
appeal shall have expired, or (ii) any shareholder approval required by Section
6.01 herein is not obtained at the First Sterling Meeting or the Prime Meeting.
(d) Material Breach. By First Sterling if
there has been a material breach by Prime of any representation, warranty,
covenant or agreement set forth in this Agreement, which breach has not been
cured within ten (10) business days following receipt by Prime of notice of such
breach; and by Prime if there has been a material breach by First Sterling of
any representation, warranty, covenant or agreement set forth in this Agreement,
which breach has not been cured within ten (10) business days following receipt
by First Sterling of notice of such breach. The right to terminate this
Agreement under this Section 8.01(d) shall not be available to any party which
at such time is in material breach of any representation, warranty, covenant or
agreement set forth in this Agreement.
8.02 Effect of Termination and Abandonment. In the event of
termination of this Agreement and the abandonment of the Merger pursuant to this
Article VIII, no party to this Agreement shall have any liability or further
obligation to any other party hereunder except (i) as set forth in Sections 7.05
and 9.06, and (ii) that termination will not relieve a breaching party from
liability for any willful breach of this Agreement giving rise to such
termination.
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8.03 Amendment. This Agreement and the Merger Agreement may be
amended by the parties hereto at any time before or after approval hereof by
their respective shareholders, provided that after any such approval, no
amendment shall be made which (i) changes the Exchange Ratio, (ii) in any way
materially adversely affects the rights of the holders of the First Sterling
Shares or the holders of the outstanding Prime Common Stock, or (iii) changes
any of the principal terms of this Agreement or the Merger Agreement, in each
case without the further approval of such shareholders. This Agreement may not
be amended except by an instrument in writing signed on behalf of each of the
parties hereto.
8.04 Waiver. At any time prior to the Effective Time, the
parties hereto may (i) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto, and (iii) waive compliance with any of the
agreements or conditions contained herein (subject to applicable law). Any
agreement on the part of the parties hereto to any such extension or waiver
shall be valid if set forth in an instrument signed on behalf of both of the
parties hereto.
ARTICLE IX
GENERAL MATTERS
9.01 Survival. None of the representations, warranties,
agreements and covenants contained in this Agreement shall survive the Effective
Time.
9.02 Assignment. This Agreement may not be assigned, whether
by operation of law or otherwise, without the prior written consent of the other
party hereto, and any such attempted assignment shall be void and of no effect.
9.03 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to constitute an original.
9.04 Governing Law. This Agreement shall be governed by, and
interpreted in accordance with, the laws of the Commonwealth of Pennsylvania,
without regard to the conflict of law principles thereof.
9.05 Expenses. Each party hereto will bear all expenses
incurred by it in connection with this Agreement and the transactions
contemplated hereby, except that printing expenses and SEC registration fees
shall be shared 30% by First Sterling and 70% by Prime.
9.06 Confidentiality.
(a) "Confidential Information" includes any
information relating to the parties generally, including but not limited to
regulatory compliance, management, employees, administration, financial
condition, assets, portfolio quality, business plan, lists or compilations of
customers or customer related information, correspondents, prospects and
contacts, and ways of doing business, pricing formulas, business or marketing
practices or strategies, whether written, graphic or oral, furnished directly or
indirectly by either of the parties to the other, except the following:
(i) Information that is now in the public domain or subsequently enters public
domain without an act or fault on the part of a party receiving the information
or by any affiliates, officers, directors, associates, partners, agents,
advisors, employees, attorneys, accountants, auditors, financial advisors,
investment bankers or other representatives ("Representatives") of that party;
or (ii) Information that either party receives on a non-confidential basis from
any third party having a lawful right to disclose such information.
(b) Each party shall maintain, and shall cause its
Representatives to maintain, in confidence all Confidential Information and
agree that the Confidential Information will be made available only to those
Representatives of the receiving party who are directly concerned with the
discussions, negotiations, due diligence or evaluations contemplated hereby, and
only after each of such persons shall have been advised of the obligations
created by this Section and shall agree to be bound by its terms. Upon a request
by a party, the other party will cause such of its Representatives to execute
confidentiality agreements similar to this Section. Each party will maintain a
list of individuals to whom any part of the Confidential Information is
disclosed, and will make such list available to each other upon request. Each
party shall take all necessary precautions to prevent the Confidential
Information from being disclosed or provided to any unauthorized person or
entity. Notwithstanding the foregoing, it is agreed that each party may disclose
this agreement or the fact of their discussions or negotiations to its
applicable banking and securities law regulators.
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(c) Neither party shall use the Confidential
Information for any purpose other than for the purpose of conducting the
discussions, negotiations, due diligence and evaluations described herein and
consummating the Merger without first obtaining the prior written consent of the
other party. Neither party, nor either party's Representatives, shall do any of
the following, each of which shall be deemed a wrongful use of Confidential
Information and a breach of a separate covenant and undertaking by the parties:
(i) Knowing and directly solicit the
present or former customers, or the prospects or employees, of the
disclosing party or its affiliates revealed by the Confidential Information
(however, general marketing and advertising activities, and routine
communications with a party's existing customers, conducted by such party in its
normal course of business, will not be considered a violation of this letter
provided Confidential Information is not used in any manner in connection with
such activities or communications); or
(ii) Directly or indirectly provide to
any competitor of the disclosing party or its affiliates, or directly or
indirectly permit any competitor of the disclosing Party or its affiliates to
obtain, any Confidential Information.
(d) If either party determines, on the advice
of its legal counsel or otherwise, that it is legally obligated or
compelled to disclose any Confidential Information, such party (the "Discloser")
will provide the other (the "Other Party") with prompt notice of such
determination prior to making any disclosure. In such event, the parties will
endeavor in good faith to cooperate in making a joint determination regarding
the necessity, timing, form and content of any public disclosures. If the
parties cannot agree, and if the Other Party does not obtain an injunction or
other relief preventing such disclosure, the Discloser agrees to publicly
disclose only that portion of the Confidential Information which, according to
the advice of legal counsel, is legally required.
(e) In the event the Merger is not consummated,
each party shall promptly return to the other party such other party's
Confidential Information, together with all documents and copies relating
thereto, to the other party, and will upon request confirm in writing to the
other party that it has caused its Representatives to destroy all notes and
memoranda made concerning the Confidential Information. Either party may, in its
sole discretion, at any time request a return of any or all Confidential
Information and related documents and copies, and the other party shall
thereupon immediately cause its Representatives to return the same. Each party
agrees to immediately notify the other if it receives legal process requesting
any Confidential Information, documents or testimony concerning any aspects
thereof or litigation touching upon the proposed business combination.
(f) The parties agree that failure to maintain
the confidentiality of the Confidential Information would result in
irreparable harm to the parties and that in the event of such failure or
violation, in addition to any and all other legal and equitable remedies that
may be available, the parties may obtain temporary restraining orders,
preliminary injunctions or similar equity relief in any courts in which it
chooses to seek such remedy.
9.07 Notices. All notices, requests and other communications
hereunder to a party shall be in writing and shall be deemed given if personally
delivered, telecopied (with confirmation) or mailed by registered or certified
mail (return receipt requested) to such party at its address set forth below or
such other address as such party may specify by notice to the parties hereto.
If to Prime, to: Prime Bancorp, Inc.
6425 Rising Sun Avenue
Philadelphia, PA 19111
Attention: James J. Lynch,
President and Chief Executive Officer
Telecopy: (215) 742-6457
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<PAGE>
With a copy to: Stradley, Ronon, Stevens & Young, LLP
Great Valley Corporate Center
30 Valley Stream Parkway
Malvern, PA 19355-1481
Attention: David F. Scranton, Esquire
Telecopy: (610) 640-1965
If to First Sterling, to: First Sterling Bancorp, Inc.
80 West Lancaster Avenue
Devon, PA 19333
Attention: William H. Bromley, President
Telecopy: (610) 971-0138
With a copy to: Kania, Lindner, Lasak and Feeney
Two Bala Plaza, Suite 525
Bala Cynwyd, PA 19004
Attention: John Lasak, Esquire
Telecopy: (610) 668-9676
9.08 Severability. Any term or provision of this Agreement
which is invalid or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement or affecting the validity or enforceability of
any of the terms or provisions of this Agreement in any other jurisdiction. If
any provision of this Agreement is so broad as to be unenforceable, the
provisions shall be interpreted to be only so broad as is enforceable.
9.09 Structure. The parties hereto agree to consider the
benefits of consolidating into a newly formed Delaware or Pennsylvania
corporation in lieu of the Merger, and in the event that they determine it is in
their mutual best interests to structure the transaction in such fashion, they
agree to execute and deliver such modification to this Agreement as is mutually
acceptable.
9.10 Entire Understanding; No Third Party Beneficiaries. This
Agreement represents the entire understanding of the parties hereto with
reference to the transactions contemplated hereby and thereby and supersede any
and all other oral or written agreements heretofore made. Nothing in this
Agreement, expressed or implied, is intended to confer upon any person, other
than the parties hereto or their respective successors, any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
9.11 Headings. The headings contained in this Agreement are
for reference purposes only and are not part of this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed by their duly authorized officers as of the date first written
above.
PRIME BANCORP, INC.
Attest:
/s/ Joseph E. Fluehr, III, Secretary By: /s/ James J. Lynch, CEO
- ------------------------------------ ---------------------------------
FIRST STERLING BANCORP, INC.
Attest:
/s/ James D. Kania, Secretary By: /s/ William H. Bromley, President
- ------------------------------------ ---------------------------------
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<PAGE>
FIRST AMENDMENT TO AGREEMENT AND PLAN OF REORGANIZATION
THIS FIRST AMENDMENT TO AGREEMENT AND PLAN OF REORGANIZATION
is made as of September 12, 1996 by and among PRIME BANCORP., INC., a Delaware
corporation ("PRIME"), FIRST STERLING BANCORP, INC., a Pennsylvania corporation
("FIRST STERLING") and PRIME NEWCO, INC., a Pennsylvania corporation ("NEWCO").
BACKGROUND
Prime and First Sterling entered into an Agreement and Plan of
Reorganization dated as of June 12, 1996 (the "AGREEMENT"), pursuant to which
Prime and First Sterling agreed that First Sterling would be merged with and
into Prime subject to the terms and conditions contained therein. The Agreement
contemplated the possibility of merging First Sterling and Prime into a newly
formed Delaware or Pennsylvania corporation. Prime has determined that it is in
the best interest of its stockholders that Prime be merged with and into Newco
pursuant to the terms of an Agreement and Plan of Merger dated as of September
12, 1996 ("PRIME PLAN"), which merger is intended to be effected
contemporaneously with the Merger (as defined below). In recognition of the
Prime Plan, Prime and First Sterling desire to amend the Agreement in order to
provide that First Sterling will merge with and into Newco, and to make certain
other conforming changes to the Agreement.
Newco is a newly formed Pennsylvania corporation with its
registered office located in Philadelphia, Pennsylvania. The authorized
capitalization of Newco consists solely of 13 million shares of common stock,
each having a par value of $1.00 ("NEWCO COMMON STOCK") of which one share is
issued and outstanding as of the date hereof, and 2 million authorized shares of
preferred stock, each having a par value of $1.00 ("NEWCO PREFERRED STOCK"), of
which none are issued and outstanding.
NOW, THEREFORE, in consideration of the foregoing, the
representations, warranties, covenants and agreements set forth herein and in
the Agreement, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, intending to be legally bound, the
parties agree as follows:
1. Section 1.01 of the Agreement is hereby and restated
to read in its entirety as follows:
1.01 The Merger.
(a) First Sterling and Newco will execute and deliver
the Agreement and Plan of Merger in the form attached hereto as Exhibit 1.01,
with such further changes as may be mutually agreed upon by the parties hereto
("MERGER AGREEMENT") providing for the merger of First Sterling with and into
Newco ("MERGER") and the conversion of each of the outstanding shares of First
Sterling Common Stock into shares of Newco Common Stock as provided in the
Merger Agreement. First Sterling, Prime and Newco agree, subject to the terms
and conditions of this Agreement to submit to their respective shareholders for
adoption and approval as required under the Delaware General Corporation Law
("DGCL") or the Pennsylvania Business Corporation Law ("PBCL") as applicable,
this Agreement and the Merger Agreement. From and after the Effective Time (as
defined below), the identity and separate existence of First Sterling and Prime
shall cease, and Newco shall succeed, without other transfer, to all the rights,
properties, debts and liabilities of First Sterling.
(b) In connection with the Merger, Newco shall take
such actions as may be necessary to reserve sufficient shares of Newco Common
Stock, prior to the Merger, to permit the issuance of shares of Newco Common
Stock to the holders of the outstanding shares of First Sterling Common Stock as
of the Effective Time in accordance with the terms of the Merger Agreement and
this Agreement, and upon exercise of the First Sterling stock options to be
assumed by Newco pursuant to the terms of this Agreement.
2. Section 1.03 of the Agreement is hereby amended and
restated to read in its entirety as follows:
1.03 Merger Consideration.
(a) Subject to the provisions of this Agreement and
the Prime Plan, at the Effective Time, automatically by virtue of the mergers
contemplated hereby and thereby, each share of Prime Common Stock issued
<PAGE>
and outstanding immediately prior to the Effective Time, shall become and be
converted into the right to receive one share of Newco Common Stock. The shares
of Prime Common Stock owned by First Sterling or any of its subsidiaries (other
than shares held in trust, managed, custodial or nominee accounts and the like
or held by mutual funds for which First Sterling or any Subsidiary acts as
investment advisor, that in any such case are beneficially owned by
third-parties (any such shares, "trust account shares") and shares acquired in
respect of debts previously contracted (any such shares, "DPC shares")) shall be
canceled.
(b) Subject to the provisions of this Agreement, at
the Effective Time, automatically by virtue of the Merger, each share (excluding
shares held by First Sterling or any of its Subsidiaries ("Treasury Shares") or
Prime or any of its Subsidiaries (in each case other than trust account shares
or DPC shares)) of First Sterling Common Stock issued and outstanding
immediately prior to the Effective Time shall become and be converted into the
right to receive one share (subject to possible adjustment as set forth in
Section 1.05 hereof) (the "Exchange Ratio") of Newco Common Stock. All shares of
First Sterling Common Stock owned by First Sterling or its Subsidiaries as
Treasury Shares and all shares of First Sterling Common Stock owned by Prime or
its Subsidiaries (in each case other than trust account shares or DPC shares)
shall be canceled and retired and shall cease to exist, and no shares of Newco
Common Stock or other consideration shall be deliverable in exchange therefor.
3. The reference to "Prime Common Stock" in the first
sentence of Section 1.04 is hereby amended to read
"Newco Common Stock".
4. The references to "Prime" and "Prime Common Stock" in
Sections 1.06 and 1.07 of the Agreement are hereby
amended to read "Newco" and "Newco Common Stock",
respectively.
5. The representations and warranties set forth in
ARTICLE III of the Agreement are made in favor of
Prime and Newco.
6. The representations and warranties set forth in
ARTICLE IV of the Agreement are made jointly by Prime
and Newco.
7. A new Article IVA is added to the Agreement and shall
read as set forth below:
ARTICLE IVA
REPRESENTATIONS AND WARRANTIES OF NEWCO
Newco and Prime, jointly and severally, hereby
represent and warrant to First Sterling as follows:
4A.01 Organization, Power, etc., of Newco. Newco is a
corporation duly organized, validly existing and in good standing under the laws
of the Commonwealth of Pennsylvania, has all requisite power and authority to
own, lease and operate its properties and to carry on its business as now being
conducted and is duly qualified or licensed and is in good standing to do
business as foreign corporation in each jurisdiction in which the property
owned, leased or operated by it or the nature of its business, as now being
conducted, makes such qualification necessary, except with the failure to be so
qualified or licensed would not have a material adverse effect on the business,
operations or financial condition of Newco. First Sterling has heretofore
received true and complete copies of the Articles of Incorporation and Bylaws of
Newco, as currently in effect.
4A.02 Authorization and Effect of Agreement.
(a) Newco has all requisite power and authority
to execute, deliver and perform this Agreement; the execution, delivery and
performance of this Agreement by Newco have been duly authorized by all
requisite corporate actions; and this Agreement has been duly executed and
delivered by Newco and constitutes the legal, valid and binding obligation of
Newco, enforceable in accordance with its terms, except as enforceability may be
limited by applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or similar laws affecting creditors' rights
generally, or by the principles governing the availability of equitable
remedies.
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<PAGE>
(b) The execution, delivery and performance by
Newco of this Agreement will not violate or conflict with any provision of law
or regulation, any order of any court or other agency of government, the
articles of incorporation or bylaws of Newco, any judgment, award or decree or
any material indenture, agreement or other instrument to which Newco is a party
or by which it or any of its properties or assets is bound or affected, or
result in a breach of or constitute (with notice or lapse of time or both), a
default under any such indenture, agreement, or other instrument, or result in
the creation or imposition of any lien, charge or encumbrance of any nature
whatsoever upon any of the properties or assets of Newco.
(c) The consummation of the mergers and the
transactions contemplated by the Agreement will not give rise to or create any
material or extraordinary liability not presently recorded or accrued in the
financial statements of Prime or any Subsidiary of Prime or reflected in the pro
forma financial information contained in the Registration Statement. This
warranty shall survive Closing for a period of four years.
4A.03 Capital Stock of Newco. The authorized capital
stock of Newco consists solely of (i) 13,000,000 authorized shares of common
stock, each having a par value of $1.00, being the Newco Common Stock, and
(ii) 2,000,000 authorized shares of preferred stock, each having a par
value of $1.00. There are no shares of Newco preferred stock issued and
outstanding and one share of Newco Common Stock issued and outstanding. No
subscription, warrant, option, convertible security or other right (contingent
or otherwise) to purchase or acquire any shares of any class of capital stock of
Newco, or any instrument or securities convertible into capital stock, is
authorized or outstanding. No shares of Newco Common Stock have been reserved
for issuance and Newco has no obligation or commitment to authorize, issue,
sell, repurchase or redeem any Newco Common Stock. There is no commitment of
Newco to distribute any evidences of indebtedness or assets, and Newco has no
obligation (contingent or otherwise) to purchase, redeem or otherwise acquire
any shares of its capital stock or any interest therein or to pay any dividend
or to make any other distribution in respect thereof. There are no stockholders
agreements, voting trusts or other agreement or other understandings to which
Newco or its sole shareholder is a party or bound with the exception of that
certain Declaration of Trust dated August 23, 1996 by Maureen A. McGreevey, as
settlor and trustee.
8. All of the covenants, undertakings and agreements of
Prime contained in ARTICLES V through IX of the Agreement are hereby expressly
undertaken and made by Newco jointly with Prime unless the context otherwise
requires.
9. Exhibit 1.01 to the Agreement is hereby expressly
amended to read as set forth in Exhibit 1.01 hereto.
10. In all other respects, the Agreement is expressly
ratified, approved and confirmed by the parties hereto.
IN WITNESS WHEREOF, the parties have caused this First
Amendment to be executed by their duly authorized officers as of the date first
written above.
Attest: PRIME BANCORP., INC.
\s\ Seth Mackler By: \s\ Walter L. Tillman, Jr.
----------------------------- ----------------------------------
Seth Mackler, Assistant Secretary Walter L. Tillman, Jr., Exec. V. Pres.
Attest: FIRST STERLING BANCORP, INC.
\s\ James D. Kania By: \s\ William H. Bromley
----------------------------- ----------------------------------
James D. Kania, Secretary William H. Bromley, President
Attest: PRIME NEWCO, INC.
\s\ Seth Mackler By: \s\ Walter L. Tillman, Jr.
----------------------------- ----------------------------------
Seth Mackler, Assistant Secretary Walter L. Tillman, Jr., Exec. V. Pres.
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Annex B
[BERWIND LETTERHEAD]
October 8, 1996
Board of Directors
Prime Bancorp, Inc.
6425 Rising Sun Avenue
Philadelphia, PA 19111
Directors:
You have requested our opinion as to the fairness, from a financial
point of view, to the shareholders of Prime Bancorp, Inc. ("Prime") of the
financial terms of the proposed merger by and between Prime, Prime Newco, Inc.
("New Prime"), and First Sterling Bancorp, Inc. ("First Sterling"). The terms of
the proposed merger (the "Proposed Merger") between Prime, New Prime and First
Sterling are set forth in the Agreement and Plan of Reorganization dated June
12, 1996, as amended September 12, 1996, (the "Merger Agreement") and provides
that each outstanding common share of First Sterling will be converted into the
right to receive 1.0 shares of New Prime Common Stock, with cash to be paid in
lieu of any fractional shares.
Berwind Financial Group, L.P., as part of its investment banking
business, regularly is engaged in the valuation of assets, securities and
companies in connection with various types of asset and security transactions,
including mergers, acquisitions, private placements and valuations for various
other purposes, and in the determination of adequate consideration in such
transactions.
In arriving at our opinion, we have, among other things: (i) reviewed
the historical financial performance, current financial position and general
prospects of Prime and First Sterling, (ii) reviewed the Merger Agreement,
(iii) reviewed and analyzed the stock market performance of Prime, (iv) studied
and analyzed the consolidated financial and operating data of Prime and First
Sterling, (v) considered the terms and conditions of the Proposed Merger between
Prime, New Prime and First Sterling as compared with the terms and conditions of
comparable bank and bank holding company mergers and acquisitions, (vi) met
and/or communicated with certain members of Prime's and First Sterling's senior
management to discuss their operations, historical financial statements, and
future prospects, (vii) reviewed the Prospectus/Joint Proxy Statement, and
(viii) conducted such other financial analyses, studies and investigations as we
deemed appropriate.
<PAGE>
Board of Directors
October 8, 1996
Page 2
Our opinion is given in reliance on information and representations made
or given by Prime and First Sterling and their respective officers, directors,
auditors, counsel and other agents, and on filings, releases and other public
information issued by Prime and First Sterling including financial statements,
financial projections, and stock price data as well as certain information from
recognized independent sources. We have not independently verified the
information concerning Prime and First Sterling nor other data which we have
considered in our review and, for purposes of the opinion set forth below, we
have assumed and relied upon the accuracy and completeness of all such
information and data. Additionally, we assume that the Proposed Merger is, in
compliance with and legal under applicable law.
With regard to financial and other information relating to the general
prospects of Prime and First Sterling, we have assumed that such information has
been reasonably prepared and reflects the best currently available estimates and
judgments of the managements of Prime and First Sterling as to Prime's and First
Sterling's most likely future performance. For Prime and First Sterling, we have
assumed the allowance for loan losses indicated on the balance sheets of each
entity is adequate to cover such losses; we have not reviewed the credit files
of either Prime or First Sterling. Also, in rendering our opinion, we have
assumed that in the course of obtaining the necessary regulatory approvals for
the Proposed Merger, no conditions will be imposed that will have a material
adverse effect on the contemplated benefits of the Proposed Merger to Prime.
Our opinion is based upon information provided to us by the managements
of Prime and First Sterling, as well as market, economic, financial, and other
conditions as they exist and can be evaluated only as of the date hereof and
speaks to no other period. Our opinion pertains only to the financial
consideration of the Proposed Merger and does not constitute a recommendation to
the Board of Prime and does not constitute a recommendation to Prime's
shareholders as to how such shareholders should vote on the Proposed Merger.
Based on the foregoing, it is our opinion that, as of the date hereof,
the Proposed Merger between Prime, New Prime and First Sterling is fair, from a
financial point of view, to the shareholders of Prime.
Sincerely,
/s/ Berwind Financial Group, L.P.
----------------------------------------
BERWIND FINANCIAL GROUP, L.P.
<PAGE>
Annex C
PENNSYLVANIA STATUTORY PROVISIONS RELATING TO DISSENTERS RIGHTS
EXCERPT FROM SUBCHAPTER 19C
ss. 1930. Dissenters rights
(a) General rule. If any shareholder of a domestic business corporation
that is to be a party to a merger or consolidation pursuant to a plan of merger
or consolidation objects to the plan of merger or consolidation and complies
with the provisions of Subchapter D of Chapter 15 (relating to dissenters
rights), the shareholder shall be entitled to the rights and remedies of
dissenting shareholders therein provided, if any. See also section 1906(c)
(relating to dissenters rights upon special treatment).
SUBCHAPTER 15D
Dissenters Rights
Section:
1571. Application and effect of subchapter.
1572. Definitions.
1573. Record and beneficial holders and owners.
1574. Notice of intention to dissent.
1575. Notice to demand payment.
1576. Failure to comply with notice to demand payment, etc.
1577. Release of restrictions or payment for shares.
1578. Estimate by dissenter of fair value of shares.
1579. Valuation proceedings generally.
1580. Costs and expenses of valuation proceedings.
ss. 1571. Application and effect of Subchapter.
(a) General rule. Except as otherwise provided in subsection (b), any
shareholder of a business corporation shall have the right to dissent from, and
to obtain payment of the fair value of his shares in the event of, any corporate
action, or to otherwise obtain fair value for his shares, where this part
expressly provides that a shareholder shall have the rights and remedies
provided in this subchapter. See:
Section 1906(c) (relating to dissenters rights upon special
treatment).
Section 1930 (relating to dissenters rights).
Section 1931(d) (relating to dissenters rights in share exchanges).
Section 1932(c) (relating to dissenters rights in asset transfers).
Section 1952(d) (relating to dissenters rights in division).
Section 1962(c) (relating to dissenters rights in conversion).
<PAGE>
Section 2104(b) (relating to procedure).
Section 2324 (relating to corporation option where a restriction on
transfer of a security is held invalid).
Section 2325(b) (relating to minimum vote requirement).
Section 2704(c) (relating to dissenters rights upon election).
Section 2705(d) (relating to dissenters rights upon renewal of
election).
Section 2907(a) (relating to proceedings to terminate breach of
qualifying conditions).
Section 7104(b)(3) (relating to procedure).
(b) Exceptions.
(1) Except as otherwise provided in paragraph (2), the holders
of the shares of any class or series of shares that, at the record date fixed to
determine the shareholders entitled to notice of and to vote at the meeting at
which a plan specified in any of section 1930, 1931(d), 1932(c) or 1952(d) is to
be voted on, are either:
(i) listed on a national securities exchange; or
(ii) held of record by more than 2,000 shareholders;
shall not have the right to obtain payment of the fair value of any such shares
under this subchapter.
(2) Paragraph (1) shall not apply to and dissenters rights shall be
available without regard to the exception provided in that paragraph in the case
of:
(i) Shares converted by a plan if the shares are not converted
solely into shares of the acquiring, surviving, new or other corporation or
solely into such shares and money in lieu of fractional shares.
(ii) Shares of any preferred or special class unless the
articles, the plan or the terms of the transaction entitle all shareholders of
the class to vote thereon and require for the adoption of the plan or the
effectuation of the transaction the affirmative vote of a majority of the votes
cast by all shareholders of the class.
(iii) Shares entitled to dissenters rights under section
1906(c) (relating to dissenters rights upon special treatment).
(3) The shareholders of a corporation that acquires by purchase,
lease, exchange or other disposition all or substantially all of the shares,
property or assets of another corporation by the issuance of shares, obligations
or otherwise, with or without assuming the liabilities of the other corporation
and with or without the intervention of another corporation or other person,
shall not be entitled to the rights and remedies of dissenting shareholders
provided in this subchapter regardless of the fact, if it be the case, that the
acquisition was accomplished by the issuance of voting shares of the corporation
to be outstanding immediately after the acquisition sufficient to elect a
majority or more of the directors of the corporation.
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<PAGE>
(c) Grant of optional dissenters rights. The bylaws or a resolution of
the board of directors may direct that all or a part of the shareholders shall
have dissenters rights in connection with any corporate action or other
transaction that would otherwise not entitle such shareholders to dissenters
rights.
(d) Notice of dissenters rights. Unless otherwise provided by statute,
if a proposed corporate action that would give rise to dissenters rights under
this subpart is submitted to a vote at a meeting of shareholders, there shall be
included in or enclosed with the notice of meeting:
(1) a statement of the proposed action and a statement that the
shareholders have a right to dissent and obtain payment of the fair value of
their shares by complying with the terms of this subchapter; and
(2) a copy of this subchapter.
(e) Other statutes. The procedures of this subchapter shall also be
applicable to any transaction described in any statute other than this part that
makes reference to this subchapter for the purpose of granting dissenters
rights.
(f) Certain provisions of articles ineffective. This subchapter may not
be relaxed by any provision of the articles.
(g) Cross references. See sections 1105 (relating to restriction on
equitable relief), 1904 (relating to de facto transaction doctrine abolished)
and 2512 (relating to dissenters rights procedure).
ss. 1572. Definitions.
The following words and phrases when used in this subchapter
shall have the meanings given to them in this section unless the context clearly
indicates otherwise:
"Corporation." The issuer of the shares held or owned by the
dissenter before the corporate action or the successor by merger, consolidation,
division, conversion or otherwise of that issuer. A plan of division may
designate which of the resulting corporations is the successor corporation for
the purposes of this subchapter. The successor corporation in a division shall
have sole responsibility for payments to dissenters and other liabilities under
this subchapter except as otherwise provided in the plan of division.
"Dissenter." A shareholder or beneficial owner who is entitled
to and does assert dissenters rights under this subchapter and who has performed
every act required up to the time involved for the Assertion of those rights.
"Fair value." The fair value of shares immediately before the
effectuation of the corporate action to which the dissenter objects, taking into
account all relevant factors, but excluding any appreciation or depreciation in
anticipation of the corporate action.
"Interest." Interest from the effective date of the corporate
action until the date of payment at such rate as is fair and equitable under all
of the circumstances, taking into account all relevant factors including the
average rate currently paid by the corporation on its principal bank loans.
ss. 1573. Record and beneficial holders and owners.
(a) Record holders of shares. A record holder of shares of a business
corporation may assert dissenters rights as to fewer than all of the shares
registered in his name only if he dissents with respect to all
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<PAGE>
the shares of the same class or series beneficially owned by any one person and
discloses the name and address of the person or persons on whose behalf he
dissents. In that event, his rights shall be determined as if the shares as to
which he has dissented and his other shares were registered in the names of
different shareholders.
(b) Beneficial owners of shares. A beneficial owner of shares of a
business corporation who is not the record holder may assert dissenters rights
with respect to shares held on his behalf and shall be treated as a dissenting
shareholder under the terms of this subchapter if he submits to the corporation
not later than the time of the assertion of dissenters rights a written consent
of the record holder. A beneficial owner may not dissent with respect to some
but less than all shares of the same class or series owned by the owner, whether
or not the shares so owned by him are registered in his name.
ss. 1574. Notice of intention to dissent.
If the proposed corporate action is submitted to a vote at a
meeting of shareholders of a business corporation, any person who wishes to
dissent and obtain payment of the fair value of his shares must file with the
corporation, prior to the vote, a written notice of intention to demand that he
be paid the fair value for his shares if the proposed action is effectuated,
must effect no change in the beneficial ownership of his shares from the date of
such filing continuously through the effective date of the proposed action and
must refrain from voting his shares in approval of such action. A dissenter who
fails in any respect shall not acquire any right to payment of the fair value of
his shares under this subchapter. Neither a proxy nor a vote against the
proposed corporate action shall constitute the written notice required by this
section.
ss. 1575. Notice to demand payment.
(a) General rule. If the proposed corporate action is approved by the
required vote at a meeting of shareholders of a business corporation, the
corporation shall mail a further notice to all dissenters who gave due notice of
intention to demand payment of the fair value of their shares and who refrained
from voting in favor of the proposed action. If the proposed corporate action is
to be taken without a vote of shareholders, the corporation shall send to all
shareholders who are entitled to dissent and demand payment of the fair value of
their shares a, notice of the adoption of the plan or other corporate action. In
either case, the notice shall:
(1) State where and when a demand for payment must be sent and
certificates for certificated shares must be deposited in order to obtain
payment.
(2) Inform holders of uncertificated shares to what extent transfer
of shares will be restricted from the time that demand for payment is received.
(3) Supply a form for demanding payment that includes a request for
certification of the date on which the shareholder, or the person on whose
behalf the shareholder dissents, acquired beneficial ownership of the shares.
(4) Be accompanied by a copy of this subchapter.
(b) Time for receipt of demand for payment. The time set for receipt of
the demand and deposit of certificated shares shall be not less than 30 days
from the mailing of the notice.
ss. 1576. Failure to comply with notice to demand payment, etc.
(a) Effect of failure of shareholder to act. A shareholder who fails to
timely demand payment, or fails (in the case of certificated shares) to timely
deposit certificates, as required by a notice pursuant to
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<PAGE>
section 1575 (relating to notice to demand payment) shall not have any right
under this subchapter to receive payment of the fair value of his shares.
(b) Restriction on uncertificated shares. If the shares are not
represented by certificates, the business corporation may restrict their
transfer from the time of receipt of demand for payment until effectuation of
the proposed corporate action or the release of restrictions under the terms of
section 1577(a) (relating to failure to effectuate corporate action).
(c) Rights retained by shareholder. The dissenter shall retain all
other rights of a shareholder until those rights are modified by effectuation of
the proposed corporate action.
ss. 1577. Release of restrictions or payment for shares.
(a) Failure to effectuate corporate action. Within 60 days after the
date set for demanding payment and depositing certificates, if the business
corporation has not effectuated the proposed corporate action, it shall return
any certificates that have been deposited and release uncertificated shares from
any transfer restrictions imposed by reason of the demand for payment.
(b) Renewal of notice to demand payment. When uncertificated shares
have been released from transfer restrictions and deposited certificates have
been returned, the corporation may at any later time send a new notice
conforming to the requirements of section 1575 (relating to notice to demand
payment), with like effect.
(c) Payment of fair value of shares. Promptly after effectuation of the
proposed corporate action, or upon timely receipt of demand for payment if the
corporate action has already been effectuated, the corporation shall either
remit to dissenters who have made demand and (if their shares are certificated)
have deposited their certificates the amount that the corporation estimates to
be the fair value of the shares, or give written notice that no remittance under
this section will be made. The remittance or notice shall be accompanied by:
(1) The closing balance sheet and statement of income of the issuer
of the shares held or owned by the dissenter for a fiscal year ending not more
than 16 months before the date of remittance or notice together with the latest
available interim financial statements.
(2) A statement of the corporation's estimate of the fair value of
the shares.
(3) A notice of the right of the dissenter to demand payment or
supplemental payment, as the case may be, accompanied by a copy of this
subchapter.
(d) Failure to make payment. If the corporation does not remit the
amount of its estimate of the fair value of the shares as provided by subsection
(c), it shall return any certificates that have been deposited and release
uncertificated shares from any transfer restrictions imposed by reason of the
demand for payment. The corporation may make a notation on any such certificate
or on the records of the corporation relating to any such uncertificated shares
that such demand has been made. If shares with respect to which notation has
been so made shall be transferred, each new certificate issued therefor or the
records relating to any transferred uncertificated shares shall bear a similar
notation, together with the name of the original dissenting holder or owner of
such shares. A transferee of such shares shall not acquire by such transfer any
rights in the corporation other than those that the original dissenter had after
making demand for payment of their fair value.
ss. 1578. Estimate by dissenter of fair value of shares.
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<PAGE>
(a) General rule. If the business corporation gives notice of its
estimate of the fair value of the shares, without remitting such amount, or
remits payment of its estimate of the fair value of a dissenter's shares as
permitted by section 1577(c) (relating to payment of fair value of shares) and
the dissenter believes that the amount stated or remitted is less than the fair
value of his shares, he may send to the corporation his own estimate of the fair
value of the shares, which shall be deemed a demand for payment of the amount or
the deficiency.
(b) Effect of failure to file estimate. Where the dissenter does not
file his own estimate under subsection (a) within 30 days after the mailing by
the corporation of its remittance or notice, the dissenter shall be entitled to
no more than the amount stated in the notice or remitted to him by the
corporation.
ss. 1579. Valuation proceedings generally.
(a) General rule. Within 60 days after the latest of:
(1) effectuation of the proposed corporate action;
(2) timely receipt of any demands for payment under Section 1575
(relating to notice to demand payment); or
(3) timely receipt of any estimates pursuant to section 1578
(relating to estimate by dissenter of fair value of shares);
if any demands for payment remain unsettled, the business corporation may file
in court an application for relief requesting that the fair value of the shares
be determined by the court.
(b) Mandatory joinder of dissenters. All, dissenters, wherever
residing, whose demands have not been settled shall be made parties to the
proceeding as in an action against their shares. A copy of the application shall
be served on each such dissenter. If a dissenter is a nonresident, the copy may
be served on him in the manner provided or prescribed by or pursuant to
42 Pa.C.S. Ch. 53 (relating to bases of jurisdiction and interstate and
international procedure).
(c) Jurisdiction of the court. The jurisdiction of the court shall be
plenary and exclusive. The court may appoint an appraiser to receive evidence
and recommend a decision on the issue of fair value. The appraiser shall have
such power and authority as may be specified in the order of appointment or in
any amendment thereof.
(d) Measure of recovery. Each dissenter who is made a party shall be
entitled to recover the amount by which the fair value of his shares is found to
exceed the amount, if any, previously remitted, plus interest.
(e) Effect of corporation's failure to file application. If the
corporation fails to file an application as provided in subsection (a), any
dissenter who made a demand and who has not already settled his claim against
the corporation may do so in the name of the corporation at any time within 30
days after the expiration of the 60-day period. If a dissenter does not file an
application within the 30-day period, each dissenter entitled to file an
application shall be paid the corporation's estimate of the fair value of the
shares and no more, and may bring an action to recover any amount not previously
remitted.
ss. 1580. Costs and expenses of valuation proceedings.
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<PAGE>
(a) General rule. The costs and expenses of any proceeding under
section 1579 (relating to valuation proceedings generally), including the
reasonable compensation and expenses of the appraiser appointed by the court,
shall be determined by the court and assessed against the business corporation
except that any part of the costs and expenses may be apportioned and assessed
as the court deems appropriate against all or some of the dissenters who are
parties and whose action in demanding supplemental payment under section 1578
(relating to estimate by dissenter of fair value of shares) the court finds to
be dilatory, obdurate, arbitrary, vexatious or in bad faith.
(b) Assessment of counsel fees and expert fees where lack of good faith
appears. Fees and expenses of counsel and of experts for the respective parties
may be assessed as the court deems appropriate against the corporation and in
favor of any or all dissenters if the corporation failed to comply substantially
with the requirements of this subchapter and may be assessed against either the
corporation or a dissenter, in favor of any other party, if the court finds that
the party against whom the fees and expenses are assessed acted in bad faith or
in a dilatory, obdurate, arbitrary or vexatious manner in respect to the rights
provided by this subchapter.
(c) Award of fees for benefits to other dissenters. If the court finds
that the services of counsel for any dissenter were of substantial benefit to
other dissenters similarly situated and should not be assessed against the
corporation, it may award to those counsel reasonable fees to be paid out of the
amounts awarded to the dissenters who were benefitted.
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<PAGE>
Annex D
Agreement and Plan of Merger
This Agreement and Plan of Merger is dated September 12, 1996 by and
between PRIME NEWCO, INC., a Pennsylvania corporation (hereinafter called "PA
Prime") and PRIME BANCORP., INC., a Delaware corporation (hereinafter called
"Prime").
Background
The Boards of Directors of Prime and PA Prime have concluded that it is
in the best interests of both corporations that Prime be merged into PA Prime,
under and pursuant to the General Corporation Law of the State of Delaware and
the Business Corporation Law of the Commonwealth of Pennsylvania. PA Prime shall
be the surviving corporation (such corporation in its capacity as such surviving
corporation being sometimes referred to herein as the "Surviving Corporation")
in a transaction intended to qualify as a reorganization within the meaning of
Section 368 of the Internal Revenue Code of 1986, as amended.
The authorized capital stock of Prime is 15 million shares, of which 10
million shares are designated common stock and 5 million shares are designated
preferred stock. There are no issued and outstanding shares of preferred stock
of Prime. With respect to the common stock of Prime as of the date hereof, there
are reflected on the official stock transfer records of Prime as issued and
outstanding (i) 3,725,056 shares (which together with all shares issued by Prime
after the date hereof other than the Trust Shares as hereafter defined, are
collectively referred to as the "Public Shares"), and (ii) 10 shares issued to a
trustee under a certain Declaration of Trust ("Trust") dated August 23, 1996
("Trust Shares") for the benefit of the holders of the Public Shares. In
addition, Prime has granted to certain officers and employees of Prime or its
wholly-owned subsidiary Prime Bank, a savings bank, options to acquire shares of
common stock of Prime ("Options") pursuant to stock option plans adopted by
Prime (collectively, the "Option Plans").
The authorized capital stock of PA Prime is 15 million shares, of which
13 million shares are designated common stock, par value $1.00 per share, and 2
million shares are designated preferred stock, par value $1.00 per share. There
are no issued and outstanding shares of preferred stock of PA Prime. There is
one (1) share of common stock of PA Prime issued and outstanding, which is owned
legally and beneficially by the Trust.
The respective Boards of Directors of Prime and PA Prime have approved
this Agreement and the merger contemplated hereby upon the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, provisions, and covenants herein contained, the parties hereto
hereby agree in accordance with the General Corporation Law of the State of
Delaware and the Business Corporation Law of the Commonwealth of Pennsylvania
that Prime shall be, at the Effective Date (as hereinafter defined), merged
(hereinafter called "Merger") into PA Prime, which shall be the Surviving
Corporation, and the parties hereto adopt and agree to the following agreements,
terms, and conditions relating to the Merger and the mode of carrying the same
into effect.
1. Stockholders' Meetings; Filings; Effects of Merger
1.1. Prime Stockholders' Meeting. Prime shall call a meeting of its
stockholders to be held in accordance with the General Corporation Law of the
State of Delaware at the earliest practicable date, upon due notice thereof to
its stockholders, to consider and vote upon, among other matters, adoption of
this Agreement.
1.2. Action of the Trust as Sole Stockholder of PA Prime. On or before
October 15, 1996, the Trust as the sole stockholder of PA Prime, shall adopt
this Agreement in accordance with the Business Corporation Law of the
Commonwealth of Pennsylvania.
1.3. Filing of Certificate and Articles of Merger; Effective Date. If
(a) this Agreement is adopted by the Trust as the sole stockholder of PA Prime
in accordance with the Business Corporation Law of the
<PAGE>
Commonwealth of Pennsylvania, (b) this Agreement is adopted by Prime in
accordance with the General Corporation Law of the State of Delaware, (c) the
necessary approvals of all applicable banking regulatory authorities are
obtained, and (d) this Agreement is not thereafter, and has not theretofore
been, terminated or abandoned as permitted by the provisions hereof, then a
Certificate of Merger shall be filed and recorded in accordance with the General
Corporation Law of the State of Delaware and Articles of Merger shall be filed
in accordance with the Business Corporation Law of the Commonwealth of
Pennsylvania. Such filings shall be made within five business days after the
latter of (i) receipt of all applicable regulatory approvals and (ii) the date
on which the meeting of the stockholders of Prime is held pursuant to Section
1.1 hereof. The Merger shall become effective at 5:00 P.M. on the day of such
filing in Pennsylvania, which date and time are herein referred to as the
"Effective Date."
1.4. Certain Effects of Merger. On the Effective Date, the separate
existence of Prime shall cease and Prime shall be merged into PA Prime which, as
the Surviving Corporation, shall possess all the rights, privileges, powers, and
franchises, of a public as well as of a private nature, and be subject to all
the restrictions, disabilities, and duties of Prime; and all the rights,
privileges, powers, and franchises of Prime, and all property, real, personal,
and mixed, and all debts due to Prime on whatever account, as well for stock
subscriptions and all other things in action of or belonging to Prime shall be
vested in the Surviving Corporation; and all property, rights, privileges,
powers, and franchises, and all and every other interest of Prime shall be
thereafter the property of the Surviving Corporation, and the title to any real
estate vested by deed or otherwise, under the laws of Delaware or Pennsylvania
or any other jurisdiction, in Prime shall not revert or be in any way impaired;
but all rights of creditors and all liens upon any property of Prime shall be
preserved unimpaired, and all debts, liabilities, and duties of Prime shall
thenceforth attach to the Surviving Corporation and may be enforced against it
to the same extent as if said debts, liabilities, and duties have been incurred
or contracted by it. At any time, or from time to time, after the Effective
Date, the last acting officers of Prime or the corresponding officers of the
Surviving Corporation, may, in the name of Prime, execute and deliver all such
proper deeds, assignments, and other instruments and take or cause to be taken
all such further or other action as the Surviving Corporation may deem necessary
or desirable in order to vest, perfect, or confirm in the Surviving Corporation
title to and possession of all Prime's property, rights, privileges, powers,
franchises, immunities, and interests and otherwise to carry out the purposes of
this Agreement.
2. Name of Surviving Corporation; Articles of Incorporation; Bylaws; Board of
Directors.
2.1 Name of Surviving Corporation. The name of the Surviving
Corporation from and after the Effective Date shall be PRIME BANCORP, INC.
2.2 Articles of Incorporation. The Articles of Incorporation of PA
Prime as in effect on the date hereof shall from and after the Effective Date
be, and continue to be, the Articles of Incorporation of the Surviving
Corporation until changed or amended as provided by law.
2.3 Bylaws. The Bylaws of PA Prime as in effect immediately before the
Effective Date, shall from and after the Effective Date be, and continue to be,
the Bylaws of the Surviving Corporation until amended as provided therein.
2.4 Board of Directors. The members of the Board of Directors of Prime
shall become the sole members of the Board of Directors of PA Prime on the
Effective Date.
3. Status and Conversion of Securities
The manner and basis of converting the shares of the capital stock of
Prime and the nature and amount of securities of PA Prime which the holders of
shares of common stock of Prime are to receive in exchange for such shares are
as follows:
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<PAGE>
3.1. Prime Common Stock. By virtue of the Merger and without any action
on the part of any shareholder, each one share of the Public Shares reflected on
the official stock transfer records of Prime as outstanding immediately prior to
the Effective Date, together with the proportional interest which the holder of
such share has in the Trust Shares (solely by reason of ownership of such one
share), shall be converted at the Effective Date into one fully paid,
non-assessable share of common stock of PA Prime, and outstanding certificates
representing the Public Shares shall thereafter represent shares of the common
stock of PA Prime. Such certificates may be exchanged by the holders thereof
after the Merger becomes effective for new certificates for the appropriate
number of shares bearing the name of the Surviving Corporation. The outstanding
certificates representing the Trust Shares at the Effective Date shall be
canceled.
3.2. Prime Options. By virtue of the Merger and without any action on
the part of any holder of Options, the Options shall be converted at the
Effective Date into options to acquire an equal number of shares of common stock
of PA Prime upon the same terms and conditions as set forth in the Option Plans
and grant agreements executed in connection with the Options outstanding
immediately prior to the Effective Date.
3.3. PA Prime Common Stock Held by the Trust. All issued and
outstanding shares of the common stock of PA Prime held by the Trust immediately
before the Effective Date shall, by virtue of the Merger and at the Effective
Date, cease to exist and certificates representing such shares shall be
canceled.
4. Miscellaneous
4.1 Abandonment. This Agreement may be terminated and the proposed
Merger abandoned at any time before the Effective Date of the Merger, and
whether before or after approval of this Agreement by the shareholders of PA
Prime or Prime, if the Board of Directors of Prime or of the Surviving
Corporation duly adopt a resolution abandoning this Agreement.
4.2 Counterparts. For the convenience of the parties hereto and to
facilitate the filing of this Agreement, any number of counterparts hereof may
be executed, and each such counterpart shall be deemed to be an original
instrument.
IN WITNESS WHEREOF, this Agreement has been executed by Prime and PA
Prime by their duly authorized officers all on the date first above written.
ATTEST: PRIME BANCORP., INC. (Delaware)
/s/ Joseph A. Fluehr III By:/s/ James J. Lynch
- -------------------------------- ---------------------------------
Joseph A. Fluehr, III, Secretary James J. Lynch, President and CEO
(SEAL)
ATTEST: PRIME NEWCO, INC. (Pennsylvania)
/s/ Joseph A. Fluehr III By:/s/ James J. Lynch
- -------------------------------- ---------------------------------
Joseph A. Fluehr, III, Secretary James J. Lynch, President
(SEAL)
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<PAGE>
REVOCABLE PROXY
PRIME BANCORP., INC.
SPECIAL MEETING OF STOCKHOLDERS -- NOVEMBER 26, 1996
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF PRIME BANCORP., INC.
The undersigned hereby constitutes and appoints James J. Lynch, Erwin T.
Straw and Frederick G. Betz and each of them, with or without the other, as
attorneys-in-fact and proxies of the undersigned, to appear at the Special
Meeting of Stockholders of Prime Bancorp., Inc. (the 'Company') to be held on
the 26th day of November, 1996, and at any postponement or adjournment thereof,
and to vote all of the shares of the Company which the undersigned is entitled
to vote, with all the powers and authority the undersigned would possess if
personally present.
1. For approval of the Agreement and Plan of Reorganization dated as of June
12, 1996, as amended, between Prime Bancorp., Inc., Prime Newco, Inc. and
First Sterling Bancorp, Inc. and the merger described therein.
/ / FOR / / AGAINST / / ABSTAIN
2. For approval of the Agreement and Plan of Merger dated September 12, 1996
between Prime Bancorp., Inc. and Prime Newco, Inc. and the merger
described therein.
/ / FOR / / AGAINST / / ABSTAIN
3. To transact such other business as may properly come before the meeting
or any postponement or adjournment.
THIS PROXY IS CONTINUED ON THE REVERSE SIDE.
PLEASE DATE AND SIGN ON THE REVERSE AND RETURN PROMPTLY.
<PAGE>
THIS PROXY WILL BE VOTED AS DIRECTED. IF NO DIRECTIONS TO THE CONTRARY ARE
INDICATED, THE PROXY AGENTS IN THEIR RESPECTIVE POSITIONS INTEND TO VOTE FOR
APPROVAL OF BOTH MERGERS AS DESCRIBED IN THE PROXY STATEMENT. DISCRETIONARY
AUTHORITY IS CONFERRED HEREBY AS TO CERTAIN MATTERS DESCRIBED IN THE PROXY
STATEMENT.
___________________________________
Signature
___________________________________
Signature
Please sign your name(s) exactly as
it (they) appears hereon,
indicating any official position or
representative capacity.
Date:__________________, 1996
Please date and sign this proxy and
return it promptly in the enclosed
envelope.
<PAGE>
Part II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Officers and directors of Registrant will be subject to the provisions
of the Pennsylvania Business Corporation Law ("PBCL"), and the Registrant's
By-Laws, which serve to limit and, in specified instances, to indemnify them
against, certain liabilities which they may incur in such capacities. These
various provisions are described generally below.
(a) Limitation on Directors' Liability.
Article IX, Section 10 of the Registrant's By-Laws limits a Director's
liability for money damages for breaches of, or failure to perform, his or her
duties as a Director, to the maximum extent permitted under the PBCL. Under the
PBCL, a Director is generally obligated to act in good faith, in a manner
reasonably believed to be in the best interest of the corporation, and with such
care, including reasonable inquiry, skill and diligence, as a person of ordinary
prudence would use under similar circumstances. Under this By-Law provision, a
Director is immune from liability for money damages arising out of his or her
failure to meet this standard, including circumstances when the conduct
constitutes gross negligence, unless such failure constitutes self-dealing,
willful misconduct or recklessness. The Director is not, however, immune from
liability imposed under any criminal statute or for non-payment of any taxes.
This provision also does not affect any equitable remedies which do not have the
result of imposing monetary liability upon a Director.
(b) Indemnification.
Article IX of the By-Laws of Registrant provide for indemnification of
officers and directors of the Registrant consistent with the PBCL. Under the
By-Laws, the Registrant is obligated to indemnify officers and directors against
any claim (other than a claim by or in the right of the corporation), in the
event that such officer or director acted in good faith and in a manner he or
she reasonably believed to be in, or not opposed to the best interest of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. In connection with
any action by or in the right of the Registrant, Registrant is obligated to
provide indemnification for any claims if the director acted in good faith and
in a manner he or she reasonably believed to be in or not opposed to the best
interest of the corporation; provided, however, no indemnification shall be made
against expenses or judgments wherein the officer or director is found to be
liable for negligence or misconduct in the performance of his or her duty unless
and only to the extent that there is an appropriate judicial determination that
despite any adjudication of liability or settlement, such person is fairly and
reasonably entitled to indemnification.
Such indemnification shall be made either when ordered by a court or
upon a determination that indemnification is proper under the circumstances.
Such determination can be made either by (1) the Board of Directors by a
majority vote of disinterested directors; or (2) by independent counsel in a
written legal opinion, or (3) by the shareholders. To the extent an officer or
director is successful on the merits in defense of any action, suit or
proceeding, he or she shall be entitled to indemnification without the necessity
of any specific authorization.
The Registrant has the authority to advance expenses of defending an
pending or threatened claim upon receipt of an undertaking by or on behalf of
the person defending such claim to repay the advanced expenses if it shall
ultimately be determined that he or she is not entitled to be indemnified by the
Registrant.
II-1
<PAGE>
The indemnification provisions of the By-Laws are not exclusive.
Pennsylvania law permits indemnification by written agreement or action of
stockholders beyond that provided in the corporation's By-Laws. In addition, the
PBCL also allows companies to provide indemnification in all circumstances
except where the acts giving rise to the asserted claim are determined by a
court to have constituted self-dealing, willful misconduct or recklessness.
The By-Laws of the Registrant do not provide for such indemnification.
Item 21. Exhibits.
(a) Exhibits and Exhibit Index
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- ----------- ----------- --------
===================================================================================================================================
<S> <C> <C>
2.1 Agreement and Plan of Reorganization dated June 12, 1996 and First Amendment thereto Annex A to
dated September 12, 1996, by and among Registrant, Prime and First Sterling. (Registrant Prospectus
will supplementally provide a copy of the disclosure schedules to the SEC upon request.)
- -----------------------------------------------------------------------------------------------------------------------------------
2.2 Agreement and Plan of Merger dated September 12, 1996 between Registrant and Prime. Annex D to
Prospectus
- -----------------------------------------------------------------------------------------------------------------------------------
3.1 Articles of Incorporation (Note: The Agreement and Plan of Merger which is Exhibit 2.2
will be filed to effect the change of Registrant's name.)
- -----------------------------------------------------------------------------------------------------------------------------------
3.2 Bylaws.
- -----------------------------------------------------------------------------------------------------------------------------------
4.1 Form of First Sterling Subordinated Convertible Debenture (Registrant will supplementally Not filed.
provide a copy of the Debenture to the SEC upon request.)
- -----------------------------------------------------------------------------------------------------------------------------------
4.2 Form of Registrant's Stock Certificate for common stock.
- -----------------------------------------------------------------------------------------------------------------------------------
5.1 Consent and Opinion of Stradley, Ronon, Stevens & Young regarding legality of shares.
- -----------------------------------------------------------------------------------------------------------------------------------
8.1 Consent and Form of Opinion of Stradley, Ronon, Stevens & Young regarding tax matters.
- -----------------------------------------------------------------------------------------------------------------------------------
8.2 Form of Opinion of Kania, Lindner, Lasak and Feeney regarding tax matters.
- -----------------------------------------------------------------------------------------------------------------------------------
10.1 Employment Agreement between Prime, Prime Bank and James J. Lynch dated December *
18, 1995. (Incorporated by referenced to Exhibit 10.1(c) to Prime's Annual Report on
Form 10-K for year ended December 31, 1995, file no. 0-17286.)
- -----------------------------------------------------------------------------------------------------------------------------------
10.2 Employment Agreement between Prime, Prime Bank and Walter L. Tillman, Jr. dated
as of September 25, 1996.
- -----------------------------------------------------------------------------------------------------------------------------------
10.3 Employment Agreement between Prime, Prime Bank and Erwin T. Straw dated November *
14, 1988. (Incorporated by reference to Exhibit 10.1 to Prime's Annual Report on Form
10-K for year ended June 30, 1989.)
- -----------------------------------------------------------------------------------------------------------------------------------
10.4 Addendum to Employment Agreement between Prime, Prime Bank and Erwin T. Straw
dated as of January 29, 1996.
- -----------------------------------------------------------------------------------------------------------------------------------
10.5 Employment Agreement between Prime, Prime Bank and William H. Bromley to become
effective upon completion of the merger with First Sterling.
II-2
<PAGE>
Exhibit No. Description Page No.
- ----------- ----------- --------
- -----------------------------------------------------------------------------------------------------------------------------------
10.6 First Sterling 1988 Non-Qualified Stock Option Plan.
- -----------------------------------------------------------------------------------------------------------------------------------
10.7 Lease Agreement between Dominion Properties L.P. and First Sterling Bank dated December 7,
1995 for Devon branch and offices.
- -----------------------------------------------------------------------------------------------------------------------------------
10.8 Letter Agreement between dominion Properties L.P. and First Sterling Bank dated June 4,
1996 regarding right to reduce the space leased under lease agreement for Devon offices
and the lease term for a portion of such space.
- -----------------------------------------------------------------------------------------------------------------------------------
10.9 Lease Agreement between Dominion Properties L.P. and First Sterling Bank dated as of December 15,
1995 for the St. David's branch.
- -----------------------------------------------------------------------------------------------------------------------------------
10.10 Lease Agreement between Dominion Properties L.P. and First Sterling Bank dated as of December 15,
1995 for branch in Bryn Mawr Square.
- -----------------------------------------------------------------------------------------------------------------------------------
10.11 Lease Agreement between Monument Road Associates and First Sterling Bank dated April 14,
1994 for Bala Cynwyd branch.
- -----------------------------------------------------------------------------------------------------------------------------------
10.12 Lease Agreement between Silvio F. and Elizabeth O. D'Ignazio and First Sterling Bank dated as of
July 3, 1996 for Media branch.
- -----------------------------------------------------------------------------------------------------------------------------------
10.13 First Sterling Bank 401(k) qualified retirement plan adoption agreement.
- -----------------------------------------------------------------------------------------------------------------------------------
10.14 Prime's Incentive Stock Option Plan (incorporated by reference to Exhibit 10.2 to Prime's *
Annual Report on Form 10-K for the year ended December 31, 1994.)
- -----------------------------------------------------------------------------------------------------------------------------------
10.15 Prime's Salary Continuation and Supplemental Retirement Plan (incorporated by reference *
to Exhibit 10.3 to Prime's Annual Report on Form 10-K for the fiscal year ended June 30,
1989.)
- -----------------------------------------------------------------------------------------------------------------------------------
10.16 Prime's qualified retirement plan (incorporated by reference to Exhibit 10.4 to Prime's *
Annual Report on Form 10-K for the fiscal year ended June 30, 1989.)
- -----------------------------------------------------------------------------------------------------------------------------------
10.17 Prime's Employee Retirement Savings Plan (incorporated by reference to Exhibit 10.5 to *
Prime's Annual Report on Form 10-K for the fiscal year ended June 30, 1989.)
- -----------------------------------------------------------------------------------------------------------------------------------
10.18 Lease Agreement between Prime Bank and Lotz Realty, Inc. (incorporated by reference to *
Exhibit 10.6 to Prime's Annual Report on Form 10-K for the fiscal year ended June 30,
1989.)
- -----------------------------------------------------------------------------------------------------------------------------------
10.19 Lease Agreement between Prime Bank and Village Plaza Shopping Center (incorporated by *
reference to Exhibit 10.7 to Prime's Annual Report on Form 10-K for the fiscal year
ended June 30, 1989.)
- -----------------------------------------------------------------------------------------------------------------------------------
10.20 Lease Agreement between Prime Bank and Grant Plaza (incorporated by reference to *
Exhibit 10.8 to Prime's Annual Report on Form 10-K for the fiscal year ended June 30,
1989.)
II-3
<PAGE>
Exhibit No. Description Page No.
- ----------- ----------- --------
- -----------------------------------------------------------------------------------------------------------------------------------
10.21 Lease Agreement between Prime Bank and Hopkinson Corporation (incorporated by *
reference to Exhibit 10.10 to Prime's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993.)
- -----------------------------------------------------------------------------------------------------------------------------------
10.22 Lease Agreement between Prime Bank and Foxcroft Square Company (incorporated by *
reference to Exhibit 10.11 to Prime's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1993.)
- -----------------------------------------------------------------------------------------------------------------------------------
10.23 Lease Agreement between Prime Bank and Bell Atlantic Properties dated January 7, 1985 *
(incorporated by reference to Exhibit 10.12 to Prime's Annual Report on Form 10-K for
the year ended December 31, 1994.)
- -----------------------------------------------------------------------------------------------------------------------------------
10.24 Lease Agreement between Prime Bank and The Trust of Russell A. Allen, Deceased dated *
July 31, 1985 (incorporated by reference to Exhibit 10.13 to Prime's Annual Report on
Form 10-K for the year ended December 31, 1994.)
- -----------------------------------------------------------------------------------------------------------------------------------
10.25 Lease Agreement between Prime Bank and Mark Cohen dated September 24, 1994 *
(incorporated by reference to Exhibit 10.14 to Prime's Annual Report on Form 10-K for
the year ended December 31, 1994.)
- -----------------------------------------------------------------------------------------------------------------------------------
10.26 Lease Agreement between Prime Bank and CoreStates Bank dated March 1, 1995 *
(incorporated by reference to Exhibit 10.15 to Prime's Annual Report on Form 10-K for
the year ended December 31, 1995.)
- -----------------------------------------------------------------------------------------------------------------------------------
10.27 Lease Agreement between Prime Bank and Cameron C. Troilo and Olga Jean Troilo dated *
June 26, 1995 (incorporated by reference to Exhibit 10.16 to Prime's Annual Report on
Form 10-K for the fiscal year ending December 31, 1995.)
- -----------------------------------------------------------------------------------------------------------------------------------
13.1 Prime's Annual Report on Form 10-K for the year ended December 31, 1995.
- -----------------------------------------------------------------------------------------------------------------------------------
13.2 Prime's Quarterly Report on Form 10-Q for the six month period ended June 30, 1996.
- -----------------------------------------------------------------------------------------------------------------------------------
21. Subsidiaries of the Registrant (incorporated by reference to Exhibit 22.1 to Prime's Annual *
Report on Form 10-K for the year ended December 31, 1994. Such subsidiaries will
become subsidiaries of Registrant upon completion of the mergers referred to herein.)
- -----------------------------------------------------------------------------------------------------------------------------------
23.1 Consent of Coopers & Lybrand, L.L.P.
- -----------------------------------------------------------------------------------------------------------------------------------
23.2 Consent of KPMG Peat Marwick LLP.
- -----------------------------------------------------------------------------------------------------------------------------------
23.3 Consent of Stradley, Ronon, Stevens & Young, LLP. See Exhibits
5.1 and 8.1
- -----------------------------------------------------------------------------------------------------------------------------------
23.4 Consent of Kania, Lindner, Lasak and Feeney.
- -----------------------------------------------------------------------------------------------------------------------------------
23.5 Consent of Berwind Financial Group, L.P.
- -----------------------------------------------------------------------------------------------------------------------------------
99.1 Purchase and Assumption Agreement by and among BMJ Financial Corp., Bank of *
Delaware Valley and Prime Bank dated August 19, 1992 (incorporated by reference to
Exhibit 28.1 to Prime's Form 10-Q for the quarter ended September 30, 1992.)
II-4
<PAGE>
Exhibit No. Description Page No.
- ----------- ----------- --------
- -----------------------------------------------------------------------------------------------------------------------------------
99.2 Purchase and Assumption Agreement between Prime Bank and the Resolution Trust *
Corporation dated July 26, 1993 (incorporated by reference to Exhibit 28.2 to Prime's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1993.)
- -----------------------------------------------------------------------------------------------------------------------------------
99.3 Purchase and Assumption Agreement between Prime Bank and the Resolution Trust *
Corporation dated December 25, 1993 (incorporated by reference to Exhibit 28.3 to
Prime's Annual Report on Form 10-K for the year ended December 31, 1994.)
- -----------------------------------------------------------------------------------------------------------------------------------
99.4 Purchase and Assumption Agreement between Prime Bank and the Resolution Trust *
Corporation dated September 16, 1994 (incorporated by reference to Exhibit 28.4 to
Prime's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994.)
===================================================================================================================================
</TABLE>
- ---------------
* Incorporated by reference from the indicated filing each in SEC file
no. 0-17286.
(b) Financial Statement Schedules.
None.
(c) Information required by Item 4(b) of Form S-4.
The opinion of Berwind Financial Group, L.P. is included as part of
the Prospectus/Proxy Statement as Annex B.
Item 22. Undertakings.
(a) Undertakings Pursuant to Item 512 of Regulation S-K.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate
II-5
<PAGE>
offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) If the registration is a foreign private issuer, to file a
post-effective amendment to the registration statement to include any
financial statements required by ss.210.3-19 of this chapter at the
start of any delayed offering or throughout a continuous offering.
Financial statements and information otherwise required by Section
10(a)(3) of the Act need not be furnished, provided, that the
registrant includes in the prospectus, by means of a post-effective
amendment, financial statements required pursuant to this paragraph
(a)(4) and other information necessary to ensure that all other
information in the prospectus is at least as current as the date of
those financial statements. Notwithstanding the foregoing, with respect
to registration statements on Form F-3, a post-effective amendment need
not be filed to include financial statements and information required
by Section 10(a)(3) of the Act or ss.210.3-19 of this chapter if such
financial statements and information are contained in periodic reports
filed with or furnished to the Commission by the registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that
are incorporated by reference in the Form F-3.
(5) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(6) The undersigned registrant hereby undertakes to deliver or cause to
be delivered with the prospectus, to each person to whom the prospectus
is sent or given, the latest annual report to security holders that is
incorporated by reference in the prospectus and furnished pursuant to
and meeting the requirements of Rule 14a-3 or Rule 14c-3 under the
Securities Exchange Act of 1934; and, where interim financial
information required to be presented by Article 3 of Regulation S-X are
not set forth in the prospectus, to deliver, or cause to be delivered
to each person to whom the prospectus is sent or given, the latest
quarterly report that is specifically incorporated by reference in the
prospectus to provide such interim financial information.
II-6
<PAGE>
(7) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through
use of a prospectus which is a part of this registration statement, by
any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be
deemed underwriters, in addition to the information called for by the
other Items of the applicable forms.
(8) The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (7) immediately preceding, or (ii) that purports
to meet the requirements of Section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to the registration statement and will
not be used until such amendment is effective, and that, for purposes
of determining any liability under the Securities Act of 1933, each
such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(b) Undertaking Pursuant to Item 22(b) of Form S-4.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(c) Undertaking Pursuant to Item 22(c) of Form S-4.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this registration statement or amendment thereto to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Philadelphia, Commonwealth of Pennsylvania, on the 4th day of October, 1996.
PRIME BANCORP., INC.
By: /s/ JAMES J. LYNCH
-------------------------------------------
James J. Lynch
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement or amendment thereto has been signed by the
following persons in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ Erwin T. Straw
- --------------------------
Erwin T. Straw Chairman of the Board of Directors Dated: October 4, 1996
/s/ James J. Lynch
- --------------------------
James J. Lynch President, CEO and Director Dated: October 4, 1996
/s/ Frederick G. Betz
- -------------------------
Frederick G. Betz Director Dated: October 4, 1996
/s/ Joseph A. Fluehr, III
- -------------------------
Joseph A. Fluehr, III Director Dated: October 4, 1996
/s/ Ernest Larenz
- -------------------------
Ernest Larenz Director Dated: October 4, 1996
/s/ David H. Platt
- -------------------------
David H. Platt Director Dated: October 4, 1996
/s/ Raymond L. Weinmann
- -------------------------
Raymond L. Weinmann Director Dated: October 4, 1996
/s/ Walter L. Tillman, Jr.
- -------------------------
Walter L. Tillman, Jr. Executive Vice President and
Chief Operating Officer Dated: October 4, 1996
/s/ Michael J. Sexton
- -------------------------
Michael J. Sexton Treasurer and Chief Financial
Officer Dated: October 4, 1996
</TABLE>
EXHIBIT 3.1
Microfilm Number_________ Filed with the Department of State on_______________
Entity Number____________ ____________________________________________________
Secretary of the Commonwealth
ARTICLES OF INCORPORATION
Type of domestic corporation: Business Stock (15 Pa. C.S. ss.1306)
This corporation is incorporated under the provisions of the Business
Corporation Law of 1988, as amended.
Article 1. Corporate Title: The name of the corporation is Prime Newco, Inc.
Article 2. Registered Office. The address of this corporation's initial
registered office in this Commonwealth and the county of venue is 6425 Rising
Sun Avenue, Philadelphia, PA 19111, Philadelphia County.
Article 3. Incorporation. The name and address, including street and number, of
the incorporator is:
Name Address
---- -------
David F. Scranton Stradley, Ronon, Stevens
& Young, LLP
2600 One Commerce Square
Philadelphia, PA 19103
Article 4. Capital Stock. The aggregate number of shares of all classes of the
capital stock which the corporation is authorized to issue is 15,000,000, of
which 13,000,000 shall be common stock, par value $1.00 per share, and of which
2,000,000 shall be preferred stock, par value $1.00 per share. The shares may be
issued from time to time as authorized by the Board of Directors without further
approval of shareholders except as otherwise provided in this Article 4 or to
the extent that such approval is required by governing law, rule, or regulation.
In the absence of actual fraud in the transaction, the value of property, labor,
or services given as consideration for shares of the Corporation, as determined
by the Board of Directors of the Corporation, shall be conclusive.
No shares of capital stock (including shares issuable upon conversion,
exchange, or exercise of other securities) shall be issued, directly or
indirectly, to officers, directors, or controlling persons of the Corporation
other than as part of a general public offering or as qualifying shares to a
director, unless their issuance or the plan under which they would be issued has
been approved by a majority of the votes cast by all shareholders entitled to
vote thereon, and if any shareholders are entitled to vote thereon as a class,
upon receiving the affirmative vote of a majority of the votes cast by the
shareholders entitled to vote as a class.
Nothing contained in this Article 4 (or in any supplementary sections
hereto) shall entitle the holders of any class or series of capital stock to
vote as a separate class or series or to more than one vote per share; Provided,
that this restriction on voting separately by class or series shall not apply:
<PAGE>
(i) To any provision which would authorize the holders of preferred
stock, voting as a class or series, to elect some members of
the Board of Directors, less than a majority thereof, in the
event of default in the payment of dividends on any class or
series of preferred stock;
(ii) To any provision which would require the holders of preferred
stock, voting as a class or series, to approve the merger or
consolidation of the Corporation with another corporation or
the sale, lease, or conveyance (other than by mortgage or
pledge) of properties or business in exchange for securities of
a corporation other than the Corporation if the preferred stock
is exchanged for securities of such other corporation; and
(iii) To any amendment which would adversely change the specific
terms of any class or series of capital stock as set forth in
this Article 4 (or in any supplementary sections hereto),
including any amendment which would create or enlarge any class
or series ranking prior thereto in rights and preferences. An
amendment which increases the number of authorized shares of
any class or series of capital stock, or substitutes the
surviving corporation in a merger or consolidation for the
Corporation, shall not be considered to be such an adverse
change.
A description of the different classes and series (if any) of the
Corporation's capital stock and a statement of the designations, and the
relative rights, preferences, and limitations of the shares of each class of and
series (if any) of capital stock are as follows:
A. Common Stock. Except as provided in this Article 4 (or in any
supplementary sections hereto) the holders of the common stock shall exclusively
possess all voting power. Each holder of shares of common stock shall be
entitled to one vote for each share held by such holder, including the election
of directors. There shall be no cumulative voting rights in the election of
directors. Each share of common stock shall have the same relative rights as and
be identical in all respects with all the other shares of common stock.
Whenever there shall have been paid, or declared and set aside for
payment, to the holders of the outstanding shares of any class of stock having
preference over the common stock as to the payment of dividends, the full amount
of dividends and of sinking fund, or retirement fund, or other retirement
payments, if any, to which such holders are respectively entitled in preference
to the common stock, then dividends may be paid on the common stock and on any
class or series of stock entitled to participate therewith as to dividends, out
of any assets legally available for the payment of dividends; but only when and
as declared by the board of directors.
In the event of any liquidation, dissolution, or winding up of the
Corporation, the holders of the common stock (and the holders of any class or
series of stock entitled to participate with the common stock in the
distribution of assets) shall be entitled to receive, in cash or in kind, the
assets of the Corporation available for distribution remaining after:
(1) payment or provision for payment of the Corporation's debts and liabilities;
and (2) distributions or provision for distributions to holders of any class or
series of stock having preference over the common stock in the liquidation,
dissolution or winding up of the Corporation.
B. Preferred Stock. The board of directors of the Corporation is
authorized, by resolution or resolutions from time to time adopted, and by
filing a statement amending these Articles of Incorporation pursuant to the
applicable law of the Commonwealth of Pennsylvania, to provide for the issuance
of one or more classes of preferred stock, each of which shall be separately
identified and to determine the relative size, voting rights, designations,
preferences, limitations and other rights of each such class or any series
thereof shall be as
-2-
<PAGE>
designated by the board of directors in such resolutions. In the event the
holders of preferred stock are given voting rights, there shall be no cumulative
voting with respect to such shares of preferred stock, including without
limitation, in the election of directors. The shares of any class may be divided
into and issued in series, with each series separately designated so as to
distinguish the shares thereof from the shares of all other series and classes.
All shares of the same class shall be identical except as to the following
relative rights and preferences, as to which there may be variations between
different series:
1. the distinctive serial designation and the number of shares
constituting such series;
2. the dividend rate or the amount of dividends to be paid on the shares
of such series, whether dividends shall be cumulative and, if so,
from which date or dates, the payment date or dates for dividends,
and the participating or other special rights, if any, with respect
to dividends;
3. the voting powers, full or limited, if any, of shares of such series;
4. whether the shares of such series shall be redeemable and, if so, the
price or prices at which, and the terms and conditions on which, such
shares may be redeemed;
5. the amount or amounts payable upon the shares of such series in the
event of voluntary or involuntary liquidation, dissolution, or
winding up of the Corporation;
6. whether the shares of such series shall be entitled to the benefit of
a sinking or retirement fund to be applied to the purchase or
redemption of such shares, and if so entitled, the amount of such
funds and the manner of its application, including the price or
prices at which such shares may be redeemed or purchased through the
application of such fund;
7. whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes of stock of
the Corporation and, if so, the conversion price or prices, or the
rate or rates of exchange, and the adjustments thereof, if any, at
which such conversion or exchange may be made and any other terms and
conditions of such conversion or exchange;
8. the price or other consideration for which the shares of such series
shall be issued; and
9. whether the shares of such series which are redeemed or converted
shall have the status of authorized but unissued shares of serial
preferred stock and whether such shares may be reissued as shares of
the same or any other series of serial preferred stock.
Each share of each series of serial preferred stock shall have the same
relative rights as and be identical in all respects with all the other shares of
the same series.
Article 5. Call of Special Meetings. Special meetings of the shareholders for
any purpose or purposes may be called at any time only by the chairman of the
board or the president of the Corporation, or a majority of the board of
directors of the Corporation.
-3-
<PAGE>
Article 6. Preemptive Rights. Holders of the capital stock of the Corporation
shall not be entitled to preemptive rights with respect to any shares of the
Corporation which may be issued.
Article 7. Approval for Acquisitions of Control and Offers to Acquire Control.
In the event that the Corporation ceases to own a majority interest in any
federally insured depository institution, this Article 7 shall thereupon cease
to be effective.
Subsection 1. Shareholder Vote and Regulatory Approval Required for
Acquisition of Control at any Time.
No Person shall acquire Control of the Corporation at any time, unless
such acquisition has been approved prior to its consummation by the affirmative
vote of at least two-thirds of the outstanding shares of Voting Stock (as
defined in Subsection 4 hereof) at a duly constituted meeting of shareholders
called for such purpose; provided, however, that this provision shall not apply
if such acquisition of Control has been approved by at least two-thirds of the
directors then in office at a duly constituted meeting of the board of directors
called for such purpose. In addition, no Person shall acquire Control of the
Corporation at any time without obtaining prior thereto approval from all
applicable federal, state, and local governmental authorities. In the event that
Control is acquired without obtaining all such regulatory approvals, such
acquisition shall constitute a violation of this Article 7 and the Corporation
shall be entitled to institute a private right of action to enforce such
statutory and regulatory provisions. The terms "Person", "Control" and "Offer"
as used in this Article 7 are defined in subsection 3 hereof.
Subsection 2. Approval Required for Offers to Acquire Control.
No Person shall make any Offer to acquire Control of the Corporation, if
the Corporation's common stock is then traded on a national securities exchange
or quoted on the National Association of Securities Dealers, Inc. Automated
Quotation System, unless such Person has received prior approval to make such
Offer by complying with either of the following procedures:
1. The Offer shall have been approved by at least two-thirds of
the directors then in office at a duly constituted meeting
of the board of directors of the Corporation called for such
purpose, or
2. The Person proposing to make such Offer shall have obtained
approval to acquire control of the Corporation from all
applicable federal, state and local governmental
authorities.
Subsection 3. Certain Definitions.
For purposes of this Article 7:
A. "Control" means the sole or shared power to vote or to direct the
voting of, or to dispose or to direct the disposition of,
10 percent or more of the Voting Stock; provided, that the
solicitation, holding and voting of proxies obtained by the board
of directors of the Corporation pursuant to a solicitation under
Regulation 14A of the General Rules and Regulations under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")
shall not constitute "Control."
B. "Group Acting in Concert" includes Persons seeking to combine or
pool their voting or other interests in the Voting Stock for a
common purpose, pursuant to any contract, understanding,
relationship,
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agreement or other arrangement, whether written or otherwise;
provided, that a "Group Acting in Concert" shall not include the
board of directors of the Corporation in its solicitation, holding
and voting of proxies obtained by it pursuant to a solicitation
under Regulation 14A of the General Rules and Regulations under
the Exchange Act.
C. "Offer" means every offer to buy or acquire, solicitation of an
offer to sell, tender offer for, or request invitation for tender
of, Voting Stock.
D. "Person" means any individual, firm, corporation or other entity
including a Group Acting in Concert.
E. "Voting Stock" means the then outstanding shares of capital stock
of the Corporation entitled to vote generally in the election of
directors.
Subsection 4. Inapplicability of Public Offering.
This Article 7 shall not apply to the purchase of securities of the
Corporation by underwriters in connection with a public offering of such
securities.
Article 8. Certain Business Combinations.
A. Vote Required for Certain Business Combinations
1. Higher Vote for Certain Business Combinations. In addition to any
affirmative vote required by law or these Articles of
Incorporation, and except as otherwise expressly provided in
Section B of this Article 8:
(a) any merger, consolidation, division or share exchange of the
Corporation or any Subsidiary (as hereinafter defined) with
(i) any Interested Shareholder (as hereinafter defined) or
(ii) any other corporation (whether or not itself an
Interested Shareholder) which is, or after such merger,
consolidation, division or share exchange would be, an
Affiliate (as hereinafter defined) of an Interested
Shareholder; or
(b) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions)
to or with any Interested Shareholder or any Affiliate of any
Interested Shareholder of any assets of the Corporation or any
Subsidiary having an aggregate Fair Market Value (as
hereinafter defined) of $1,000,000 or more; or
(c) the issuance or transfer by the Corporation or any Subsidiary
(in one transaction or a series of transactions) of any
securities of the Corporation or any Subsidiary to any
Interested Shareholder or any Affiliate of any Interested
Shareholder in exchange for cash, securities or other property
(or a combination thereof) having an aggregate Fair Market
value of $1,000,000 or more; or
(d) the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of an
Interested Shareholder or any Affiliate of any Interested
Shareholder; or
(e) any reclassification of securities (including any reverse
stock split), or recapitalization of the Corporation, or any
merger or consolidation of the Corporation with any of its
Subsidiaries or
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any other transaction (whether or not with or into or
otherwise involving an Interested Shareholder) which has the
effect, directly or indirectly, of increasing the
proportionate share of the outstanding shares of the class of
equity or convertible securities of the Corporation or any
Subsidiary which is directly or indirectly owned by any
Interested Shareholder or any Affiliate of any Interested
Shareholder;
shall require the affirmative vote of (A) the holders of at least
75% of the voting power of the then outstanding shares of capital
stock of the Corporation entitled to vote generally in the
election of directors (the "Voting Stock"), voting together as a
single class and (B) the holders of at least a majority of the
Voting Stock, voting together as a single class, excluding for
purposes of calculating both the affirmative vote and the number
of outstanding shares of Voting Stock all shares of Voting Stock
of which the beneficial owner is an Interested Shareholder or any
Affiliate of an Interested Shareholder referred to in clauses
(a) through (e) in this Subsection 1. Such affirmative vote shall
be required notwithstanding the fact that no vote may be
required, or that a lesser percentage may be specified, by law.
2. Definition of "Business Combination." The term "Business
Combination" as used in this Article 8 shall mean any transaction
which is referred to in any one or more of clauses (a) through (e)
of subsection 1 of this section A.
B. When Higher Vote is Not Required. The provisions of section A of this
Article 8 shall not be applicable to any particular Business Combination, and
such Business Combination shall require only such affirmative vote as is
required by law and any other provision of these Articles of Incorporation, if
all of the conditions specified in either of the following subsections 1 and 2
are met:
1. Approval by Continuing Directors. The Business Combination shall
have been approved by a majority of the Continuing Directors (as
hereinafter defined).
2. Price and Procedure Requirements. All of the following conditions
shall have been met:
(a) The aggregate amount of the cash and the Fair Market Value (as
hereinafter defined) as of the date of the consummation of the
Business Combination of consideration other than cash to be
received per share by holders of common stock in such Business
Combination shall be at least equal to the higher of the
following:
(i) (if applicable) the highest per share price (including
any brokerage commissions, transfer taxes and soliciting
dealers' fees) paid by the Interested Shareholder for any
shares of common stock acquired by it within the two-year
period immediately prior to (a) the first public
announcement of the proposal of the Business Combination
(the "Announcement Date") or (b) the date on which the
Interested Shareholder became an Interested Shareholder
(the "Determination Date"), whichever is higher; or
(ii) the Fair Market Value per share of common stock on the
Announcement Date or on the Determination Date, whichever
is higher.
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(b) The aggregate amount of the cash and the Fair Market Value as
of the date of the consummation of the Business Combination of
consideration other than cash to be received per share by
holders of shares of any other class of outstanding Voting
Stock shall be at least equal to the highest of the following
(it being intended that the requirements of this subsection
2(b) shall be required to be met with respect to every class
of outstanding Voting Stock, whether or not the Interested
Shareholder has previously acquired any shares of a particular
class of Voting Stock):
(i) (if applicable) the highest per share price (including
any brokerage commissions, transfer taxes and soliciting
dealers' fees) paid by the Interested Shareholder for
any shares of such class of Voting Stock acquired by it
(a) within the two-year period immediately prior to the
Announcement Date or (b) the Determination Date,
whichever is higher;
(ii) (if applicable) the highest preferential amount per
share to which the holders of shares of such class of
Voting Stock are entitled in the event of any voluntary
or involuntary liquidation, dissolution or winding up of
the Corporation; and
(iii) The Fair market Value per share of such class of Voting
Stock on the Announcement Date or on the Determination
Date, whichever is higher.
(c) The consideration to be received by holders of a particular
class of Voting Stock (including common stock) in the Business
Combination shall be in cash or in the same form as the
Interested Shareholder has previously paid for shares of such
Voting Stock. If the Interested Shareholder has paid for
shares of any class of Voting Stock with varying forms of
consideration, the form of consideration for such Voting Stock
shall be either cash or the form used to acquire the largest
number of shares of such Voting Stock previously acquired by
it.
(d) After the Determination Date and prior to the consummation of
such Business Combination: (i) there shall have been (A) no
reduction in the annual rate of dividends paid on the capital
stock (except as necessary to reflect any subdivision of the
capital stock), except as approved by a majority of the Board
of Directors, and (B) an increase in such annual rate of
dividends necessary to reflect any reclassification (including
any reverse stock split), recapitalization, reorganization or
any similar transaction which has the effect of reducing the
number of outstanding shares of common stock, unless the
failure so to increase such rate is approved by a majority of
the Continuing Directors; and (ii) such Interested Shareholder
shall have not become the beneficial owner of any additional
share of Voting Stock except as part of the transaction which
results in such Interested Shareholder becoming an Interested
Shareholder.
(e) After such Interested Shareholder has become an Interested
Shareholder, such Interested Shareholder shall not have
received the benefit, directly or indirectly (except
proportionately as a shareholder), of any loans, advances,
guarantees, pledges or other financial assistance or any tax
credits or tax advantages provided by the Corporation, whether
in anticipation of or in connection with such Business
Combination or otherwise.
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(f) A proxy or information statement describing the proposed
Business Combination and complying with the requirements of
the Exchange Act and the rules and regulations thereunder
(or any subsequent provisions replacing such Act, rules or
regulations) shall be mailed to public shareholders of the
Corporation at least 20 days prior to the consummation of such
Business Combination (whether or not such proxy or information
statement is required to be mailed pursuant to such Act or
subsequent provisions).
C. Certain Definitions. For the purposes of this Article 8:
1. A "person" shall mean any individual, firm, corporation or other
entity.
2. "Interested Shareholder" shall mean any person (other than the
Corporation or any Subsidiary) who or which:
(a) is the beneficial owner, directly or indirectly, of more than
10% of the voting power of the outstanding Voting Stock; or
(b) is an Affiliate of the Corporation and at any time within the
two-year period immediately prior to the date in question was
the beneficial owner, directly or indirectly, of 10% or more
of the voting power of the then outstanding Voting Stock; or
(c) is an assignee of or has otherwise succeeded to any shares of
Voting Stock which were at any time within the two-year period
immediately prior to the date in question beneficially owned
by any Interested Shareholder, if such assignment or
succession shall have occurred in the course of a transaction
or series of transactions not involving a public offering with
the meaning of the Securities Act of 1933.
3. A person shall be a "beneficial owner" of any Voting Stock:
(a) which such person or any of its Affiliates or Associates (as
hereinafter defined) beneficially owns, directly or
indirectly; or
(b) which such person or any of its Affiliates or Associates has
(i) the right to acquire (whether such right is exercisable
immediately or only after the passage of time), pursuant to
any agreement, arrangement or understanding or upon the
exercise of conversion rights, exchange rights, warrants or
options, or otherwise, or (ii) the right to vote pursuant to
any agreement, arrangement or understanding; or
(c) which are beneficially owned, directly or indirectly, by any
other person with which such person or any of its Affiliates
or Associates has any agreement, arrangement or understanding
for the purpose of acquiring, holding, voting or disposing of
any shares of Voting Stock.
4. For the purposes of determining whether a person is an Interested
Shareholder pursuant to subsection 2 of this section C, the number
of shares of Voting Stock deemed to be outstanding shall include
shares deemed owned through application of subsection 3 of this
section C but shall not include any other shares of Voting Stock
which may be issuable pursuant to any agreement, arrangement or
understanding, or upon exercise of conversion rights, warrants or
options, or otherwise.
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<PAGE>
5. "Affiliate" or "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Exchange Act.
6. "Subsidiary" means any corporation of which a majority of any
class of equity security is owned, directly or indirectly, by the
Corporation; provided, however, that for the purposes of the
definition of Interested Shareholder set forth in subsection 2 of
this section C, the term "Subsidiary" shall mean only a
corporation of which a majority of each class of equity security
is owned, directly or indirectly, by the Corporation.
7. "Continuing Director" means any member of the Board of Directors
of the Corporation who is unaffiliated with the Interested
Shareholder and was a member of the Board of Directors of the
Corporation prior to the time that the Interested Shareholder
became an Interested Shareholder, and any successor of a
Continuing Director who is unaffiliated with the Interested
Shareholder and is recommended to succeed a Continuing Director by
a majority of Continuing Directors then on the Board of Directors
of the Corporation.
8. "Fair Market Value" means:
(a) in the case of stock, the highest closing sale price during
the 30-day period immediately preceding the date in question
of a share of such stock on the principal United States
securities exchange registered under the Exchange Act on which
such stock is listed, or, if such stock is not listed on any
such exchange, the highest closing bid quotation with respect
to a share of such stock during the 30-day period preceding
the date in question on the National Association of Securities
Dealers, Inc. Automated Quotations System or any system then
in use, or if no such quotations are available, the fair
market value on the date in question of a share of such stock
as determined by the Board of Directors of the Corporation in
good faith; and
(b) in the case of property other than cash or stock, the fair
market value of such property on the date in question as
determined by the Board of Directors of the Corporation in
good faith.
D. Powers of the Board of Directors. A majority of the directors of the
Corporation shall have the power and duty to determine for the purposes of this
Article 8, on the basis of information known to them after reasonable inquiry,
(1) whether a person is an Interested Shareholder, (2) the number of shares of
Voting Stock beneficially owned by any person, (3) whether a person is an
Affiliate or Associate of another, and (4) whether the assets which are the
subject of any Business Combination have, or the consideration to be received
for the issuance or transfer of securities by the Corporation or any Subsidiary
in any Business Combination has, an aggregate Fair Market Value of $1,000,000 or
more.
E. No Effect on Fiduciary Obligations of Interested Shareholders.
Nothing contained in this Article 8 shall be construed to relieve any Interested
Shareholder from any fiduciary obligations imposed by law.
F. Amendment. In addition to any affirmative vote required by law or
these Articles of Incorporation, no amendment, addition, alteration, change or
repeal of this Article 8 shall be made unless such is first proposed by the
board of directors and thereafter approved by the affirmative vote of
shareholders holding no less than 75% of the outstanding shares of Voting Stock
at a legal meeting.
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Article 9. Anti-Greenmail. Any direct or indirect purchase or other acquisition
by the Corporation of any Voting Stock (as defined in Article 8 hereof) from any
Significant Shareholder (as hereinafter defined) who has been the beneficial
owner (as defined in Article 8 hereof) of such Voting Stock for less than two
years prior to the date of such purchase or other acquisition shall, except as
hereinafter expressly provided, require the affirmative vote of the holders of
at least a majority of the total number of outstanding shares of Voting Stock,
excluding in calculating such affirmative vote and the total number of
outstanding shares all Voting Stock beneficially owned by such Significant
Shareholder. Such affirmative vote shall be required notwithstanding the fact
that no vote may be required, or that a lesser percentage may be specified, by
law, but no such affirmative vote shall be required (i) with respect to any
purchase or other acquisition of Voting Stock made as part of a tender or
exchange offer by the Corporation to purchase Voting Stock on the same terms
from all holders of the same class of Voting Stock and complying with the
applicable requirements of the Securities Exchange Act of 1934 and the rules and
regulations thereunder or (ii) with respect to any purchase of Voting Stock,
where the board of directors has determined that the purchase price per share of
the Voting Stock does not exceed the fair market value of the Voting Stock. Such
fair market value shall be calculated on the basis of the average closing price
or the mean of the bid and ask prices of a share of Voting Stock for the 20
trading days immediately preceding the execution of a definitive agreement to
purchase the Voting Stock from a Significant Shareholder.
For the purposes of this Article 9, "Significant Shareholder" shall mean
any person (other than the Corporation or any corporation of which a majority of
any class of Voting Stock is owned, directly or indirectly, by the Corporation)
who or which is the beneficial owner, directly or indirectly, of five percent or
more of the voting power of the outstanding Voting Stock.
Article 10. Directors. The business and affairs of the Corporation shall be
managed under the direction of a board of directors. The number of directors of
the Corporation shall be fixed from time to time by or pursuant to the Bylaws.
The Corporation's board of directors shall be divided into three classes named
Class I, Class II and Class III, with each class to be initially filled by the
Incorporator. The number of directors in each class shall be as nearly equal as
possible. No decrease in the number of directors shall affect the term of any
director then in office. The classification shall be such that the term of one
class shall expire each succeeding year. The terms, classifications,
qualifications and election of the board of directors and the filling of
vacancies thereon shall be as provided herein and in the bylaws. Subject to the
foregoing, at each annual meeting of shareholders the successors to the class of
directors whose term shall then expire shall be elected to hold office for a
term expiring at the third succeeding annual meeting and until their successors
shall be elected and qualified.
Article 11. Bylaws. The board of directors or the shareholders may from time to
time amend the bylaws of the Corporation. Such action by the board of directors
shall require the affirmative vote of at least two-thirds of the directors then
in office at a duly constituted meeting of the board of directors called for
such purpose. Such action by the shareholders shall require the affirmative vote
of at least two-thirds of the votes cast by all shareholders entitled to vote
thereon at a duly constituted meeting of shareholders called for such purpose.
Article 12. Amendment of Charter. Except as otherwise provided in these Articles
of Incorporation or as otherwise required by law, no amendment, addition,
alteration, change or repeal of these articles of incorporation shall be made,
unless such is first proposed by the Board of Directors of the Corporation, and
thereafter approved by the shareholders by a majority of the votes cast by the
shareholders entitled to vote thereon at a legal meeting.
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Article 13. Business Corporation Law Elections. The Corporation elects that
Subchapters E (relating to control transactions), G (relating to control-share
acquisitions) and H (relating to disgorgement by certain controlling
shareholders following attempts to acquire control) of Title 15, Part II,
Subpart B, Article C, Chapter 25 of the Pennsylvania Consolidated Statutes
Annotated shall not be applicable to the Corporation. This election shall apply
to all successor provisions to those referenced in the immediately preceding
sentence, regardless of whether the designations of those provisions are
subsequently changed.
IN WITNESS WHEREOF, the incorporator has signed these Articles of
Incorporation this 11th day of September, 1996.
By: /s/ David F. Scranton
----------------------------
David F. Scranton, Esquire
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EXHIBIT 3.2
BYLAWS
OF
PRIME BANCORP, INC.
(the "Corporation")
ARTICLE I - OFFICES
SECTION 1. Principal Office. The principal office of the Corporation
shall, at all times, be located within the limits of the Commonwealth of
Pennsylvania.
SECTION 2. Other Offices. The Corporation may also have an office at such
other places both within and without the Commonwealth of Pennsylvania as the
board of directors may from time to time determine or the business of the
Corporation may require.
ARTICLE II - SHAREHOLDERS
SECTION 1. Place of Meetings. All annual and special meetings of
shareholders shall be held at 6425 Rising Sun Avenue, Philadelphia, Pennsylvania
or at such other place, either within or without the Commonwealth of
Pennsylvania, as the board of directors may from time to time determine.
SECTION 2. Annual Meeting. A meeting of the shareholders of the
Corporation for the election of directors and for the transaction of any other
business of the Corporation shall be held annually within 150 days after the end
of the Corporation's fiscal year on the date and at the hour determined by the
board of directors.
SECTION 3. Special Meetings. Special meetings of the shareholders for any
purpose or purposes may be called at any time only by the president of the
Corporation, or a majority of the board of directors of the Corporation.
Business transacted at all special meetings of the shareholders shall be limited
to the purposes stated in the notice.
SECTION 4. Conduct of Meetings. Annual and special meetings shall be
conducted in accordance with the rules specified by the officer presiding at the
meeting unless otherwise prescribed by law. The board of directors shall
designate, when present, the president to preside at such meetings.
SECTION 5. Notice of Meeting. Written notice stating the place, day, and
hour of the meeting and the purposes for which the meeting is called shall be
delivered not less than 20 nor more than 50 days before the date of the meeting,
either personally or by mail, by or at the direction of the president, or the
directors calling the meeting, to each shareholder of record entitled to vote at
such meeting. If mailed, such notice shall be deemed to be delivered when
deposited in the mail, addressed to the shareholder at the address as it appears
on the stock transfer books or records of the Corporation as of the record date
prescribed in Section 6 of this Article II with postage prepaid. When any
shareholders' meeting, either annual or special, is adjourned for 30 days or
more, notice of the adjourned meeting shall be given as in the case of an
original meeting. Provided no new record
<PAGE>
date for the meeting is set, it shall not be necessary to give any notice of the
time and place of any meeting adjourned for less than 30 days or of the business
to be transacted at the meeting, other than an announcement at the meeting at
which such adjournment is taken.
SECTION 6. Fixing of Record Date. For the purposes of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment, or shareholders entitled to receive payment of any dividend or
other distribution, or in order to make a determination of shareholders for any
other proper purpose, the board of directors shall fix in advance a date as the
record date for any such determination of shareholders. Such date in any case
shall be not more than 90 days nor less than 10 days prior to the date on which
the particular action requiring such determination of shareholders is to be
taken. When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this section, such determination shall
apply to any adjournment.
SECTION 7. Voting Lists. At least 10 days before each meeting of the
shareholders, the officer or agent having charge of the stock transfer books for
shares of the Corporation shall make a complete list of the shareholders
entitled to vote at such meeting, or any adjournment, arranged in alphabetical
order, with the address and the number of shares held by each. This list of
shareholders shall be kept on file at the Corporation's principal office, and
shall be subject to inspection by any shareholder at any time during usual
business hours for a period of at least 10 days prior to such meeting. Such list
shall also be produced and kept open at the time and place of the meeting and
shall be subject to the inspection of any shareholder during the entire time of
the meeting for the purposes thereof. The original stock transfer book shall
constitute prima facie evidence of the shareholders entitled to examine such
list or transfer books or to vote at any meeting of the shareholders.
SECTION 8. Quorum. One third of the outstanding shares of the Corporation
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of shareholders. If less than one third of the outstanding shares
are represented at a meeting, a majority of the shares so represented may
adjourn the meeting from time to time without further notice. Subject to Section
5 of this Article II of these Bylaws, at such adjourned meeting at which a
quorum shall be present or represented, any business may be transacted which
might have been transacted at the meeting as originally notified. The
shareholders present at a duly organized meeting may continue to transact
business until adjournment notwithstanding the withdrawal of enough shareholders
to constitute less than a quorum.
SECTION 9. Voting. Except as otherwise required by law, the Articles of
Incorporation, or these Bylaws, any matter brought before any meeting of
shareholders shall be decided by the affirmative vote of the majority of the
votes cast on the matter. Each shareholder represented at a meeting of
shareholders shall be entitled to cast one vote for each share of the capital
stock entitled to vote thereat held by such shareholder. The board of directors,
in its discretion, may require that any votes cast at such meeting shall be cast
by written ballot.
SECTION 10. Proxies. At all meetings of shareholders, a shareholder may
vote by proxy executed in writing by the shareholder or his duly authorized
attorney in fact. Proxies solicited on behalf of the board of directors shall be
voted as directed by the shareholder or, in the absence of such direction, as
determined by a majority of the board of directors. No proxy shall be valid more
than three years from its date, unless the proxy provides for a longer period. A
duly executed proxy
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shall be irrevocable if it states that it is irrevocable and if and only if it
is coupled with an interest sufficient in law to support an irrevocable power.
SECTION 11. Voting of Shares in the Name of Two or More Persons. If shares
or other securities having voting power stand of record in the names of two or
more persons, whether fiduciaries, members of a partnership, joint tenants,
tenants in common, tenants by the entirety or otherwise, or if two or more
persons have the same fiduciary relationship respecting the same shares, unless
the secretary of the Corporation is given written notice to the contrary and is
furnished with a copy of the instrument or order appointing them or creating the
relationship wherein it is so provided, their acts with respect to voting shall
have the following effect: (1) if only one votes, his act binds all; (2) if more
than one vote, the act of the majority so voting binds all; (3) if more than one
vote, but the vote is evenly split on any particular matter, the voting of the
shares shall be divided equally among the persons without prejudice to the
rights of the joint owners or the beneficial owners thereof among themselves. If
the instrument so filed shows that any such tenancy is held in unequal
interests, a majority or even-split for the purposes of this subsection shall be
a majority or even-split in interest.
SECTION 12. Voting of Shares by Certain Holders. Shares standing in the
name of another corporation may be voted by any officer, agent, or proxy as the
bylaws of such corporation may prescribe, or, in the absence of such provision,
as the board of directors of such corporation may determine. Shares held by an
administrator, executor, guardian, or conservator may be voted by him or her,
either in person or by proxy, without a transfer of such shares into his or her
name. Shares standing in the name of a trustee may be voted by him or her,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him or her without a transfer of such shares into his or her name.
Shares standing in the name of a receiver may be voted by such receiver, and
shares held by or under the control of a receiver may be voted by such receiver
without the transfer into his or her name if authority to do so is contained in
an appropriate order of the court or other public authority by which such
receiver was appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred,
provided however, this is not intended to adversely affect the validity of a
proxy given by the shareholder to the pledgee.
Neither treasury shares of its own stock held by the Corporation nor
shares held by another corporation, if a majority of the shares entitled to vote
for the election of directors of such other corporation are held by the
Corporation and such other corporation is controlled, directly or indirectly, by
the board of directors of the Corporation, shall be voted at any meeting or
counted in determining the total number of outstanding shares at any given time
for purposes of any meeting.
SECTION 13. Judges of Election. In advance of any meeting of shareholders,
the board of directors may appoint any persons other than nominees for office as
judges of election to act at such meeting or any adjournment. The number of
judges shall be either one or three. Any such appointment shall not be altered
at the meeting. If judges of election are not so appointed, the president may,
and on the request of any shareholder shall make such appointment at the
meeting. If appointed at the meeting, the majority of the votes present shall
determine whether one or three judges are to be appointed. In case any person
appointed as judge fails to appear or fails or refuses to act, the vacancy may
be filled by appointment by the board of directors in advance of the meeting or
at the meeting by the president.
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Unless otherwise prescribed by law, the duties of such judges shall
include: determining the number of shares and the voting power of each share,
the shares represented at the meeting, the existence of a quorum, and the
authenticity, validity and effect of proxies; receiving votes, ballots, or
consents; hearing and determining all challenges and questions in any way
arising in connection with the right to vote; counting and tabulating all votes
or consents; determining the result; and such acts as may be proper to conduct
the election or vote with fairness to all shareholders.
SECTION 14. Nominating Committee. Only persons who are nominated in
accordance with the procedures set forth in this Section 14 shall be eligible
for election as directors. Nominations of persons for election to the board of
directors of the Corporation may be made at a meeting of shareholders by or at
the direction of the board of directors or by any shareholder of the Corporation
entitled to vote for the election of directors at the meeting who complies with
the notice procedures set forth in this Section 14. Such nominations, other than
those made by or at the direction of the board of directors, shall be made
pursuant to timely notice in writing to the secretary of the Corporation. To be
timely, a shareholder's notice shall be delivered to or mailed and received at
the principal executive offices of the Corporation not less than 30 days nor
more than 90 days prior to the meeting; provided, however, that in the event
that less than 40 days' notice or prior public disclosure of the date of the
meeting is given or made to shareholders, notice by the shareholder to be timely
must be so received not later than the close of business on the 10th day
following the day on which such notice of the date of the meeting was mailed or
such public disclosure was made. Such shareholder's notice shall set forth
(a) as to each person whom the shareholder proposes to nominate for election or
re-election as a director, (i) the name, age, business address and residence
address of such person, (ii) the principal occupation or employment of such
person, (iii) the class and number of shares of the Corporation which are
beneficially owned by such person, and (iv) any other information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors, or as otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (including
without limitation such person's written consent to being named in the proxy
statement as a nominee and to serving as a director if elected); and (b) as to
the shareholder giving the notice, (i) the name and address, as they appear on
the Corporation's books, of such shareholder and (ii) the class and number of
shares of the Corporation which are beneficially owned by such shareholder. At
the request of the board of directors, any person nominated by the board of
directors for election as a director shall furnish to the secretary of the
Corporation that information required to be set forth in a shareholder's notice
of nomination which pertains to the nominee. No person shall be eligible for
election as a director of the Corporation unless nominated by the board of
directors or by a shareholder in accordance with the procedures set forth in
this Section 14. The chairman of the meeting shall, if the facts warrant,
determine and declare to the meeting that a nomination was not made in
accordance with the procedures prescribed by the Bylaws, and if he should so
determine, he shall declare to the meeting that the defective nomination shall
be disregarded.
SECTION 15. Business at Annual Meeting. At an annual meeting of the
shareholders, only such business shall be conducted as shall have been properly
brought before the meeting. To be properly brought before an annual meeting,
business must be (a) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the board of directors, (b) otherwise
properly brought before the meeting by or at the direction of the board of
directors, or (c) otherwise properly brought before the meeting by a
shareholder.
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For business to be properly brought before an annual meeting by a
shareholder, the shareholder must have given timely notice thereof in writing to
the secretary of the Corporation. To be timely, a shareholder's notice must be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than 30 days nor more than 90 days prior to the meeting;
provided, however, that in the event that less than 40 days' notice or prior
public disclosure of the date of the meeting is given or made to shareholders,
notice by the shareholder to be timely must be so received not later than the
close of business on the 10th day following the day on which such notice of the
date of the annual meeting was mailed or such public disclosure was made. A
shareholder's notice to the secretary shall set forth as to each matter the
shareholder proposes to bring before the annual meeting (a) a brief description
of the business desired to be brought before the annual meeting, (b) the name
and address, as they appear on the Corporation's books, of the shareholder
proposing such business, (c) the class and number of shares of the Corporation
which are beneficially owned by the shareholder, and (d) any material interest
of the shareholder in such business. Notwithstanding anything in these Bylaws to
the contrary, no business shall be conducted at an annual meeting except in
accordance with the procedures set forth in this Section 15. The chairman of an
annual meeting shall, if the facts warrant, determine and declare to the annual
meeting that a matter of business was not properly brought before the meeting in
accordance with the provisions of this Section 15, and that such business shall
not be transacted.
ARTICLE III - BOARD OF DIRECTORS
SECTION 1. General Powers. The business and affairs of the Corporation
shall be managed by or under the direction of its board of directors. The board
of directors shall annually elect a president from among its members and shall
designate, when present, the president to preside at its meetings.
SECTION 2. Number and Term. The number of directors which shall constitute
the board shall consist of not less than 7 nor more than 15 directors. The board
of directors shall be divided into three classes as nearly equal in number as
possible. The members of each class shall be elected for a term of three years
and until their successors are elected and qualified or until earlier death,
resignation, or removal. One class shall be elected annually. The size of the
board of directors may be increased or decreased only by a two-thirds vote of
the board of directors or by a vote of two-thirds of the shares eligible to be
voted at a duly constituted meeting of shareholders called for such purpose;
provided, that no decrease in the number of directors shall affect the term of
any director then in office.
SECTION 3. Qualifications. Each director shall at all times be the
beneficial owner of not less than 100 shares of capital stock of the
Corporation.
SECTION 4. Regular Meetings. A regular meeting of the board of directors
shall be held without other notice than this bylaw immediately after, and at the
same place as, the annual meeting of the shareholders. The board of directors
may provide, by resolution, the time and place for the holding of additional
regular meetings without other notice than such resolution.
SECTION 5. Special Meetings. Special meetings of the board of directors
may be called by or at the request of the president or at least one-third of the
directors.
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SECTION 6. Telephonic Participation. Members of the board of directors may
participate in regular or special meetings by means of conference telephone or
similar communications equipment by which all persons participating in the
meeting can hear each other. Such participation shall constitute presence in
person and shall constitute attendance for the purpose of compensation pursuant
to Section 13 of this Article III.
SECTION 7. Notice. Written notice of any special meeting shall be given to
each director at least two days prior thereto when delivered personally or by
telegram or at least five days prior thereto when delivered by mail at the
address at which the director is most likely to be reached. Such notice shall be
deemed to be delivered when deposited in the mail so addressed, with postage
prepaid if mailed or when delivered to the telegraph company if sent by
telegram. Any director may waive notice of any meeting by a writing filed with
the secretary. The attendance of a director at a meeting shall constitute a
waiver of notice of such meeting, except where a director attends a meeting for
the express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any meeting of the board of directors need be
specified in the notice or waiver of notice of such meeting.
SECTION 8. Quorum. Two-thirds of the number of directors fixed pursuant to
Section 2 of this Article III shall constitute a quorum for the transaction of
business at any meeting of the board of directors; but if less than two-thirds
of the directors are present at a meeting, two thirds of the directors present
may adjourn the meeting from time to time. Notice of any adjourned meeting shall
be given in the same manner as prescribed by Section 7 of this Article III.
SECTION 9. Manner of Acting. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the board
of directors, unless a greater number is prescribed by law or by the Articles of
Incorporation or these Bylaws.
SECTION 10. Action Without a Meeting. Any action required or permitted to
be taken by the board of directors at a meeting may be taken without a meeting
if a consent in writing, setting forth the action so taken, shall be signed by
all of the directors.
SECTION 11. Resignation. Any director may resign at any time by sending a
written notice of such resignation to the Corporation addressed to the
president. Unless otherwise specified, such resignation shall take effect upon
receipt by the president. More than three consecutive absences from regular
meetings of the board of directors, unless excused by resolution of the board of
directors, shall automatically constitute a resignation, effective when such
resignation is accepted by the board of directors.
SECTION 12. Vacancies. Vacancies and newly created directorships resulting
from any increase in the authorized number of directors may be filled, for the
unexpired term, by the concurring vote of a majority of the directors then in
office, whether or not a quorum, and any director so chosen shall hold office
for the remainder of the full term of the class of directors in which the new
directorship was created or the vacancy occurred and until such director's
successor shall have been elected and qualified.
SECTION 13. Compensation. Directors, as such, may receive a stated salary
for their services. By resolution of the board of directors, a reasonable fixed
sum, and reasonable expenses of attendance, if any, may be allowed for actual
attendance at each regular or special meeting of the
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board of directors. Members of either standing or special committees may be
allowed such compensation for actual attendance at committee meetings as the
board of directors may determine.
SECTION 14. Presumption of Assent. A director of the Corporation who is
present at a meeting of the board of directors at which action on any matter is
taken shall be presumed to have assented to the action taken unless his dissent
or abstention shall be entered into the minutes of the meeting or unless he
shall file his written dissent to such action with the person acting as the
secretary of the meeting before the adjournment thereof or shall forward such
dissent by registered mail to the secretary of the Corporation within five days
after the date a copy of the minutes of the meeting is received. Such right to
dissent shall not apply to a director who voted in favor of such action.
SECTION 15. Removal of Directors. Except upon order of a court or legal
incompetency or imprisonment for a term of more than one year, no director shall
be removed except for cause and then only by an affirmative vote of a majority
of the total votes eligible to be cast by shareholders at a duly constituted
meeting of shareholders called expressly for such purpose. At least 30 days
prior to such meeting of shareholders, written notice shall be sent to the
director whose removal will be considered at such meeting.
SECTION 16. Age Limitation. No person 70 years of age or older shall be
eligible for election, reelection, appointment, or reappointment to the board of
directors of the Corporation. No director shall serve as such beyond the annual
meeting of shareholders of the Corporation immediately following the date on
which the director attained 70 years of age. This Section shall not apply to any
director who has attained the age of 70 at the time this Section of the Bylaws
becomes effective.
ARTICLE IV - EXECUTIVE AND OTHER COMMITTEES
SECTION 1. Appointment. The board of directors, by resolution adopted by a
majority of the full board, may designate the chief executive officer and two or
more of the other directors to constitute an executive committee. The
designation of any committee pursuant to this Article IV and the delegation of
authority shall not operate to relieve the board of directors, or any director,
of any responsibility imposed by law or regulation.
SECTION 2. Authority. The executive committee, when the board of directors
is not in session, shall have and may exercise all of the authority of the board
of directors except to the extent, if any, that such authority shall be limited
by the resolution appointing the executive committee; and except also that the
executive committee shall not have the authority of the board of directors with
reference to: the declaration of dividends; the amendment of the Articles of
Incorporation or Bylaws of the Corporation, or recommending to the shareholders
a plan of merger, consolidation, division, share exchange or conversion; the
sale, lease or other disposition of all or substantially all of the property and
assets of the Corporation otherwise than in the usual and regular course of its
business; a voluntary dissolution of the Corporation; a revocation of any of the
foregoing; the submission to shareholders of any action requiring approval of
shareholders under the Pennsylvania Business Corporation Law of 1988, as
amended; the creation or filling of vacancies in the board of directors; the
amendment or repeal of any resolution of the board of directors which by its
terms is amendable or repealable only by the board; action on matters committed
by the bylaws or resolution of the board
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of directors to another committee of the board; or the approval of a transaction
in which any member of the executive committee, directly or indirectly has any
material beneficial interest.
SECTION 3. Tenure. Subject to the provisions of Section 8 of this Article
IV, each member of the executive committee shall hold office until the next
regular annual meeting of the board of directors following his or her
designation and until a successor is designated as a member of the executive
committee.
SECTION 4. Meetings. Regular meetings of the executive committee may be
held without notice at such times and places as the executive committee may fix
from time to time by resolution. Special meetings of the executive committee may
be called by any member thereof upon not less than one day's notice stating the
place, date, and hour of the meeting, which may be written or oral. Any member
of the executive committee may waive notice of any meeting and no notice of any
meeting need be given to any member thereof who attends in person. The notice of
a meeting of the executive committee need not state the business proposed to be
transacted at the meeting.
SECTION 5. Quorum. A majority of the members of the executive committee
shall constitute a quorum for the transaction of business at any meeting
thereof, and action of the executive committee must be authorized by the
affirmative vote of a majority of the members present at a meeting at which a
quorum is present.
SECTION 6. Action Without a Meeting. Any action required or permitted to
be taken by the executive committee at a meeting may be taken without a meeting
if a consent in writing, setting forth the action so taken, shall be signed by
all of the members of the executive committee.
SECTION 7. Vacancies. Any vacancy in the executive committee may be filled
by a resolution adopted by a majority of the full board of directors.
SECTION 8. Resignations and Removal. Any member of the executive committee
may be removed at any time with or without cause by resolution adopted by a
majority of the full board of directors. Any member of the executive committee
may resign from the executive committee at any time by giving written notice to
the president or secretary of the Corporation. Unless otherwise specified, such
resignation shall take effect upon its receipt; the acceptance of such
resignation shall not be necessary to make it effective.
SECTION 9. Procedure. The executive committee shall elect a presiding
officer from its members and may fix its own rules of procedure which shall not
be inconsistent with these Bylaws. It shall keep regular minutes of its
proceedings and report the same to the board of directors for its information at
the meeting held next after the proceedings shall have occurred.
SECTION 10. Other Committees. The board of directors may by resolution
establish an audit committee, a loan committee, and such other committees
composed of directors that are deemed necessary or appropriate for the conduct
of the business of the Corporation and may prescribe the duties, constitution,
and procedures thereof.
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ARTICLE V - OFFICERS
SECTION 1. Positions. The officers of the Corporation shall include a
chairman, vice chairman, president, one or more vice presidents, a secretary and
a treasurer, each of whom shall be elected by the board of directors. The
president shall be the chief executive officer. The president shall be a
director of the Corporation. The offices of the secretary and treasurer may be
held by the same person and a vice president may also be either the secretary or
the treasurer. The board of directors may designate one or more vice presidents
as executive vice president or senior vice president. The board of directors may
also elect or authorize the appointment of such other officers as the business
of the Corporation may require. The officers shall have such authority and
perform such duties as the board of directors may from time to time authorize or
determine. In the absence of action by the board of directors, the officers
shall have such powers and duties as generally pertain to their respective
offices.
SECTION 2. Election and Term of Office. The officers of the Corporation
shall be elected annually at the first meeting of the board of directors held
after each annual meeting of the shareholders. If the election of the officers
is not held at such meeting, such election shall be held as soon thereafter as
possible. Each officer shall hold office until a successor has been elected and
qualified or until the officer's death, resignation, or removal in the manner
hereinafter provided. Election or appointment of an officer, employee or agent
shall not of itself create contractual rights. The board of directors may
authorize the Corporation to enter into an employment contract with any officer
in accordance with applicable law; but no such contract shall impair the right
of the board of directors to remove any officer at any time in accordance with
Section 3 of this Article V.
SECTION 3. Removal. Any officer may be removed by the board of directors
whenever in its judgment the best interests of the Corporation will be served
thereby, but such removal, other than for cause, shall be without prejudice to
the contract rights, if any, of the person so removed.
SECTION 4. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification, or otherwise may be filled by the board
of directors for the unexpired portion of the term.
SECTION 5. Remuneration. The remuneration of the officers shall be fixed
from time to time by the board of directors.
SECTION 6. Age Limitation. No person 70 years of age or older shall be
eligible for reelection, appointment, or reappointment as an officer of the
Corporation.
ARTICLE VI - CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 1. Certificates for Shares. Certificates representing shares of
capital stock of the Corporation shall be in such form as shall be determined by
the board of directors pursuant to applicable law. Such certificates, which
shall represent the number of shares registered in certificate form, shall be
signed by the president of the Corporation, attested by the secretary or an
assistant secretary, and may be sealed with the corporate seal or a facsimile
thereof. The signatures upon a certificate may be facsimiles. In case any
officer, transfer agent or registrar who had signed or whose facsimile signature
has been placed upon a certificate shall have ceased to be such officer
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before such certificate is issued, it may be used by the Corporation with the
same effect as if he were such officer at the date of issue. Each certificate
for shares of capital stock shall be consecutively numbered or otherwise
identified. The name and address of the person to whom the shares are issued,
with the number of shares and date of issue, shall be entered on the stock
transfer books of the Corporation. All certificates surrendered to the
Corporation for transfer shall be canceled and no new certificate shall be
issued until the former certificate for a like number of shares has been
surrendered and canceled, except that in case of a lost or destroyed
certificate, a new certificate may be issued upon such terms and indemnity to
the Corporation as the board of directors may prescribe.
SECTION 2. Transfer of Shares. Transfer of shares of capital stock of the
Corporation shall be made only on its stock transfer books. Authority for such
transfer shall be given only by the holder of record or by his legal
representative, who shall furnish proper evidence of such authority, or by his
attorney authorized by a duly executed power of attorney and filed with the
Corporation. Such transfer shall be made only on surrender for cancellation of
the certificate for such shares. The person in whose name shares of capital
stock stand on the books of the Corporation shall be deemed by the Corporation
to be the owner for all purposes.
ARTICLE VII - FISCAL YEAR; ANNUAL AUDIT
The fiscal year of the Corporation shall end on December 31 of each year.
The Corporation shall be subject to an annual audit as of the end of its fiscal
year by independent public accountants appointed by and responsible to the board
of directors. The appointment of such accountants shall be subject to annual
ratification by the shareholders.
ARTICLE VIII - DIVIDENDS
SECTION 1. Declaration of Dividends. Dividends or other distributions upon
the outstanding shares of capital stock of the Corporation, subject to the
provisions of the Articles of Incorporation, may be declared by the Board of
Directors at any regular or special meeting, pursuant to law. Dividends or other
distributions may be paid in cash, in property, or in its shares, subject to the
provisions of the Articles of Incorporation.
SECTION 2. Reservation of Funds. Before payment of any dividend or other
distribution, there may be set aside out of any funds of the Corporation
available therefor such sum or sums as the directors from time to time, in their
absolute discretion, think proper as a reserve or reserves to meet
contingencies, or for equalizing dividends or distributions, or for repairing or
maintaining any property of the Corporation, or for such other purposes as the
directors shall think conducive to the interest of the Corporation, and the
directors may modify or abolish any such reserve in the manner in which it was
created.
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ARTICLE IX - INDEMNIFICATION
SECTION 1. Power to Indemnify in Actions, Suits or Proceedings Other Than
Those by or in the Right of the Corporation. Subject to Section 3 of this
Article IX, the Corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, and any appeal therein, whether civil, criminal,
administrative, arbitrative or investigative (other than an action by or in the
right of the Corporation) by reason of the fact that he or she is or was a
director, officer, trustee, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, trustee,
employee or agent of another corporation, association, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines, penalties and amounts paid in settlement actually and
reasonably incurred by him or her in connection with such action, suit or
proceeding, and any appeal therein, if he or she acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding, any appeal therein, by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his conduct
was unlawful.
SECTION 2. Power to Indemnify in Actions, Suits or Proceedings by or in
the Right of the Corporation. Subject to Section 3 of this Article IX, the
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, and any appeal therein, and against amounts paid in settlement by or
in the right of the Corporation to procure a judgment in its favor by reason of
the fact he is or was a director, officer, trustee, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, trustee, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action, suit, or proceeding,
and any appeal therein, and against amounts paid in settlement if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation; provided, however, that no indemnification
shall be made against expenses in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his or her duty to the Corporation or against
amounts paid in settlement unless and only to the extent that there is an
appropriate judicial determination that despite the adjudication of liability or
settlement, but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses or amounts paid in
settlement.
SECTION 3. Indemnification Made. Indemnification under Sections 1 and 2 of
this Article IX shall be made by the corporation when ordered by a court or upon
a determination that indemnification of the person is proper in the
circumstances because such person has met the applicable standard of conduct set
forth in those Sections and, if applicable, is fairly and reasonably entitled to
indemnification as set forth in the proviso to Section 2. Such determination
shall be made (1) by the board of directors by a majority vote of a quorum
consisting of directors who were not parties to such action, suit or proceeding
and any appeal therein, or (2) if such a quorum is not obtainable, or, even if
obtainable and a quorum of disinterested directors so directs, by independent
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legal counsel in a written opinion, or (3) by the shareholders. To the extent,
however, that a director, officer, trustee, employee or agent of the Corporation
has been successful on the merits or otherwise in defense of any action, suit or
proceeding, and any appeal therein, described above, or in defense of any claim,
issue or matter therein, he or she shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him or her in
connection therewith, without the necessity of authorization in the specific
case. No director, officer, trustee, employee or agent of the Corporation shall
be entitled to indemnification in connection with any action, suit or
proceeding, and any appeal therein, voluntarily initiated by such person unless
the action, suit or proceeding, and any appeal therein, was authorized by a
majority of the entire board of directors.
SECTION 4. Indemnification by a Court. Notwithstanding any contrary
determination in the specific case under Section 3 of this Article IX, and
notwithstanding the absence of any determination thereunder, any director,
officer, trustee, employee or agent may apply to any court of competent
jurisdiction in the Commonwealth of Pennsylvania for indemnification to the
extent otherwise permissible under Sections 1 and 2 of this Article IX. The
basis of such indemnification by a court shall be a determination by such court
that indemnification of the director, officer, trustee, employee or agent is
proper in the circumstances because he or she has met the applicable standards
of conduct set forth in Sections 1 and 2 of this Article IX, as the case may be.
Notice of any application for indemnification pursuant to this Section 4 shall
be given to the Corporation promptly upon the filing of such application.
Notwithstanding any of the foregoing, unless otherwise required by law, no
director, officer, trustee, employee or agent of the Corporation shall be
entitled to indemnification in connection with any action, suit or proceeding,
and any appeal therein, voluntarily initiated by such person unless the action,
suit or proceeding, and any appeal therein, was authorized by a majority of the
entire board of directors.
SECTION 5. Expenses Payable in Advance. Expenses incurred in defending any
threatened or pending action, suit or proceeding, and any appeal therein, may be
paid by the Corporation in advance of the final disposition of such action, suit
or proceeding and any appeal thereon, as authorized by the board of directors in
the specific case upon receipt of an undertaking, by or on behalf of the person
who may be entitled to indemnification to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified by the
Corporation.
SECTION 6. Contract, Non-Exclusivity and Survival of Indemnification.
Indemnification provided by this Article IX shall be deemed to be a contract
between the Corporation and each director, officer, trustee, employee and agent
who serves in such capacity at any time while this Article IX is in effect, and
any repeal or modification thereof shall not affect any rights or obligations
then existing with respect to any state of facts then or theretofore existing or
any action, suit or proceeding, and any appeal therein, theretofore or
thereafter brought based in whole or in part upon any such state of facts.
Further, the indemnification provided by this Article IX shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any provision of the Articles of Incorporation, bylaws,
agreement, contract, vote of shareholders or disinterested directors or pursuant
to the direction (howsoever embodied) of any court of competent jurisdiction or
otherwise, both as to action in his official capacity and as to action in any
other capacity while holding such office, it being the policy of the Corporation
that, subject to the limitation in Section 3 of this Article IX concerning
voluntary initiation of actions, suits or proceedings, indemnification of the
persons specified in Sections 1 and 2 of this Article IX shall be made to the
fullest extent permitted by law. The provisions of this Article IX shall not be
deemed to preclude the indemnification of any person who is not specified in
Sections 1 or 2 of this Article IX but whom the
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Corporation has the power or obligation to indemnify under the provisions of the
laws of the Commonwealth of Pennsylvania. The indemnification provided by this
Article IX shall continue as to a person who has ceased to be a director,
officer, trustee, employee or agent, and shall inure to the benefit of the
heirs, executors and administrators of such person.
SECTION 7. No Limitation on Laws or Other Agreements. Nothing herein
contained shall be construed as limiting the power or obligation of the
corporation to indemnify any person in accordance with the Pennsylvania Business
Corporation Law as amended from time to time or in accordance with any similar
law adopted in lieu thereof.
SECTION 8. Insurance. The Corporation shall have power to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
trustee, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, trustee, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against him and incurred by him in any such
capacity or arising out of his status as such, whether or not the Corporation
would have the power or obligation to indemnify him against such liability under
the provisions of this Article IX.
SECTION 9. Meaning of "Corporation" for Purposes of Article IX. For
purposes of this Article IX, references to the "Corporation" shall include, in
addition to the resulting corporation, any constituent corporation (including
any constituent of a constituent) absorbed in a consolidation or merger which,
if its separate existence had continued, would have had power and authority to
indemnify its directors, officers, trustees, and employees or agents, so that
any person who is or was a director, officer, trustee, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, trustee, employee or agent of another
corporation, association, partnership, joint venture, trust or other enterprise,
shall stand in the same position under the provisions of this Article IX with
respect to the resulting or surviving corporation as he would have with respect
to such constituent corporation if its separate existence had continued.
SECTION 10. Limitation of Director's Liability. No director of this
Corporation shall be personably liable for monetary damages as such for any
action taken, or failure to take any action on or after September 1, 1996,
unless (a) the director has breached or failed to perform the duties of his
office under Title 15, Part II, Subpart B, Article B, Chapter 17, Subchapter B
of the Pennsylvania Consolidated Statutes Annotated (relating to the fiduciary
duties of directors); and (b) the breach or failure to perform constitutes
self-dealing, willful misconduct or recklessness; provided, however, that the
provisions of this Section 10 shall not apply to the responsibility or liability
of a director pursuant to any criminal statute or the liability of a director
for the payment of taxes pursuant to local, state or federal law.
ARTICLE X - CORPORATE SEAL
The corporate seal shall have inscribed thereon the name of the
Corporation, the year of its organization and the words "Corporate Seal,
Pennsylvania." The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
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<PAGE>
ARTICLE XI - AMENDMENTS
The board of directors or the shareholders may from time to time amend the
Bylaws of the Corporation subject to the power of the shareholders to change
such action by the directors. Such action by the board of directors shall
require the affirmative vote of at least two-thirds of the directors then in
office at a duly constituted meeting of the board of directors called for such
purpose. Such action by the shareholders shall require the affirmative vote of
at least two-thirds of the total votes eligible to be voted at a duly
constituted meeting of the shareholders called for such purpose.
* * * *
-14-
Exhibit 4.2
PB
PRIME BANCORP, INC.
NUMBER SHARES
PB
INCORPORATED UNDER THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA
(subject to restrictions noted on reverse side)
COMMON STOCK CUSIP
SEE REVERSE FOR CERTAIN DEFINITIONS
THIS CERTIFIES that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, PAR VALUE $1.00 OF
PRIME BANCORP, INC., transferable on the books of the Corporation by the holder
hereof in person or by his duly authorized attorney upon surrender of this
certificate properly endorsed. This certificate and the shares represented
hereby are issued and shall be held subject to all the provisions of the
Articles of Incorporation and By-Laws of the Corporation as from time to time
amended, to all of which the holder by acceptance hereof assents. This
certificate is not valid until countersigned and registered by the Transfer
Agent and Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated:
/s/ JOSEPH A. FLUEHR, III
---------------------
Joseph A. Fluehr III
Secretary
/s/ JAMES J. LYNCH
----------------------
James J. Lynch
President and Chief Executive Officer
PRIME BANCORP, INC.
CORPORATE
SEAL
1996
PENNSYLVANIA
*
Countersigned and Registered:
AMERICAN STOCK TRANSFER & TRUST COMPANY
(New York, N.Y.)
Transfer Agent
and Registrar,
By
------------------------------------------
Authorized Signature
<PAGE>
PRIME BANCORP, INC.
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH SHAREHOLDER WHO SO REQUESTS
A STATEMENT OF THE DESIGNATIONS, PREFERENCES, VOTING RIGHTS, LIMITATIONS AND
OTHER RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF OF THE CORPORATION AND THE
QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS.
SUCH REQUEST MAY BE MADE TO THE OFFICE OF THE SECRETARY OF THE CORPORATION OR TO
THE TRANSFER AGENT.
THE ARTICLES OF INCORPORATION OF THE CORPORATION PROHIBIT OR RESTRICT THE
ACQUISITION OF 10% OR MORE OF THE VOTING STOCK OF THE CORPORATION BY ANY PERSON
OR GROUP OF PERSONS, AND PROHIBIT CERTAIN "BUSINESS COMBINATIONS" WITH SUCH
PERSONS, EXCEPT UPON THE TERMS SET FORTH IN THE ARTICLES OF INCORPORATION.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of
of survivorship and not as
tenants in common
UNIF GIFT MIN ACT -- .................... Custodian ....................
(Cust) (Minor)
under Uniform Gifts to Minors
Act ......................
(State)
Additional abbreviations may also be used though not in the above list.
For value received, ..................... hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
_______________________________
| |
| |
|_______________________________|...............................................
................................................................................
Please print or typewrite name and address including postal zip code of assignee
................................................................................
................................................................................
..........................................................................Shares
of the Capital Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint .............................................
................................................................................
Attorney to transfer the said stock on the books of the within-named
Corporation with full power of substitution in the premises.
Dated, ..........................
...............................................
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the Certificate, in every particular, without
alteration or enlargement, or any change whatever.
EXHIBIT 5.1
[ SRS&Y LETTERHEAD ]
October 8, 1996
Prime Newco, Inc.
6425 Rising Sun Avenue
Philadelphia, PA 19111
Re: REGISTRATION STATEMENT ON FORM S-4
Ladies and Gentlemen:
We have acted as counsel to and for Prime Newco, Inc., a
Pennsylvania corporation, (the "Company") in the preparation and filing with the
Securities and Exchange Commission of a registration statement on Form S-4, on
October 8, 1996 (the "Registration Statement"), for the purpose of registering
under the Securities Act of 1933, as amended, up to 1,654,546 shares of the
Company's Common Stock, par value $1.00 per share (the "Common Stock") to be
issued in connection with the merger of First Sterling Bancorp, Inc., a
Pennsylvania corporation, ("First Sterling") with and into the Company. Each
capitalized term used but not defined in this opinion letter has the meaning
ascribed to it in the Registration Statement.
For the purpose of rendering the opinions contained herein, we
have examined such matters of law as we deem necessary or appropriate and have
examined and relied (without independent investigation) on the following
documents, records and certificates:
(1) a subsistence certificate with respect to the Company
issued by the Department of State of the Commonwealth
of Pennsylvania on September 30, 1996;
<PAGE>
Prime Newco, Inc.
October 8, 1996
Page 2
(2) the Articles of Incorporation of the Company,
certified as true and correct by the Secretary of the
Company;
(3) the Bylaws of the Company, certified as true and
correct by the Secretary of the Company;
(4) certain minutes of proceedings of the Company's Board
of Directors and sole shareholder, certified as true
and correct by the Secretary of the Company, relating
to the offer and sale by the Company of the Common
Stock offered pursuant to the prospectus contained in
the Registration Statement ("Prospectus");
(5) that certain Declaration of Trust of Maureen A.
McGreevey as settlor and trustee dated
August 23, 1996;
(6) certain minutes of the proceedings of the Board of
Directors and stockholders of Prime Bancorp., Inc., a
Delaware corporation ("Prime"), certified as true and
correct by the Secretary of Prime, relating to the
transactions referred to in the Registration
Statement; and
(7) the Registration Statement.
In rendering this opinion, we have assumed and relied upon,
without independent investigation, other than the inquiry referred to above,
(i) the authenticity, completeness, truth and due authorization, execution and
delivery of all documents submitted to us as originals, (ii) the genuineness of
all signatures on all documents submitted to us as originals, and (iii) the
conformity to the originals of all documents submitted to us as certified or
photostatic copies. We have further assumed without independent investigation
that all of the issued and outstanding shares of common stock of First Sterling
will be duly authorized, validly issued, fully paid and nonassessable shares of
common stock of First Sterling immediately prior to the Effective Time.
The laws covered by the opinions expressed herein are limited
to the Federal statutes, judicial decisions and rules and regulations of the
governmental agencies of the United States of America and the statutes, judicial
and administrative decisions and rules and regulations of the governmental
agencies of the Commonwealth of Pennsylvania.
This opinion letter is given only with respect to laws and
regulations presently in effect. We assume no obligation to advise you of any
changes in law or regulation which may hereafter occur, whether the same are
retroactively or prospectively applied, or to update or supplement this letter
in any fashion to reflect any facts or circumstances which hereafter come to our
attention.
<PAGE>
Prime Newco, Inc.
October 8, 1996
Page 3
Based upon and subject to the foregoing, it is our opinion
that, upon completion of the merger proceedings being taken or contemplated by
us as your counsel prior to the issuance of the Common Stock, and upon
completion of the proceedings being taken in order to permit such transactions
to be carried out in accordance with the securities laws of the various states
where required, the Common Stock, when issued in the manner described in the
Registration Statement, will be legally and validly issued, fully paid and
non-assessable.
We hereby consent to (i) the filing of this opinion letter as
an exhibit to the Registration Statement and (ii) the use of our name wherever
appearing in the Registration Statement, including the Prospectus, and any
amendment thereto.
Very Truly Yours,
STRADLEY, RONON, STEVENS & YOUNG, L.L.P.
By: /s/ David E. Beavers
------------------------------------
David E. Beavers, a Partner
EXHIBIT 8.1
STRADLEY, RONON, STEVENS & YOUNG, LLP
December __, 1996
Board of Directors
Prime Bancorp., Inc.
6425 Rising Sun Avenue
Philadelphia, PA 19111
Re: Reorganization of Prime Bancorp., Inc. and First
Sterling Bancorp, Inc.
------------------------------------------------
Gentlemen:
In our capacity as counsel to Prime Bancorp., Inc., a Delaware
corporation ("Prime"), you have requested our opinion as to certain Federal
income tax consequences to Prime and its stockholders under the Internal Revenue
Code of 1986, as amended (the "Code"), of the reorganization ("Reorganization")
of Prime pursuant to (i) an Agreement and Plan of Reorganization dated June 12,
1996, as modified by a First Amendment thereto dated September 12, 1996 (the
"Merger Agreement") by and among Prime, First Sterling Bancorp, Inc., a
Pennsylvania corporation ("First Sterling") and Prime Newco, Inc., a
Pennsylvania corporation ("PA Prime"), (ii) an Agreement and Plan of Merger
dated September 12, 1996 (the "Prime Plan") by and between Prime and PA Prime,
and (iii) an Agreement and Plan of Merger dated December ___, 1996 (the "First
Sterling Plan") by and between First Sterling and PA Prime.
Pursuant to the Merger Agreement, the Prime Plan and the First
Sterling Plan, Prime and First Sterling will each merge with and into PA Prime,
with PA Prime as the survivor (the "Merger"). Each outstanding share of the
Prime common stock, par value $1.00 per share (together with each Prime
stockholder's proportionate interest in 10 shares of common stock of Prime (the
"Trust Shares") which have been sold and issued by Prime to a
<PAGE>
Board of Directors
December __, 1996
Page 2
trustee who holds those shares under a Declaration of Trust for the
proportionate benefit of the holders of the Prime common stock as reflected on
the official stock transfer records of Prime, and for the sole purpose of
validating the corporate transactions involving Prime that are described herein)
("Prime Common Stock") will be converted into one share of PA Prime common
stock, par value $1.00 per share ("PA Prime Common Stock"), and each outstanding
share of the First Sterling common stock, par value $1.00 per share ("First
Sterling Common Stock"), will be converted into one share of PA Prime Common
Stock, par value $1.00 per share and the right to receive a cash payment in lieu
of fractional shares.
In rendering our opinion, we have considered and relied upon
(a) the Merger Agreement, (b) the Prime Plan, (c) the First Sterling Plan,
(d) the Prospectus/Joint Proxy Statement filed by Prime and PA Prime with the
Securities and Exchange Commission on October 8, 1996 (the "Registration
Statement"), (e) the opinion of Berwind Financial Group, L.P. to Prime dated
October 8, 1996 (which concludes that the consideration to be received in the
Merger is fair, from a financial point of view, to the holders of Prime Common
Stock), (f) certain representations concerning the Reorganization made to us by
First Sterling and Prime in letters dated December __, 1996 (the "Representation
Letters"), (g) the opinion of the law firm of Kania, Lindner, Lasak and Feeney
to Prime of even date herewith, (h) all other documents, financial and other
reports and corporate minutes which we deemed relevant or appropriate, and
(i) such statutes, regulations, rulings and decisions as we deemed material to
the rendition of this opinion. In addition, at your direction we have considered
the opinion of the law firm of Morris, Nichols, Arsht & Tunnell dated May 13,
1992 (as to certain matters of Delaware law relating to the authorization and
issuance of 1,380,000 shares of the common stock, par value $1.00 per share of
Prime, in a Subscription and Community Offering effected in November, 1988).
Our review of items (a) through (i) of the preceding paragraph
has been without independent verification. We have also relied upon the truth,
authenticity, accuracy and completeness of all documents, certifications and
instruments examined and the statements, covenants, representations and
warranties contained therein, the genuineness of all documents submitted to
us as originals, the conformity of the originals of all documents submitted
to us as certified or photostatic copies
<PAGE>
Board of Directors
December __, 1996
Page 3
and the due execution and delivery of all documents where execution and delivery
are pre-requisites to the effectiveness thereof.
In addition, you have directed us to assume for purposes of
numbered paragraphs 6, 7 and 8 of this opinion (but not for purposes of numbered
paragraphs 1 through 5 and 9 and 10 of this opinion) that either (i) the Prime
Common Stock (other than the Trust Shares) is duly authorized, validly issued,
fully paid and nonassessable as a matter of Delaware corporate law, or (ii) that
the holders of the Prime Common Stock (other than the Trust Shares), by virtue
of such holdings, possess a proprietary interest in Prime (consisting of the
sole proprietary interest) of such a nature that the Prime Common Stock (other
than the Trust Shares) would be considered stock or securities for federal
income tax purposes.
Based on the foregoing and provided the Reorganization is
carried out in accordance with the applicable laws of the State of Delaware and
the Commonwealth of Pennsylvania, the Merger Agreement, the Prime Plan, the
First Sterling Plan, and the Representation Letters, it is our opinion that for
federal income tax purposes:
1. The Reorganization will constitute a reorganization within
the meaning of Section 368(a) of the Code and Prime, First Sterling and PA Prime
will each be "a party to a reorganization" within the meaning of Section 368(b)
of the Code.
2. No gain or loss will be recognized by Prime upon the
transfer of its assets to PA Prime in exchange for PA Prime Common Stock and the
assumption by PA Prime of the liabilities of Prime, pursuant to sections 361(a)
and 357(a) of the Code.
3. No gain or loss will be recognized by PA Prime on the
receipt of Prime's and First Sterling's assets in exchange for PA Prime Common
Stock, pursuant to Section 1032(a) of the Code.
4. The basis of the assets of Prime and First Sterling
received by PA Prime will, in each instance, be the same as the basis of those
assets to Prime and First Sterling,
<PAGE>
Board of Directors
December __, 1996
Page 4
respectively, immediately prior to the transaction, pursuant to Section 362(b)
of the Code.
5. The holding period of the assets of Prime and First
Sterling received by PA Prime will, in each instance, include the period for
which such assets were held by Prime and First Sterling, respectively, pursuant
to Section 1223(2) of the Code.
6. No gain or loss will be recognized by the stockholders of
Prime upon the receipt of PA Prime Common Stock solely in exchange for their
Prime Common Stock, pursuant to Section 354(a)(1) of the Code.
7. The basis of the PA Prime Common Stock received by the
stockholders of Prime will be the same as the basis of the shares of the Prime
Common Stock surrendered in exchange therefor, pursuant to Section 358(a)(1) of
the Code.
8. The holding period of the PA Prime Common Stock received by
the stockholders of Prime for their shares of Prime Common Stock will include
the period during which the Prime Common Stock surrendered therefor was held,
provided that such shares are held as a capital asset on the date of the
exchange, pursuant to Section 1223(1) of the Code.
9. No gain or loss will be recognized by the shareholders of
First Sterling upon the receipt of PA Prime Common Stock solely in exchange
for their First Sterling Common Stock, pursuant to Section 354(a)(1) of the
Code, except that a First Sterling shareholder who receives cash in lieu of
a fractional share of First Sterling Common Stock will be treated for federal
income tax purposes as having received cash in redemption of such fractional
share interest and will recognize gain or loss as a result thereof. Such
gain or loss will generally be capital gain or loss if the shareholder holds
such First Sterling Common Stock as a capital asset.
10. Pursuant to Section 381(a) of the Code, PA Prime will
succeed to and take into account as of the date of the proposed transfer (as
defined in Section 1.381(b)-1(b) of the Income Tax Regulations) the items of
Prime and First Sterling described in Section 381(c) of the Code, subject to the
conditions and limitations specified in Sections 381(b) and (c), 382, 383 and
384 of the Code.
Notwithstanding the assumption (for purposes of numbered
paragraphs 6, 7 and 8 above) that the Prime Common Stock (other than the Trust
Shares) would be considered stock or securities for federal income tax purposes,
we believe the Prime Common Stock should be considered stock or securities for
federal income tax purposes. However, if the Prime Common Stock were determined
not to be stock or securities for federal income tax purposes due to the
technical questions relating to the initial issuance of the Prime Common Stock
in 1988, then gain or loss
<PAGE>
Board of Directors
December __, 1996
Page 5
would be recognized by the stockholders of Prime upon the exchange of their
Prime Common Stock for PA Prime Common Stock in connection with the Merger. See
the discussion in the Registration Statement under the heading "The Merger --
Reasons for the Merger -- Prime."
Our opinions are based upon the Code, the applicable Treasury
Regulations promulgated thereunder, the present position of the Internal Revenue
Service as set forth in published revenue rulings and revenue procedures,
present administrative positions of the Internal Revenue Service, and existing
judicial decisions, all of which are subject to change either prospectively or
retroactively. Our opinions are not binding on the Internal Revenue Service or
the courts and all opinions and conclusions are subject to the normally
applicable review and audit procedures of the Internal Revenue Service.
Our opinions are conditioned upon the performance by Prime and
First Sterling of the undertakings in the Representation Letters. We assume no
obligation to advise you of any changes in law which may occur, whether the same
are retroactively or prospectively applied, or to update or supplement this
letter in any fashion to reflect any facts or circumstances which hereafter come
to our attention.
These opinions are being rendered to Prime, and may be relied
upon only by it, its stockholders and PA Prime. We consent to the use of these
opinions as an exhibit to the Registration Statement and to the reference to our
firm name in such Registration Statement as counsel which will pass upon certain
federal income tax matters relating to the Reorganization.
Very truly yours,
STRADLEY, RONON, STEVENS & YOUNG, LLP
By: ________________________________
Zachary P. Alexander, a Partner
EXHIBIT 8.2
December , 1996
Board of Directors
First Sterling Bancorp, Inc.
80 West Lancaster Avenue
Devon, PA 19333
RE: Reorganization of Prime Bancorp, Inc. and First
Sterling Bancorp, Inc.
Gentlemen:
In our capacity as counsel to First Sterling Bancorp, Inc., a Pennsylvania
corporation ("First Sterling"), you have requested our opinion as to certain
federal income tax consequences to First Sterling and its shareholders under the
Internal Revenue Code of 1986, as amended (the "Code"), of the reorganization
"Reorganization") of First Sterling pursuant to (i) an Agreement and Plan of
Reorganization dated June 12, 1996, as modified on September 12, 1996 (the
"Merger Agreement") by and among Prime Bancorp, Inc., a Delaware Corporation
("Prime"), Prime Newco, Inc., a Pennsylvania corporation ("PA Prime") and First
Sterling, (ii) an Agreement and Plan of Merger dated September 12, 1996 (the
"Prime Plan") by and between Prime and PA Prime, and (iii) an Agreement and
Plan of Merger dated December __, 1996 (the "First Sterling Plan") by and
between First Sterling and PA Prime.
Pursuant to the Merger Agreement, the Prime Plan and the First Sterling
Plan, Prime and First Sterling will each merge with and into PA Prime, with PA
Prime as the survivor (the "Merger"). Each outstanding share of the Prime common
stock, par value $1.00 per share (together with each Prime stockholder's
proportionate interest in 10 shares of common stock of Prime (the "Trust
Shares") which have been sold and issued by Prime to a trustee who holds those
shares under a Declaration of Trust for the proportionate benefit of the holders
of the Prime Common Stock as reflected on the official stock transfer records of
Prime, and for the sole purpose of validating the corporate transactions
involving Prime that are described herein) ("Prime Common Stock") will be
converted into one share of PA Prime common stock, par value $1.00 per share
("PA Prime Common Stock"), and each outstanding share of the First Sterling
common stock, par value $1.00 per share ("First Sterling
<PAGE>
Board of Directors
December , 1996
Page 2
Common Stock"), will be converted into one share of PA Prime Common Stock,
par value $1.00 per share and the right to receive a cash payment in lieu of
fractional shares.
In rendering our opinion, we have considered and relied upon (a) the Merger
Agreement, (b) the Prime Plan, (c) the First Sterling Plan, (d) the
Prospectus/Joint Proxy Statement filed by Prime and PA Prime with the Securities
and Exchange Commission on October ________, 1996 (the "Registration
Statement"), (e) certain representations concerning the Reorganization made to
us by First Sterling and Prime in letters dated _________, 1996 (the
"Representation Letters"), (f) all other documents, financial and other reports
and corporate minutes which we deemed relevant or appropriate, (g) the opinion
of the law firm of Stradley, Ronon, Stevens & Young, LLP to First Sterling of
even date herewith, and (h) such statutes, regulations, rulings and decisions as
we deem material to the rendition of this opinion.
Our review of items (a) through (h) of the preceding paragraph has been
without independent verification. We have also relied upon the truth,
authenticity, accuracy and completeness of all documents, certifications and
instruments examined and the statements, covenants, representations and
warranties contained therein, the genuineness of all documents submitted to us
as originals, the conformity of the originals of all documents submitted to us
as certified or photostatic copies and the due execution and delivery of all
documents where execution and delivery are prerequisites to the effectiveness
thereof.
In addition, you have directed us to assume for purposes of paragraph 1
only of this opinion that either (i) the Prime Common Stock (other than the
Trust Shares) is duly authorized, validly issued, fully paid and nonassessable
as a matter of Delaware corporate law, or (ii) that the holders of the Prime
Common Stock (other than the Trust Shares), by virtue of such holdings, possess
a proprietary interest in Prime (constituting the sole proprietary interest) of
such a nature that the Prime Common Stock (other than the Trust Shares) would be
considered stock or securities for federal income tax purposes.
Based on the foregoing and provided the Reorganization is carried out in
accordance with the applicable laws of the State of Delaware and the
Commonwealth of Pennsylvania, the Merger Agreement, the Prime Plan, the First
Sterling Plan, and the Representation Letters, it is our opinion that for
federal income tax purposes:
<PAGE>
Board of Directors
December , 1996
Page 3
1. The Reorganization will constitute a reorganization within the meaning
of Section 368(a) of the Code and Prime, First Sterling and PA Prime will each
be "a party to a reorganization" within the meaning of Section 368(b) of the
Code.
2. No gain or loss will be recognized by shareholders of First Sterling who
receive shares of PA Prime Stock in exchange for their shares of First Sterling
Common Stock upon the consummation of the Merger, pursuant to Section 354(a)(i)
of the Code, except that a First Sterling shareholder who receives cash in
lieu of a fractional share of First Sterling Common Stock will be treated for
federal income tax purposes as having received cash in redemption of such
fractional share interest and will recognize gain or loss as a result thereof.
Such gain or loss will generally be capital gain or loss if the shareholder
holds such First Sterling Common Stock as a capital asset.
3. The holding period of the PA Prime Common Stock received by the
shareholders of First Sterling for their shares of First Sterling Common Stock
will include the period during which the First Sterling Common Stock surrendered
therefor was held, provided that such shares are held as a capital asset on the
date of the exchange, pursuant to Section 1223(1) of the Code.
4. The basis of the PA Prime Common Stock received by the shareholders of
First Sterling for their shares of First Sterling Common Stock will be the same
as the basis of the shares of First Sterling Common Stock surrendered in
exchange therefor, pursuant to Section 358(a)(1) of the Code.
We express no opinion concerning tax matters relating to the Merger under
the federal income tax laws except on the basis of the documents and assumptions
described above. In issuing our opinions, we have referred solely to existing
provisions of the Code, existing and proposed regulations thereunder, and
current administrative rulings and court decisions. Such laws, regulations,
administrative rulings and court decisions are subject to change at any time.
Any such change could affect the validity of the opinions set forth above. We
undertake no responsibility to update or supplement our opinions.
Our opinions are conditioned upon the performance by Prime and First
Sterling of the undertakings in the Representation Letters.
<PAGE>
Board of Directors
December , 1996
Page 4
These opinions are being rendered to First Sterling, and may be relied upon
only by it and its shareholders. We consent to the use of these opinions as an
exhibit to the Registration Statement and to the reference to our firm name in
such Registration Statement as counsel which will pass upon certain federal
income tax matters relating to the Reorganization. In giving such consent, we do
not thereby admit that we are in the category of persons whose consent is
required under Section 7 of the Securities Act of 1933.
Very truly yours,
KANIA, LINDNER, LASAK AND FEENEY
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
PRIME BANCORP, INC.
PRIME BANK, A SAVINGS BANK
AND
WALTER L. TILLMAN, JR.
THIS AGREEMENT made as of September 25, 1996 is by and among PRIME
BANCORP, INC., a Delaware corporation ("Holding Company"), PRIME BANK, A SAVINGS
BANK, chartered under Pennsylvania law, with its main office located at 6425
Rising Sun Avenue, Philadelphia, Philadelphia County, Commonwealth of
Pennsylvania ("Prime Bank") and WALTER L. TILLMAN, JR. ("Executive"). As used in
this agreement the term "Company" shall refer both individually and collectively
to Prime Bank and the Holding Company.
Background
A. Company and Executive wish to enter into an employment agreement, to
supersede Executive's existing employment agreement, pursuant to which Company
wishes to secure the services of Executive as Executive Vice President for a
period of not less than two (2) years.
B. Executive is willing to enter into this Employment Agreement (this
"Agreement") for such period upon the terms and conditions herein set forth.
C. The Company's Board of Directors has approved this Agreement.
NOW THEREFORE, in consideration of the mutual promises and agreement
set forth herein, the parties agree as follows:
1. Employment.
1.1 Company shall employ Executive, and Executive shall serve, as
Executive Vice President of Prime Bank and/or Executive Vice President of
Holding Company during the "Term" defined in Section 2 of this Agreement.
Executive agrees to serve, as requested, as a member of a committee or
committees of the Board of Directors.
1.2 If at any time during the Term the Board of Directors shall fail
to reelect Executive as Executive Vice President of Company or shall remove him
from such office without cause, or if at any time during the Term Executive
shall fail to be vested by Employer with the powers and authority above,
Executive shall have the right, by written notice to
<PAGE>
Company satisfying the requirements of Section 6.7(c), to terminate his services
hereunder, and Executive shall have no further obligation under this Agreement.
Termination of Executive's services under this Section l shall be treated as a
termination of employment by Company other than for cause and shall be governed
by the provisions of Section 6.7(e) of this Agreement.
2. Term of Employment. The initial term of employment hereunder shall
be for a period commencing on the date of this Agreement and ending on December
3l, 1998. This Agreement shall be extended automatically for one additional year
on December 31 each year, unless either Company or Executive gives contrary
written notice to the other not less than 30 days nor more than 90 days in
advance of any date on which this Agreement would otherwise be extended.
References in this Agreement to the "Term" shall refer both to such initial term
and such successive one (1) year terms. The Term of this Agreement may be
changed by mutual written consent of Company and Executive.
3. Compensation. Company shall pay or cause to be paid to Executive
during the term of employment a base salary of not less than One Hundred Fifty
Thousand Dollars ($150,000.00) per annum, payable in biweekly installments
during each year of the Term. It is understood that Company may, in the
discretion of its Board of Directors, increase such base salary in light of
Executive's job duties and performance and such other factors as adjustment in
cost of living. In addition, Executive shall be entitled to participate in an
executive compensation plan based on performance standards determined by the
Board of Directors or a Committee thereof.
4. Employee Benefit Plans; Fringe Benefits.
4.1 In the event that the Executive terminates his employment for
"good reason," as defined in Section 6.7(a) of this Agreement, or in the event
of any "change in control" of the Company, as defined in Section 6.7(b) of this
Agreement, whether or not Executive terminates his employment, Executive shall
be entitled to exercise his option to purchase said option shares during a
period of 90 days following his termination of employment.
4.2 During the Term, executive shall be entitled to participate in
stock options, stock appreciation, stock purchases, pension, thrift, medical
coverage, education or other retirement or employee benefits, including without
limitation the Company's Employee Retirement Savings Plan and Incentive Stock
Option Plan, and any other plans that Company may adopt for the benefit of its
executive employees.
4.3 During the Term, the Company shall provide Executive with the
use of a new automobile, every two (2) years, which shall be generally in the
range of a $25,000 car.
5. Vacations. Executive shall be entitled to an annual paid vacation of
five (5) weeks per year or such longer period as the Board of Directors of
Company may
-2-
<PAGE>
approve. The timing of paid vacations shall be scheduled in a reasonable manner
by Executive. Executive shall not be entitled to receive any additional
compensation from Company on account of his failure to take a paid vacation.
Executive shall also not be entitled to accumulate unused paid vacation time
from one calendar year to the next, except with the approval of the Board of
Directors of Company.
6. Termination of Employment.
6.1 Company shall have the right, at any time upon prior written
Notice of Termination satisfying the requirements of Section 6.7(c) hereunder,
to terminate Executive's employment hereunder, including termination for cause.
For the purpose of this Agreement, termination for "cause" shall mean
termination for personal dishonesty, incompetence, willful misconduct, breach of
fiduciary duty involving personal profit, conviction of a felony, or willful
violation of any law, rule or regulation or final cease-and-desist order which
in the reasonable judgment of the Board of Directors of the Company will
probably cause substantial economic damages to the Company, willful or
intentional breach or neglect by Executive of his duties, or material breach of
any material provision of this Agreement. For purposes of this paragraph, no act
or failure to act on Executive's part shall be considered "willful" unless done,
or omitted to be done, by him not in good faith and without reasonable belief
that this action or omission was in the best interest of Company; provided that
any act or omission to act on Executive's behalf in reliance upon an opinion of
counsel to the Company or counsel to the Executive shall not be deemed to be
willful. The terms "incompetence" and "misconduct" shall be defined with
reference to standards generally prevailing in the banking industry. In
determining incompetence and misconduct, Company shall have the burden of proof
with regard to the acts or omission of Executive and the standards prevailing in
the banking industry.
6.2 In the event employment is terminated for cause pursuant to
section 6.1 hereof, Executive shall have no right to compensation or other
benefits for any period after such date of termination. If Executive is
terminated by Bank or Holding Company other than for cause pursuant to Section
6.1 hereof, Employee's right to compensation and other benefits under this
Agreement shall be as set forth in Section 6.7(e) hereof.
6.3 Executive shall have the right, upon prior written Notice of
Termination of not less than thirty (30) days satisfying the requirements of
Section 6.7(c) hereof, to terminate his employment hereunder, but in such event
Executive shall have no right after the date of termination to compensation or
other benefits as provided in this Agreement, unless such termination is for
"good reason", as defined pursuant to Section 6.7(a) hereof. If Executive
provides a Notice of Termination for "good reason", as defined pursuant to
Section 6.7(a) hereof, the date of termination shall be the date on which a
Notice of Termination is given.
6.4 If Executive is suspended from office and/or temporarily
prohibited from participating in the conduct of Company's affairs pursuant to
notice served by any
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<PAGE>
Regulatory Agency, Company's obligations under this Agreement shall be suspended
as of the date of service, unless stayed by appropriate proceedings. If the
charges in the notice are dismissed, Company shall: (i) pay Executive all the
compensation withheld while contract obligations were suspended, and
(ii) reinstate (in whole or in part) any of its obligations which were
suspended.
6.5 If Executive is removed from office and/or permanently
prohibited from participating in the conduct of Company's affairs by an order
issued by any Regulatory Agency, all obligations of Company under this Agreement
shall terminate as of the effective date of the order, but rights of the
Executive to compensation earned as of the date of termination shall not be
affected.
6.6 All obligations under this Agreement are subject to termination
by any Regulatory Agency in accordance with any applicable provisions of law or
regulations granting such authority, but rights of the Executive to compensation
earned as of the date of termination shall not be affected.
6.7(a) Executive may terminate his employment hereunder for "good
reason". For purposes of this Agreement, "good reason" shall mean (A) a failure
by Company to comply with any material provision of this Agreement, which
failure has not been cured within ten (l0) days after a notice of such
noncompliance has been given by Executive to Company; (B) subsequent to a
"change in control" of Company (as defined in Section 6.7(b) of this Agreement)
and without Executive's express written consent, any of the following shall
occur; (i) the assignment to Executive of any duties substantially inconsistent
with Executive's positions, duties, responsibilities, titles or offices as in
effect immediately prior to a change in control of Company, (ii) any removal of
Executive from, or any failure to re-elect Executive to, any of such positions,
except in connection with a termination of employment for cause, disability,
death, retirement or pursuant to Sections 6.1 or 6.5 hereof, (iii) a reduction
by Company in Executive's annual salary as in effect immediately prior to a
change in control or as the same may be increased from time to time, or (iv) the
failure of Company to continue in effect any bonus, benefit or compensation
plan, life insurance plan, health and accident plan or disability plan in which
Executive is participating at the time of a change in control of Company, or the
taking of any action by Company which would adversely affect Executive's
benefits under any of such plans; or (C) any purported termination of
Executive's employment which is not effected pursuant to a Notice of Termination
satisfying the requirements of paragraph 6.7(c) hereof (and for purposes of this
Agreement no such purported termination shall be effective).
(b) For purposes of this Agreement, a "change in control" of
Company shall mean a change in control of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated
under the Securities Exchange Act of 1934 (the "Exchange Act"), provided that,
without limitation, such a change in control shall be deemed to have occurred if
(A) any "persons" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act in effect on the date first written above), other than Company or
any "person" who on the date hereof is a director or
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<PAGE>
officer of Company, is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities of Company
representing 25% or more of the combined voting power of Company's then
outstanding securities, or (B) during any period of two consecutive years during
the term of this Agreement, individuals who at the beginning of such period
constitute the Board of Directors cease for any reason to constitute at least a
majority thereof, unless the election of each director who was not a director at
the beginning of such period has been approved in advance by directors
representing at least two-thirds of the directors then in office who were
directors at the beginning of the period. Notwithstanding the foregoing, a
business combination with First Sterling Bank or First Sterling Bancorp, Inc.
shall not be deemed a "change in control" for purposes of this Agreement.
(c) Any termination of Executive's employment by Company or by
Executive shall be communicated by written Notice of Termination to the other
party hereto. For purposes of this Agreement, a "Notice of Termination" shall
mean a dated notice which shall (A) indicate the specific termination provision
of this Agreement relied upon; (B) set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of Executive's
employment under the provision so indicated; (C) specify a date of termination,
which shall be not less than thirty (30) nor more than ninety (90) days after
such Notice of Termination is given, except in the case of Company's termination
of executive's employment for cause pursuant to Section 6.1 hereof, in which
case the Notice of Termination may specify a date of termination as early as the
date such Notice of Termination is given; and (D) be given in the manner
specified in Section 12 hereof.
(d) If Executive shall terminate his Employment for good reason
pursuant to subpart (B) of Section 6.7(a) hereof, then in lieu of any further
salary payments to Executive for periods subsequent to the date of termination,
Company shall pay as severance to Executive an amount equal to (A) the average
aggregate annual compensation paid to the Executive and includible in the
Executive's gross income for federal income tax purposes during the three
calendar years preceding the taxable year in which the date of termination
occurs (or such lesser amount of time if the Executive has not been employed by
Company for three years at the time of termination) by Company and any of its
subsidiaries subject to United States income tax, multiplied by (B) 2.00, such
payment to be made in a lump sum on or before the fifth day following the date
of termination; provided, however, that if the lump sum severance payment under
this Section 6.7(d), either along or together with other payments which the
Executive has the right to receive from the Company, would constitute a
"parachute payment" (as defined in Section 280G of the Internal Revenue Code of
1986, as amended [the "Code]), such lump sum severance payment shall be reduced
to the largest amount as will result in no portion of the lump sum severance
payment under this Section 6.7(d) being subject to the excise tax imposed by
Section 4999 of the Code. The determination of any reduction in the lump sum
severance payment under this Section 6.7(d) pursuant to the foregoing provision
shall be made by independent counsel to Company in consultation with the
independent certified public accountants of Company.
(e) If Executive shall terminate his employment for good reason
-5-
<PAGE>
as defined in subpart (A) or (C) of Section 6.7(a) hereof, or if Executive is
terminated by Company for other than cause, then in lieu of any further salary
payments to Executive for periods subsequent to the date of termination, Company
shall pay as severance to Executive an amount equal to the product of (A)
Executive's total annual compensation paid pursuant to Section 3 hereof, in
effect as of the date of termination (but not less than the total annual
compensation paid pursuant to Section 3 for the year prior to the year of
termination) multiplied by (B) the greater of the number of years (including
partial years) remaining in the term of employment hereunder or the number 2.00,
such payment to be made in substantially equal biweekly installments on the
normal pay date commencing with month in which the date of termination occurs
and continuing for the number of consecutive biweekly payment dates (including
the first such date aforesaid) equal to the product obtained by multiplying the
number of years (including partial years) applicable under (B) above by 26.
(f) Executive shall not be required to mitigate the amount of any
payment provided for in paragraph (d) or (e) of this Section 6.7 by seeking
other employment or otherwise. No amounts received by Executive in subsequent
employment shall reduce the amount of any payment provided for in paragraph (d)
or (e) of this Section 6.7.
6.8 If Company is in default, as defined to mean an adjudication or
other official determination of a court of competent jurisdiction or other
public authority pursuant to which a conservator, receiver or other legal
custodian is appointed for Company for the purpose of liquidation, all
obligations under this Agreement shall terminate as of the date of default, but
rights of the Executive to compensation earned as of the date of termination
shall not be affected.
6.9 As used in this Section 6, "Regulatory Agency" means a
governmental agency having regulatory or supervisory jurisdiction over Company.
7. Death and Disability.
7.1 Upon the death of Executive during the term hereof, all
compensation payments hereunder shall continue for a period of six (6) weeks
after the end of the week in which Executive's death shall occur, at which point
such payments shall cease and Company shall have no further obligations or
liabilities hereunder to Executive's estate or legal representative or
otherwise, except that Company shall pay to Executive's estate or legal
representation, based upon the portion of the calendar year that Executive was
employed by Company prior to his death, the prorated portion of any incentive
compensation Executive would have earned if he had remained in the employ of
Company for the full calendar year (payable at such time that Executive would
have received such incentive compensation).
7.2 If Executive becomes unable to perform his duties hereunder due
to partial or total disability or incapacity resulting from a mental or physical
illness, injury or any similar cause, Company will continue the payment of
Executive's compensation at his
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<PAGE>
then current rate for a period of six (6) weeks following the date Executive is
first unable to perform his duties due to such disability or incapacity.
Thereafter, Company shall have no obligation for base salary or other
compensation payments to Executive during the continuance of such disability or
incapacity, except that Company shall pay to Executive, based upon the portion
of the calendar year that Executive was able to perform his duties prior to the
disability, the pro rata portion of any incentive compensation that Executive
would have earned if he had remained in the employ of Company for the full
calendar year (payable at such time that Executive would have received such
Incentive Compensation). In the event of any dispute between the Executive and
the Company as to the Executive's entitlement to the continuation of
compensation pursuant to this Section, the matter shall be resolved by a
majority vote of a panel of physicians, one of whom shall be selected by the
Executive, one of whom shall be selected by the Company, and one of whom shall
be selected by the other two physicians. The physicians' fees and any other
costs associated with the resolution of said dispute shall be borne by the
Company.
8. Payment Obligations Absolute. Company's obligation to pay Executive
the compensation and other benefits provided herein shall be absolute and
unconditional and shall not be affected by any circumstances, including, without
limitation, any set-off counter claim, recoupment, defense or other right which
Company may have against Executive. All amounts payable by Company hereunder
shall be paid without notice or demand.
9. Continuing Obligations. Executive shall retain in confidence any
confidential information known to him concerning Company and its business so
long as such information is not publicly disclosed.
10. Reimbursement of Legal Fees. The Company shall pay all reasonable
costs, including attorneys' fees incurred by Executive if Executive is
successful (a) in seeking to obtain any amount or benefit granted pursuant to
this Agreement which the Executive in good faith shall believe the Company has
not paid or provided, or shall not be intending to pay or provide when due, or
(b) in seeking to enforce any obligation which the Executive in good faith shall
believe the Company has to the Executive under the Agreement. Such reasonable
cost and fees shall be paid by the Company whether or not the Executive shall
have commenced litigation or any other similar proceedings.
ll. Amendments. No amendments to this Agreement shall be binding unless
in writing and signed by both parties.
12. Notices. All notices under this Agreement shall be in writing and
shall be deemed effective (i) when delivered in person or by facsimile,
telecopier, telegraph or other electronic means capable of being embodied in
written form (in Company's case, to its Chief Executive Officer) or
(ii) forty-eight (48) hours after deposit thereof in the U. S. mails by
certified or registered mail, return receipt requested, postage prepaid,
addressed, in the case of Executive, to his last known address as carried on the
personnel records of Company and, in the case of Company, to the corporate
headquarters, attention of the Chief Executive
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<PAGE>
Officer, or to such other address as the party to be notified may specify by
notice to the other party.
13. Entire Agreement; Termination of Prior Agreement. This is the
entire agreement of the parties with respect to its subject matter. There are no
other oral understandings or agreements between the parties with respect to the
subject matter of this Agreement. Executive's prior employment agreement is
hereby terminated.
14. Assigns and Successors. The rights and obligations of Company under
this Agreement shall inure to the benefit of and shall be binding upon the
respective personal representatives, heir, successors and assigns of Company and
Executive.
15. Construction. This Agreement shall be construed under the laws of
the Commonwealth of Pennsylvania, as they may be preempted by federal laws and
regulations. Section headings are for convenience only and shall not be
considered a part of the terms and provisions of the Agreement.
IN WITNESS WHEREOF, the parties hereto have caused the due execution of
this Agreement as of the date first set forth above.
Attest: PRIME BANCORP, INC.
________________________ By:________________________
President
Attest: PRIME BANK, A SAVINGS BANK
_________________________ By: _______________________
Assistant Secretary
________________________ By:________________________
Witness Walter L. Tillman, Jr.
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EXHIBIT 10.4
ADDENDUM TO AGREEMENT DATED NOVEMBER 14, 1988
BETWEEN PRIME BANCORP., INC. (Holding Company),
PRIME BANK (Bank) and ERWIN T. STRAW (Executive)
It is mutually agreed as follows:
1. Effective as of January 29, 1996, Executive shall serve as Chairman of
the Board of the Holding Company and the Bank until January 29, 1997.
2. Executive shall be paid an annual salary of $200,000., shall be eligible
to participate in the Bank's 401 k plan, and incentive stock option plans,
medical coverage, and other benefits offered to senior employees of the Bank,
and Bank shall pay Executive's dues in Manufacturers Country Club and the Union
League, and transfer to Executive title to the present automobile provided for
his use at the end of the term of his employment.
3. Executive recognizes that the pending merger with First Sterling Bank
will not trigger the provisions of Paragraph 7 of the Agreement of
November 14, 1988.
4. Executive agrees to continue to serve as Chairman of the Board of the
Holding Company and the Bank at an annual remuneration of $50,000, if elected by
the Board of Directors following future annual shareholders meetings.
5. Upon completion of this term of employment, Executive expresses his
willingness to serve the Bank in such future capacity as may be requested by the
President and Chief Executive Officer of the Bank, upon such terms and
conditions, for such period and for such compensation as may be agreed upon from
time to time by Executive and the said President and Chief Executive Officer of
the Bank.
6. Any provisions or conditions of the said Employment Agreement dated
November 14, 1988 inconsistent with the provisions of this agreement are
canceled and null and void.
PRIME BANCORP, INC.
By \s\ James J. Lynch
-------------------------
President
PRIME BANK
By \s\ James J. Lynch
-------------------------
President
\s\ Erwin T. Straw
-------------------------
Erwin T. Straw
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
PRIME BANCORP, INC.
AND
WILLIAM H. BROMLEY
THIS AGREEMENT, made as of June 12, 1996 is by and among PRIME BANCORP,
INC., a Delaware Corporation ("Holding Company"), PRIME BANK, a savings bank, a
Pennsylvania stock saving bank, with its main office located at 6425 Rising Sun
Avenue, Philadelphia, Philadelphia County, Commonwealth of Pennsylvania ("Prime
Bank") and WILLIAM H. BROMLEY ("Executive"). As used in this agreement the term
"Company" shall refer both individually and collectively to Prime Bank and the
Holding Company.
Background
A. Company and Executive wish to enter into an employment agreement
pursuant to which Company wishes to secure the services of Executive as
Executive Vice President for a period of not less than three (3) years.
B. Executive is willing to enter into this Employment Agreement (this
"Agreement") for such period upon the terms and conditions herein set forth.
C. The Company's Board of Directors has approved this Agreement.
NOW THEREFORE, in consideration of the mutual promises and agreement set
forth herein, the parties agree as follows:
1. Employment.
1.1 Company shall employ Executive, and Executive shall serve, as
President of First Sterling Bank and/or Executive Vice President of Company
during the "Term" defined in Section 2 of this Agreement. Executive agrees to
serve, as requested, as a member of a committee or committees of the Board of
Directors.
1.2 If at any time during the Term the Board of Directors shall fail
to reelect Executive as Executive Vice President of Company or shall remove him
from such office without
<PAGE>
2
cause, or if at any time during the Term Executive shall fail to be vested by
Employer with the powers and authority above, Executive shall have the right, by
written notice to Company satisfying the requirements of Section 6.7(c), to
terminate his services hereunder, and Executive shall have no further obligation
under this Agreement. Termination of Executive's services under this Section 1
shall be treated as a termination of employment by Company other than for cause
and shall be governed by the provisions of Section 6.7(e) of this Agreement.
2. Term of Employment. The initial term of employment hereunder shall be
for a period of three years commencing on January 1, 1997 and ending on December
31, 1999. This Agreement shall be extended automatically for one additional year
on each anniversary of the date of commencement of the Term, unless either
Company or Executive gives contrary written notice to the other not less than 30
days nor more than 90 days in advance of any anniversary date on which this
Agreement would otherwise be extended. References in this Agreement to the
"Term" shall refer both to such initial term and such successive terms. The Term
of this Agreement may be changed by mutual written consent of Company and
Executive.
3. Compensation. Company shall pay or cause to be paid to Executive
during the term of employment a base salary of not less than Two Hundred
Thousand Dollars ($200,000) per annum, payable in biweekly installments during
each year of the Term. It is understood that Company may, in the discretion of
its Board of Directors, increase such base salary in light of Executive's job
duties and performance and such other factors as adjustment in cost of living.
Executive shall be entitled to a non-discretionary bonus-incentive of $50,000
for the fiscal year 1997, which shall be payable on or before December 31, 1997.
In addition, Executive shall be entitled to participate in an executive
compensation plan based on performance standards determined by the Board of
Directors
<PAGE>
3
or a Committee thereof.
4. Employee Benefit Plans; Fringe Benefits.
4.1 (a) Executive shall be entitled to participate in the Company's
Incentive Stock Option Plan (the "Plan") and on the effective Date of the
Agreement Executive shall be granted the following options to purchase
authorized but unissued common stock under the Plan, exercisable on the dates so
indicated so long as the Agreement remains in effect:
Option Expiration
No. of Shares Exercise Price Date
- ------------- -------------- -----------------
16,500 shares exercisable
on or after effective date
of this Employment Agreement * April 1, 2000
8,250 shares exercisable
on or after January 15, 1998 * April 1, 2000
8,250 shares exercisable
on or after January 15, 1999 * April 1, 2000
* The purchase price at which the options granted hereunder may be exercised
shall be the closing price of the Company's common stock as reported on the
NASDAQ National Market System on the date of the consummation of the Merger
Agreement between the Company and First Sterling Bancorp.
Executive shall be entitled from time to time, to such additional option
grants as may be determined by the Board of Directors of the Company or the
appropriate authorized Committee of the Board.
(b) In the event that the Executive terminates his employment for
"good reason," as defined in Section 6.7(a) of this Agreement, or in the event
Executive is terminated by Company for other than cause, or in the event of any
"change in control" of the Company, as defined in Section 6.7(b) of this
Agreement, whether or not Executive terminates his employment, Executive shall
be entitled to exercise his option to purchase all unexercised option shares,
whether or not accrued, during a period of 90 days following such termination of
employment or event of "change of control".
4.2 During the Term, executive shall be entitled to participate in
stock options, stock appreciation, stock purchases, pension, thrift, medical
coverage, education or other retirement or
<PAGE>
4
employee benefits, including without limitation the Company's Employee
Retirement Savings Plan and Incentive Stock Option Plan, and any other plans
that Company may adopt for the benefit of its executive employees.
4.3 During the Term, Company shall reimburse Executive for reasonable
expenses incurred by him in the performance of his duties, the payment of
reasonable expenses for attending annual and periodic meetings of trade
association, and any other benefits which are commensurate with the duties and
responsibilities to be performed by Executive under this Agreement.
4.4 During the Term, the Company shall provide Executive with the use
of a new automobile, every two (2) years, which shall be generally in the range
of a $35,000 car.
4.5 During the Term, the Company shall pay Executive's club dues and
fees at Aronimink Country Club, or such other club as may be selected by
Executive.
4.6 During the Term, the Company shall maintain term life insurance on
Executive's life in an amount not less than one and one-half times his base
salary as provided in Section 3 hereof.
4.7 Executive shall be entitled to participate in any other fringe
benefits which may be or become applicable to Company's executive employees.
5. Vacations.
Executive shall be entitled to an annual paid vacation of four (4)
weeks per year or such longer period as the Board of Directors of Company may
approve. The timing of paid vacations shall be scheduled in a reasonable manner
by Executive. Executive shall not be entitled to receive any additional
compensation from
<PAGE>
5
Company on account of his failure to take a paid vacation. Executive shall also
not be entitled to accumulate unused paid vacation time from one calendar year
to the next, except with the approval of the Board of Directors of Company.
6. Termination of Employment.
6.1 Company shall have the right, at any time upon prior written
Notice of Termination satisfying the requirements of Section 6.7(c) hereunder,
to terminate Executive's employment hereunder, including termination for cause.
For the purpose of this Agreement, termination for "cause" shall mean
termination for personal dishonesty, incompetence, willful misconduct, breach of
fiduciary duty involving personal profit, conviction of a felony, or willful
violation of any law, rule or regulation or final cease-and-desist order which
in the reasonable judgment of the Board of Directors of the Company will
probably cause substantial economic damages to the Company, willful or
intentional breach or neglect by Executive of his duties, or material breach of
any material provision of this Agreement. For purposes of this paragraph, no
act, or failure to act on Executive's part shall be considered "willful" unless
done, or omitted to be done, by him not in good faith and without reasonable
belief that this action or omission was in the best interest of Company;
provided that any act or omission to act on Executive's behalf in reliance upon
an opinion of counsel to the Company or counsel to the Executive shall not be
deemed to be willful. The terms "incompetence" and "misconduct" shall be defined
with reference to standards generally prevailing in the banking industry. In
determining incompetence and misconduct, Company shall have the burden of proof
with regard to the acts or omission of Executive and the standards prevailing in
the banking industry.
6.2 In the event employment is terminated for cause pursuant to
Section 6.1 hereof, Executive shall have no right to
<PAGE>
6
compensation or other benefits for any period after such date of termination. If
Executive is terminated by Bank or Holding Company other than for cause pursuant
to Section 6.1 hereof, Employee's right to compensation and other benefits under
this Agreement shall be as set forth in Sections 6.7 hereof.
6.3 Executive shall have the right, upon prior written Notice of
Termination of not less than thirty (30) days satisfying the requirements of
Section 6.7(c) hereof, to terminate his employment hereunder, but in such event
Executive shall have no right after the date of termination to compensation or
other benefits as provided in this Agreement, unless such termination is for
"good reason", as defined pursuant to Section 6.7(a) hereof. If Executive
provides a Notice of Termination for "good reason", as defined pursuant to
Section 6.7(a) hereof, the date of termination shall be the date on which a
Notice of Termination is given.
6.4 If Executive is suspended from office and/or temporarily
prohibited from participating in the conduct of Company's affairs pursuant to
notice served by any Regulatory Agency, Company's obligations under this
Agreement shall be suspended as of the date of service, unless stayed by
appropriate proceedings. If the charges in the notice are dismissed, Company
shall: (i) pay Executive all the compensation withheld while contract
obligations were suspended, and (ii) reinstate (in whole or in part) any of its
obligations which were suspended.
6.5 If Executive is removed from office and/or permanently prohibited
from participating in the conduct of Company's affairs by an order issued by any
Regulatory Agency, all obligations of Company under this Agreement shall
terminate as of the effective date of the order, but rights of the Executive to
compensation earned as of the date of termination shall not be affected.
<PAGE>
7
6.6 All obligations under this Agreement are subject to termination by
any Regulatory Agency in accordance with any applicable provisions of law or
regulations granting such authority, but rights of the Executive to compensation
earned as of the date of termination shall not be affected.
6.7(a) Executive may terminate his employment hereunder for "good
reason". For purposes of this Agreement, "good reason" shall mean (A) a failure
by Company to comply with any material provision of this Agreement, which
failure has not been cured within ten (10) days after a notice of such
noncompliance has been given by Executive to Company; (B) subsequent to a
"change in control" of Company (as defined in Section 6.7(b) of this Agreement)
and without Executive's express written consent, any of the following shall
occur; (i) the assignment to Executive of any duties substantially inconsistent
with Executive's positions, duties, responsibilities, titles or offices as in
effect immediately prior to a change in control of Company, (ii) any removal of
Executive from, or any failure to re-elect Executive to, any of such positions,
except in connection with a termination of employment for cause, disability,
death, retirement or pursuant to Sections 6.1 or 6.5 hereof, (iii) a reduction
by Company in Executive's annual salary as in effect immediately prior to a
change in control or as the same may be increased from time to time, or the
failure to grant increases in the Executive's base salary on a basis at least
substantially comparable to those granted to other senior executives of the
Company, or (iv) the failure of Company to continue in effect any bonus, benefit
or compensation plan, life insurance plan, health and accident plan or
disability plan in which Executive is participating at the time of a change in
control of Company, or the taking of any action by Company which would adversely
affect Executive's benefits under any of such plans; or (C) any purported
termination of Executive's employment which is not effected pursuant to a Notice
of Termination satisfying the requirements of paragraph 6.7(c) hereof
<PAGE>
8
(and for purposes of this Agreement no such purported termination shall be
effective).
(b) for purposes of this Agreement, a "change in control" of Company
shall mean a change in control of a nature that would be required to be reported
in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Securities Exchange Act of 1934 (the "Exchange Act"), provided that, without
limitation, such a change in control shall be deemed to have occurred if (A) any
"persons" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act
in effect on the date first written above), other than Company or any "person"
who on the date hereof is a director or officer of Company, is or becomes the
"beneficial owner" (as defined in Rule 13(d)-3 under the Exchange Act), directly
or indirectly, of securities of Company representing 25% or more of the combined
voting power of Company's then outstanding securities, or (B) during any period
of two consecutive years during the term of this Agreement, individuals who at
the beginning of such period constitute the Board of Directors cease for any
reason to constitute at least a majority thereof, unless the election of each
director who was not a director at the beginning of such period has been
approved in advance by directors representing at least two-thirds of the
directors then in office who were directors at the beginning of the period.
(c) Any termination of Executive's employment by Company or by
Executive shall be communicated by written Notice of Termination to the other
party hereto. For purposes of this Agreement, a "Notice of Termination" shall
mean a dated notice which shall (A) indicate the specific termination provision
this Agreement relied upon; (B) set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of Executive's
employment under the provision so indicated; (C) specify a date of termination,
which shall be not less than thirty (30) nor more than ninety (90) days after
such Notice of
<PAGE>
9
Termination is given, except in the case of Company's termination of executive's
employment for cause pursuant to Section 6.1 hereof, in which case the Notice of
Termination may specify a date of termination as of the date such Notice of
Termination is given; and (D) be given in the manner specified in Section 12
hereof.
(d) If Executive shall terminate his Employment for good reason
pursuant to subpart (B) of Section 6.7(a) hereof, then in lieu of any further
salary payments to Executive for periods subsequent to the date of termination,
Company shall pay as severance to Executive an amount equal to (A) the average
aggregate annual compensation paid to the Executive and includible in the
Executive's gross income for federal income tax purposes during the three
calendar years preceding the taxable year in which the date of termination
occurs (or such lesser amount of time if the Executive has not been employed by
Company for three years at the time of termination) by Company and any of its
subsidiaries subject to United States income tax, multiplied by (B) 2.00, such
payment to be made in a lump sum on or before the fifth day following the date
of termination; provided, however, that if the lump sum severance payment under
this Section 6.7(d), either along or together with other payments which the
Executive has the right to receive from the Company, would constitute a
"parachute payment" (as defined in Section 280G of the Internal Revenue Code of
1986, as amended [the "Code]), such lump sum severance payment shall be reduced
to the largest amount as will result in no portion of the lump sum severance
payment under this Section 6.7(d) being subject to the excise tax imposed by
Section 4999 of the Code. The determination of any reduction in the lump sum
severance payment under this Section 6.7(d) pursuant to the foregoing provision
shall be made by independent counsel to Company in consultation with the
independent certified public accountants of Company.
(e) If Executive shall terminate his employment for good reason as
defined in subpart (A) or (C) of Section 6.7(a) hereof or
<PAGE>
10
if Executive is terminated by Company for other than cause pursuant to Section
6.1 hereof, then in lieu of any further salary payments to Executive for periods
subsequent to the date of termination, Company shall pay as severance to
Executive an amount equal to the product of (A) Executive's total annual
compensation paid pursuant to Section 3 hereof, in effect as of the date of
termination (but not less than the total annual compensation paid pursuant to
Section 3 for the year prior to the year of termination) multiplied by (B) the
greater of the number of years (including partial years) remaining in the term
of employment hereunder or the number 1.50, such payment to be made in
substantially equal biweekly installments on the normal pay date commencing with
month in which the date of termination occurs and continuing for the number of
consecutive biweekly payment dates (including the first such date aforesaid)
equal to the product obtained by multiplying the number of years (including
partial years) applicable under (B) above by 26.
(f) Executive shall not be required to mitigate the amount of any
payment provided for in paragraph (d) or (e) of this Section 6.7 by seeking
other employment or otherwise. No amounts received by Executive in subsequent
employment shall reduce the amount of any payment provided for in paragraph (d)
or (e) of this Section 6.7.
6.8 If Company is in default, as defined to mean an adjudication or
other official determination of a court of competent jurisdiction or other
public authority pursuant to which a conservator, receiver or other legal
custodian is appointed for Company for the purpose of liquidation, all
obligations under this Agreement shall terminate as of the date of default, but
rights of the Executive to compensation earned as of the date of termination
shall not be affected.
6.9 As used in this Section 6, "Regulatory Agency" means
<PAGE>
11
a governmental agency having regulatory or supervisory jurisdiction over
Company.
7. Death and Disability.
7.1 Upon the death of Executive during the term hereof, all
compensation payments hereunder shall continue for a period of six (6) weeks
after the end of the week in which Executive's death shall occur, at which point
such payments shall cease and Company shall have no further obligations or
liabilities hereunder to Executive's estate or legal representative or
otherwise, except that Company shall pay to Executive's estate or legal
representation, based upon the portion of the calendar year that Executive was
employed by Company prior to his death, the prorated portion of Incentive
Compensation Executive would have earned if he had remained in the employ of
Company for the full calendar year (payable at such time that Executive would
have received such Incentive Compensation).
7.2 If Executive becomes unable to perform his duties hereunder due to
partial or total disability or incapacity resulting from a mental or physical
illness, injury or any similar cause, Company will continue the payment of
Executive's compensation at his then current rate for a period of six (6) weeks
following the date Executive is first unable to perform his duties due to such
disability or incapacity. Thereafter, Company shall have no obligation for the
Base Salary or other compensation payments to Executive during the continuance
of such disability or incapacity, except that Company shall pay to Executive,
based upon the portion of the calendar year that Executive was able to perform
his duties prior to the disability, the pro rata portion of Incentive
Compensation that Executive would have earned if he had remained in the employ
of Company for the full calendar year (payable at such time that Executive would
have received such Incentive Compensation). In the event of any dispute between
the Executive and the Company as to the Executive's entitlement to the
<PAGE>
12
continuation of compensation pursuant to this Section, the matter shall be
resolved by a majority vote of a panel of physicians, one of whom shall be
selected by the Executive, one of whom shall be selected by the Company, and one
of whom shall be selected by the other two physicians. The physicians' fees and
any other costs associated with the resolution of said dispute shall be borne by
the Company.
8. Payment Obligations Absolute.
Company's obligation to pay Executive the compensation and other
benefits provided herein shall be absolute and unconditional and shall not be
affected by any circumstances, including, without limitation, any set-off
counter claim, recoupment, defense or other right which Company may have against
Executive. All amounts payable by Company hereunder shall be paid without notice
or demand.
9. Continuing Obligations.
Executive shall retain in confidence any confidential information
known to him concerning Company and its business so long as such information is
not publicly disclosed.
10. Reimbursement of Legal Fees.
The Company shall pay all reasonable costs, including attorneys' fees
incurred by Executive (a) in seeking to obtain any amount or benefit granted
pursuant to this Agreement which the Executive in good faith shall believe the
Company has not paid or provided, or shall not be intending to pay or provide
when due, or (b) in seeking to enforce any obligation which the Executive in
good faith shall believe the Company has to the Executive under the Agreement,
or (c) in interpreting or negotiating the terms of this Agreement. Such
reasonable cost and fees shall be paid by the Company whether or not the
Executive shall have commenced litigation or any other similar proceedings.
<PAGE>
13
11. Amendments.
No amendments to this Agreement shall be binding unless in writing and
signed by both parties.
12. Notices.
All notices under this Agreement shall be in writing and shall be
deemed effective (i) when delivered in person or by facsimile, telecopier,
telegraph or other electronic means capable of being embodied in written form
(in Company's case, to its Secretary) or (ii) forty-eight (48) hours after
deposit thereof in the U. S. mails by certified or registered mail, return
receipt requested, postage prepaid, addressed, in the case of Executive, to his
last known address as carried on the personnel records of Company and, in the
case of Company, to the corporate headquarters, attention of the Secretary, or
to such other address as the party to be notified may specify by notice to the
other party.
13. Entire Agreement.
This is the entire agreement of the parties with respect to its
subject matter. There are no other oral understandings or agreements between the
parties with respect to the subject matter of this Agreement.
14. Assigns and Successors.
The rights and obligations of Company under this Agreement shall inure
to the benefit of and shall be binding upon the successors and assigns of
Company and Executive.
15. Construction.
This Agreement shall be construed under the laws of the Commonwealth
of Pennsylvania, as they may be preempted by federal laws and regulations.
Section headings are for convenience only and shall not be considered a part of
the terms and provisions of the Agreement.
<PAGE>
14
16. Conditional Upon Merger.
The parties hereto, Holding Company, Prime Bank and Executive
acknowledge and agree that the above agreement has been executed and delivered
subject to the consummation of an Agreement of Merger by and between Holding
Company and First Sterling Bancorp and shall become effective only upon
consummation of such merger. If such merger is not consummated, this agreement
shall be null and void and of no effect.
IN WITNESS WHEREOF, the parties hereto have caused the due execution
of this Agreement as of the date first set forth above.
Attest: PRIME BANCORP, INC.
By:
- ------------------------- -------------------------
President
Attest: PRIME BANK
By:
- ------------------------- -------------------------
Assistant Secretary President
- ------------------------- -------------------------
Witness William H. Bromley
EXHBIT 10.6
FIRST STERLING BANCORP, INC.
1988 NON-QUALIFIED STOCK OPTION PLAN
Purpose of Plan
The First Sterling Bancorp., Inc. 1988 Non-Qualified Stock Option Plan (the
"Plan"), is intended to provide a method whereby certain directors and
executives of First Sterling Bancorp, Inc. (the "Corporation") and its
subsidiaries who are largely responsible for the foundation, management, growth
and success of the Corporation, may be encouraged to acquire or increase stock
ownership in the Corporation, thus increasing their proprietary interest in the
business of the Corporation, and promoting the interests of the Corporation and
all its stockholders. Accordingly, the Corporation will from time to time during
the term of the Plan grant to such persons so selected, options to purchase
shares of common stock ("Common Stock") of the Corporation, subject to the
conditions hereinafter provided.
Eligibility
Stock option grants under the Plan may be made only to executives or
directors of the Corporation or of its subsidiaries. The term "subsidiary" shall
mean any corporation, now existing, hereafter organized or hereafter acquired,
in an unbroken chain running down from the parent company where each corporation
other than the last in the chain owns stock possessing fifty percent (50%) or
more of the total combined voting power of all classes of stock in one of the
other corporations in the chain.
Administration
Within the limits of the Plan, the Board of Directors shall have full
authority and discretion (i) to determine the time or times of granting stock
options; (ii) to select the individuals eligible for Plan participation
(hereinafter called "Participants"); (iii) to determine the number of shares
subject to each option; (iv) to determine the date or dates when the options
will be granted; (v) to determine the Fair Market Value of the shares subject to
each option; (vi) to determine the date or dates or other method of vesting to
fix the time when each option may be exercised within the term of the option
specified in the grant of that option; and (vii) to prescribe the form, which
shall be consistent with the Plan, of the instruments and agreements evidencing
any options granted under the Plan. The Board of Directors shall also have full
power and authority to construe and interpret the Plan and adopt such
administrative guidelines necessary for the Plan's operation. It may take action
either by vote of its members in a duly assembled meeting, by a telephone
conference call or by an instrument in writing signed by all members without a
meeting. Members of the Board of Directors shall not be liable for any act or
omission in their capacities as such members, except for bad faith or gross
negligence.
<PAGE>
Stock Option Grants
Stock options granted under the Plan shall consist of non-qualified stock
options. The Board of Directors shall determine the form, and time, of option
grants for each Participant.
The option price per share for each stock option shall not be less than
100% of Fair Market Value of the Corporation's Common Stock on the date the
option is granted. The Board of Directors shall determine Fair Market Value by
taking into account the most recent sales price for the Corporation's Common
Stock. The Board of Directors shall be responsible for determining the exact
price of stock options.
Stock options may be exercised in whole or in such parts as may be
specified from time to time by the Board of Directors. It may specify conditions
to the exercise of options, other than the passage of time, if the Board deems
such conditions appropriate under the circumstances. In all cases, exercise of a
stock option shall be subject to the following provisions:
--In the event a Participant is an employee and the Participant's
termination of employment is due to a cause other than death or retirement, all
unexercisable stock options shall expire. Vested stock options shall remain
exercisable for a period of three months following a Participant's termination
date, unless Participant is terminated for cause, in which case all options
shall be cancelled and terminated.
--In the event a Participant is an employee and the Participant's
termination is due to death or retirement, all unvested stock options shall
expire. Vested stock options remain exercisable for a period of 12 months
following the Participant's termination date, unless Participant is terminated
for cause, in which case all options shall be cancelled and terminated.
--In the event a Participant is an employee and the Participant's
termination is due to death or retirement, all unvested stock options shall
expire. Vested stock options remain exercisable for a period of 12 months
following the Participant's death or retirement. However, no stock option shall,
in any event, be exercised after the expiration of 10 years from the date such
option is granted, or such earlier date as may be specified in the option.
--All shares acquired through the Plan shall be paid for in full at the
time of option exercise, in cash.
--An option shall not be transferrable by the Plan Participant except by
will or by the laws of descent and distribution and shall be exercisable during
the Plan Participant's lifetime only by the Plan Participant.
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<PAGE>
--In the event of any change in the corporate structure of shares of the
Corporation (for example, a reorganization, stock split, recapitalization, stock
dividend, merger, and/or consolidation), the Board of Directors shall make any
adjustments in the Plan deemed necessary to preserve the Plan's basic intent.
Allotment of Shares
As approved by the shareholders, a maximum of 100,000 authorized but
unissued shares of Common Stock of the Corporation shall be allotted to the
Plan. Shares covered by options which are not exercised or have been terminated
during the duration of this Plan may be reallocated by the Board of Directors.
The Board may, in its discretion, issue Treasury shares in lieu of authorized
but unissued shares; however, if Treasury shares are issued, the number of
authorized but unissued shares allotted to the Plan will be reduced.
Effective Date of Plan
The Plan will be effective for the year ending December 31, 1988.
Choice of Law
The Plan shall be administered according to the laws of the Commonwealth of
Pennsylvania.
Rights of Employment
Nothing in the Plan will confer upon any Participant any right to continue
in the Corporation's employ or shall restrict the Corporation's rights to
terminate the employment of any Participant.
Amendment, Suspension or Termination of Plan
The Board of Directors of the Corporation may, at any time, suspend or
terminate the Plan. The Board may also, from time to time, amend the Plan in
such respects as it may deem advisable in order that the payment of awards made
hereunder may conform to any change in law or in other respects which the Board
deems to be in the best interest of the Corporation. No such amendment, without
the approval of the stockholders, shall change the class of persons eligible for
stock option grants or increase the number of shares available under the Plan.
No amendment shall adversely affect any right of any Participant, or his or her
successors in interest, under the terms of any award hereunder prior to the
effective date of the amendment without the consent of such Participant.
-3-
<PAGE>
Modification, Extension and Renewal of Options
Subject to the terms and conditions and within the limitations of the
Plan, the Board of Directors may modify, extend or renew outstanding options
granted under the Plan or accept the surrender of outstanding options (to the
extent not theretofore exercised) and authorize the granting of new options in
substitution therefor. Without limiting the generality of the foregoing, the
Board of Directors may grant to an optionholder, if he or she is otherwise
eligible and consents thereto, a new or modified option in lieu of an
outstanding option for a number of shares, at an exercise price and for a term
which are greater or lesser than under the earlier option, or may do so by
cancellation and regrant, amendment, substitution or otherwise, subject only to
the general limitations and conditions of the Plan. The foregoing
notwithstanding, no modification of an option shall, without the consent of the
optionholder, alter or impair any rights or obligations under any option
theretofore granted under the Plan.
Period in Which Options May Be Granted
Options may be granted pursuant to the Plan at anytime on or before
January 1, 1992.
Restrictions on Common Stock Issued Under Plan
The Corporation may plan upon any stock certificate for shares issuable
upon exercise of such option the following legend or such other legend as the
Board of Directors may prescribe to pretend disposition of the shares in
violation of the Securities Act of 1933 or other applicable law or agreements:
"This certificate, and the shares evidenced thereby, are held subject to
the terms, covenants and conditions of a subscription agreement and the First
Sterling Bancorp, Inc. 1988 Non-Qualified Stock Option Plan, copies of which are
on file and may be inspected at the offices of the Corporation.
-4-
Exhibit 10.7
OFFICE BUILDING LEASE
1. PARTIES. This Lease, dated, for reference purposes only, December 7, 1995, is
made by and between Dominion Properties, L.P., a Pennsylvania Limited
Partnership (herein called "Landlord") and The First Sterling Bank, a
Pennsylvania Corporation (herein called "Tenant").
2. PREMISES. Landlord does hereby lease to Tenant and Tenant hereby leases from
Landlord that certain office space (herein called "Premises" indicated on
Exhibit "A" attached hereto and hereby reference thereto made a part hereof,
said Premises being agreed, for the purpose of this Lease, to have an area of
approximately 23,164 square feet and being situated on the 1st and 4th floor of
that certain Building known as The First Sterling Bank Building, Devon,
Pennsylvania.
Said Lease is subject to the terms, covenants and conditions herein set
forth and the Tenant covenants as a material part of the consideration for this
Lease to keep and perform each and all of said terms, covenants and conditions
by it to be kept and performed and that this Lease is made upon the condition of
said performance.
3. TERM. The term of this Lease shall be for 10 years, commencing on the
1st day of January, 1996, and ending on the 31st day of December, 2005.
4. POSSESSION.
4.a. If the Landlord, for any reason whatsoever, cannot deliver
possession of the said Premises to the Tenant at the commencement of the term
hereof, this lease shall not be void or voidable, nor shall Landlord be liable
to Tenant for any loss or damage resulting therefrom, nor shall the expiration
date of the above term be in any way extended, but in that event, all rent shall
be abated during the period between the commencement of said term and the time
when Landlord delivers possession.
4.b. In the event that Landlord shall permit Tenant to occupy the
Premises prior to the commencement date of the term, such occupancy shall be
subject to all the provisions of this Lease. Said early possession shall not
advance the termination date hereinabove provided.
<PAGE>
5. RENT. Tenant agrees to pay to Landlord as rental, without prior notice
or demand, for the Premises the sum of:
See Addendum, Paragraph 5 Rent ($________) Dollars, on or before the
first day of the first full calendar month of the term hereof and a like
sum on or before the first day of each and every successive calendar month
thereafter during the term hereof, except that the first month's rent shall be
paid upon the execution hereof. Rent for any period during the term hereof which
is for less than one (1) month shall be a prorated portion of the monthly
installment herein, based upon a thirty (30) day month. Said rental shall be
paid to Landlord, without deduction or offset in lawful money of the United
States of America, which shall be legal tender at the time of payment at the
Office of the Building, or to such other person or at such other place as
Landlord may from time to time designate in writing.
6. [Intentionally Omitted]
7. [Intentionally Omitted]
8. USE. Tenant shall use the Premises for general office purposes and
shall not use or permit the Premises to be used for any other purpose without
the prior written consent of Landlord.
Tenant shall not do or permit anything to be done in or about the
Premises nor bring or keep anything therein which will in any way increase the
existing rate of or affect any fire or other insurance upon the Building or any
of its contents, or cause cancellation of any insurance policy covering said
Building or any part thereof or any of its contents. Tenant shall not do or
permit anything to be done in or about the Premises which will in any way
obstruct or interfere with the rights of other tenants or occupants of the
Building or injure or annoy them or use or allow the Premises to be used for any
improper, immoral, unlawful or objectionable purpose, nor shall Tenant cause,
maintain or permit any nuisance in, on or about the Premises. Tenant shall not
commit or suffer to be committed any waste in or upon the Premises.
9. COMPLIANCE WITH LAW. Tenant shall not use the Premises or permit anything to
be done in or about the Premises which will in any way conflict with any law,
statute, ordinance or governmental rule or regulation now in force or which may
hereinafter be enacted or promulgated. Tenant shall, at its sole cost and
expense, promptly comply with all laws, statutes, ordinances and governmental
rules, regulations or requirements now in force or which may hereafter be in
force, and with the requirements of any board of fire insurance underwriters or
other similar bodies now or hereafter constituted, relating to, or affecting the
condition, use or occupancy of the Premises, excluding structural changes not
related to or affected by Tenant's improvements or
-2-
<PAGE>
acts. The judgment of any court of competent jurisdiction or the admission of
Tenant in any action against Tenant, whether Landlord be a party thereto or not,
that Tenant has violated any law, statute, ordinance or governmental rule,
regulation or requirement, shall be conclusive of that fact as between the
Landlord and Tenant.
10. ALTERATIONS AND ADDITIONS. Tenant shall not make or suffer to be made any
alterations, additions or improvements to or of the Premises or any part thereof
without the written consent of Landlord first had and obtained and any
alterations, additions or improvements to or of said Premises, including, but
not limited to, wall covering, paneling and built-in cabinet work, but excepting
movable furniture and trade fixtures, shall on the expiration of the term become
a part of the realty and belong to the Landlord and shall be surrendered with
the Premises. In the event Landlord consents to the making of any alterations,
additions or improvements to the Premises by Tenant, the same shall be made by
Tenant at Tenant's sole cost and expense, and any contractor or person selected
by Tenant to make the same must first be approved of in writing by the Landlord.
Upon the expiration or sooner termination of the term hereof, Tenant shall, upon
written demand by Landlord, given at least thirty (30) days prior to the end of
the term, at Tenant's sole cost and expense, forthwith and with all due
diligence remove any alterations, additions, or improvements made by Tenant,
designated by Landlord to be removed, and Tenant shall, forthwith and with all
due diligence at its sole cost and expense, repair any damage to the Premises
caused by such removal.
11. REPAIRS.
11.a. By taking possession of the premises, Tenant shall be deemed to
have accepted the Premises as being in good, sanitary order, condition and
repair. Tenant shall, at Tenant's sole cost and expense, keep the Premises and
every part thereof in good condition and repair, damage thereto from causes
beyond the reasonable control of Tenant and ordinary wear and tear excepted.
Tenant shall upon the expiration or sooner termination of this Lease hereof
surrender the Premises to the Landlord in good condition, ordinary wear and tear
and damage from causes beyond the reasonable control of Tenant excepted. Except
as specifically provided in an addendum, if any, to this Lease, Landlord shall
have no obligation whatsoever to alter, remodel, improve, repair, decorate or
paint the Premises or any part thereof and the parties hereto affirm that
Landlord has made no representations to Tenant respecting the condition of the
Premises or the Building except as specifically herein set forth.
11.b. Notwithstanding the provisions or Article 11.a, hereinabove,
Landlord shall repair and maintain the structural portions of the Building,
including the basic plumbing, air
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<PAGE>
conditioning, heating, and electrical systems, installed or furnished by
Landlord, unless such maintenance and repairs are caused in part or in whole by
the act, neglect, fault or omission of any duty by the Tenant, its agents,
servants, employees or invitees, in which case Tenant shall pay to Landlord the
reasonable cost of such maintenance and repairs. Landlord shall not be liable
for any failure to make any such repairs or to perform any maintenance unless
such failure shall persist for an unreasonable time after written notice of the
need of such repairs or maintenance is given to Landlord by Tenant. Except as
provided in Article 22 hereof, there shall be no abatement of rent and no
liability of Landlord by reason of any injury to or interference with Tenant's
business arising from the making of any repairs alterations or improvements in
or to any portion of the Building or the Premises or in or to fixtures,
appurtenances and equipment therein. Tenant waives the right to make repairs at
Landlord's expense under any law, statute or ordinance now or hereafter in
effect.
12. LIENS. Tenant shall keep the Premises and the property in which the Premises
are situated free from any liens arising out of any work performed, materials
furnished or obligations incurred by Tenant. Landlord may require, at Landlord's
sole option, that Tenant shall provide to Landlord, at Tenant's sole cost and
expense, a lien and completion bond in an amount equal to one and one-half
(1 1/2) times any and all estimated cost of any improvements, additions, or
alterations in the Premises, to insure Landlord against any liability for
mechanics' and materialmen's liens and to insure completion of the work.
13. ASSIGNMENT AND SUBLETTING. Tenant shall not either voluntarily or by
operation of law, assign, transfer, mortgage, pledge, hypothecate or encumber
this Lease or any interest therein, and shall not sublet the said Premises or
any part thereof, or any right or privilege appurtenant thereto, or suffer any
other person [the employees, agents, servants and invitees of Tenant excepted]
to occupy or use the said Premises, or any portion thereof, without the written
consent of Landlord first had and obtained, which consent shall not be
unreasonably withheld, and a consent to one assignment, subletting, occupation
or use by any other person shall not be deemed to be a consent to any subsequent
assignment, subletting, occupation or use by another person. Any such assignment
or subletting without such consent shall be void, and shall, at the option of
the Landlord, constitute a default under this Lease.
14. HOLD HARMLESS. Tenant shall indemnify and hold harmless Landlord against
and from any and all claims arising from Tenant's use of the Premises for
the conduct of its business or from any activity, work, or other thing done,
permitted or suffered by the Tenant in or about the Building, and shall further
indemnify and hold harmless Landlord against and from any
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<PAGE>
and all claims arising from any breach or default in the performance of any
obligation on Tenant's part to be performed under the terms of this Lease, or
arising from any act or negligence of the Tenant, or any officer, agent,
employee, guest, or invitee of Tenant, and from all and against all cost,
attorney's fees, expenses and liabilities incurred in or about any such claim or
any action or proceeding brought thereon, and, in any case, action or proceeding
be brought against Landlord by reasons of any such claim, Tenant upon notice
from Landlord shall defend the same at Tenant's expenses by counsel reasonably
satisfactory to Landlord. Tenant as a material part of the consideration to
Landlord hereby assumes all risk of damage to property or injury to persons, in,
upon or about the Premises, from any cause other than Landlord's negligence, and
Tenant hereby waives all claims in respect thereof against Landlord.
Landlord or its agents shall not be liable for any damage to property
entrusted to employees of the Building, nor for loss or damage to any property
by theft or otherwise, nor for any injury to or damage to persons or property
resulting from fire, explosion, falling plaster, steam, gas, electricity, water
or rain which may leak from any part of the Building or from the pipes,
appliances or plumbing works therein or from the roof, street or subsurface or
from any other place resulting from dampness or any other cause whatsoever,
unless caused by or due to the negligence of Landlord, its agents, servants or
employees. Landlord or its agents shall not be liable for interference with the
light or other incorporeal hereditaments, loss of business by Tenant, nor shall
Landlord be liable for any latent defect in the Premises or in the Building.
Tenant shall give prompt notice to Landlord in case of fire or accidents in the
Premises or in the Building or of defects therein or in the fixtures or
equipment.
15. SUBROGATION. As long as their respective insurers so permit, Landlord and
Tenant hereby mutually waive their respective rights of recovery against each
other for any loss insured by fire, extended coverage and other property
insurance policies existing for the benefit of the respective parties. Each
party shall obtain any special endorsements, if required by their insurer to
evidence compliance with the aforementioned waiver.
16. LIABILITY INSURANCE. Tenant shall, at Tenant's expense, obtain and keep in
force during the Term of this Lease a policy of comprehensive public liability
insuring Landlord and Tenant against any liability arising out of the ownership,
use, occupancy or maintenance of the Premises and all areas appurtenant thereto.
The limit of said insurance shall not, however, limit the liability of the
Tenant hereunder, Tenant may carry said insurance under a blanket policy,
providing, however, said insurance by Tenant shall have a Landlord's protective
liability endorsement attached thereto. If Tenant shall fail to
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<PAGE>
procure and maintain said insurance, Landlord may, but shall not be required
to, procure and maintain same, but at the expense of Tenant, Insurance
required hereunder, shall be in companies rated A+ AAA or better in "Best's
Insurance Guide", Tenant shall deliver to Landlord prior to occupancy of the
Premises copies of policies of liability insurance required herein or
certificates evidencing the existence and amounts of such insurance with loss
payable clauses satisfactory to Landlord. No policy shall be cancellable or
subject to reduction of coverage except after ten (10) days' prior written
notice to Landlord.
17. SERVICES AND UTILITIES. Provided that Tenant is not in default hereunder,
Landlord agrees to furnish to the Premises during reasonable hours of generally
recognized business days, to be determined by Landlord at his sole discretion,
and subject to the rules and regulations of the Building of which the Premises
are a part, electricity for normal lighting and fractional horsepower office
machines, heat and air conditioning required in Landlord's judgment for the
comfortable use and occupation of the Premises. Landlord shall also maintain and
keep lighted the common stairs, common entries and toilet rooms in the Building
of which the Premises are a part. Landlord shall not be liable for, and Tenant
shall not be entitled to any reduction of rental by reason of Landlord's failure
to furnish any of the foregoing when such failure is caused by accident,
breakage, repairs, strikes, lockouts or other labor disturbances or labor
disputes of any character, or by any other cause, similar or dissimilar, beyond
the reasonable control of Landlord. Landlord shall not be liable under any
circumstances for a loss of or injury to property, however occurring, through or
in connection with or incidental to failure to furnish any of the foregoing.
Wherever heat generating machines or equipment are used in the Premises which
affect the temperature otherwise maintained by the air conditioning system,
Landlord reserves the right to install supplementary air conditioning units in
the Premises and the cost thereof, including the cost of installation, and the
cost of operation and maintenance thereof shall be paid by Tenant to Landlord
upon demand by Landlord.
Tenant will not, without written consent of Landlord, use any apparatus
or device in the Premises, including, but without limitation thereto, electronic
data processing machines, punch card machines, and machines using in excess of
120 volts, which will in any way increase the amount of electricity usually
furnished or supplied for the use of the Premises as general office space, nor
connect with electric current except through existing electrical outlets in the
Premises, any apparatus or device, for the purpose of using electric current. If
Tenant shall require water or electric current in excess of that usually
furnished or supplied for the use of the Premises as general office space,
Tenant shall first procure the written consent of Landlord, which Landlord may
refuse, to the use thereof and
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Landlord may cause a water meter or electrical current meter to be installed in
the Premises, so as to measure the amount of water and electric current consumed
for any such use. The cost of any such meters and of installation, maintenance
and repair thereof shall be paid for by the Tenant and Tenant agrees to pay to
Landlord promptly upon demand therefor by Landlord for all such water and
electric current consumed as shown by said meters, at the rates charged for such
services by the local public utility furnishing the same, plus any additional
expense incurred in keeping account of the water and electric current so
consumed. If a separate meter is not installed, such excess cost for such water
and electric current will be established by an estimate made by a utility
company or electrical engineer.
18. PROPERTY TAXES. Tenant shall pay, or cause to be paid, before delinquency,
any and all taxes levied or assessed and which become payable during the term
hereof upon all Tenant's leasehold improvements, equipment, furniture, fixtures
and personal property located in the Premises, except that which has been paid
for by Landlord, and is the standard of the Building. In the event any or all of
the Tenant's leasehold improvements, equipment, furniture, fixtures and personal
property shall be assessed and taxed with the Building. Tenant shall pay to
Landlord its share of such taxes within ten (10) days after delivery to Tenant
by Landlord of a statement in writing setting forth the amount of such taxes
applicable to Tenant's property.
19. RULES AND REGULATIONS. Tenant shall faithfully observe and comply with the
rules and regulations that Landlord shall from time to time promulgate. Landlord
reserves the right from time to time to make all reasonable modifications to
said rules. The additions and modifications to those rules shall be binding upon
Tenant upon delivery of a copy of them to Tenant. Landlord shall not be
responsible to Tenant for the nonperformance of any said rules by any other
tenants or occupants.
20. HOLDING OVER. If Tenant remains in possession of the Premises or any part
thereof after the expiration of the term hereof, with the express written
consent of Landlord, such occupancy shall be a tenancy from month to month at a
rental in the amount of the last monthly rental, plus all other charges payable
hereunder, and upon all the terms hereof applicable to a month to month tenancy.
21. ENTRY BY LANDLORD. Landlord reserves and shall at any and all times have the
right to enter the Premises, inspect the same, supply janitorial service and or
any other service to be provided by Landlord to Tenant hereunder, to submit said
Premises to prospective purchasers or tenants, to post notices of non-
responsibility, and to alter, improve or repair the Premises and any portion of
the Building of which the Premises are a part that Landlord may deem necessary
or desirable, without abatement of
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rent and may for that purpose erect scaffolding and other necessary structures
where reasonably required by the character of the work to be performed, always
providing that the entrance to the Premises shall not be blocked thereby, and
further providing that the business of the Tenant shall not be interfered with
unreasonably. Tenant hereby waives any claim for damages or for any injury or
inconvenience to or interference with Tenant's business, any loss of occupancy
or quiet enjoyment of the Premises, and any other loss occasioned thereby. For
each of the aforesaid purposes, Landlord shall at all times have and retain a
key with which to unlock all of the doors in, upon and about the Premises
excluding Tenant's vaults, safes and files, and Landlord shall have the right to
use any and all means which Landlord may deem proper to open said doors in an
emergency, in order to obtain entry to the Premises without liability to Tenant
except for any failure to exercise due care for Tenant's property. Any entry to
the Premises obtained by Landlord by any of said means or otherwise shall not
under any circumstances be construed or deemed to be a forcible or unlawful
entry into, or a detainer of, the Premises, or an eviction of Tenant from the
Premises or any portion thereof.
22. RECONSTRUCTION. In the event the Premises or the Building of which the
Premises are a part are damaged by fire or other perils covered by extended
coverage insurance, Landlord agrees to forthwith repair the same; and this Lease
shall remain in full force and effect, except that Tenant shall be entitled to a
proportionate reduction of the rent while such repairs are being made, such
proportionate reduction to be based upon the extent to which the making of such
repairs shall materially interfere with the business carried on by the Tenant in
the Premises. If the damage is due to the fault or neglect of Tenant or its
employees, there shall be no abatement of rent.
In the event the Premises or the Building of which the Premises are a
part are damaged as a result of any cause other than the perils covered by fire
and extended coverage insurance, then Landlord shall forthwith repair the same,
provided the extent of the destruction be less than ten (10%) percent of the
then full replacement cost of the Premises or the Building of which the Premises
are a part. In the event the destruction of the Premises or the Building is to
an extent greater than ten (10%) percent of the full replacement cost, then
Landlord shall have the option: (1) to repair or restore such damage, this Lease
continuing in full force and effect, but the rent to be proportionately reduced
as hereinabove in this Article provided, or (2) give notice to Tenant at any
time within sixty (60) days after such damage terminating this Lease as of the
date specified in such notice, which date shall be no less than thirty (30) and
no more than (60) days after the giving of such notice. In the event of giving
such notice, this Lease shall expire and all interest of the Tenant in the
Premises shall terminate on the
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date so specified in such notice and the Rent, reduced by a proportionate
amount, based upon the extent, if any, to which such damage materially
interfered with the business carried on by the Tenant in the Premises, shall be
paid up to date of said such termination.
Notwithstanding anything to the contrary contained in this Article,
Landlord shall not have any obligation whatsoever to repair, reconstruct or
restore the Premises when the damage resulting from any casualty covered under
this Article occurs during the last twelve (12) months of the term of this Lease
or any extension thereof.
Landlord shall not be required to repair any injury or damage by fire
or other cause, or to make any repairs or replacements of any panels,
decoration, office fixtures, railings, floor covering, partitions, or any other
property installed in the Premises by Tenant.
The Tenant shall not be entitled to any compensation or damages from
Landlord for loss of the use of the whole or any part of the Premises. Tenant's
personal property or any inconvenience or annoyance occasioned by such damage,
repair, reconstruction or restoration.
23. DEFAULT. The occurrence of any one or more of the following events shall
constitute a default and breach of this Lease by Tenant.
23.a. The vacating or abandonment of the Premises by Tenant.
23.b. The failure by Tenant to make any payment of rent or any other
payment required to be made by Tenant hereunder, as and when due, where such
failure shall continue for a period of three (3) days after written notice
thereof by Landlord to Tenant.
23.c. The failure by Tenant to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by the
Tenant, other than described in Article 23.b. above, where such failure shall
continue for a period of thirty (30) days after written notice thereof by
Landlord to Tenant, provided, however, that if the nature of Tenant's default is
such that more than thirty (30) days are reasonably required for its cure, then
Tenant shall not be deemed to be in default if Tenant commences such cure within
said thirty (30) day period and thereafter diligently prosecutes such cure to
completion.
23.d. The making by Tenant of any general assignment or general
arrangement for the benefit of creditors; or the filing by or against Tenant of
a petition to have Tenant adjudged a
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bankrupt, or a petition or reorganization or arrangement under any law relating
to bankruptcy (unless, in the case of a petition filed against Tenant, the same
is dismissed within sixty (60) days); or the appointment of a trustee or a
receiver to take possession of substantially all of Tenant's assets located at
the Premises or of Tenant's interest in this Lease, where possession is not
restored to Tenant within thirty (30) days, or the attachment, execution or
other judicial seizure of substantially all of Tenant's assets located at the
Premises or of Tenant's interest in this Lease, where such seizure is not
discharged in thirty (30) days.
24. REMEDIES IN DEFAULT. In the event of any such material default or
breach by Tenant, Landlord may at any time thereafter, with or without
notice or demand and without limiting Landlord in the exercise of a right or
remedy which Landlord may have by reasons of such default or breach
24.a. Terminate Tenant's right to possession of the Premises by any
lawful means, in which case this Lease shall terminate and Tenant shall
immediately surrender possession of the Premises to Landlord. In such event
Landlord shall be entitled to recover from Tenant all damages incurred by
Landlord by reason of Tenant's default including, but not limited to, the cost
of recovering possession of the Premises; expenses of reletting, including
necessary renovation and alteration of the Premises, reasonable attorney's fees,
any real estate commission actually paid, the worth at the time of award by the
court having jurisdiction thereof of the amount by which the unpaid rent for the
balance of the term after the time of such award exceeds the amount of such
rental loss for the same period that Tenant proves could be reasonably avoided,
that portion of the leasing commission paid by Landlord and applicable to the
unexpired term of this Lease. Unpaid installments of rent or other sums shall
bear interest from the date due at the rate of ten (10) percent per annum. In
the event Tenant shall have abandoned the Premises, Landlord shall have the
option of (a) taking possession of the Premises and recovering from Tenant the
amount specified in this paragraph, or (b) proceeding under the provisions of
the following Article 24.b.
24.b. Maintain Tenant's right to possession, in which case this Lease
shall continue in effect whether or not Tenant shall have abandoned the
Premises. In such event Landlord shall be entitled to enforce all of Landlord's
rights and remedies under this Lease, including the right to recover the rent as
it becomes due hereunder.
24.c. Pursue any other remedy now or hereafter available to Landlord
under the laws or judicial decision of the State in which the Premises are
located.
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25. EMINENT DOMAIN. If more than twenty-five (25%) percent of the Premises shall
be taken or appropriated by any public or quasi-public authority under the power
of eminent domain, either party hereto shall have the right, at its option, to
terminate this Lease, and landlord shall be entitled to any and all income,
rent, award, or any interest therein whatsoever which may be paid or made in
connection with such public or quasi-public use or purpose, and Tenant shall
have no claim against Landlord for the value of any unexpired term of this
Lease. If either less than or more than twenty-five (25%) percent of the
Premises is taken, and neither party elects to terminate as herein provided, the
rental thereafter to be paid shall be equitably reduced. If any part of the
Building other than the Premises may be so taken or appropriated, Landlord shall
have the right at its option to terminate this Lease and shall be entitled to
the entire award as above provided.
26. OFFSET STATEMENT. Tenant shall at any time and from time to time upon not
less than ten (10) days' prior written notice from Landlord execute, acknowledge
ad deliver to Landlord a statement in writing, (a) certifying that this Lease is
unmodified and in full force and effect (or, if modified, stating the nature of
such modification and certifying that this Lease as so modified, is in full
force and effect), and the date to which the rental and other charges are paid
in advance, if any, and (b) acknowledging that there are not, to Tenant's
knowledge, any uncured defaults on the part of the Landlord hereunder, or
specifying such defaults if any are claimed. Any such statement may be relied
upon by any prospective purchaser or encumbrancer of all or any portion of the
real property of which the Premises are a part.
27. PARKING. Tenant shall have the right to use in common with other tenants or
occupants of the Building the parking facilities of the Building, if any,
subject to the monthly rates, rules and regulations, and any other charges of
Landlord for such parking facilities which may be established or altered by
Landlord at any time or from time to time during the term hereof.
28. AUTHORITY OF PARTIES.
28.a. Corporate Authority. If Tenant is a corporation, each individual
executing this Lease on behalf of said corporation represents and warrants that
he is duly authorized to execute and deliver this Lease on behalf of said
corporation, in accordance with a duly adopted resolution of the board of
directors of said corporation or in accordance with the by-laws of said
corporation, and that this Lease is binding upon said corporation in accordance
with its terms.
28.b. Limited Partnerships. If the Landlord herein is a limited
partnership, it is understood and agreed that any claims
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by Tenant on Landlord shall be limited to the assets of the limited partnership,
and furthermore, Tenant expressly waives any and all rights to proceed against
the individual partners or the officers, directors or shareholders of any
corporate partner, except to the extent of their interest in said limited
partnership.
29. GENERAL PROVISIONS.
(i) Plats and Riders. Clauses, plats and riders, if any, signed by
the Landlord and the Tenant and endorsed on or affixed to this Lease are a
part hereof.
(ii) Waiver. The waiver by Landlord of any term, covenant or condition
herein contained shall not be deemed to be a waiver of such term, covenant or
condition on any subsequent breach of the same on any other term, covenant or
condition herein contained. The subsequent acceptance of rent hereunder by
Landlord shall not be deemed to be a waiver of any preceding breach by Tenant of
any term, covenant or condition of this Lease other than the failure of the
Tenant to pay the particular rental so accepted, regardless of Landlord's
knowledge of such preceding breach at the time of the acceptance of such rent.
(iii) Notice. All notices and demands which may or are to be required
or permitted to be given by either party to the other hereunder shall be in
writing. All notices and demands by the Landlord to the Tenant shall be sent by
United States Mail, addressed to the Tenant at the Premises, or to such other
place as Tenant may from time to time designate in a notice to the Landlord. All
notices and demand by the Tenant to the Landlord shall be sent by United States
Mail, addressed to the Landlord at the Office of the Building, or to such other
person or place as the Landlord may from time to time designate in a notice to
the Tenant.
(iv) Joint Obligation. If there be more than one Tenant the
obligations hereunder imposed upon Tenants shall be joint and several.
(v) Marginal Headings. The marginal headings and Article titles to
the Articles of this Lease are not a part of this Lease and shall have no
effect upon the construction or interpretation of any part hereof.
(vi) Time. Time is of the essence of this Lease and each and all of
its provisions in which performance is a factor.
(vii) Successors and Assigns. The covenants are conditioned herein
contained, subject to the provisions and to assignments, apply to and bond the
heirs, successors, executors, administrators and assigns of the parties hereto.
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(viii) Recordation. Neither the Landlord nor Tenant shall record this
Lease or a short form memorandum hereof without the prior written consent of the
other party.
(ix) Quiet Possession. Upon Tenant paying the rent reserved hereunder
and observing and performing all of the covenants conditioned and provisions on
Tenant's part to be observed and performed hereunder, Tenant shall have quiet
possession of the Premises for the entire term hereof, subject to all the
provisions of this Lease.
(x) Late Charge. Tenant hereby acknowledges that late payment by Tenant
to Landlord of rent or other sums due hereunder will cause Landlord to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include but are not limited to,
processing and accounting charges and late charges which may be imposed upon
Landlord by terms of any mortgage or trust deed covering the Premises.
Accordingly, if any installment of rent or of a sum due from Tenant shall not be
received by Landlord or Landlord's designee within ten (10) days after written
notice that said amount is past due, then Tenant shall pay to Landlord a late
charge equal to ten (10%) percent of such overdue amount. The parties hereby
agree that such late charges represent a fair and reasonable estimate of the
cost that Landlord will incur by reason of the late payment by Tenant.
Acceptance of such late charges by the Landlord shall in no event constitute a
waiver of Tenant's default with respect to such overdue amount, nor prevent
Landlord from exercising any of the other rights and remedies granted hereunder.
(xi) Prior Agreements. This Lease contains all of the agreements of the
parties hereto with respect to any matter covered or mentioned in this Lease,
and no prior agreements or understanding pertaining to any such matters shall be
effective for any purpose. No provision of this Lease may be effective or
binding on any party until fully executed by both parties hereto.
(xii) Inability to Perform. This Lease and the obligations of the
Tenant hereunder shall not be affected or impaired because the Landlord is
unable to fulfill any of its obligations hereunder or is delayed in doing so, if
such inability or delay is caused by reason of strike, labor troubles, acts of
God, or any other cause beyond the reasonable control of the Landlord.
(xiii) Attorneys' Fees. In the event of any action or proceeding
brought by either party against the other under this Lease the prevailing party
shall be entitled to recover all costs and expenses including the fees of its
attorneys in such action or proceeding in such amount as the court may adjudge
reasonable as attorneys' fees.
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(xiv) Sale of Premises by Landlord. In the event of any sale of the
Building, Landlord shall be and is hereby entirely freed and relieved of all
liability under any and all of its covenants and obligations contained in or
derived from this lease arising out of any act, occurrence or omission occurring
after the consummation of such sale, and the purchase, at such sale or any
subsequent sale of the Premises shall be deemed, without any further agreement
between the parties of their successors in interest or between the parties and
any such purchaser, to have assumed and agreed to carry out any and all of the
covenants and obligations of the Landlord under this Lease.
(xv) Subordination, Attornment. Upon requests of the Landlord, Tenant
will in writing subordinate its rights hereunder to the lien of any first
mortgage, or first deed of trust to any bank, insurance company or other lending
institution, now or hereafter in force against the land and Building of which
the Premises are a part, and upon any buildings hereafter placed upon the land
of which the Premises are a part, and to all advances made or hereafter to be
made upon the security thereof.
In the event any proceedings are brought for foreclosure, or in the
event of the exercise of the power of sale under any mortgage or deed of trust
made by the Landlord covering the Premises, the Tenant shall attorn to the
purchaser upon any such foreclosure or sale and recognize such purchaser as the
Landlord under this Lease.
The provisions of this Article to the contrary notwithstanding and so
long as Tenant is not in default hereunder, this Lease shall remain in full
force and effect for the full term hereof.
(xvi) Name. Tenant shall not use the name of the Building or of the
development in which the Building is situated for any purpose other than as an
address of the business to be conducted by the Tenant in the Premises.
(xvii) Separability. Any provision of this Lease which shall prove to
be invalid, void or illegal shall in no way affect, impair or invalidate any
other provision hereof and such other provisions shall remain in full force and
effect.
(xviii) Cumulative Remedies. No remedy or election hereunder shall be
deemed exclusive but shall, wherever possible, be cumulative with all other
remedies at law or in equity.
(xix) Choice of Law. This Lease shall be governed by the laws of the
State in which the Premises are located.
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(xx) Signs and Auctions. Tenant shall not place any sign upon the
Premises or Building or conduct any auction thereupon with Landlord's prior
written consent.
30. BROKERS. Tenant warrants that it has had no dealings with any real estate
broker or agents in connection with the negotiations of this Lease
excepting only N/A and it knows of no other real estate broker or agent who is
entitled to a commission in connection with this Lease.
5a Rent
27a Parking
31. Existing Lease Obligations
32. On Building Signage
33. Exterior Building Signage
34. Overnight Depository
35. Janitorial
36. Renewal Options
37. Tenant's HVAC Modifications.
The parties hereto have executed this Lease at the place and on the date
specified immediately adjacent to their respective signatures.
If this Lease has been filled in, it has been prepared for submission to your
attorney for his approval. No representation or recommendation is made by the
real estate broker or its agents or employees as to the legal sufficiency, legal
effect, or tax consequences of this Lease or the transactions relating thereto.
Dominion Properties
By:______________________________
Address: Two Bala Plaza By:______________________________
-----------------------------
Bala Cynwyd, Pa. 19004 "LANDLORD"
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The First Sterling Bank
By:______________________________
Address: The First Sterling
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Bank Building By:______________________________
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Devon, Pa. 19333 "TENANT"
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ADDENDUM
5A Rent
(a) Base Rent
Without prior written notice or demand on or before the first day of
each month of the ten year term, Tenant shall pay to Landlord the Base Rent in
the amounts specified in the following Rent Schedule:
Base Rent Schedule
Period Monthly Base Rent
- ------ -----------------
1/1/96 - 12/31/96 $36,482.00
1/1/97 - 12/31/97 $37,576.46
1/1/98 - 12/31/98 $38,703.75
1/1/99 - 12/31/99 $39,864.87
1/1/00 - 12/31/00 $41,060.81
1/1/01 - 12/31/01 $42,292.64
1/1/02 - 12/31/02 $43,561.42
1/1/03 - 12/31/03 $44,868.26
1/1/04 - 12/31/04 $46,214.31
1/1/05 - 12/31/05 $47,600.74
(b) Additional Rental-Electrical Utilities
Without prior written notice or demand on or before the first day of
each month of the ten year term, Tenant shall pay to Landlord reimbursement for
electric utilities utilized by Tenant. Electric utilities shall include Tenant's
general lighting, outlets, heating, air conditioning, computer room operation,
electronic data processing, other electronic machinery. Landlord shall bill to
Tenant at the same commercial rate charged to Landlord by Peco. On or before the
first day of each month, Tenant shall pay to Landlord its prorated share (44.5%)
of the Building's electric utility charges from Peco. Additionally, Tenant shall
reimburse Landlord for electric utilities used in operation of Tenant's first
floor computer room as separately metered by Tenant.
27A. Parking
In addition to employee parking in adjacent and main lots, Landlord
will provide Ten Restricted Customer parking spaces adjacent to the Building.
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31. Existing Lease Agreements
Landlord and Tenant presently have certain rights and obligations under
and pursuant to agreements prior to this date and it is the intention of
the parties to consolidate and novate the rights and obligations of the Landlord
and Tenant into this Agreement, and absent breech or default of this Agreement,
all past rights and obligations of the parties shall be controlled by this
Agreement
32. On-Building Signage
Landlord will permit Tenant to place 80 lineal feet of On- Building
Signage as permitted by and in conformity with Township ordinances.
33. Exterior Building Signage
The Building, will continue to be named, "The First Sterling Bank
Building" for the term of this Lease. Existing off- building signage is so
designated. Any modification to the signage by Landlord shall include the
Building name as herein agreed as, "The First Sterling Bank Building." However,
such exterior off-building signage is non-exclusive such that the names of other
Building Tenants may appear on off-building signage at Landlord's discretion
subject to Bank approval not to be unreasonably withheld.
34. Over-Night Depository
Landlord will permit Tenant to install an overnight depository at
Tenant's sole expense. Such installation is subject to Landlord approval which
shall not be unreasonably denied.
35. Janitorial
Tenant will provide its own Janitorial Service.
36. Renewal Options
(a) Tenant's First Renewal Option
Tenant has the option to renew this lease for two additional five year
terms. Tenant must exercise the first five year renewal option by giving written
notice to Landlord prior to December 31, 2004. The base rent shall be increased
by one dollar per square foot at the commencement of the renewal term.
Additionally, the base rent shall be increased on the first day
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of the renewal term by three percent (3%) and thereafter annually by three
percent (3%) over the prior year.
(B) Tenant's Second Renewal Option
Tenant has the option to renew this lease for two additional five year
terms. Tenant must exercise the second five year renewal option by giving
written notice to Landlord prior to December 31, 2009. The base rent shall be
increased by one dollar per square foot at the commencement of the renewal term.
Additionally, the base rent shall be increased on the first day of the renewal
term by three percent (3%) and thereafter annually by three percent (3%) over
the prior year.
37. Tenant's HVAC Modifications
Under the existing leases for 7,000 and 2,500 square feet at the First
Sterling Bank Building in Devon, the Tenant made modifications to the
Building's HVAC system that included ductwork, supplemental heating and air
conditioning systems. Tenant shall continue under this new lease agreement for
23,164 square feet to be responsible for the maintenance to these HVAC
modifications.
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RULES AND REGULATIONS
1. No sign, placard, picture, advertisement, name or notice shall be inscribed,
displayed or printed or affixed on or to any part of the outside or inside of
the Building without the written consent of Landlord first had and obtained and
Landlord shall have the right to remove any such sign, placard, picture,
advertisement, name or notice without notice to and at the expense of Tenant.
All approved signs or lettering on doors shall be printed, painted,
affixed or inscribed at the expense of Tenant by a person approved of by
Landlord.
Tenant shall not place anything or allow anything to be placed near the
glass of any window, door, partition or wall which may appear unsightly from
outside the Premises, provided, however, that Landlord may furnish and install a
Building standard window covering at all exterior windows. Tenant shall not
without prior written consent of Landlord cause or otherwise sunscreen any
window.
2. The sidewalks, halls, passages, exits, entrances, elevators and stairways
shall not be obstructed by any of the tenants or used by them for any purpose
other than for ingress and egress from their respective Premises.
3. Tenant shall not alter any lock or install any new or additional locks or
any bolts on any doors or windows of the Premises.
4. The toilet rooms, urinals, wash bowls and other apparatus shall not be used
for any purpose other than that for which they were constructed and no foreign
substance of any kind whatsoever shall be thrown therein and the expense of any
breakage, stoppage or damage resulting from the violation of this rule shall be
borne by the Tenant who, or whose employees or invitees shall have caused it.
5. Tenant shall not overload the floor of the Premise or in any way deface the
Premises or any part thereof.
6. No furniture, freight or equipment of any kind shall be brought into the
Building without the prior notice to Landlord and all moving of the same into or
out of the Building shall be done at such time and in such manner as Landlord
shall designate Landlord shall have the right to prescribe the weight, size and
position of all safes and other heavy equipment brought into the Building and
also the times and manner of moving the same in and out of the Building. Safes
or other heavy objects shall, if considered necessary by Landlord, stand on
supports of such thickness as is necessary to properly distribute the weight.
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Landlord will not be responsible for loss of or damage to any such safe or
property from any cause and all damage done to the Building by moving or
maintaining any such safe or other property shall be repaired at the expense of
Tenant.
7. Tenant shall not use, keep or permit to be used or kept any foul or noxious
gas or substance in the Premises, or permit or suffer the Premises to be
occupied or used in a manner offensive or objectionable to the Landlord or other
occupants of the Building by reason of noise, odors and/or vibrations, or
interfere in any way with other tenants or those having business therein, nor
shall any animals or birds be brought in or kept in or about the Premises or the
Building.
8. No cooking shall be done or permitted by any Tenant on the Premises, nor
shall the Premises be used for the storage of merchandise, for washing, clothes,
for lodging or for any improper, objectionable or immoral purposes.
9. Tenants shall not use or keep in the Premises or the Building any kerosene,
gasoline or inflammable or combustible fluid or material, or use any method of
heating or air conditioning other than that supplied by Landlord.
10. Landlord will direct electricians as to where and how telephone and
telegraph wires are to be introduced. No boring or cutting for wires will be
allowed without the consent of the Landlord. The location of telephones, call
boxes and other office equipment affixed to the Premises shall be subject to the
approval of Landlord.
11. On Saturdays, Sundays and legal holidays, and on other days between the
hours of 6:00 p.m. and 8:00 a.m. the following day, access to the Building or to
the halls, corridors, elevators or stairways in the Building or to the Premises
may be refused unless the person seeking access is known to the person or
employee of the Building in charge and has a pass or is properly identified. The
Landlord shall in no case be liable for damages for any error with regard to the
admission of or exclusion from the Building of any person. In cases of invasion,
mob, riot, public excitement or other commotion, the Landlord reserves the right
to prevent access to the Building during the continuation of the same by closing
of the doors or otherwise for the safety of the tenants and protections of
property in the Building and the Building.
12. Landlord reserves the right to exclude or expel from the Building any person
who, in the judgment of Landlord, is intoxicated or under the influence of
liquor or drugs or who shall in any manner do any act in violation of any of the
rules and regulations of the Building.
-20-
<PAGE>
13. No vending machine or machines of any description shall be installed,
maintained or operated upon the Premises without the
written consent of the Landlord.
14. Landlord shall have the right, exercisable without notice and without
liability to Tenant, to change the name and street address of the Building on
which the Premises are a part.
15. Tenant shall not disturb, solicit, or canvass any occupant of the Building
and shall cooperate to prevent same.
16. Without the written consent of Landlord, Tenant shall not use the name of
the Building in connection with or in promoting or advertising the business of
Tenant except as Tenant's address.
17. Landlord shall have the right to control and operate the public portions of
the Building and the public facilities, and heating and air conditioning as well
as facilities furnished for the common use of the tenants, in such manner as it
deems best for the benefit of the tenants generally.
18. All entrance doors in the Premises shall be left locked when the Premises
are not in use, and all doors opening to public corridors shall be kept closed
except for normal ingress and egress from the Premises.
-21-
Exhibit 10.8
DOMINION PROPERTIES, L.P.
Two Bala Plaza, Suite 525, Bala Cynwyd, PA 19004
(610) 667-0421
- ------------------------------------------------
June 4, 1996
Mr. William Bromley
President
First Sterling Bank
80 West Lancaster Avenue
Devon, PA 19333
Dear Mr. Bromley:
Pursuant to our several discussions, we are writing to confirm
agreement with respect to First Sterling Bank's existing leasehold for
approximately 13,000 square feet on the fourth floor of 80 West Lancaster
Avenue. You have advised of First Sterling's desire to consider a long term
strategic plan which may involve an alliance with a third party organization or
organizations under circumstances which may alter First Sterling's use of all or
a portion of such space. We have negotiated and agreed that, subject to
consummation of any such combination, merger or affiliation which results in the
change in control of First Sterling Bank on or before March 31, 1997, First
Sterling shall have the right at any time hereafter to modify the leasehold as
it pertains to the fourth floor space. First Sterling may exercise its right to
modify said leasehold by providing fifteen (15) days written notice accompanied
by payment to Dominion Properties of $375,000, as a result of which, effective
the later of December 31, 1996 or fifteen (15) days subsequent to said written
notice and payment, the lease of said fourth floor space shall, (a) be reduced
by 50% of the existing leasehold on the fourth floor; (b) the term of such
modified tenancy on the fourth floor shall be reduced to five years commencing
from the effective date of the modification and continuing for 60 months. First
Sterling's right to sublet shall continue as provided in the existing lease
agreement.
Further, as a result of such modification, the overall rental
under the lease of December 7, 1995 shall be amended to reflect the reduction in
base rental and adjustment of electricity allocation to reflect the 50%
reduction in the fourth floor tenancy, as follows:
<PAGE>
2
<TABLE>
<CAPTION>
Prorated
Share
Monthly Annual Building
Period Sq. Ft. Base Rent Base Rent Electricity
------ ------- --------- --------- -----------
<S> <C> <C> <C> <C>
1/1/96-12/31/96 23164 $36,482.00 $437,784.00 44.55%
1/1/97-12/31/97(1) 16332 $26,493.64 $317,923.72 31.41%
1/1/98-12/31/98 16332 $27,288.45 $327,461.39 31.41%
1/1/99-12/31/99 16332 $28,107.11 $337,285.30 31.41%
1/1/00-12/31/00 16332 $28,950.32 $347,403.81 31.41%
1/1/01-12/31/01 16332 $29,818.83 $357,825.97 31.41%
1/1/02-12/31/02 9500 $17,865.37 $214,384.47 18.27%
1/1/03-12/31/03 9500 $18,401.33 $220,815.99 18.27%
1/1/04-12/31/04 9500 $18,953.37 $227,440.48 18.27%
1/1/05-12/31/05 9500 $19,521.98 $234,263.70 18.27%
</TABLE>
(1)Assumes notice on January 1, 1997; reduction in tenancy and commencement of
revised term will be initiated by timing of notice after December 31, 1996.
With respect to renewal options related to the fourth floor
space, provided First Sterling is the occupant of the modified lease for the
fourth floor space, it shall have the right to renew its occupancy of the
modified tenancy by exercising the renewal options under paragraphs 36 of the
lease dated December 7, 1995. Such renewal options are for the exclusive benefit
of First Sterling and shall not be transferrable or assignable to any sublet
tenant. The renewal options for the first floor space shall continue as provided
in the existing lease.
Subject to First Sterling remaining in good standing as a
tenant of the first floor space under the agreement of December 7, 1995, the ten
restricted parking spaces (paragraph 27(a)) adjacent to the Building shall be
provided and continued under the lease agreement.
The lease agreement of December 7, 1995 provides certain
signage benefits (paragraphs 32 and 33) to First Sterling as the principal
occupant of the Building. If the lease modification provided for herein is
exercised and the occupancy of First Sterling is reduced, Landlord's obligation
signage and the committed name of the Building shall be modified as provided for
herein. As long as First Sterling leases and occupies 20,000 square feet of
space, the existing lease provisions relating to signage and Building name shall
remain as provided in the December 7, 1995 lease. If the lease and occupancy of
First Sterling is less than 20,000 square feet, Landlord shall have the right to
recapture the name of the Building and to modify exterior signage now provided
to First Sterling. In such recapture, Landlord shall identify First Sterling's
operation and occupancy by providing First Sterling with 25 lineal feet of on
Building signage, in an area and of a type agreeable to Landlord and consistent
with local governmental rules and regulations.
<PAGE>
3
You have asked for clarification of First Sterling's
obligation for HVAC Maintenance under paragraph 37 of the lease agreement. This
will confirm that the obligations under this paragraph are limited to HVAC items
on the 9500 square feet of the first floor space.
First Sterling's other lease obligation provided in the lease
agreement of December 7, 1995 shall continue without change, abatement or
modification.
It is specifically understood and agreed the option for the
above lease modification is being provided as an accommodation to First
Sterling's consideration of a strategic alliance or combination which will
result in a change of control of First Sterling Bank and is subject to
consummation of such alliance or combination. The rights of modification
provided for herein shall not be exercisable or effective if such alliance or
combination does not occur on or prior to March 31, 1997 at which time First
Sterling's right to modify shall be deemed null and void.
Kindly acknowledge your consent to the above agreement by
executing and returning a copy of this agreement to the undersigned.
Acknowledged and Agreed to Sincerely,
this 4th day of June , 1996 Dominion Properties
---- -----------
By: \s\ William H. Bromley By: \s\ Arthur J. Kania, Jr.
---------------------- -------------------------
William H. Bromley Arthur J. Kania, Jr.
President
First Sterling Bank
<PAGE>
Exhibit 10.9
LEASE AGREEMENT #1
Agreement, made as of the 15th day of December, 1995, by and between
Dominion Properties, L.P., a Pennsylvania Limited Partnership having its
principal place of business at Fifth Floor, Two Bala Plaza Office Building, Bala
Cynwyd, Pennsylvania, C/O Arthur J. Kania, Jr. ("Landlord") and The First
Sterling Bank, a Pennsylvania Corporation doing business in the Commonwealth of
Pennsylvania and having its executive offices at The First Sterling Bank
Building, 80 West Lancaster Avenue, Devon, Pennsylvania ("Tenant").
WITNESSETH
WHEREAS, Landlord and Tenant have entered into a lease of 3124 square
feet in the building known as The Sinkler Building, 558 Lancaster Avenue,
Radnor, Pennsylvania, which lease commenced January 1, 1989 and expires December
31, 1998.
WHEREAS, Landlord and Tenant desire to extend this lease in the
respects hereinafter set forth.
NOW THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency whereof are hereby
acknowledged, and intending to be legally bound hereby, the parties hereto agree
as follows:
1. Landlord and Tenant hereby agree to modify the term of the lease to
a ten year term beginning January 1, 1996, and extending until December 31,
2005.
2. Landlord and Tenant hereby agree that Tenant shall have the option
to renew this lease for two five year periods by providing written notice to the
Landlord one year in advance of the then expiring term.
3. Landlord and Tenant agree that all other terms and conditions of
this lease including the payment of rent shall remain in full force and effect
with the increases to base rent during the renewal periods to be calculated upon
the then immediately preceding year.
4. Except as expressly modified by this Agreement, the lease is hereby
ratified, confirmed, and continued in full force and effect.
<PAGE>
Exhibit 10.9
5. This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, executors, legal representatives,
successors and assigns.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
Dominion Properties, L.P. The First Sterling Bank
By: By:
----------------------------- -----------------------------
Attest: Attest:
------------------------- -------------------------
-2-
<PAGE>
Exhibit 10.9
OFFICE BUILDING LEASE
1. PARTIES. This Lease, dated, for reference purposes only, September 15, 1988,
is made by and between Main Line Realty Partners (herein called "Landlord") and
First Sterling Bank (herein called "Tenant").
2. PREMISES. Landlord does hereby lease to Tenant and Tenant hereby leases from
Landlord that certain office space (herein called "Premises") indicated on
Exhibit "A" attached hereto and hereby reference thereto made a part hereof,
said Premises being agreed for the purpose of this Lease, to have an area of
approximately 3,124 square feet and being situated on the 1st floor of that
certain Building known as The Sinkler Building, 560 E. Lancaster Ave., St.
Davids, PA.
Said Lease is subject to the terms, covenants and conditions herein set
forth and the Tenant covenants as a material part of the consideration for this
Lease to keep and perform each and all of said terms, covenants and conditions
by it to be kept and performed and that this Lease is made upon the condition of
said performance.
3. TERM. The term of this Lease shall be for 10 years, commencing on the 1st day
of January, 1989, and ending on the 31st day of December, 1998.
4. POSSESSION.
4.a If the Landlord, for any reason whatsoever, cannot deliver
possession of the said Premises to the Tenant at the commencement of the term
hereof, this Lease shall not be void or voidable, nor shall Landlord be liable
to Tenant for any loss or damage resulting therefrom, nor shall the expiration
date of the above term be in any way extended, but in that event, all rent shall
be abated during the period between the commencement of said term and the time
when Landlord delivers possession.
4.b In the event that Landlord shall permit Tenant to occupy the
Premises prior to the commencement date of the term, such occupancy shall be
subject to all the provisions of this Lease. Said early possession shall not
advance the termination date hereinabove provided.
5. RENT. Tenant agrees to pay to Landlord as rental, without prior notice or
demand, for the Premises the sum of Five Thousand, Two hundred and six and
67/100 ($5,206.67) Dollars, on or before the first day of the first full
calendar month of the term hereof and a like sum on or before the first day of
each and
<PAGE>
Exhibit 10.9
every successive calendar month thereafter during the term hereof, except that
the first month's rent shall be paid upon the execution hereof. Rent for any
period during the term hereof which is for less than one (1) month shall be a
prorated portion of the monthly installment herein, based upon a thirty (30) day
month. Said rental shall be paid to Landlord, without deduction or offset in
lawful money of the United States of America, which shall be legal tender at the
time of payment at the Office of the Building, or to such other person or at
such other place as Landlord may from time to time designate in writing. * (See
Page 5, Section 5a Rent).
Even though the term has expired and Tenant has vacated the Premises,
when the final determination is made of Tenant's share of Direct Expenses for
the year in which this Lease terminates, Tenant shall immediately pay any
increase due over the estimated expenses paid and conversely any overpayment
made in the event said expenses decrease shall be immediately rebated by
Landlord to Tenant.
Notwithstanding anything contained in this Article, the rental payable
by Tenant shall in no event be less than the rent specified in Article 5
hereinabove.
6. [Intentionally Omitted]
7. [Intentionally Omitted]
8. USE. Tenant shall use the Premises for general office purposes and shall not
use or permit the premises to be used for any other purpose without the prior
written consent of Landlord.
Tenant shall not do or permit to be done in or about the Premises nor
bring or keep anything therein which will in any way increase the existing rate
of or affect any fire or other insurance upon the Building or any of its
contents, or cause cancellation of any insurance policy covering said Building
or any part thereof or any of its contents. Tenant shall not do or permit
anything to be done in or about the Premises which will in any way obstruct or
interfere with the rights of other tenants or occupants of the Building or
injure or annoy them or use or allow the Premises to be used for any improper,
immoral, unlawful or objectionable purpose, nor shall Tenant cause, maintain or
permit any nuisance in, on, or about the Premises. Tenant shall not commit or
suffer to be committed any waste in or upon the Premises.
9. COMPLIANCE WITH LAW. Tenant shall not use the Premises or permit anything to
be done in or about the Premises which will in any way conflict with any law,
statute, ordinance or governmental rule or regulation now in force or which may
hereafter be enacted or promulgated. Tenant shall, at its sole cost and expense,
promptly comply with all laws, statutes, ordinances and governmental rules,
regulations or requirements now in force or
-2-
<PAGE>
Exhibit 10.9
which may hereafter be in force, and with the requirements of any board of fire
insurance underwriters or other similar bodies now or hereafter constituted,
relating to, or affecting the condition, use or occupancy of the Premises,
excluding structural changes not related to or affected by Tenant's improvements
or acts. The judgment of any court of competent jurisdiction or the admission of
Tenant in any action against Tenant, whether Landlord be a party thereto or not,
that Tenant has violated any law, statute, ordinance or governmental rule,
regulation or requirement, shall be conclusive of that fact as between the
Landlord and Tenant.
10. ALTERATIONS AND ADDITIONS. Tenant shall not make or suffer to be made any
alterations, additions or improvements to or of the Premises or any part thereof
without the written consent of Landlord first had and obtained and any
alterations, additions or improvements to or of said Premises, including, but
not limited to, wall covering, paneling and built-in cabinet work, but excepting
movable furniture and trade fixtures, shall on the expiration of the term become
a part of the realty and belong to the Landlord and shall be surrendered with
the Premises. In the event Landlord consents to the making of any alterations,
additions or improvements to the Premises by Tenant, the same shall be made by
Tenant at Tenant's sole cost and expense, and any contractor or person selected
by Tenant to make the same must first be approved of in writing by the Landlord.
Upon the expiration or sooner termination of the term hereof, Tenant shall, upon
written demand by Landlord, given at least thirty (30) days prior to the end of
the term, at Tenant's sole cost and expense, forthwith ad with all due diligence
remove any alterations, additions or improvements made by Tenant, designated by
Landlord to be removed, and Tenant shall, forthwith and will all due diligence
at its sole cost and expense, repair any damage to the Premises caused by such
removal.
11. REPAIRS.
11.a By taking possession of the Premises, Tenant shall be deemed to
have accepted the Premises as being in good, sanitary order, condition and
repair. Tenant shall, at Tenant's sole cost and expense, keep the Premises and
every part thereof in good condition and repair, damage thereto from causes
beyond the reasonable control of Tenant and ordinary wear and tear excepted.
Tenant shall upon the expiration or sooner termination of this Lease hereof
surrender the Premises to the Landlord in good condition, ordinary wear and tear
and damage from causes beyond the reasonable control of Tenant excepted. Except
as specifically provided in an addendum, if any, to this Lease, Landlord shall
have no obligation whatsoever to alter, remodel, improve, repair, decorate or
paint the Premises or any part
-3-
<PAGE>
Exhibit 10.9
thereof and the parties hereto affirm that Landlord has made no representations
to Tenant respecting the condition of the Premises or the Building except as
specifically herein set forth.
11.b Notwithstanding the provisions of Article 11.a hereinabove,
Landlord shall repair and maintain the structural portions of the Building,
including the basic plumbing, air conditioning, heating and electrical systems,
installed or furnished by Landlord, unless such maintenance and repairs are
caused in part or in whole by the act, neglect, fault or omission of any duty by
the Tenant, its agents, servants, employees or invitees, in which case Tenant
shall pay to Landlord the reasonable cost of such maintenance and repairs.
Landlord shall not be liable for any failure to make any such repairs or to
perform any maintenance unless such failure shall persist for an unreasonable
time after written notice of the need of such repairs or maintenance is given to
Landlord by Tenant. Except as provided in Article 22 hereof, there shall be no
abatement of rent and no liability of Landlord by reason of any injury to or
interference with Tenant's business arising from the making of any repairs,
alterations or improvements in or to any portion of the Building or the Premises
or in or to fixtures, appurtenances and equipment therein. Tenant waives the
right to make repairs at Landlord's expense under any law, statute or ordinance
now or hereafter in effect.
12. LIENS. Tenant shall keep the Premises and the property in which the Premises
is situated free from any liens arising out of any work performed, materials
furnished or obligations incurred by Tenant. Landlord may require, at Landlord's
sole option, that Tenant shall provide to Landlord at Tenant's sole cost and
expense, a lien and complete bond in an amount equal to one and one-half (1 1/2)
times any and all estimated cost of any improvements, additions, or alterations
in the Premises, to insure Landlord against any liability for mechanics' and
materialmen's liens and to insure completion of the work.
13. ASSIGNMENT AND SUBLETTING. Tenant shall not either voluntarily or by
operation of law, assign, transfer, mortgage, pledge, hypothecate or encumber
this Lease or any interest therein, and shall not sublet the said Premises or
any part thereof, or any right or privilege appurtenant thereto, or suffer any
other person (the employees, agents, servants and invitees of Tenant excepted)
to occupy or use the said Premises, or any portion thereof, without the written
consent of Landlord first had and obtained, which consent shall not be
unreasonably withheld, and a consent to one assignment, subletting occupation or
use by any other person shall not be deemed to be a consent to any subsequent
assignment, subletting, occupation or use by another person. Any such assignment
or subletting without such
-4-
<PAGE>
Exhibit 10.9
consent shall be void, and shall, at the option of the Landlord, constitute a
default under this Lease.
14. HOLD HARMLESS. Tenant shall indemnify and hold harmless Landlord against and
from any and all claims arising from Tenant's use of the Premises for the
conduct of its business or from any activity, work, or other thing done,
permitted or suffered by the Tenant in or about the Building, and shall further
indemnify and hold harmless Landlord against and from any and all claims arising
from any breach or default in the performance of any obligation on Tenant's part
to be performed under the terms of this Lease, or arising from any act or
negligence of the Tenant, or any officer, agent, employee, guest, or invitee of
Tenant, and from all and against all cost, attorney's fees, expenses and
liabilities incurred in or about any such claim or any action or proceeding
brought thereon, and, in any case, action or proceeding be brought against
Landlord by reason of any such claim, Tenant upon notice from Landlord shall
defend the same at Tenant's expense by counsel reasonably satisfactory to
Landlord. Tenant as a material part of the consideration to Landlord hereby
assumes all risk of damage to property or injury to persons, in, upon or about
the Premises, from any cause other than Landlord's negligence, and Tenant hereby
waives all claims in respect thereof against Landlord.
Landlord or its agents shall not be liable for any damage to property
entrusted to employees of the Building, nor for loss or damage to any property
by theft or otherwise, nor for any injury to or damage to persons or property
resulting from fire, explosion, falling plaster, steam, gas, electricity, water
or rain which may leak from any part of the Building or from the pipes,
appliances or plumbing works therein or from the roof, street or subsurface or
from any other place resulting from dampness or any other cause whatsoever,
unless caused by or due to the negligence of Landlord, its agents, servants or
employees. Landlord or its agents shall not be liable for interference with the
light or other incorporeal hereditaments, loss of business by Tenant, nor shall
Landlord be liable for any latent defect in the Premises or in the Building.
Tenant shall give prompt notice to Landlord in case of fire or accidents in the
Premises or in the Building or of defects therein or in the fixtures or
equipment.
15. SUBROGATION. As long as their respective insurers so permit, Landlord and
Tenant hereby mutually waive their respective rights to recovery against each
other for any loss insured by fire, extended coverage and other property
insurance policies existing for the benefit of the respective parties. Each
party shall obtain any special endorsements, if required by their insurer to
evidence compliance with the aforementioned waiver.
-5-
<PAGE>
Exhibit 10.9
16. LIABILITY INSURANCE. Tenant shall, at Tenant's expense, obtain and keep in
force during the term of this Lease a policy of comprehensive public liability
insurance insuring Landlord and Tenant against any liability arising out of the
ownership, use, occupancy or maintenance of the Premises and all areas
appurtenant thereto. The limit of said insurance shall not, however, limit the
liability of the Tenant hereunder. Tenant may carry said insurance under a
blanket policy, providing, however, said insurance by Tenant shall have a
Landlord's protective liability endorsement attached thereto. If Tenant shall
fail to procure and maintain said insurance, Landlord may, but shall not be
required to, procure and maintain same, but at the expense of Tenant. Insurance
required hereunder, shall be in companies rated A+ AAA or better in "Best's
Insurance Guide". Tenant shall deliver to Landlord prior to occupancy of the
Premises copies of policies of liability insurance required herein or
certificates evidencing the existence and amounts of such insurance with loss
payable clauses satisfactory to Landlord. No policy shall be canceled or subject
to reduction of coverage except after ten (10) days' prior written notice to
Landlord.
17. [Intentionally Omitted]
18. PROPERTY TAXES. Tenant shall pay, or cause to be paid, before delinquency,
any and all taxes levied or assessed and which become payable during the term
hereof upon all Tenant's leasehold improvements, equipment, furniture, fixtures
and personal property located in the Premises, except that which has been paid
for by Landlord, and is the standard of the Building. In the event any or all of
the Tenant's leasehold improvements, equipment, furniture, fixtures and personal
property shall be assessed and taxed with the Building. Tenant shall pay to
Landlord its share of such taxes within ten (10) days after delivery to Tenant
by Landlord of a statement in writing setting forth the amount of such taxes
applicable to Tenant's property.
19. RULES AND REGULATIONS. Tenant shall faithfully observe and comply with the
rules and regulations that Landlord shall from time to time promulgate. Landlord
reserves the right from time to time to make all reasonable modifications to
said rules. The additions and modifications to those rules shall be binding upon
Tenant upon delivery of a copy of them to Tenant. Landlord shall not be
responsible to Tenant for the nonperformance of any said rules by any other
tenants or occupants.
20. HOLDING OVER. If Tenants remain in possession of the Premises or any part
thereof after the expiration of the term hereof with the express written consent
of Landlord, such occupancy shall be a tenancy from month to month at a rental
in the amount of the last monthly rental plus all other charges payable
hereunder, and upon all the terms hereof applicable to a month to month tenancy.
-6-
<PAGE>
Exhibit 10.9
21. ENTRY BY LANDLORD. Landlord reserves and shall at any and all times have the
right to enter the Premises, inspect the same, supply janitorial service and or
any other service to be provided by Landlord to Tenant hereunder, to submit said
Premises to prospective purchasers or tenants, to post notices of non-
responsibility, and to alter, improve or repair the Premises and any portion of
the Building of which the Premises are a part that Landlord may deem necessary
or desirable, without abatement of rent and may for that purpose erect
scaffolding and other necessary structures where reasonably required by the
character of the work to be performed, always providing that the entrance to the
Premises shall not be blocked thereby, and further providing that the business
of the Tenant shall not be interfered with unreasonably. Tenant hereby waives
any claim for damages or for any injury or inconvenience to or interference with
Tenant's business, any loss of occupancy or quiet enjoyment of the Premises, and
any other loss occasioned thereby. For each of the aforesaid purposes, Landlord
shall at all times have and retain a key with which to unlock all of the doors
in, upon and about the Premises excluding Tenant's vaults, safes and files, and
Landlord shall have the right to use any and all means which Landlord may deem
proper to open said doors in an emergency, in order to obtain entry to the
Premises without liability to Tenant except for any failure to exercise due care
for Tenant's property. Any entry to the Premises obtained by Landlord by any of
said means or otherwise shall not under any circumstances be construed or deemed
to be a forcible or unlawful entry into, or a detainer of, the Premises, or an
eviction of Tenant from the Premises or any portion thereof.
22. RECONSTRUCTION. In the event the Premises or the Building of which the
Premises are a part are damaged by fire or other perils covered by extended
coverage insurance, Landlord agrees to forthwith repay the same and this Lease
shall remain in full force and effect except that Tenant shall be entitled to a
proportionate reduction of the rent while such repairs are being made, such
proportionate reduction to be based upon the extent to which the making of such
repairs shall materially interfere with the business carried on by the Tenant in
the Premises. If the damage is due to the fault or neglect of Tenant or its
employees, there shall be no abatement of rent.
In the event the Premises of the Building of which the Premises are a
part are damaged as a result of any cause other than the perils covered by fire
and extended coverage insurance, then Landlord shall forthwith repair the same,
provided the extent of the destruction be less than ten (10%) percent of the
then full replacement cost of the Premises or the Building of which the Premises
are a part in the event the destruction of the Premises or the Building is to an
extent greater than ten (10%)
-7-
<PAGE>
Exhibit 10.9
percent of the full replacement cost, then Landlord shall have the option (1) to
repair or restore such damage this Lease continuing in full force and effect,
but the rent to be proportionately reduced as hereinabove in this Article
provided or (2) give damage notice to Tenant at any time within sixty (60) days
after such damage terminating this Lease as of the date specified in such
notice, which date shall be no less than thirty (30) and no more than (60) days
after the giving of such notice. In the event of giving such notice this Lease
shall expire and all interest of the Tenant in the Premises shall terminate on
the date so specified in such notice and the Rent reduced by a proportionate
amount based upon the extent, if any, to which such damage materially interfered
with the business carried on by the Tenant in the Premises shall be paid up to
date of said such termination.
Notwithstanding anything to the contrary contained in this Article,
Landlord shall not have any obligation whatsoever to repair, reconstruct or
restore the Premises when the damage resulting from any casualty covered under
this Article occurs during the last twelve (12) months of the term of this Lease
or any extension thereof.
Landlord shall not be required to repair any injury or damage by fire
or other cause, or to make any repairs or replacements of any panels,
decoration, office fixtures, railings, floor covering, partitions, or any other
property installed in the Premises by Tenant.
The Tenant shall not be entitled to any compensation or damages from
Landlord for loss of the use of the whole or any part of the Premises. Tenant
personal property or any inconvenience or annoyance occasioned by such damage,
repair, reconstruction or restoration.
23. DEFAULT. The occurrence of any one or more of the following events shall
constitute a default and breach of this Lease by Tenant.
23.a The vacating or abandonment of the Premises by Tenant.
23.b The failure by Tenant to make any payment of rent or any other
payment required to be made by Tenant hereunder, as and when due, where such
failure shall continue for a period of three (3) days after written notice
thereof by Landlord to Tenant.
23.c The failure by Tenant to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by the
Tenant, other than described in Article 23.b. above, where such failure shall
continue for a period of thirty
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<PAGE>
Exhibit 10.9
(30) days after written notice thereof by Landlord to Tenant, provided, however,
that if the nature of Tenant's default is such that more than thirty (30) days
are reasonably required for its cure, then Tenant shall not be deemed to be in
default if Tenant commences such cure within said thirty (30) day period and
thereafter diligently prosecutes such cure to completion.
23.d The making by Tenant of any general assignment or general
arrangement for the benefit of creditors; or the filing by or against Tenant of
a petition to have Tenant adjudged a bankruptcy, or a petition or reorganization
or arrangement under any law relating to bankruptcy (unless, in the case of a
petition filed against Tenant, the same is dismissed within sixty (60) days), or
the appointment of a trustee or a receiver to take possession of substantially
all of Tenant's assets located at the Premises or of Tenant's interest in this
Lease, where possession is not restored to Tenant within thirty (30) days, or
the attachment, execution or other judicial seizure or substantially all of
Tenant's assets located at the Premises or of Tenant's interest in this Lease,
where such seizure is not discharged in thirty (30) days.
24. REMEDIES IN DEFAULT. In the event of any such material default or breach by
Tenant, Landlord may at any time thereafter, with or without notice or demand
and without limiting Landlord in the exercise of a right or remedy which
Landlord may have by reasons of such default or breach.
24.a Terminate Tenant's right to possession of the Premises by any
lawful means, in which case this Lease shall terminate and Tenant shall
immediately surrender possession of the Premises to Landlord. In such event
Landlord shall be entitled to recover from Tenant all damages incurred by
Landlord by reason of Tenant's default including, but not limited to, the cost
of recovering possession of the Premises; expenses of reletting, including
necessary renovation and alteration of the Premises, reasonable attorney's fees,
any real estate commission actually paid, the worth at the time of award by the
court having jurisdiction thereto of the amount by which the unpaid rent for the
balance of the term after the time of such award exceeds the amount of such
rental loss for the same period that Tenant proves could be reasonably avoided,
that portion of the leasing commission paid by Landlord and applicable to the
expired term of this Lease. Unpaid installments of rent or other sums shall bear
interest from the date due at the rate of ten (10) percent per annum. In the
event Tenant shall have abandoned the Premises, Landlord shall have the option
of (a) taking possession of the Premises and recovering from Tenant the amount
specified in this paragraph, or (b) proceeding under the provisions of the
following Article 24.b.
-9-
<PAGE>
Exhibit 10.9
24.b Maintain Tenant's right to possession, in which case this Lease
shall continue in effect whether or not Tenant shall have abandoned the
Premises. In such event Landlord shall be entitled to enforce all of Landlord's
rights and remedies under this Lease, including the right to recover the rent as
it becomes due hereunder.
24.c Pursue any other remedy now or hereafter available to Landlord
under the laws or jurisdiction of the State in which the Premises are located.
25. EMINENT DOMAIN. If more than twenty-five (25%) percent of the Premises shall
be taken or apportioned by any public or quasi-public authority under the power
of eminent domain, either party hereto shall have the right, at its option, to
terminate this Lease, and landlord shall be entitled to any and all income,
rent, award, or any interest therein whatsoever which may be paid or made in
connection with such public or quasi-public use or purpose, and Tenant shall
have no claim against Landlord for the value of any unexpired term of this
Lease. If either less than or more than twenty-five (25%) percent of the
Premises is taken, and neither party elects to terminate as herein provided, the
rental thereafter to be paid shall be equitably reduced. If any part of the
Building other than the Premises may be so taken or appropriated, Landlord shall
have the right at its option to terminate this Lease and shall be entitled to
the entire award as above provided.
26. OFFSET STATEMENT. Tenant shall at any time and from time to time upon not
less than ten (10) days' prior written notice from Landlord execute, acknowledge
ad deliver to Landlord a statement in writing, (a) certifying that this Lease is
unmodified and in full force and effect for, if modified, stating the nature of
such modification and certifying that this Lease as so modified, is in full
force and effect), and the date to which the rental and other charges are paid
in advance, if any, and (b) acknowledging that there are not, to Tenant's
knowledge, any uncured defaults on the part of the Landlord hereunder, or
specifying such defaults if any are claimed. Any such statement may be relied
upon by any prospective purchaser or encumbrances of all or any portion of the
real property of which the Premises are a part.
27. PARKING. Tenant shall have the right to use in common with other tenants or
occupants of the Building the parking facilities of the Building, if any,
subject to the monthly rates, rules and regulations, and any other charges of
Landlord for such parking facilities which may be established or altered by
Landlord at any time or from time to time during the term hereof.
-10-
<PAGE>
Exhibit 10.9
28. AUTHORITY OF PARTIES.
28.a Corporate Authority. If Tenant is a corporation, each individual
executing this Lease on behalf of said corporation represents and warrants that
he is duly authorized to execute and deliver this Lease on behalf of said
corporation, in accordance with a duly adopted resolution of the board of
directors of said corporation or in accordance with the by-laws of said
corporation, and that this Lease is binding upon said corporation in accordance
with its terms.
28.b Limited Partnerships. If the Landlord herein is a limited
partnership, it is understood and agreed that any claims by Tenant on Landlord
shall be limited to the assets of the limited partnership, and furthermore,
Tenant expressly waives any and all rights to proceed against the individual
partners or the officers, directors or shareholders of any corporate partner,
except to the extent of their interest in said limited partnership.
29. GENERAL PROVISIONS.
(i) Plats and Riders. Clauses, plats and riders, if any, signed by the
Landlord and the Tenant and endorsed on or affixed to this Lease are a part
hereof.
(ii) Waiver. The waiver by Landlord of any term, covenant or condition
herein contained shall not be deemed to be a waiver of such term, covenant or
condition on any subsequent breach of the same on any other term, covenant or
condition herein contained. The subsequent acceptance of rent hereunder by
Landlord shall not be deemed to be a waiver of any preceding breach by Tenant of
any term, covenant or condition of this Lease other than the failure of the
Tenant to pay the particular rental so accepted, regardless of Landlord's
knowledge of such preceding breach at the time of the acceptance of such rent.
(iii) Notices. All notices and demands which may or are to be required
or permitted to be given by either party to the other hereunder shall be in
writing. All notices and demands by the Landlord to the Tenant shall be sent by
United States Mail, addressed to the Tenant the Premises, or to such other place
as Tenant may from time to time designate in a notice to the Landlord. All
notices and demand by the Tenant to the Landlord shall be sent by United States
Mail, addressed to the Landlord at the Office of the Building or to such other
person or place as the Landlord may from time to time designate in a notice to
the Tenant.
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<PAGE>
Exhibit 10.9
(iv) Joint Obligation. If there be more than one Tenant the obligations
hereunder imposed upon Tenants shall be joint and several.
(v) Marginal Headings. The marginal headings and Article titles to the
Articles of this Lease are not a part of this Lease and shall have no effect
upon the construction or interpretation of any part hereof.
(vi) Time. Time is of the essence of this Lease and each and all of its
provisions in which performance is a factor.
(vii) Successors and Assigns. The covenants are conditioned herein
contained, subject to the provisions and to assignments, apply to and bond the
heirs, successors, executors, administrators and assigns of the parties hereto.
(viii) Recordation. Neither the Landlord nor Tenant shall record this
Lease or a short form memorandum hereof without the prior written consent of the
other party.
(ix) Quiet Possession. Upon Tenant paying the rent reserved hereunder
and observing and performing all of the covenants conditioned and provisions on
Tenant's part to be observed and performed hereunder, Tenant shall have quiet
possession of the Premises for the entire term hereof, subject to all the
provisions of this Lease.
(x) Late Charge. Tenant hereby acknowledges that late payment by Tenant
to Landlord of rent or other sums due hereunder will cause Landlord to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include but are not limited to,
processing and accounting charges and late charges which may be imposed upon
Landlord by terms of any mortgage or trust deed covering the Premises.
Accordingly, if any installment of rent or of a sum due from Tenant shall not be
received by Landlord or Landlord's designed within ten (10) days after written
notice that said amount is past due, then Tenant shall pay to Landlord a late
charge equal to ten (10%) percent of such overdue amount. The parties hereby
agree that such late charges represent a fair and reasonable estimate of the
cost that Landlord will incur by reason of the late payment by Tenant.
Acceptance of such late charges by the Landlord shall in no event constitute a
waiver of Tenant's default with respect to such overdue amount, nor prevent
Landlord from exercising any of the other rights and remedies granted hereunder.
(xi) Prior Agreements. This Lease contains all of the agreements of the
parties hereto with respect to any matter
-12-
<PAGE>
Exhibit 10.9
covered or mentioned in this Lease, and no prior agreements or understanding
pertaining to any such matters shall be effective for any purpose. No provision
of this Lease may be effective or binding on any party until fully executed by
both parties hereto.
(xii) Inability to Perform. This Lease and the obligations of the
Tenant hereunder shall not be affected or impaired because the Landlord is
unable to fulfill any of its obligations hereunder or is delayed in doing so, if
such inability or delay is caused by reason of strike, labor troubles, acts of
God, or any other cause beyond the reasonable control of the Landlord.
(xiii) Attorneys' Fees. In the event of any action or proceeding
brought by either party against the other under this Lease the prevailing party
shall be entitled to recover all costs and expenses including the fees of its
attorneys in such action or proceeding in such amount as the court may adjudge
reasonable as attorneys' fees.
(xiv) Sale of Premises by Landlord. In the event of any sale of the
Building, Landlord shall be and is hereby entirely freed and relieved of all
liability under any and all of its covenants and obligations contained in or
derived from this lease arising out of any act, occurrence or omission occurring
after the consummation of such sale, and the purchase, at such sale or any
subsequent sale of the Premises shall be deemed, without any further agreement
between the parties of their successors in interest or between the parties and
any such purchaser, to have assumed and agreed to carry out any and all of the
covenants and obligations of the Landlord under this Lease.
(xv) Subordination, Attornment. Upon requests of the Landlord, Tenant
will in writing subordinate its rights hereunder to the lien of any first
mortgage, or first deed of trust to any bank, insurance company or other lending
institutions, now or hereafter in force against the land and Building of which
the Premises are a part, and upon any buildings hereafter placed upon the land
of which the Premises are a part, and to all advances made or here after to be
made upon the security thereof.
In the event any proceedings are brought for foreclosure, or in the
event of the exercise of the power of sale under any mortgage or deed of trust
made by the Landlord covering the Premises, the Tenant shall attorn to the
purchaser upon any such foreclosure or sale and recognize such purchaser as the
Landlord under this Lease.
The provisions of this Article to the contrary notwithstanding and so
long as Tenant is not in default
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<PAGE>
Exhibit 10.9
hereunder, this Lease shall remain in full force and effect for the full term
hereof.
(xvi) Name. Tenant shall not use the name of the Building or of the
development in which the Building is situated for any purpose other than as an
address of the business to be conducted by the Tenant in the Premises.
(xvii) Separability. Any provision of this Lease which shall prove to
be invalid, void or illegal shall in no way affect, impair or invalidate any
other provision hereof and such other provisions shall remain in full force and
effect.
(xviii) Cumulative Remedies. No remedy or election hereunder shall be
deemed exclusive but shall, wherever possible, be cumulative with all other
remedies at law or in equity.
(xix) Choice of Law. This Lease shall be governed by the laws of the
State in which the Premises are located.
(xx) Signs and Auctions. Tenant shall not place any sign upon the
Premises or Building or conduct any auction thereupon with Landlord's prior
written consent.
30. BROKERS. Tenant warrants that it has had no dealings with any real estate
broker or agents in connection with the negotiations of this Lease excepting
only __________________________________________________________________
_________________________________ and it knows of no other real estate broker or
agent who is entitled to a commission in connection with this Lease.
5a Rent
Without prior written notice or demand on the first day of each month,
Tenant shall pay the Base Rent plus charges for Common Area Maintenance and
Consumer Price Index increases as follows:
(A) Base Rent - The Base Rent for the initial year of this lease shall be $20
per square foot.
(B) CPI Increases - On the first day of the third year of this lease, the Base
Rent will be increased by the percentage increase of the Consumer Price Index
during the first two years of this lease Compounded annually. On the first day
of the fifth year of this lease, the Base Rent at the end of the fourth year
shall be increased by the percentage increases of the Consumer Price Index
during the third and fourth year of this lease compounded annually. On the first
day of the sixth year and each of the remaining years of the initial term, and
for each year of all
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<PAGE>
Exhibit 10.9
renewal periods, the base rent will be increased by the immediately preceding
calendar year percentage increase of the Consumer Price Index.
The statistic used for CPI computations shall be the Consumer Price
Index for Urban Consumers (Revised Series), Philadelphia Region, All Items
(1977-100) issued by the Bureau of Labor Statistics Section of the Monthly Labor
Review (final publication only). in the event that the Index shall be
discontinued or no longer published, Landlord shall substitute a price index or
formula which shall have approximately the same effect as originally designated
herein as the Index.
In no event shall the adjusted base rent ever be less than the base
rent level of the previous lease year. If the CPI index increases by more than
5.5% for any calendar year during this lease, the maximum (ceiling) annual CPI
percentage statistic used for the purposes of these calculations for that
specific year shall be 5.5%.
(C) Common Area Maintenance - As additional rent, Tenant will be responsible to
pay (a) Tenant's own utility consumption as separately metered; (b) Tenant's
prorated share (12%) of common area expense including parking lot lighting,
parking lot maintenance, ground maintenance, building maintenance, rubbish
removal, snow plowing, window cleaning, (c) Tenant's prorated share (12%) of
real estate taxes, water and sewer charges, and building insurance, and
management fee.
31. Janitorial
Tenant will provide its own Janitorial Service.
32. Renewal Options
Tenant has the option to renew this lease for two additional
five year periods.
(a) First Renewal Option - For the First Renewal Option, January 1st,
1999- Dec. 31, 2003, the Base Rent for the first year of the renewal option term
shall be 105% of the 1998 base rental including CPI increases). The Base Rental
for the initial and subsequent years of the first renewal option term shall be
increased annually for the percentage increase in the Consumer Price Index
pursuant to 5a Rent (B) CPI increases. As additional rent, Tenant will be
responsible to pay Common Area Maintenance pursuant to Paragraph 5a Rent
(C) Common Area Maintenance.
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<PAGE>
Exhibit 10.9
(b) Second Renewal Option - For the Second Renewal Option, January 1,
2004 - December 31, 2006, the Base Rent for the first year of the renewal option
term shall be 110% of the 1993 base rental (including CPI increases). The Base
Rental for the initial and subsequent years of the first renewal option term
shall be increased annually for the percentage increase in the Consumer Price
Index pursuant to 5a Rent (B) CPI increases. As additional rent, Tenant will be
responsible to pay Common Area Maintenance pursuant to Paragraph 5a Rent (C)
Common Area Maintenance.
33. Drive Through Window
Tenant shall have the right to construct a drive through facility
between the Sinkler office buildings; all costs, including necessary building
modifications, Will be at Tenant's expense. The right to such drive through
shall be subject to zoning and planning commission approvals, which shall be
Tenant's responsibility and secured at its cost and expense. An additional
charge of $4,000 per annum shall be added to the base annual rental commencing
two years after installation of drive through facility. Tenant's right to
construct a drive through is conditioned upon tenant securing local regulatory
approvals and installation of improvements within the first three years of the
initial lease term. If approvals are not so obtained and improvements are not
installed in that period, Tenant's right to construct the Drive Through Window
shall lapse.
The parties hereto have executed this Lease at the place and on the date
specified immediately adjacent to their respective signatures.
If this Lease has been filled in, it has been prepared for submission to your
attorney for his approval. No representation
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<PAGE>
Exhibit 10.9
or recommendation is made by the real estate broker or its agents or employees
as to the legal sufficiency, legal effect, or tax consequences of this Lease or
the transactions relating thereto.
Main Line Realty Partners
By:______________________________
Address: 2 Bala Plaza, By:______________________________
Suite 525
Bala Cynwyd, PA 19004
"LANDLORD"
First Sterling Bank
By:______________________________
Address: Sinkler Building By:______________________________
560 E. Lancaster Ave.
St. Davids, PA
"TENANT"
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<PAGE>
Exhibit 10.9
RULES AND REGULATIONS
1. No sign, placard, picture, advertisement, name or notice shall be inscribed,
displayed or printed or affixed on or to any part of the outside or inside of
the Building without the written consent of Landlord first had and obtained and
Landlord shall have the right to remove any such sign, placard, picture,
advertisement, name or notice without notice to and at the expense of Tenant.
All approved signs or lettering on doors shall be printed, painted,
affixed or inscribed at the expense of Tenant by a person approved of by
Landlord.
Tenant shall not place anything or allow anything to be placed near the
glass of any window, door, partition or wall which may appear unsightly from
outside the Premises, provided, however, that Landlord may furnish and install a
Building standard window covering at all exterior windows Tenant shall not
without prior written consent of Landlord cause or otherwise sunscreen any
window.
2. The sidewalks, halls, passages, exits, entrances, elevators and stairways
shall not be obstructed by any of the tenants or used by them for any purpose
other than for ingress and egress from their respective Premises.
3. Tenant shall not alter any lock or install any new or additional locks or any
bolts on any doors or windows of the Premises.
4. The toilet rooms, urinals, wash bowls and other apparatus shall not be used
for any purpose other than that for which they were constructed and no foreign
substance of any kind whatsoever shall be thrown therein and the expense of any
breakage, stoppage or damage resulting from the violation of this rule shall be
borne by the Tenant who, or whose employees or invitees shall have caused it.
5. Tenant shall not overload the floor of the Premise or in any way deface the
Premises or any part thereof.
6. No furniture, freight or equipment of any kind shall be bought into the
Building without the prior notice to Landlord and all moving of the same into or
out of the Building shall be done at such time and in such manner as Landlord
shall designate Landlord shall have the right to prescribe the weight, size and
position of all safes and other heavy equipment brought into the Building and
also the times and manner of moving the same in and out of the Building Safes or
other heavy objects shall, if
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<PAGE>
Exhibit 10.9
considered necessary by Landlord, stand on supports of such thickness as is
necessary to properly distribute the weight. Landlord will not be responsible
for loss of or damage to any such safe or property from any cause and all damage
done to the Building by moving or maintaining any such save or other property
shall be repaired at the expense of Tenant.
7. Tenant shall not use, keep or permit to be used or kept any foul or noxious
gas or substance in the Premises, or permit or suffer the Premises to be
occupied or used in a manner offensive or objectionable to the Landlord or other
occupants of the Building by reason of noise, odors and/or vibrations, or
interfere in any way with other tenants or those having business therein, nor
shall any animals or birds be brought in or kept in or about the Premises or the
Building.
8. No cooking shall be done or permitted by any Tenant on the Premises, nor
shall the Premises be used for the storage of merchandise, for washing, clothes,
for lodging or for any improper, objectionable or immoral purposes.
9. Tenants shall not use or keep in the Premises or the Building any kerosene,
gasoline or inflammable or combustible fluid or material, or use any method of
heating or air conditioning other tan that supplied by Landlord.
10. Landlord will direct electricians as to where and how telephone and
telegraph wires are to be introduced. No boring or cutting for wires will be
allowed without the consent of the Landlord. The location of telephones, call
boxes and other office equipment affixed to the Premises shall be subject to the
approval of Landlord.
11. On Saturdays, Sundays and legal holidays, and on other days between the
hours of 6:00 p.m. and 8:00 a.m. the following day, access to the Building or to
the halls, corridors, elevators or stairways in the Building or to the Premises
may be refused unless the person seeking access is known to the person or
employee of the Building in charge and has a pass or is properly identified. The
Landlord shall in no case be liable for damages for any error with regard to the
admission of or exclusion from the Building of any person. In cases of invasion,
mob, riot, public excitement or other commotion, the Landlord reserves the right
to prevent access to the Building during the continuation of the same by closing
of the doors or otherwise for the safety of the tenants and protections of
property in the Building and the Building.
12. Landlord reserves the right to exclude or expel from the Building any person
who, in the judgment of Landlord, is
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<PAGE>
Exhibit 10.9
intoxicated or under the influence of liquor or drugs or who shall in any manner
do any act in violation of any of the rules and regulations of the Building.
13. No vending machine or machines of any description shall be installed,
maintained or operated upon the Premises without the written consent of the
Landlord.
14. Landlord shall have the right, exercisable without notice and without
liability to Tenant, to change the name and street address of the Building on
which the Premises are a part.
15. Tenant shall not disturb, solicit, or canvass any occupant of the Building
and shall cooperate to prevent same.
16. Without the written consent of Landlord, Tenant shall not use the name of
the Building in connection with or in promoting or advertising the business of
Tenant except as Tenant's address.
17. Landlord shall have the right to control and operate the public portions of
the Building and the public facilities, and heating and air conditioning as well
as facilities furnished for the common use of the tenants, in such manner as it
deems best for the benefit of the tenants generally.
18. All entrance doors in the Premises shall be left locked when the Premises
are not in use, and all doors opening to public corridors shall be kept closed
except for normal ingress and egress from the Premises.
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Exhibit 10.10
LEASE AMENDMENT #1
Agreement, made as of the 15th day of December, 1995, by and between
Dominion Properties, L.P., a Pennsylvania Limited Partnership having its
principal place of business at Fifth Floor, Two Bala Plaza Office Building, Bala
Cynwyd, Pennsylvania, C/O Arthur J. Kania, Jr. ("Landlord") and The First
Sterling Bank, a Pennsylvania Corporation doing business in the Commonwealth of
Pennsylvania and having its executive offices at The First Sterling Bank
Building, 80 West Lancaster Avenue, Devon, Pennsylvania ("Tenant").
WITNESSETH
WHEREAS, Landlord and Tenant have entered into a lease of 2,250 square feet
in the building known as The Bryn Mawr Shoppes, 22 North Bryn Mawr Avenue, Bryn
Mawr, Pennsylvania, which lease commenced September 1, 1990 and expires August
31, 2000.
WHEREAS, Landlord and Tenant desire to extend this lease in the respects
hereinafter set forth.
NOW THEREFORE, in consideration of the premises and other good and valuable
consideration, the receipt and sufficiency whereof are hereby acknowledged, and
intending to be legally bound hereby, the parties hereto agree as follows:
1. Landlord and Tenant hereby agree to modify the term of the lease to a
ten year term beginning January 1, 1996, and extending until December 31, 2005.
2. Landlord and Tenant hereby agree that Tenant shall have the option to
renew this lease for two five year periods by providing written notice to the
Landlord one year in advance of the then expiring term.
3. Landlord and Tenant agree that all other terms and conditions of this
lease including the payment of rent shall remain in full force and effect with
the increases to base rent during the renewal periods to be calculated upon the
then immediately preceding year.
4. Except as expressly modified by this Agreement, The Lease is hereby
ratified, confirmed, and continued in full force and effect.
<PAGE>
5. This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, executors, legal representatives,
successors, and assigns.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
Dominion Properties, L.P. The First Sterling Bank
By: By:
---------------------- ----------------------
Attest: Attest:
------------------ ------------------
-2-
<PAGE>
LEASE AGREEMENT
THIS LEASE AGREEMENT (herein called "Lease") made this 30th day of August,
1990, between Main Line Realty Partners, 2 Bala Plaza, Suite 525, Bala Cynwyd,
Pa. 19004 ("Landlord"), and First Sterling Bank, a Pennsylvania banking
corporation, having its principal place of business at 80 West Lancaster Ave.,
Devon, Pennsylvania 19333 ("Tenant").
WITNESSETH
ARTICLE I.
DEMISE - PROPERTY - TERM - RENT - USE
Section 1.1. Demise and Premises. The Landlord hereby leases to Tenant and
Tenant does rent and take from the Landlord, for the Term and upon the
covenants, terms and conditions hereinafter set forth, premises containing
approximately 2,250 square feet of first floor space located in a building at 22
North Bryn Mawr Avenue, Bryn Mawr, County of Montgomery and Commonwealth of
Pennsylvania and as outlined on Exhibit A hereto ("Demised Premises").
Section 1.2. Term. The Term of the Lease shall be for a period of Ten (10)
years to commence on September 1, 1990 and to terminate on August 31, 2000,
unless the Term is sooner ended in accordance with the provisions of this Lease.
Section 1.3. Rent. The Tenant shall pay to the Landlord as base rent for
the Ten (10) year term of the Lease the sum of Fifty six thousand, two hundred
fifty dollars ($56,250) per annum, payable in equal monthly installments of Four
Thousand, Six Hundred Eighty Seven and Fifty Cents ($4,687.50). Said monthly
installment shall be paid by the Tenant to the Landlord on the first day of each
and every month during the Term hereof. Rent for any period less than a full
month shall be apportioned.
Section 1.4. Use. The Tenant may operate and conduct in the Demised
Premises, during all its customary banking hours the business and services of a
commercial bank, and all other related banking business and services, including
without limitation safe deposit, investment, security and other incidental
related businesses and services as performed now or hereafter in Tenant's main
office and branches.
ARTICLE II.
TAXES AND LANDLORD'S INSURANCE
<PAGE>
Section 2.1. Tenant shall pay as additional rent its proportionate share of
all real estate taxes, assessments, sewer rents, water rents, and other
municipal charges of a similar nature hereafter levied, assessed or imposed upon
the building (the "Building") containing the Demised Premises, during the Term
of this case and any renewals thereof, all of which are hereafter collectively
referred to as "Taxes." Tenant shall also pay as additional rent the premiums
for all customary insurance which are purchased on the Building.
Section 2.2. For the calendar year in which this Lease commences or
terminates, the Tenant's share of any Taxes shall be adjusted in the proportion
which the number of full calendar months during which this Lease is in force and
effect in such year, bears to 12.
ARTICLE III.
ALTERATIONS AND IMPROVEMENT OF DEMISED PREMISES
Section 3.1. Tenant's Alterations and Improvements. The Demised Premises
are presently being used as a banking facility. Tenant, at its option, may
renovate or replace the facade and the existing bank related improvements,
provided, however, all such work by Tenant will be in accordance with the plans
and specifications approved in writing by Landlord, which approval shall not be
withheld or delayed unreasonably.
ARTICLE IV.
Deliberately Omitted
ARTICLE V.
SIGNS - EQUIPMENT
Section 5.1. Deliberately Omitted
Section 5.2. Signs. Tenant shall have the right to erect, maintain and when
necessary, replace signs in the interior of the Demised Premises. Tenant also
shall have the right to erect other exterior signs advertising Tenant's business
on the exterior of the Demised Premises, and at such other locations as the
Landlord and the Tenant may select, such signs to conform to the requirements of
Landlord. All exterior signs shall comply with all laws, ordinances or
regulations of duly constituted authorities. Tenant, at its own cost and
expense, shall first apply for and obtain all necessary permits for exterior
signs as it may desire to erect, and after erection thereof shall be responsible
for their maintenance.
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Section 5.3. Title to Tenant's Equipment - Removal.
(a) Tenant shall have and retain the ownership of and title to all
signs, vaults, vault doors, vault equipment, safes, counters, railings,
partitions, electrical protection system, automated teller machines, night
depositories and other furnishings, fixtures and equipment from time to time
installed in the Demised Premises by or charged to Tenant, whether or not
described herein, all or any part of which Tenant reserves the right, at its
election, to remove at any time during the Term of this Lease, or any extension
thereof, provided, however, that Tenant is not in default hereunder and shall at
its expense fully repair any and all damage to the Demised Premises caused by
any such removal.
(b) Tenant's failure, at the expiration or other termination of this
Lease or any renewal or extension thereof, to remove from the Demised Premises
all or any part of such banking facilities, furnishings and equipment as
aforesaid or other personalty shall not be deemed or construed to constitute a
holdover by Tenant. Any such banking facilities, and equipment or other
personalty not removed by the termination date or expiration date of this Lease
or of any renewal or extension thereof shall be and become the property of the
Landlord and may be removed from the Demised Premises by Landlord when left on
the premises by Tenant.
ARTICLE VI
REPAIRS AND MAINTENANCE
Section 6.1 Tenant's Repairs. Tenant shall be responsible for keeping the
Demised Premises clean and for keeping the sidewalk directly abutting the
Demised Premises free and clear of accumulations of debris, snow and ice; and
Tenant also shall, at its own cost and expense, make interior repairs including
all painting and maintenance to the Demised Premises. Tenant shall replace and
repair glass windows and doors, window frames, moldings, trim, door frames,
closure devices, door hardware and door hinges during the term or any renewal or
extension thereof.
The Tenant shall surrender the Demised Premises in the same good order and
condition in which Tenant agrees to keep the same during the continuance of this
Lease.
ARTICLE VII
DAMAGE TO DEMISED PREMISES
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Section 7.1. Repair of Damage. In case of damage to Demised Premises by
fire or other cause:
(a) If a part only of the Demised Premises shall be damaged but not so
as to render the same wholly untenantable or if the damage is not of such nature
or extent as would render the Demised Premises unfit for the operation of a
branch bank therein, the rent shall not be abated and the Landlord shall
commence, within ninety (90) days after the occurrence of the damage, to repair
the damage and restore the structure of the Demised Premises to a state in which
the floor, ceiling and walls with stubbed off utilities were available ("shell
state") to enable Tenant to make its leasehold improvements, which Tenant shall
commence making as soon as possible.
(b) If the damage to the Demised Premises shall be so extensive as to
render the same wholly untenantable, or is of such nature or extent as renders
the Demised Premises unfit for the operation of a branch bank therein, or if the
balance of the Building containing the Demised Premises be substantially
damaged, rent shall be completely abated from the date of the damage until the
structure of the Demised Premises is restored to a shell state; provided,
however, that either one of the parties hereto may terminate this Lease by
notice to the other within thirty (30) days of the fire or other damage, and on
the date specified in such notice (which date shall in no event shall be less
than thirty (30) days after the date on which such notice is sent), this Lease
shall terminate.
(c) Landlord shall be under no obligation to rebuild if its lenders do
not authorize the use of insurance proceeds for such purposes. If insurance
proceeds are so available, Landlord agrees to rebuild the Demised Premises to a
shell state as provided above and Tenant agrees to rebuild its leasehold
improvements as soon as possible.
(d) If Landlord has elected to terminate this Lease because its lenders
did not authorize the use of insurance proceeds to rebuild the Demised Premises,
then, if Landlord subsequently rebuilds a structure at the site, Tenant shall
have a right of first refusal to lease first floor retail space in the structure
at market rates.
ARTICLE VIII
ENTRY BY LANDLORD
Section 8.1. Right of Entry by Landlord. Subject to the provisions
hereinafter set forth, Landlord shall have the right to enter upon the Demised
Premises to inspect the same, or to make any repairs or replacements therein
required or permitted by
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this Lease; provided, however, Landlord, its agents or employees shall not, at
any time, day or night, during the occupancy of the Demised Premises by the
Tenant, unless in event of an emergency, enter the vault(s) or tellers' cages in
and on the Demised Premises, without the prior consent of the Tenant, which the
employee of the Tenant then in charge of the Demised Premises is authorized to
give and then only when accompanied by a representative designated by the
employee of Tenant then in charge of the Demised Premises.
Section 8.2. Entry for Inspection or Exhibiting the Demised Premises. Any
entry by the Landlord, its agents or employees into the Demised Premises for
inspection during the Term hereof,shall be only at times convenient to the
Tenant; and if Tenant so requests, Landlord, its agents and employees shall
enter the Demised Premises during the Term when accompanied by a representative
of the Tenant. Tenant shall immediately provide such a representative when it
has requested that its representative accompany the Landlord, his employees, or
representatives.
Section 8.3. Entry to Repair. Any entry into the Demised Premises during
the Term hereof by the Landlord, its agents or employees in order to repair,
restore, rebuild, alter or perform any work therein if Tenant fails to make all
necessary leasehold repairs upon demand by Landlord, shall be made at times and
under such reasonable conditions which create the least interference with
Tenant's business; provided, however, that there shall be no obligation on
Landlord to perform or to have such work performed during other than normal
working hours of employees performing the work, except for emergency repairs.
Landlord, its agents or employees, shall not enter the Demised Premises to
repair, restore, rebuild or do other work as aforesaid except in emergencies
without first having given twenty-four (24) hours' prior written notice to
Tenant of Landlord's intention.
ARTICLE IX
INSURANCE
Section 9.1. Tenant to Insure Demised Premises. Tenant at its sole cost and
expense for its own account shall effect and maintain insurance against loss or
damage by fire with extended coverage with respect to the leasehold improvements
and contents within the Demised Premises but in no event in an amount less than
full replacement value. Such replacement value may be determined from time to
time, but not more frequently than once in any 24 consecutive calendar months,
at the request of Landlord, by one appraiser, architect, or contractor who shall
be mutually and reasonably acceptable to Landlord and Tenant. The Landlord and
Tenant shall be named as insured parties under such
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policy as their interests may appear. In the event of a fire as a result of
which the Tenant decides to terminate the Lease, or a fire occurring in the
final year of the lease, Landlord shall be entitled to the insurance proceeds
applicable to damage to the leasehold improvements. If Landlord decides to
terminate the Lease and the Lease is not in its final year, Tenant shall be
entitled to the insurance proceeds. Otherwise, the proceeds shall be used to
reconstruct the leasehold improvements.
Section 9.2. Liability Insurance. Tenant shall, at all times during the
Term hereof, maintain liability insurance in comprehensive form sufficient to
protect Landlord and Tenant against liability for accidents occurring in or upon
the Demised Premises, to the minimum extent of One Million Dollars ($1,000,000)
for injury to or death of one person; and Five Million Dollars ($5,000,000) for
injuries to or death of more than one person and Five Hundred Thousand Dollars
($500,000) for property damage.
Nothing in this Article shall prevent Tenant from including the aforesaid
liability and fire insurance under a blanket policy or policies as may be
maintained by Tenant with respect to other properties owned, leased or operated
by it, provided that the protection afforded under any such blanket policy of
insurance shall be no less than that which would have been afforded under a
separate policy or policies relating only to the Demised Premises.
Insofar as may be permitted by the terms of the insurance policies carried
by it, each party hereby releases the other with respect to any claim (including
a claim for negligence) which it might otherwise have against the other party
for loss, damages or destruction with respect to its property by fire or other
casualty (including rental value or business interest, as the case may be)
occurring during the term of this Lease.
Section 9.3. Tenant Not to Violate Rules of Insurance. Tenant shall not
violate any reasonable rules or regulations applicable to Tenant and/or its use
of the Demised Premises which are promulgated by the insurance companies
insuring against loss or damage to the Demised Premises or the said Building of
which the Demised Premises is a part, provided that such rules or regulations
are made known to Tenant in writing.
ARTICLE X
CONDEMNATION OF DEMISED PREMISES
Section 10.1. Partial Taking of Demised Premises. If part of the Demised
Premises is taken or condemned for a public or other use which carries with it
the right of eminent domain, the
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rent to be paid by Tenant to Landlord shall be abated, as of the date title
vests in the condemnor, and reduced to an amount which bears the same
relationship to the rent called for by the other terms of this Lease as the
square feet of space remaining in the Demised Premises after condemnation bears
to the square feet originally leased to the Tenant.
However, if, in Tenant's sole opinion such partial taking is such that the
remaining uncondemned portion of the Demised Premises would be unfit for the
operation of a branch bank therein, then in such event Tenant, within thirty
(30) days of the date that the condemning authority acquires title to the
part(s) so taken or condemned may give written notice to Landlord of its
election to terminate this Lease, and on the date specified in such notice
(which date in no event shall be less than thirty (30) days after the date on
which such notice is sent), this Lease shall terminate.
Section 10.2. Taking of the Entire Demised Premises. If the entire Demised
premises be taken or condemned for public or other use which carries with it the
right of eminent domain, this lease shall cease and terminate as of the date
title vests in the condemnor.
Section 10.3. Tenant's Limited Right to Recover Damages for Any Taking.
Tenant shall not have the right to recover damages for any taking only if such
recovery shall not reduce the amount of proceeds Landlord shall receive from the
condemning authority.
ARTICLE XI
DEFAULT BY TENANT
Section 11.1. Tenant Not in Default Unless "Event of Default" Occurs.
Tenant shall not be deemed to be in default with respect to the performance of
any of the terms, covenants or conditions of this Lease unless an Event of
Default, as hereinafter specified, has occurred. The following shall constitute
Events of Default by Tenant hereunder:
(a) The appointment of a receiver for Tenant by any bank regulatory
authority.
(b) Failure to pay the rent called for herein or any part thereof when
due and continuance of such failure for fifteen (15) days after the date of
receipt of written notice from Landlord to Tenant of such failure;
(c) Failure to comply with or perform any of the other terms,
covenants, conditions or agreements to be complied with or performed by Tenant
hereunder and continuance of such failure for
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thirty (30) days after receipt of written notice from Landlord to Tenant of such
failure, or, if the failure is of such a character as cannot reasonably be cured
within said thirty (30) days, failure to initiate within said thirty (30) days
such Action as reasonably can be taken toward curing the same and/or failure to
prosecute such action as promptly as is reasonably possible after said action is
initiated.
Section 11.2. Landlord's Remedies. Upon the occurrence of any such Event of
Default and provided the same is still continuing, the Landlord shall have the
following rights:
(a) Without disturbing Tenant's possession, to proceed from time to
time by action at law or in equity against the Tenant for the collection of all
rent then due and payable by the Tenant to the Landlord.
It is expressly provided, however, that Landlord agrees to waive and
hereby waives and relinquishes all rights which it may now or hereafter have by
law or custom to distrain, levy upon, seize and/or sell any personal property
belonging to any customer of the Tenant, whether held in custody or for
safekeeping or in trust or otherwise, for rent or other charges payable by
Tenant hereunder, by reason of such personal property having been or being
located upon the Demised Premises. Notwithstanding the foregoing, Landlord does
not waive any rights to distrain or levy which it has or may hereafter have
against any property of Tenant which Tenant may have on the Demised Premises.
(b) To terminate this Lease by giving written notice to Tenant of such
intention at least thirty (30)days prior to the termination date specified in
said notice; and Tenant shall immediately surrender possession of the Demised
Premises to Landlord on such termination date, and Tenant shall have no further
liability to Landlord hereunder except as provided in Section 11.2 (c). Any rent
paid by Tenant beyond such termination date shall be apportioned, and the excess
payment, if any, applied against Tenant's obligation to Landlord under Section
11.2(c) hereof.
Notwithstanding the exercise or partial exercise of the Landlord's
rights under Section 11.2(a), the Landlord may, if any such event of default is
still continuing, exercise its rights under Section 11.2(b), but any such
exercise or any other exercise of its rights under Section 11.2(b) shall
constitute a waiver of the right to any further exercise or any exercise, as the
case may be, of its rights under Section 11.2(a).
(c) If this Lease is terminated by Landlord prior to the expiration of
the then current term pursuant to the rights set forth in the preceding
subsection (b), Landlord shall have
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the right to proceed against Tenant in an action in assumpsit to recover the
amount equivalent to the difference, if any, by which the aggregate rentals as
would be otherwise payable by Tenant to Landlord hereunder for the unexpired
balance of the then term, discounted at the rate of five per cent (5%) to
present value, exceeds the aggregate rentals payable by the new tenant or
tenants for a corresponding period or for the terms of their respective leases,
whichever is the lesser, also discounted to present value at the rate of five
per cent (5%), Landlord hereby covenanting to use its best efforts to obtain a
new tenant(s) for a term and at a rental at least equivalent to that hereof and
otherwise to mitigate Landlord's damages arising out of such termination.
ARTICLE XII
APPROVAL OF BANKING AUTHORITIES
Section 12.1 Tenant to Secure Approval of Banking Authorities. Tenant has
applied for a Certificate of Authority to open and operate a branch bank in the
Demised Premises from the applicable banking authorities.
If for any reason Tenant does not obtain a Certificate of Authority or not
be able to open its business in the Demised Premises on or before the date
referred to in the Certificate of Authority or any extensions or renewals
thereof for any reason whatsoever, which date shall be no later than the 1st day
of January, 1991, Tenant shall have the right, at its option, to terminate and
cancel this Lease upon written notice to Landlord, whereupon this Lease shall be
of no further force or effect.
Section 12.2. Tenant's Failure to Open for Business Before Expiration of
Certificate of Authority. In the event that Tenant has not opened for business
in the Demised Premises within the period provided by the Certificate of
Authority or any extensions or renewals thereof for any reason whatsoever except
the fault of the Landlord, Tenant shall pay to Landlord one (1) year's rent by
way of liquidated damages, provided Landlord shall have given Tenant written
notice of its termination of the Lease by reason of Tenant's failure to open for
business within the period allowed under the terms of its Certificate of
Authority.
ARTICLE XIII
ZONING - QUIET ENJOYMENT
Section 13.1. Landlord's Covenants and Warranties. Landlord covenants and
represents that:
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(a) Upon the date of tender of possession of the Demised Premises to
Tenant, the same shall be free of all violations, orders or notices of
violations of all public or quasi-public authorities and that Tenant shall then
be permitted by the authorities having jurisdiction thereover to occupy the
Demised Premises for the purposes for which they are leased, subject only to
Tenant applying for and obtaining (at its expense), any and all zoning permits
or licenses (such as zoning, building curb cuts, etc.) incident to or required
for the operation of Tenant's business; it being understood and agreed that this
Lease is conditioned upon Tenant being able to use and occupy the Demised
Premises for the purposes for which they are being Leased.
(b) It has good right to lease the Demised Premises for the full term
hereof and any extension thereof and warrants and agrees to defend the title
thereto;
(c) Tenant shall and may peaceably and quietly have, hold and enjoy
the Demised Premises together with all rights, liberties and privileges herein
granted to Tenant for the full term of this Lease or any extension thereof free
from molestation, eviction or disturbance by the Landlord or by any other
person, corporation or firm and Tenant's obligation to pay the rent as herein
provided and to perform all other covenants hereunder is expressly conditioned
on and dependent upon the performance of this covenant.
ARTICLE XIV
SUBORDINATION
Section 14.1 Mortgage, Ground Rents and Other Encumbrances. This lease
shall be subject and subordinate at all times to the lien of any mortgages,
ground rents or other encumbrances now or hereafter placed upon the Demised
Premises.
ARTICLE XV
MISCELLANEOUS PROVISIONS
Section 15.1. Consent to be Reasonable. Whenever in this Lease reference is
made to any approval, consent or permission required or permitted to be given or
any decision or judgment required or permitted to be made, by either or the
parties hereto, such party covenants and agrees that its approval, consent or
permission, as the case may be, shall not be unreasonably withheld, and that its
judgment or decision, as the case may be, shall be reasonable.
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Section 15.2. Notices. All written notices to be given hereunder by
Landlord to Tenant or by Tenant to Landlord must be given by registered or
certified mail, return receipt requested addressed to Landlord at:
Main Line Realty Partners
Two Bala Plaza, Suite 525
Bala Cynwyd, Pa. 19004
and to Tenant at:
First Sterling Bank
80 West Lancaster Ave.
Devon, Pa. 19333
Attn: President
or at such other address as either party may designate to the other in writing.
Section 15.3. Lease Contains all Agreements. It is expressly understood and
agreed by and between the parties hereto that this Lease sets forth all the
promises, agreements, conditions and understanding between Landlord and Tenant
relative to the Demised Premises, and that there are no promises, agreement,
conditions or understandings either oral or written, between them other than are
herein set forth.
ARTICLE XVI
RENTAL INCREASES
At the commencement of the third (3rd) year of this lease and at the
beginning of each year for the remainder of the term, as extended or renewed,
the rental rate shall be adjusted by increase in the Consumer Price Index (CPI),
popularly also known as the Cost of Living Index (presently published monthly by
the Bureau of Labor Statistics of the U. S. Department of Labor). If the last
monthly index established and published prior to the first month of such lease
year shall be higher in absolute index number than the CPI for the month in
which the term of this Lease commences as provided in Section 1.2 hereof then
the annual rent for such lease year shall be increased by the resultant
percentage derived from a ratio having as its denominator the CPI for the month
in which the term of this Lease commences and the numerator of the difference
between the CPI for the month in which the term of this Lease commences and the
CPI for the last monthly index established and published prior to the first
month of such lease year.
If the base year selected by the U.S. Department of Labor shall be changed,
then the resultant index shall be readjusted so
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as to reflect the base initially established under this Lease. If the said index
shall no longer be published or cannot be readjusted, then another index
generally recognized as authoritative shall be substituted by agreement between
the parties.
The foregoing provisions are qualified by the following limitation. In
making the annual rental adjustments for each year of the lease commencing with
the third year in accordance with this Article XIV, the annual increase shall in
each year be at least four percent (4%) per annum and no more than six percent
(6%) per annum.
ARTICLE XVII
OPTION TO EXTEND
Section 17.1. Tenant's Right to Extend Term. The Tenant shall have the
option, to be exercised as hereinafter provided, to renew this Lease on the same
terms and conditions as are set forth herein for two (2) consecutive additional
period of five (5) years after the end of the original term.
Section 17.2. Method of Exercising Right to Extend. The Tenant shall
exercise its aforesaid rights to extend the Term of this Lease in the following
manner: at least one (1) year prior to the expiration of the then current term,
Tenant shall notify the Landlord in writing of its election to exercise its
rights to extend this Lease for an additional five (5) year term as aforesaid
from the date of expiration of the current term.
IN WITNESS WHEREOF, and intending to be legally bound hereby, Landlord
and Tenant have caused these presents to be duly executed the day and year first
above written.
ATTEST: MAIN LINE REALTY PARTNERS
____________________________ _______________________________
By: /s/ James D. Kania
General Partner
ATTEST: FIRST STERLING BANK
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____________________________ _______________________________
By: /s/ Willam Bromley
President
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Exhibit 10.11
This lease agreement is made this fourteenth day of April, 1994 (nineteen
hundred and ninety four), by and between Monument Road Associates, LESSOR, and
First Sterling Bank, LESSEE, whereby the parties agree that lessor will lease to
lessee the existing bank branch and adjoining corner office space on the first
floor of the building situated at 50 Monument Road, Bala Cynwyd, Lower Merion
Township, Montgomery County, Pennsylvania, under the terms and conditions herein
set forth.
Lease Term: This lease shall have an initial term of ten years beginning on May
1, 1994 and terminating on April 30, 2004. Lessee shall have the right to
exercise each of three (3) renewal options for a term of five (5) years each.
Lessee shall give the lessor at least eight (8) months advance written notice
before the expiration of the existing lease or any renewal or extension thereof,
if lessee chooses to exercise any or all of the renewal options provided for in
this lease. If lessee fails to provide lessor with such advance notice, then
this lease shall terminate as of the date of the then current lease term and
lessor may immediately proceed to rerent this space to a new tenant. The last
renewal option, if exercised, shall terminate on April 30, 2019.
Leased Premises: Bank branch located in the building at 50 Monument Road.
Consisting of 3,200 square feet of rental space being the Bank space formerly
occupied by Fidelity Bank, and an adjoining office space of approximately 1,300
square feet next to the Bank, these footages including the common area allocated
space within the building. The Bank space to be leased will include all fixtures
and improvements that were purchased by the landlord represented to include
night depository, security equipment, if any, teller counters, leasehold
improvements including the vault and vault door and existing safe deposit boxes,
under counter equipment, exterior sign standards, wall coverings, glass
partitions, etc., as currently exist on premises. Lessee hereby accepts
possession of the premises in their as is condition on the date hereof. Lessor
makes no representation or warranty concerning the quality or condition of the
premises or any of the fixtures, improvements, or equipment. Lessee is
responsible for obtaining and maintaining any approvals needed to operate the
leased premises for the use as a branch banking facility and will provide lessor
copies of such approvals. Any revocation of such approval shall constitute a
default under this lease. The lease for the adjoining 1,300
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square foot space shall terminate as of the time of termination of the lease for
the bank branch space.
Rental for Bank Branch: The yearly rental for the 3,200 square feet of the
bank branch shall be as follows:
During the first three year period, commencing on May 1, 1994, until April
30, 1997, the rent shall be $28.00 per square foot which is $89,600.00 (3200 x
$28) per year.
From May 1, 1997 to April 30, 1998, the rent shall be $29.20 per square
foot, for a total of $93,440.00 (3200 x $29.20) per year.
For the period May 1, 1998 to April 30, 1999 the rent shall be $30.48 per
square foot, for the total of $97,536.00 (3200 x $30.48) per year.
For the period May 1, 1999 to April 30, 2000 the rent shall be $31.31 per
square foot, for the total of $100,192.00 (3200 x $31.31) per year.
For the period May 1, 2000 to April 30, 2001 the rent shall be $32.25 per
square foot, for the total of $103,200.00 (3200 x $32.25) per year.
For the period May 1, 2001 to April 30, 2002 the rent shall be $33.21 per
square foot, for the total of $106,272.00 (3200 x $33.21) per year.
For the period of May 1, 2002 to April 30, 2003 the rent shall be $34.21
per square foot, for the total of $109,472.00 (3200 x $34.21) per year.
For the period of May 1, 2003 to April 30, 2004 the rent shall be $35.24
per square foot, for the total of $112,768.00 (3200 x $35.24) per year.
Option Rentals for the 3200 Square feet of the Bank Branch Space: The yearly
rental during each year of each option shall increase over the prior years rent
by an amount equal to the percentage increase in the CPI for the prior twelve
month period ending two months before the then current lease year inception
date. This percentage increase shall be no less than (2) two percent in each
year and not more than (5) five percent during the first five year option (lease
years 11 through 15), and not more than (6) six percent yearly increase during
the second and third option periods (lease years 16 through 25). During the
first rental renewal option, for the five year period from May 1, 2004 to April
30, 2009, the yearly rent shall be as follows:
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For the period May 1, 2004 to April 30, 2005, the yearly rental per square
foot shall be $35.24 plus a percentage increase equal to the percentage increase
in the Philadelphia area Consumer Price Index for the period March 1, 2003 to
February 28, 2004. The minimum increase shall be (2) two percent per year and
the maximum increase shall be (5) five percent per year.
For the period May 1, 2005 to April 30, 2006, the rent shall be the rental
which existed during the preceding year (ending April 30, 2005) plus a
percentage increase equal to the Philadelphia area Consumer Price Index for the
period March 1, 2004 to February 28, 2005. The minimum yearly increase shall be
(2) two percent and the maximum shall be (5) five percent per year. This pattern
shall continue for all years of the option period, except that the maximum
increase is (6) six percent during the last two renewal option periods, years 16
to 25.
For example, if the CPI increase in the March through February period preceding
the then current lease is (3) three percent for year one and (2) two percent for
year two of this renewal term, the rent for year one of this renewal would be
$35.24 plus (3) three percent, or $1.06, for a total of $36.30 or $116,160.00
(3200 x $36.30) a year rent in year eleven of this lease and in year twelve, the
yearly rental would be $36.30 plus $.073 for a total of $37.03 per square foot
which is $118,496.00 in yearly rental.
Rental for 1,300 Square Feet of Contiguous Office Space: Lessee shall lease the
1,300 square feet of office space adjacent to the Bank branch in this lease. The
yearly rental shall be $18.00 (eighteen dollars) per square foot for a total of
$23,400.00 per year for the first year. For the next twenty four years,
including the three five year renewal options, the rental shall increase each
year by the percentage increase in the Philadelphia area Consumer Price Index
for the twelve months ending two months prior to the then beginning lease year.
There will not be any minimum or maximum increase on the lease for this space.
(see example above). If the CPI increased by (3) three percent every year, for
example, the rent for each of the first eight years would be, per square foot,
as follows: $18.00, $18.54, $19.10, $19.67, $20.26, $20.87, $21.50, $22.14.
Alterations and Improvements: Lessee is responsible for all alterations or
improvements which lessee wishes to make to the leased premises. However, prior
to making any changes or alterations or performing any work on the leased
premises, lessee will submit to lessor the full information, plans, and/or
specifications of all work which lessee would like to perform. All work is
subject to the advance written approval of lessor, although lessor's approval of
non-structural work shall not be unreasonably withheld. Lessor is particularly
concerned that the existing improvements and appearance in the bank branch be
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maintained and that any alterations in that space be in keeping with the append
quality which currently exists. Lessee will provide lessor with proper
certificates of insurance and will hold lessor completely harmless for all work,
injuries to workmen, full payment to all contractors and workmen, and for any
other manner of liability for which lessor could or does become liable by reason
of any work performed on or about lessee's premises. At the end of the lease
term, lessee will return premises to lessor in the same condition as it is at
the inception of lease (in addition to alterations approved by lessor),
reasonable wear with good maintenance and care, excepted.
Use of Premises: Lessee is leasing the within premises for use as a branch bank
facility and the uses commonly associated therewith. The adjoining office space
is contemplated for use as a loan office and for other uses typically associated
with a branch or regional bank facility. Lessee shall not use these premises for
any other purpose without the advance written consent of lessor, which consent
lessor shall not be obligated to give. Lessee shall use the premises during
normal business hours as are typically operated by a branch banking facility.
Lessee shall at all times maintain premises in a clean and safe manner and in
compliance with all governmental and safety codes, ordinances and common
practices. Lessee will be liable to lessor for any damage or destruction to
premises, whether from fire, accident, or any other cause and, not caused by
lessor's negligence. Lessee will make sure that no damage, abuse, misuses,
nuisance, or other inappropriate acts are committed on the premises and will
immediately repair and restore the premises if any such acts occur. In the event
of failure of lessee to perform such repairs in a speedy and workmanlike manner,
lessor may charge lessee for the full cost of such work and arrange for such
work to be done.
Subletting: Lessee shall not sublet, underlet, give and divide, or re-lease
these premises or any signage thereof to any other party or for any other
purpose than stated herein without the advance written consent and within the
sole discretion of lessor. However, this clause shall not restrict or in any way
limit the ability of First Sterling Bank to assign the entirety of its lease to
another banking entity which will operate this facility in the matter herein
described such as through a merger or sale of First Sterling Bank. If lessee
wishes to sublet it's leased space, other than as in preceding sentence, lessor
shall have the option, but not obligation, to terminate this lease for the space
being offered for subletting, whether the 1,300 square feet of office space or
the 3,200 square feet of the bank branch, or both.
Inspection and Access to Premises: Lessor shall at all reasonable times have
access to leased premises when accompanied
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by a banking officer or other available employee (as designated by a banking
officer) of lessee for purpose of performing maintenance or repairs,
inspections, showing premises to inspectors, appraisers, etc., and for showing
premises to prospective tenants if lessee is in default of lease or does not
exercise a renewal option.
Condemnation or Taking By a Public Authority: If all or any part of the within
leased premises are condemned for any public purpose, lessor shall not be
responsible for any damages or losses suffered by lessee as result of any
condemnation for public purposes. If all of the premises shall be condemned for
public purposes then the lease will terminate as of the date of condemnation. If
only part of the premises is condemned and the remainder of the premises is
reasonably useable for lessee's purpose, then the lease will not be terminated,
but the rent and other charges payable thereunder shall equitably abate.
Casualty or Fire: Lessor shall not be liable in any way to lessee for any losses
or damages suffered through any casualty or fire or damage to the leased
premises. In the event of partial or total destruction of said premises, the
rent herein stated shall be abated as that portion of the premises and for the
period of time which those premises cannot be used by the lessee for the
purposes herein stated. If lessor is not able to or does not rebuild, repair, or
restore the damaged premises to the condition that existed before such damage or
destruction within a period of nine months from the date of its occurrence, then
both lessee and lessor shall each have the option to terminate this lease as of
the end of such nine month period or as of date lessor notifies lessee that such
timely restoration will not take place.
Insurance and Indemnity: Lessee shall at all times maintain lessor as an
additional insured at no extra cost to lessor, on all liability and umbrella
insurance policies which it maintains for the benefit of these premises and
furnish lessor with certificate(s) of insurance showing such coverage. Lessee
shall maintain no less that $1,000,000 of such public liability policies at all
times for the leased premises and for any and all work performed thereon, with
lessor as an additional insured at all times on all such policies. Lessee shall
be fully liable for al injuries suffered on premises by its employees,
customers, visitors, or others.
Building Operating Costs:
Utilities Lessee to pay all utilities expenses for all its leased space
including all electric, heat, air conditioning, telephone, gas and any other
utilities used on or about the leased premises. Lessor will provide a separate
meter for the bank branch leased space.
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Cleaning Lessor will be responsible for cleaning the contiguous 1,300 square
foot area. Lessee will be responsible for all cleaning and janitorial expenses
in the Bank space.
Other Building Expenses: Lessor shall be responsible for other building
operating expenses, including but not limited to real estate taxes, property
insurance, elevators, mechanical equipment, management, etc., except for the
utility and cleaning expenses as above set forth.
Method of Rental Payment: Lessee shall pay the yearly rental in twelve equal
advance monthly installments during the term of this lease and all extensions
thereof. The rent for May 1994 shall be due no later than May 1, 1994 and each
successive monthly payment shall also be due the first day of each calendar
month. Lessee shall pay a late fee of (5) five percent on all rents not received
by lessor by the fifth day of the month, after written notice of non-payment is
received by lessee and a late fee of (10) ten percent on all rents not received
by the tenth day of the month, after written notice of non-payment is received
by lessee. All rents to be sent to the office of University City Housing
Company, 1062 Lancaster Avenue, Rosemont, PA 19010, Suite 617. All checks to be
made out to Monument Road Associates.
Default and Eviction: Lessee shall be in default under this lease if:
a. lessee fails to pay any sum due under this lease for a period of more
than ten (10) days, after written notice of non- payment is received by lessee;
or
b. lessee fails to perform in any other term of this lease and such
failure continues for more than thirty (30) days after written notice is
received by lessee, and the failure by lessee to observe or perform any of the
covenants, conditions, or provisions of this lease to be observed or performed
by the lessee, where such failure shall continue for a period of thirty (30)
days after written notice thereof by lessor to lessee; provided, however, that
if the nature of lessee's default or failure to pay or perform is such that more
than thirty (30) days are reasonably required for its cure, then lessee shall
not be deemed to be in default if lessee commences such cure within thirty (30)
day period and thereafter diligently prosecutes such cure to completion; or
c. lessee files a petition for bankruptcy or has such a petition field
against it and such petition is not dismissed or terminated within sixty (60)
days.
In the event any of such default, lessor may at its option either:
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1. repossess premises without terminating the lease and relet the premises
and apply the rent to amounts owed by lessee; or
2. terminate the lease, repossess the premises, and recover from lessee
all sums required to be paid up to the time of repossession, together with the
value of all other rent required to be paid under the terms of the lease in
excess of the reasonable rental value of the premises.
Parking: First Sterling will be allocated a minimum of (8) eight reserved and
restricted parking spaces adjacent to the bank's office space for customer use
in addition to the pro rata number of parking places for employees.
Drive-In: First Sterling Bank shall have the right to pursue a drive-in banking
facility at this location assuming the zoning approval can be obtained and the
costs of installation of the drive-in facility are born by First Sterling Bank,
subject to this facility not diminishing the number of parking spaces.
Automatic Teller Machine: First Sterling Bank shall have the right to pursue an
automatic teller machine installation at this location assuming that zoning
approval can be obtained and the cost of installation of the automatic teller
machine facility are born by First Sterling Bank. Lessee shall submit plans of
such installation for lessor's reasonable review.
Signage: Tenant will be permitted to use exterior signage equal to the same
square footage as used by Fidelity Bank, the former tenant.
General Provisions:
a. Notices: All notices and demands which may or are to be required or
permitted to be given by either party to the other hereunder shall be in
writing. All notices and demands by the lessor to the lessee shall be sent by
United States mail, postage paid, addressed to the lessee at the premises, or to
such other place as a lessee may be from time to time designate in a notice to
the lessor. All notices and demands by the lessee to the lessor shall be sent by
United States mail, prepaid postage, addressed to the lessor at the office of
the building, or to such other person or place as the lessor may from time to
time designate in a notice to the lessee.
b. Recordation. Neither lessor nor lessee shall record this lease or a
short form memorandum hereof without the prior written consent of the other
party, which shall not be withheld unreasonably.
c. Quiet Possession. Upon lessee paying the rent reserved hereunder after
observing and performing all of the covenants,
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conditions, and provisions on lessee's part to be observed and performed
hereunder, lessee shall have quite possession of the premises for the entire
term hereof, subject to all of the provisions of the lease.
d. Prior Agreements. This lease contains all of the agreements of the
parties hereto with respect to any matter covered or mentioned in this lease,
and no prior agreements or understanding pertaining to any such matters shall be
effective for any purpose. No provision of this lease may be amended or added to
except by an agreement in writing signed by the parties hereto or their
respective successors in interest. This lease shall not be effective or binding
on any party until fully executed by both parties hereto.
e. Subordination, Attornment. Upon request of the lessor, lessee will in
writing subordinate its rights hereunder to the lien of any first mortgage or
first deed of trust to any bank, insurance company, or other lending
institution, now or hereafter in force against the land and building of which
the premises are a part, and upon any buildings hereafter placed upon the land
of which the premises are a part and to all advances made or hereafter to be
made upon the security thereof.
In the event any proceedings are bought for foreclosure or in the event of the
exercise of the power of sale under any mortgage or deed of trust made by the
lessor covering the premises, the lessee shall attorn to the purchaser upon any
such foreclosure or sale and recognize such purchaser as the lessor under this
lease.
The provisions of this article to the contrary notwithstanding, and so long as
the lessee is not in default hereunder, this lease shall remain in full force
and effect for the full term thereof.
IN WITNESS WHEREOF, the parties hereto have executed these presents the day and
year first above written, and expressly intend to legally bound hereby.
LESSOR:
______________________________ ________________________________
Monument Road Associates date
LESSEE:
______________________________ ________________________________
First Sterling Bank date
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Exhibit 10.12
LEASE
dated as of July 3, 1996
between
SILVIO F. and ELIZABETH O. D'IGNAZIO, Landlord, and FIRST
STERLING BANK, a Pennsylvania chartered bank, Tenant.
Index Page
ARTICLE I Premises and Term...........................
ARTICLE II Construction of Improvements; Prior
Compliance with Environmental Laws..........
ARTICLE III Rent........................................
ARTICLE IV Taxes.......................................
ARTICLE V Utilities...................................
ARTICLE VI Use of Leased Premises......................
ARTICLE VII Trade Fixtures, Signs and Office Equipment..
ARTICLE VIII Alterations and Additions...................
ARTICLE IX Repairs and Maintenance.....................
ARTICLE X Insurance and Indemnity.....................
ARTICLE XI Eminent Domain..............................
ARTICLE XII Assignment and Subletting...................
ARTICLE XIII Surrender of Premises.......................
ARTICLE XIV Defaults and Remedies.......................
ARTICLE XV Force Majeure...............................
ARTICLE XVI Mechanics' Liens............................
ARTICLE XVII Notices and Addresses.......................
ARTICLE XVIII Miscellaneous...............................
ARTICLE XIX Waiver of Subrogation.......................
ARTICLE XX Right of First Refusal......................
ARTICLE XXI Approval of Banking Authorities.............
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THIS LEASE made as of this 3rd day of July, 1996, by and between SILVIO F.
and ELIZABETH O. D'IGNAZIO, having an office at 117 South Avenue, Media,
Pennsylvania 19063 (hereinafter collectively called "Landlord") and FIRST
STERLING BANK, a Pennsylvania banking corporation having an office at 80 West
Lancaster Avenue, Devon, Pennsylvania 19333 (hereinafter called "Tenant").
W I T N E S S E T H:
ARTICLE I
Premises and Term
Section 1.1 Landlord hereby leases to Tenant and Tenant hereby rents from
Landlord for the term, at the rental, and upon the covenants and conditions
hereinafter set forth, certain land at the northwest corner of Washington
(Baltimore Pike) and Olive Streets, Media, Pennsylvania, and more particularly
described in Exhibit "A" attached hereto (hereinafter called the "land") with
the improvements and building thereon (hereinafter called the "Building") , and
all rights, easements and privileges pertaining and appurtenant to the land and
Building. The land, Building and such rights, easements and privileges are
hereinafter called the "leased premises."
Section 1.2 Landlord covenants, warrants and represents that it has full
right and power to execute and perform this lease and to grant the estate leased
herein, and Landlord further covenants that Tenant on paying the rent reserved
and performing
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the covenants and agreements hereof shall peaceably and quietly have, hold and
enjoy the leased premises during the term.
Section 1.3 Landlord warrants that, at the date of this lease, the leased
premises are not subject to liens, tenancies, easements, encumbrances or
restrictions other than those listed in the Title Report attached hereto, and
marked "Exhibit A", and a lease with PNC Bank, a successor to Midlantic Bank and
Continental Bank. Landlord represents and warrants to Tenant that the tenancy of
PNC Bank may be terminated by Landlord as of August 31, 1996 upon execution by
Landlord of Lease Termination Agreement prepared by PNC Bank. Attached hereto,
and marked "Exhibit B", is a copy of the proposed Lease Termination Agreement
between Landlord and PNC Bank which Landlord warrants to be accurate and
complete. Landlord warrants that PNC Bank, as of the date of this lease, has not
given notice of any default under its lease agreement, that PNC Bank will
execute the said Lease Termination Agreement and that PNC Bank will not amend
the said lease of Lease Termination Agreement without the prior written consent
of Tenant. On execution of this lease by both parties and approval of the branch
bank by the banking authorities referred to in Article XXI, Landlord shall
execute the Lease Termination Agreement.
Section 1.4 After the date of this lease and throughout its term and any
extensions or renewals thereof, the leased premises shall be free of all liens
and encumbrances, other than the lien for current non-delinquent taxes, any
easements for
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utility facilities which do not interfere with Tenant's use of the leased
premises for banking purposes. Tenant will not subordinate its interest to the
lien of any first mortgage unless it shall receive as consideration in such
subordination a "non-disturbance agreement" in form and content satisfactory to
Tenant.
Section 1.5 If Tenant should request it, Landlord will provide Tenant
with executed "non-disturbance" agreements from all holders of liens embracing
the leased premises the effective date of which is prior to the date and time of
the recording of a Memorandum of this lease in the Office of the Recorder of
Deeds in and for the County of Delaware, Pennsylvania. Such "non-disturbance"
agreements shall assure Tenant's continued quiet possession in case of
foreclosure so long as Tenant pays its rent and is not in default under the
lease.
Section 1.6 There shall be a preliminary term of this lease commencing on
the date of this lease and expiring on August 31, 1996. The purpose of the
preliminary term shall be to give Tenant the opportunity to make plans of the
leased premises and to secure such municipal permits as it may deem necessary.
During the preliminary term, the Tenant shall not have beneficial use and
occupancy of the leased premises but may have reasonable access to the leased
premises to complete the above described plans to prepare for its occupancy.
Such access shall be with the prior approval of the Landlord, which shall not be
withheld unreasonably, and with reasonable prior notice to and
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coordination with the existing tenant in the premises. During the preliminary
term, Landlord shall be entitled to all rents, if any, for the premises from
Midlantic Bank.
Section 1.7 The initial term of this lease will begin on September 1, 1996
(the "Commencement Date") and shall continue for a period of One Hundred
Fifty-four (154) months ending on June 30, 2009 (which period is hereinafter
called "the initial term").
Section 1.8 This lease shall be renewed automatically for six (6)
additional terms of five (5) years each, but Tenant may terminate this lease at
the end of the initial term or at the end of any renewal term by giving written
notice to Landlord of Tenant's intention to do so at least six (6) months prior
to the expiration of the then current term.
Section 1.9 Whenever the words "the term" are used hereinafter, without
qualification, they shall mean the initial term of this lease and any extension
or renewal thereof.
Section 1.10 Should Tenant hold over in possession after the expiration of
the term, such holding over shall not be deemed to extend the term or renew this
lease, but the tenancy thereafter shall continue from month to month upon the
covenants and conditions herein set forth at the rental in effect during the
last month of the preceding term, until terminated by either party by at least
thirty (30) days' notice.
ARTICLE II
Construction of Improvements;
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Prior Compliance with Environmental Laws
Section 2.1 Landlord represents to Tenant that Landlord has no knowledge
of any violation of existing environmental laws, rules or ordinances with
respect to the leased premises. In the event any violation of environmental laws
is discovered in the leased premises caused by events and circumstances which
occurred prior to the Commencement Date of this lease, Landlord agrees to have
such violations remedied promptly at its own expense.
Section 2.2 Except for matters identified in Section 2.1 above, Tenant
accepts the premises in an "as is" condition.
ARTICLE III
Rent
Section 3.1 Annual rent hereunder shall be payable in twelve (12) monthly
installments, in cash or by check subject to collection, in advance, on the
first day of each month without notice or demand. Rent for part of a month shall
be prorated. Rental during the initial lease term and renewal terms (if options
to renew are exercised) shall be as follows:
a) Initial Term:
a. 9/1/76 - 6/30/99 - $100,000 per year
b. 7/1/99 - 6/30/04 - $105,000 per year
c. 7/1/04 - 6/30/09 - $110,000 per year
b) Renewal Terms:
a. First 5 year renewal term (7//09 - 6/30/14) -
$115,000 per year
b. Second 5 year renewal term (7/1/14 - 6/30/19) -
$120,000 per year
c. Third 5 year renewal term (7/1/19 - 6/30/24) -
$125,000 per year
d. Fourth 5 year renewal term (7/1/24 - 6/30/29) -
$130,000 per year
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e. Fifth 5 year renewal term (7/1/29 - 6/30/34) -
$135,000 per year
f. Sixth 5 year renewal term (7/1/34 - 6/30/39) -
$140,000 per year
ARTICLE IV
Taxes
Section 4.1 Tenant will pay all real estate taxes and assessments levied
upon the leased premises throughout the term. Such taxes and assessments for the
first and last year of the term shall be apportioned between Landlord and Tenant
on the basis of the fiscal years of the respective taxing authorities. Landlord
agrees to present or cause to be presented to Tenant tax bills in time for
Tenant to take advantage of the maximum allowable discount for early payment of
taxes. Nevertheless, Tenant covenants to pay such taxes and assessments only
before they become delinquent.
Section 4.2 Anything in Section 4.1 to the contrary notwithstanding Tenant
shall have no responsibility for the payment of sewer assessments or any other
special assessments which are or could become a lien against the leased premises
for work done or ordered to be done (other than at Tenant's request) prior to
the Commencement Date.
ARTICLE V
Utilities
Section 5.1 During the term of this lease Tenant will pay for all water,
gas, electricity, heat, telephone, sewage and all other utility services used by
Tenant within the leased premises. Tenant shall also pay sewer connection costs,
if any, and for
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other utilities to the leased premises and shall pay sewer assessments and other
special assessments levied against the leased premises because of the
installation of public improvements done or ordered to be done by municipal
authorities after the Commencement Date or at any earlier time if such work was
done or ordered to be done as a result of Tenant's request.
ARTICLE VI
Use of Leased Premises
Section 6.1 Tenant intends to use the leased premises for any or all of
the aspects of business which may be conducted by a commercial bank and/or trust
company but reserves the right to use the leased premises for all other lawful
purposes; provided, however, Tenant agrees not to use the leased premises for
the preparation or sale of prepared foods in competition with the Towne House
restaurant which is adjacent to the leased premises.
Section 6.2 Tenant will comply at its own expense with all proper
requirements of duly constituted public authorities and with the provisions of
any law, regulation or ordinance of such authorities applicable to Tenant or its
use of the leased premises.
Section 6.3 Landlord reserves the non-exclusive right to utilize the
parking areas of the leased premises for its business patrons at the Towne House
during such times when Tenant is not open for business.
ARTICLE VII
Trade Fixtures, Signs and Office Equipment
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Section 7.1 From time to time during the term and at the end of the term,
Tenant may install and remove Tenant's trade fixtures, personal property and
business machines and equipment, including but without limiting the generality
of the foregoing, money safes or any other safes or vaults, vault doors, vault
liners, safe deposit boxes, night depository, automatic teller machines,
tellers' counters, drive-in windows and signs. Tenant may not remove the
Landlord's trade fixtures, attached hereto as Exhibit "B" without Landlord's
approval which will not be withheld unreasonably. At the expiration or earlier
termination of the lease term, if Tenant removes any of its trade fixtures,
personal property, business machines and equipment, Tenant shall restore the
premises to the same good order and condition in which the premises was when
Tenant acquired possession, ordinary wear and tear excepted.
Section 7.2 At its sole cost and expense, Tenant may erect its business
signs on the leased premises and adjacent to public streets. At no expense to
Landlord, Landlord will join with Tenant in applications to municipal
authorities for such approval of business signs as may be required under the
relevant municipal ordinances, and all of Tenant's business signs shall be
subject to the provisions of such ordinances.
ARTICLE VIII
Alterations and Additions
Section 8.1 At any time and from time to time during the term, at its own
expense, Tenant may make any alterations,
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decorations, additions, improvements or replacements in the leased premises
which Tenant shall deem necessary. Tenant shall obtain Landlord's prior written
consent prior to making any structural alterations, additions, improvements or
replacements, but such written consent shall not unreasonably be withheld.
ARTICLE IX
Repairs and Maintenance
Section 9.1 Tenant shall at all times keep the leased premises and all of
Tenant's signs in good order, condition and repair, normal wear and tear and
damage by unavoidable casualty excepted. The provisions of this Section shall
not apply in the event of fire or other casualty, or condemnation or in any
event or contingency specifically provided for elsewhere in this lease.
Section 9.2 In the event of a fire or other casualty loss at the leased
premises which is covered by insurance, the Tenant shall have the option of
utilizing the insurance proceeds to repair and restore the leased premises, or,
in the alternative, of assigning the insurance proceeds to Landlord and
terminating the lease effective immediately on notice.
ARTICLE X
Insurance and Indemnity
Section 10.1 Tenant will indemnify and save Landlord harmless of and from
any and all loss, damage or liability incurred by reason of any injury to
persons or damage to property occurring in or on the leased premises or from or
by reason of the erection, maintenance or existence of Tenant's signs,
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including the reasonable expense involved in defending litigation, but Tenant
will not indemnify Landlord.against the consequences of Landlord's own
negligence, or the negligence of Landlord's officers, directors, employees,
agents, guests or other business invitees.
Section 10.2 Tenant shall, during the entire term hereof, keep the
building insured under its blanket policies of fire insurance at full
replacement value and shall keep in full force and effect, comprehensive general
liability insurance against claims for personal injury, death and property
damage occurring in or on the leased premises with limits of not less than
$1,000,000 as to one person, not less than $5,000,000 as to any accident, and
not less than $250,000 as to property damage. Insurance under this Section shall
protect both Landlord and Tenant, as their interests may appear. Certificates of
such insurance shall be delivered to Landlord. In lieu of the foregoing, Tenant
may include the leased premises in a self-insurance or retained risk program
which the Tenant may establish for its branch locations. If Tenant elects to do
so, it shall make the Landlord a beneficiary of the said program at least to the
limits above provided.
ARTICLE XI
Eminent Domain
Section 11.1 If any portion of the leased premises or access to the leased
premises from the adjoining public roads shall be taken by condemnation or other
governmental proceedings,
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so that it shall be unreasonable or impossible for Tenant to properly conduct
its business (due weight being given to the ease of access and all other
features which make the leased premises before any taking usable as a branch
bank, easily visible and otherwise desirable for Tenant's banking business at
this location) on the premises remaining after such taking, then the Tenant may
upon thirty (30) days' written notice to Landlord terminate this Lease
retroactively, to the date of taking, and thereupon Tenant shall have no
obligation under this Lease except such as accrued prior to the date of the
taking. The parties hereto agree that all condemnation proceeds allocable to the
land and the Building shall belong to the Landlord except that all condemnation
proceeds allocable to the leasehold improvements installed by Tenant shall
belong to the Tenant. Landlord and Tenant shall cooperate with each other in
good faith in their joint dealings with the condemning authority.
ARTICLE XII
Assignment and Subletting
Section 12.1 Tenant may assign its interest in this lease only if Landlord
gives its written approval, but such approval shall not be unreasonably withheld
or delayed. This Article shall not apply to an assignment of the Tenant's
interest in this lease to any corporation resulting from the merger of Tenant
with any one or more corporations or to any corporation resulting from the
consolidation of Tenant with or into any one or more corporations, or to any
corporation which acquires all or
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substantially all of the business and operating assets of Tenant, but any such
assignee shall assume this lease and agree to perform and be bound by all of its
provisions, and such assignment and assumption shall, from and after the date
thereof, release Tenant from its obligation under this lease provided that the
assets of such assignee are at least as large as were the assets of Tenant prior
to such merger, consolidation or acquisition.
Section 12.2 Tenant may sublet its interest in all or any portion of the
leased premises only if Landlord gives its prior written approval, but such
approval shall not be unreasonably withheld or delayed.
ARTICLE XIII
Surrender of Premises
Section 13.1. At the expiration of earlier termination of the term, Tenant
covenants that it will peaceably and quietly leave and surrender the leased
premises in as good order and repair as when delivered to it, damage by fire,
casualty, war or insurrection, riot or public disorder, or action upon the part
of any governmental authority, ordinary wear and tear, and damage the elements
excepted.
ARTICLE XIV
Defaults and Remedies
Section 14.1 If Tenant has failed to perform or has violated any of the
terms, covenants, conditions or agreements contained in this lease on Tenant's
part to be performed,
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Landlord shall so notify Tenant in writing. Thereupon Tenant shall either
(a) correct the matters complained of in such notice within twenty (20) days
after receipt of such notice or in the case of rent within ten days after
receipt of such notice; or (b) if more than such twenty (20) days are required
to correct with reasonable diligence the matters complained of in such notice,
commence to correct them within such twenty (20) days and pursue each corrective
action with reasonable diligence thereafter.
Section 14.2 Each of the following events shall constitute an event of
Tenant's default hereunder: (a) the failure or omission of Tenant, after notice
of default has been given by Landlord as provided in Section 14.1, to take
corrective action to comply with the terms and covenants hereof within the times
specified therein; (b) the taking possession of the business and property of
Tenant by the Department of Banking of the Commonwealth of Pennsylvania. Tenant
shall be in default under this lease if and only if an event of Tenant's default
as provided in this section shall have occurred.
Section 14.3 If an event of Tenant's default shall occur at any time and
remain uncured after notice and the expiration of the applicable grace period,
Landlord may, within a reasonable time thereafter, give Tenant a notice of
intention to end the term, specifying a day not less than ten days nor more than
ninety days after the giving of such notice the term shall expire and Tenant
shall then quit and surrender the leased premises to Landlord, but Tenant shall
remain liable as provided in Section
-14-
<PAGE>
14.6; and Landlord, without prejudice to any other right or remedy or Landlord
hereunder or by law, and notwithstanding any waiver of any prior breach of
condition or event of Tenant's default hereunder, may re-enter the leased
premises either by force or otherwise, or dispossess Tenant or any legal
representative of Tenant or other occupant of the leased premises by a summary
proceeding or other appropriate suit, action or proceeding or otherwise, and
remove their effects and hold the leased premises as if this lease had not been
made.
Section 14.4 If Tenant fails to perform any of the provisions, covenants,
agreements, or conditions of this lease on its part to be performed, Landlord
may, but only after the occurrence of an event of Tenant's default as defined in
Section 14.2, perform it or them on behalf of Tenant. The cost of such
performance shall be paid to Landlord by Tenant promptly upon demand therefor by
Landlord.
Section 14.5 Tenant, upon the termination of this lease in accordance with
the terms hereof, or in the event of entry of judgment for the recovery of
possession of the leased premises in any action or proceeding, or if Landlord
shall enter the leased premises by process of law or otherwise, hereby waives
any right of redemption provided by any statute, law or decision now or
hereafter in force. However, Landlord, will not levy or distrain upon or sell
any property belonging to any customer of Tenant, or held by Tenant in trust for
anyone, for the purpose of enforcing any of Tenant's defaulted obligations under
this lease or for the
-15-
<PAGE>
purpose of enforcing collection of any of Tenant's monetary obligations to
Landlord hereunder, such rights on the part of Landlord to levy or distrain upon
and to sell said property of said thirty parties being hereby expressly waived
by Landlord.
Section 14.6 If Landlord shall terminate this lease as provided in Section
14.3, Tenant shall pay to Landlord the rent up to the time of Landlord's
termination of this lease (by recovery of possession of the leased premises or
otherwise) and thereafter, if Landlord relets the leased premises at then
prevailing market rates, Tenant shall pay to Landlord throughout the balance of
the term (as if the term had not been ended by Landlord's termination) all rent
less the net avails of such reletting.
Section 14.7 If Landlord has failed to perform or has violated any of the
terms, covenants, conditions or agreements contained in this lease on Landlord's
part to be performed, Tenant shall notify Landlord in writing; thereupon
Landlord shall either (a) correct the matters complained of in such notice
within twenty (20) days after receipt of such notice or (b) if more than twenty
(20) days are required to correct with reasonable diligence the matters
complained of in such notice, commence to correct them within such twenty (20)
days and pursue such corrective action with reasonable diligence thereafter. An
event of Landlord's default hereunder shall be the failure or omission of
Landlord, after notice of default has been given by
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<PAGE>
Tenant as provided in this section, to take corrective action within the time
specified herein.
Section 14.8 If Landlord fails to perform any of the provisions,
covenants, agreements or conditions of this lease on its part to be performed,
Tenant may, but only after the occurrence of an event of Landlord's default as
defined in Section 14.7, perform it or them on behalf of Landlord. The cost of
such performance shall be paid to Tenant by Landlord, but if such cost is not
paid within ten (10) days after written demand therefor, Tenant may deduct such
cost from the rent reserved hereunder.
Section 14.9 The waiver by Landlord of any breach of any term,, covenant
or condition herein contained shall not be deemed to be a waiver of such term,
covenant or condition or any subsequent breach of the same or any other term,
covenant or condition herein contained. The subsequent acceptance of rent
hereunder by Landlord shall not be deemed to be a waiver of any preceding breach
by Tenant of any term, covenant or condition of lease, other than the failure of
Tenant to pay the particular rental so accepted, regardless of Landlord's
knowledge of such preceding breach at the time of acceptance of such rent. No
covenant, term or condition of this lease shall be deemed to have been waived by
Landlord, unless such waiver be in writing by Landlord, nor shall there be any
accord and satisfaction unless expressed in writing and signed by both Landlord
and Tenant.
ARTICLE XV
-17-
<PAGE>
Force Majeure
Section 15.1 If either party hereto shall be delayed or hindered in or
prevented from the performance of any act required by reason of strikes,
lock-outs, labor troubles, inability to procure materials, failure of power,
restrictive governmental laws or regulations, riots, insurrection, war or other
reason of a like nature not the fault of the party delayed in performing work or
doing acts required under the terms of this lease, then performance of such act
shall be excused for the period of the delay and the period of the performance
of any such act shall be extended for a period equivalent to the period of such
delay.
ARTICLE XVI
Mechanics' Liens
Section 16.1 Neither Landlord nor Tenant shall permit any mechanics' or
materialman's lien to be filed at any time against the leased premises or any
part thereof in connection with any work done by it or caused to be done by it.
If any such lien should be filed, the party which has done or caused to be done
the work for which the lien has been filed, shall promptly cause it to be
discharged of record by payment, deposit, bond, order of a court, or otherwise.
ARTICLE XVII
Notices and Addresses
Section 17.1 (a) Notices from Tenant to Landlord shall be deemed served
and rent shall be properly directed if sent by United States mail, postage
prepaid, addressed to Landlord at the
-18-
<PAGE>
address first hereinabove given or at such other address as Landlord may
designate by written notice. Notices shall be sent by registered or certified
mail.
(b) Notices from Landlord to Tenant shall be deemed served if
sent by registered or certified United States mail, postage prepaid, addressed
to Tenant, Attention: Real Estate Division, at the address first hereinabove
given or at such other address as Tenant shall designate by written notice.
ARTICLE XVIII
Miscellaneous
Section 18.1 This lease and the Exhibits, and Schedules, if any, attached
hereto and forming part hereof, set forth all the covenants, promises,
agreements, conditions and understandings between Landlord and Tenant and there
is no covenant, promise, agreement, condition or understanding, either oral or
written, betweens them other than as herein set forth. Except as herein
otherwise provided, no subsequent alteration, amendment, change or addition to
this lease shall be binding upon Landlord or Tenant unless reduced to writing
and signed by them.
Section 18.2 If any term, covenant, or condition of this lease or the
application thereof to any person or circumstance shall, to any extent, be
invalid or unenforceable, the remainder of this lease, or the application of
such term, covenant or condition to persons or circumstances other than those as
to which it is held invalid or unenforceable, shall not be affected
-19-
<PAGE>
thereby and each term, covenant and condition of this lease shall be valid and
be enforced to the fullest extent permitted by law.
Section 18.3 Landlord represents and agrees that Landlord will not record
this agreement, but Landlord will execute and deliver such short form of this
agreement as Tenant, in its sole discretion, shall request or require from
Landlord in order to record the provisions of this agreement which Tenant may
deem necessary or desirable to make a matter of record.
Section 18.4 The headings in and index to this lease are solely for
convenience in locating its various provisions and shall not be considered or
referred to in resolving questions of interpretation or construction.
Section 18.5 All rights and liabilities herein given to, or imposed upon,
the respective parties hereto shall extend to and bind the several respective
successors and assigns of the said parties.
ARTICLE XIX
Waiver of Subrogation
Section 19.1 Each party hereto waives any and every claim which arises or
may arise in its favor and against the other party hereto during the term of
this lease f or any and all loss of, or damage to, any of its property located
within or upon, or constituting a part of, the leased premises, which loss or
damage is covered by valid and collectible f ire and extended coverage insurance
policies, to the extent that such loss or damage is recoverable under said
insurance policies. Said mutual waivers
-20-
<PAGE>
shall be in addition to, and not in limitation or derogation of, any other
waiver or release contained in this lease with respect to any loss of, or damage
to, property of the parties, hereto. Inasmuch as the above mutual waivers
preclude the assignment of any aforesaid claim by way of subrogation (or
otherwise) to an insurance company (or any other person), each party hereto
hereby agrees immediately to give each insurance company which has issued to its
policies of fire and extended coverage insurance, written notice of the terms of
said mutual waivers, and to have said insurance policies properly endorsed, if
necessary, to prevent the invalidation of said insurance coverages by reason of
said waivers.
ARTICLE XX
Right of First Refusal
Section 20.1 Should Landlord during the lease term or any extension
thereof, elect to sell all or any portion of the leased premises (separately or
as part of the larger parcel), Tenant shall have the right of first refusal to
purchase said property on the same terms and conditions as any bona fide written
offer. It Tenant shall fail to meet such a bona fide offer within sixty (60)
days after written notice thereof from Landlord, Landlord shall be free to sell
the premises or portion thereof to such third person in accordance with the
terms and conditions of said offer.
ARTICLE XXI
Approval of Banking Authorities
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<PAGE>
Section 21.1 Tenant is a banking institution incorporated under the laws
of the Commonwealth of Pennsylvania and proposes to conduct a branch banking
business on the leased premises which will require the necessary approvals of
the state and federal banking authorities for such a branch. If Tenant is unable
to obtain such approvals, Tenant will have the right to terminate this lease by
giving written notice to Landlord, in which event the obligations of the parties
hereunder shall cease.
IN WITNESS WHEREOF, the parties have caused this lease to be executed as
of the date first above written.
WITNESS: LANDLORD:
/s/
______________________ ______________________
Silvio F. D'Ignazio
______________________
Elizabeth O. D'Ignazio
TENANT:
FIRST STERLING BANK
ATTEST:_________________________________________
-22-
<PAGE>
ACKNOWLEDGEMENT
COMMONWEALTH OF PENNSYLVANIA :
: ss
COUNTY OF DELAWARE :
On this 3rd day of July, 1996, before me, a Notary Public in and for the
State and County aforesaid, personally appeared ________________________
_________ and _________________, both of whom are known to me, and each of them
acknowledged executing the foregoing instrument for the purposes therein
contained.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
____________________________
NOTARY PUBLIC
COMMONWEALTH OF PENNSYLVANIA :
: ss
COUNTY OF DELAWARE :
On this 3rd day of July, 1996, before me, a Notary Public in and for the
State and County aforesaid, personally appeared Steven Santini, who acknowledged
himself to be the Vice President, being authorized to do so, executed the
foregoing instrument for the purposes therein contained.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
____________________________
NOTARY PUBLIC
-23-
<PAGE>
DESCRIPTION AND RECITAL
ALL THAT CERTAIN parcel of Real Estate in the Borough of Media, County of
Delaware, State of Pennsylvania, to wit:
SITUATE at the Northwest corner of Washington and Olive Streets,
CONTAINING in front on said Washington Street about 105 feet and in depth
along Olive Street 100 feet.
Folio No. 26-00-00136-00.
BEING the same premises which Sun Refining and Marketing
Company (a Pa. Corp.) formerly Sun Oil Company of
Pennsylvania (a Pa. Corp.) Successor by Merger to Sun Oil
Company (a N.J. Corp.) by Deed dated 11-30-1982 and recorded
in Delaware County, in Volume 51 page 973 conveyed unto
D'Ignazio's Towne House, Inc. (Pa. Corp.), in fee.
-24-
<PAGE>
Commonwealth Land Title Insurance Company
123 North Olive Street
Media, Pa. 19063
610) 566-1337
Limited property search
B 000 471 DC
Property: Northwest corner of Washington and Olive Streets
26-00-00136-00
Owner: Silvio and Elizabeth D'Ignazio
Mortgages:
1) $190,000.00 Silvio F. and Elizabeth M. D'Ignazio to Towne
House, Inc. dated 7/l/1991, recorded 12/16/1991 in Volume 904
page 1645.
JUDGMENTS:
NONE
cover date: 6/8/1996
-25-
<PAGE>
LEASE TERMINATION AGREEMENT
This Agreement ("Agreement") is made this ____ day of June, 1996, by and
between D'Ignazio's Towne House, Inc. ("Landlord") and Midlantic Bank, National
Association, Successor in Title to Continental Bank, ("Tenant").
WHEREAS, Landlord and Tenant entered into a lease agreement dated January
6, 1989 ("Lease") by which Landlord leased to Tenant certain Premises
("Premises") located at 101 West Baltimore Pike, Media, Pennsylvania, which
Premises are more particularly described in the Lease and
WHEREAS, notwithstanding the commencement and expiration dates set forth
in the Lease, Landlord and Tenant, for the consideration hereinafter set forth,
desire to cancel and terminate the Lease and all rights and obligations of
Landlord and Tenant thereunder as of 11:59 p.m. on August 31, 1996 (the
"Termination Date").
NOW THEREFORE, in consideration of the covenants and agreements
hereinafter set forth, with the intent to be legally bound hereby, Landlord and
Tenant mutually covenant and agree as follows:
1. In consideration of the sum of $10.00 and other good and valuable
consideration, paid to it by Tenant, receipt of which is hereby acknowledged,
Landlord agrees to accept the surrender unto Landlord of the Premises and all of
Tenant's right, title and interest therein, on the Termination Date, including
any and all improvements, appurtenances and fixtures in the Premises and
specifically including those items listed on Exhibit A attached hereto and made
a part hereof, excepting unattached trade fixtures and furniture therein which
Tenant may remove on or before the Termination Date and surrender the Premises
as of the Termination Date.
2. The Lease is hereby canceled and terminated on the Termination Date
with the same force and effect as if said date were originally set forth in the
Lease as the termination date of term thereof.
3. The parties hereto, for themselves and their respective successors and
assigns, do hereby forever mutually release and discharge each other,and their
respective successors and assigns, of and from all manner of action, causes of
action, damages, executions, claims, liabilities and demands whatsoever, in law
or in equity, which against each other the parties ever had, now have,or which
either party and its respective successors and assigns hereafter can, shall or
may, in the future, have for, upon, or by reason of any matter, cause or thing
whatsoever, directly or indirectly arising out of the Lease and/or Tenant's
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<PAGE>
occupancy of the Premises, with the exception of those specific duties and
obligations imposed upon Landlord and Tenant under the terms of the Lease,
relative to Tenant's occupancy of the Premises up to the Termination Date.
4. This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns.
5. This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, and it shall not be
necessary in making proof of this Agreement to produce or account for more than
one such counterpart.
IN WITNESS WHEREOF, and intending to be legally bound, the parties hereto
have caused this Agreement to be signed and sealed as of the day and year first
above written.
WITNESS: TENANT: Midlantic Bank, N.A.
____________________________ BY:_________________________
Title: ____________________
WITNESS: LANDLORD: D'Ignazio's Towne House,
Inc.
____________________________ ____________________________
____________________________ BY:_________________________
Title: ____________________
-27-
<PAGE>
EXHIBIT A
Midlantic Media Branch
101 West Baltimore Pike
1. Vault and Vault Door
2. Teller Locker
3. Drive Through Window, Deal Drawer and Canopy
4. Teller Counter
5. Kitchen Appliances (Stove, Microwave and Refrigerator)
-28-
Exhibit 10.13
Internal Revenue Service Department of the Treasury
Plan Description: Prototype Non-standardized Profit Sharing Plan with CODA
FFN: 50339816103-004 Case: 9201920 EIN: 13-5674085
BPD: 03 Plan: 004 Letter Serial No. D359287b
Washington, DC 20224
Person to Contact: Mr. Wolf
MERRILL LYNCH PIERCE FENNER & SMITH INC.
Telephone Number: (202) 622-8380
P. O. BOX 9038
Refer Reply to: E:EP:Q:1
PRINCETON, NJ 08543
Date: 06/29/93
Dear Applicant:
In our opinion, the amendment to the form of the plan identified above does not
in and of itself adversely affect the plan's acceptability under section 401 of
the Internal Revenue Code. This opinion relates only to the amendment to the
form of the plan. It is not an opinion as to the acceptability of any other
amendment or of the form of the plan as a whole, or as to the effect of other
Federal or local statutes.
You must furnish a copy of this letter to each employer who adopts this plan.
You are also required to send a copy of the approved form of the plan, any
approved amendments and related documents to each Key District Director of
Internal Revenue Service in whose jurisdiction there are adopting employers.
An employer who adopts the amended form of the plan after the date of the
amendment should apply for a determination letter by filing an application with
the Key District Director of Internal Revenue on Form 5307, Short Form
Application for Determination for Employee Benefit Plan.
This letter with respect to the amendment to the form of the plan does not
affect the applicability to the plan of the continued, interim and extended
reliance provisions of sections 13 and 17.03 of Rev. Proc. 89-9, 1989-1 C.B.
780. The applicability of such provisions may be determined by reference to the
initial opinion letter issued with respect to the plan.
If you, the sponsoring organization, have any questions concerning the IRS
processing of this case, please call the above telephone number. This number is
only for use of the sponsoring organization. Individual participants and/or
adopting employers with questions concerning the plan should contact the
sponsoring organization. The plan's adoption agreement must include the
sponsoring organization's address and telephone number for inquiries by adopting
employers.
If you write to the IRS regarding this plan, please provide your telephone
number and the most convenient time for us to call in case we need more
information. Whether you call or write, please refer to the Letter Serial Number
and File Folder Number shown in the heading of this letter.
You should keep this letter as a permanent record. Please notify us if you
modify or discontinue sponsorship of this plan.
Sincerely yours,
Chief, Employee Plans Qualifications Branch
<PAGE>
4-26-93
03-004
----------------------------------------------------
MERRILL LYNCH
----------
SPECIAL
----------
PROTOTYPE DEFINED
CONTRIBUTION PLAN
----------------------------------------------------
401(k) PLAN
EMPLOYEE THRIFT PLAN
PROFIT-SHARING PLAN
ADOPTION AGREEMENT
This Prototype Plan and Adoption Agreement are important legal instruments with
legal and tax implications for which the Sponsor, Merrill Lynch, Pierce, Fenner
& Smith, Incorporated, does not assume responsibility. The Employer is urged to
consult with its own attorney with regard to the adoption of this Plan and its
suitability to its circumstances.
2
<PAGE>
Adoption of Plan
The Employer named below hereby establishes or restates a profit-sharing plan
that includes a [X] 401(k), [ ] profit-sharing and/or [ ] thrift plan feature
(the "Plan") by adopting the Merrill Lynch Special Prototype Defined
Contribution Plan and Trust as modified by the terms and provisions of this
Adoption Agreement.
Employer and Plan Information
Employer Name:* First Sterling Bank
Business Address: 80 W. Lancaster Avenue
Devon, PA 19333
Telephone Number: (610) 971-1800
Employer Taxpayer I.D. Number: 23-2442500
Employer Taxable Year ends on: December 31st
Plan Name: First Sterling Bank 401(k) Plan
Plan Number: 001
401(k) Profit- Thrift
Sharing
Effective Date of Adoption: 07/01/94 -/-/- -/-/-
--------------- ----------- ------------
Tax Reform Act of 1986
Restatement Date: 02/01/91 -/-/- -/-/-
--------------- ----------- ------------
Original Effective Date: 02/01/91 -/-/- -/-/-
--------------- ----------- ------------
If this Plan is a continuation or an amendment of a prior plan, all optional
forms of benefits provided in the prior plan must be provided under this Plan to
any Participant who had an account balance, whether or not vested, in the prior
plan.
__________________________________________
If there are any Participating Affiliates in this Plan, list below the proper
name of each Participating Affiliate.
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
3
<PAGE>
ARTICLE I. Definitions
A. "Compensation"
(1) With respect to each Participant, except as provided below,
Compensation shall mean the (select all those applicable for each
column):
401(k) and/ Profit
or Thrift Sharing
[X] [ ] (a) amount reported in the "Wages Tips and Other
Compensation" Box on Form W-2 for the applicable period
selected in Item 5 below.
[ ] [ ] (b) compensation for Code Section 415 safe-harbor purposes
(as defined in Section 3.9.1(H)(i) of basic plan document
#03) for the applicable period selected in Item 5 below.
[ ] [ ] (c) amount reported pursuant to Code Section 3401(a) for the
applicable period selected in Item 5 below.
[ ] [ ] (d) all amounts received (under either option (a) or (b)
above) for personal services rendered to the Employer but
excluding (select one):
[ ] overtime
[ ] bonuses
[ ] commissions
[ ] amounts in excess of $______
[ ] other (specify) ____________
(2) Treatment of Elective Contributions (select one):
[X] (a) For purposes of contributions, Compensation shall
include Elective Deferrals and amounts excludable from the
gross income of the Employee under Code Section 125, Code
Section 402(e)(3), Code Section 402(h) or Code Section
403(b) ("elective contributions").
[ ] (b) For purposes of contributions, Compensation shall not
include "elective contributions."
(3) CODA Compensation (select one):
[X] (a) For purposes of the ADP and ACP Tests, Compensation
shall include "elective contributions."
[ ] (b) For purposes of the ADP and ACP Tests, Compensation
shall not include "elective contributions."
4
<PAGE>
(4) With respect to Contributions to an Employer Contributions Account,
Compensation shall include all Compensation (select one):
[X] (a) during the Plan Year in which the Participant enters the
Plan.
[ ] (b) after the Participant's Entry Date.
(5) The applicable period for determining Compensation shall be (select
one):
[X] (a) the Plan Year.
[ ] (b) the Limitation Year.
[ ] (c) the consecutive 12-month period ending on ___________.
B. "Disability"
(1) Definition
Disability shall mean a condition which results in the Participant's
(select one):
[X] (a) inability to engage in any substantial gainful activity by
reason of any medically determinable physical or mental
impairment that can be expected to result in death or which as
lasted or can be expected to last for a continuous period of not
less than 12 months.
[ ] (b) total and permanent inability to meet the requirements of
the Participant's customary employment which can be expected to
last for a continuous period of not less than 12 months.
[ ] (c) qualification for Social Security disability benefits.
[ ] (d) qualification for benefits under the Employer's long-term
disability plan.
(2) Contributions due to Disability (select one):
[X] (a) No contributions to an Employer Contributions Account will be
made on behalf of a Participant due to his or her Disability.
[ ] (b) Contribution to an Employer Contributions Account will be made on
behalf of a Participant due to his or her Disability provided
that: the Employer elected option (a) or (c) above as the
definition of Disability, contributions are not made on behalf of
a Highly Compensated Employee, the contribution is based on the
Compensation each such Participant would have received for the
Limitation Year if the Participant had been paid at the rate of
Compensation paid immediately before his or her Disability, and
contributions made on behalf of such Participant will be
nonforfeitable when made.
5
<PAGE>
C. "Early Retirement" is (select one):
[X] (1) not permitted.
[ ] (2) permitted if a Participant terminates Employment before
Normal Retirement Age and has (select one):
[ ] (a) attained age _____
[ ] (b) attained age _____ and completed ___ Years of Service.
[ ] (c) attained age _____ and completed ___ Years of Service as
a Participant.
D. "Eligible Employees" (select one):
[X] (1) All Employees are eligible to participate in the Plan.
[ ] (2) The following Employees are not eligible to participate in
the Plan (select all those applicable):
[ ] (a) Employees included in a unit of Employees covered by a
collective bargaining agreement between the Employer or
a Participating Affiliate and the Employee
representatives (not including any organization more
than half of whose members are Employees who are owners,
officers, or executives of the Employer or Participating
Affiliate) in the negotiation of which retirement
benefits were the subject of good faith bargaining,
unless the bargaining agreement provides for
participation in the Plan.
[ ] (b) non-resident aliens who received no earned income
from the Employer or a Participating Affiliate which
constitutes income from sources within the United
States.
[ ] (c) Employees of an Affiliate.
[ ] (d) Employees employed in or by the following
specified division, plant, location, job category or
other identifiable individual or group of Employees:
__________________________________________________
__________________________________________________
6
<PAGE>
E. "Entry Date"
Entry Date shall mean (select as applicable):
401)k)
and/or Profit-
Thrift Sharing
[ ] [ ] (1) If the initial Plan Year is less than twelve months,
the ____ day of _________ and thereafter.
[ ] [ ] (2) the first day of the Plan Year following the date
the Employee meets the eligibility requirements. If the
Employer elects this option (2) establishing only one Entry
Date, the eligibility "age and service" requirements elected
in Article II must be no more than age 20-1/2 and 6 months
of service.
[X] [ ] (3) the first day of the month following the date the
Employee meets the eligibility requirements.
[ ] [ ] (4) the first day of the Plan Year and the first day
of the seventh month of the Plan Year following the date the
Employee meets the eligibility requirements.
[ ] [ ] (5) the first day of the Plan Year, the first day of
the fourth month of the Plan Year, the first day of the
seventh month of the Plan Year, and the first day of the
tenth month of the Plan Year following the date the Employee
meets the eligibility requirements.
[ ] [ ] (6) other: ________________________________________________
provided that the Entry Date or Dates selected are no later
than any of the options above.
F. "Hours of Service"
Hours of Service for the purpose of determining a Participant's Period of
Severance and Year of Service shall be determined on the basis of the
method specified below:
(1) Eligibility Service: For purposes of determining whether a Participant
has satisfied the eligibility requirements, the following method shall
be used (select one):
401(k)
and/or Profit-
Thrift Sharing
[X] [ ] (a) elapsed time method
[ ] [ ] (b) hourly records method
7
<PAGE>
(2) Vesting Service: A Participant's nonforfeitable interest shall be
determined on the basis of the method specified below (select one):
[ ] (a) elapsed time method
[X] (b) hourly records method
[ ] (c) If this item (c) is checked, the Plan only provides for
contributions that are always 100% vested and this item (2)
will not apply.
(3) Hourly Records: For the purpose of determining Hours of Service under
the hourly record method (select one):
[X] (a) only actual hours for which an Employee is paid or
entitled to payment shall be counted.
[ ] (b) an Employee shall be credited with 45 Hours of Service
if such Employee would be credited with at least 1 Hour of
Service during the week.
G. "Integration Level"
[X] (1) This Plan is not integrated with Social Security.
[ ] (2) This Plan is integrated with Social Security. The
Integration Level shall be (select one):
[ ] (a) the Taxable Wage Base.
[ ] (b) $_____ (a dollar amount less than the
Taxable Wage Base).
[ ] (c) _____% of the Taxable Wage Base (not to exceed
100%).
[ ] (d) the greater of $10,000 or 20% of the Taxable
Wage Base.
H. "Limitation Compensation"
For purposes of Code Section 415, Limitation Compensation shall be
compensation as determined for purposes of (select one):
[ ] (1) Code Section 415 Safe-Harbor as defined in Section
3.9.1(H)(i) of the basic plan document #03.
[X] (2) the "Wages, Tips and Other Compensation" Box on form W-2.
[ ] (3) Code Section 3401(a) Federal Income Tax Withholding.
8
<PAGE>
I. "Limitation Year"
For purposes of Code Section 415, the Limitation Year shall be (select
one):
[X] (1) the Plan Year.
[ ] (2) the twelve consecutive month period ending on the _____ day of
the month of __________.
J. "Net Profits" are (select one):
[X] (1) not necessary for any contribution.
[ ] (2) necessary for (select all those applicable):
[ ] (a) Profit-Sharing Contributions.
[ ] (b) Matching 401(k) Contributions.
[ ] (c) Matching Thrift Contributions.
K. "Normal Retirement Age"
Normal Retirement Age shall be (select one):
[X] (1) attaining of age 65 (not more than 65) by the Participant.
----
[ ] (2) attainment of age ____ (not more than 65) by the
Participant on the _____ anniversary (not more than the 5th) of
the first day of the Plan Year in which the Eligible Employee
became a Participant, whichever is later.
[ ] (3) attainment of age ____ (not more than 65) by the
Participant on the _____ anniversary (not more than the 5th) of
the first day on which the Eligible Employee performed an Hour of
Service, whichever is later.
L. "Participant Directed Assets" are:
401(k)
and/or Profit-
Thrift Sharing
[X] [ ] (1) permitted.
[ ] [ ] (2) not permitted.
M. "Plan Year"
The Plan Year shall end on the 31st day of December
9
<PAGE>
N. "Predecessor Service"
Predecessor service will be credited (select one):
[X] (1) only as required by the Plan.
[ ] (2) to include, in addition to the Plan requirements and subject to
the limitations set forth below, service with the following
predecessor employer(s) determined as if such predecessors were
the Employer: ______________________________
Service with such predecessor employer applies [select either or both (a)
and/or (b); (c) is only available in addition to (a) and/or (b)]:
[ ] (a) for purposes of eligibility to participate;
[ ] (b) for purposes of vesting;
[ ] (c) except for the following service: __________________________
O. "Valuation Date"
Valuation Date shall mean (select one for each column, as applicable):
401(k)
and/or Profit-
Thrift Sharing
[ ] [ ] (1) the last business day of each month.
[ ] [ ] (2) the last business day of each quarter within the Plan Year.
[ ] [ ] (3) the last business day of each semi-annual period within the
Plan Year.
[ ] [ ] (4) the last business day of the Plan Year.
[X] [ ] (5) other: Daily.
ARTICLE II. Participation
Participation Requirements
An Eligible Employee must meet the following requirements to become a
Participant (select one or more for each column, as applicable):
401(k)
and/or Profit-
Thrift Sharing
[ ] [ ] (1) Performance of one Hour of Service.
10
<PAGE>
[ ] [ ] (2) Attainment of age _____ (maximum 20 1/2) and completion of
___ (not more than 1/2) Years of Service. If this item is
selected, no Hours of Service shall be counted.
[X] [ ] (3) Attainment of age 21 (maximum 21) and completion of 1/2
Year(s) of Service. If more than one Year of Service is
selected, the immediate 100% vesting schedule must be
selected in Article VII of this Adoption Agreement.
[ ] [ ] (4) Attainment of age _____ (maximum 21) and completion of ___
Years of Service. If more than one Year of Service is
selected, the immediate 100% vesting schedule must be
selected in Article VII of this Adoption Agreement.
[ ] [ ] (5) Each Employee who is an Eligible Employee on -/-/- be deemed
to have satisfied the participation requirements on the
effective date without regard to such Eligible Employee's
actual age and/or service.
ARTICLE III. 401(k) Contributions and Account Allocation
A. Elective Deferrals
If selected below, a Participant's Elective Deferrals will be (select all
applicable):
[X] (1) a dollar amount or a percentage of Compensation, as specified
by the Participant on his or her 401(k) Election form, which may
not exceed 15% of his or her Compensation.
[X] (2) with respect to bonuses, such dollar amount or percentage as
specified by the Participant on his or her 401(k) Election form
with respect to such bonus.
B. Matching 401(k) Contributions
If selected below, the Employer may make Matching 401(k) Contributions for
each Plan Year (select one):
[ ] (1) Discretionary Formula:
Discretionary Matching 401(k) Contribution equal to such a
dollar amount or percentage of Elective Deferrals, as
determined by the Employer, which shall be allocated (select
one):
[ ] (a) based on the ratio of each Participant's
Elective Deferral for the Plan Year to the total
Elective Deferrals of all Participants for the Plan
Year. If inserted, Matching 401(k) Contributions
shall be subject to a maximum
11
<PAGE>
amount of $_______ for each Participant or ____% of
each Participant's Compensation.
[ ] (b) in an amount not to exceed ____% of each
Participant's first ____% of Compensation
contributed as Elective Deferrals for the Plan
Year. If any Matching 401(k) Contribution remains,
it is allocated to each such Participant in an
amount not to exceed ____% of the next ____% of
each Participant's Compensation contributed as
Elective Deferrals for the Plan Year.
Any remaining Matching 401(k) Contribution shall be allocated to each such
Participant in the ratio that such Participant's Elective Deferral for the
Plan Year bears to the total Elective Deferrals of all such Participants
for the Plan Year. If inserted, Matching 401(k) Contributions shall be
subject to a maximum amount of $_____ for each Participant or ____% of each
Participant's Compensation.
[X] (2) Nondiscretionary Formula:
A nondiscretionary Matching 401(k) Contribution for each Plan
Year equal to (select one):
[ ] (a) ____% of each Participant's Compensation
contributed as Elective Deferrals. If inserted,
Matching 401(k) Contributions shall be subject to a
maximum amount of $______ for each Participant or
____% of each Participant's Compensation.
[X] (b) 40 % of the first 6 % of the Participant's
Compensation contributed as Elective Deferrals and
____% of the next ____% of the Participant's
Compensation contributed as Elective Deferrals. If
inserted, Matching 401(k) Contributions shall be
subject to a maximum amount of $______ for each
Participant or ____% of each Participant's
Compensation.
C. Participants Eligible for Matching 401(k) Contribution Allocation
The following Participants shall be eligible for an allocation to their
Matching 401(k) Contributions Account (select all those applicable):
[X] (1) Any Participant who makes Elective Deferrals.
[ ] (2) Any Participant who satisfies those requirements elected by
the Employer for an allocation to his or her Employer
Contributions Account as provided in Article IV Section C.
12
<PAGE>
[ ] (3) Solely with respect to a Plan in which Matching 401(k)
Contributions are made quarterly (or on any other regular
interval that is more frequent than annually) any Participant
whose 401(k) Election is in effect throughout such entire quarter
(or other interval).
D. Qualified Matching Contributions
If selected below, the Employer may make Qualified Matching Contributions
for each Plan Year (select all those applicable):
(1) In its discretion, the Employer may make Qualified Matching
Contributions on behalf of (select one):
[ ] (a) all Participants who make Elective Deferrals in that
Plan Year.
[X] (b) only those Participants who are Nonhighly
Compensated Employees and who make Elective Deferrals
for that Plan Year.
(2) Qualified Matching Contributions will be contributed and
allocated to each Participant in an amount equal to:
[ ] (a) ____% of the Participant's Compensation
contributed as Elective Deferrals. If inserted,
Qualified Matching Contributions shall not exceed ____%
of the Participant's Compensation.
[X] (b) Such an amount, determined by the Employer, which is
needed to meet the ACP Test.
(3) In its discretion, the Employer may elect to designate all or any
part of Matching 401(k) Contributions as Qualified Matching
Contributions that are taken into account as Elective Deferrals -
included in the ADP Test and excluded from the ACP Test - on
behalf of (select one):
[ ] (a) all Participants who make Elective Deferrals for that
Plan Year.
[X] (b) Only Participants who are Nonhighly Compensated
Employees who make Elective Deferrals for that Plan
Year.
E. Qualified Nonelective Contributions
If selected below, the Employer may make Qualified Nonelective
Contributions for each Plan Year (select all those applicable):
(1) In its discretion, the Employer may make Qualified Nonelective
Contributions on behalf of (select one):
[ ] (a) all Eligible Participants.
13
<PAGE>
[X] (b) only Eligible Participants who are Nonhighly Compensated
Employees.
(2) Qualified Nonelective Contributions will be contributed and allocated
to each Eligible Participant in an amount equal to (select one):
[ ] (a) ____% (no more than 15%) of the Compensation of
each Eligible Participant eligible to share in the
allocation.
[X] (b) Such an amount determined by the Employer, which is
needed to meet either the ADP Test or ACP Test.
(3) At the discretion of the Employer, as needed and taken into account as
Elective Deferrals included in the ADP Test on behalf of (select one):
[ ] (a) all Eligible Participants.
[X] (b) only those Eligible Participants who are Nonhighly
Compensated Employees.
F. Elective Deferrals used in ACP Test (select one):
[X] (1) At the discretion of the Employer, Elective Deferrals may be
used to satisfy the ACP Test.
[ ] (2) Elective Deferrals may not be used to satisfy the ACP Test.
G. Making and modifying a 401(k) Election
An Eligible Employee shall be entitled to increase, decrease or resume his
or her Elective Deferral percentage with the following frequency during the
Plan Year (select one):
[ ] (1) annually.
[ ] (2) semi-annually.
[ ] (3) quarterly.
[X] (4) monthly.
[ ] (5) other (specify):__________.
Any such increase, decrease or resumption shall be effective as of the
first payroll period coincident with or next following the first day of
each period set forth above. A Participant may completely discontinue
making Elective Deferrals at any time effective for the payroll period
after written notice is provided to the Administrator.
14
<PAGE>
ARTICLE IV. Profit-Sharing Contributions and Account Allocation
THIS ARTICLE IS NOT APPLICABLE
A. Profit-Sharing Contributions
If selected below, the following contributions for each Plan Year will be
made:
Contributions to Employer Contributions Accounts (select one):
[ ] (a) Such an amount, if any, as determined by the Employer.
[ ] (b) ____% of each Participant's Compensation.
B. Allocation of Contributions to Employer Contributions Accounts (select one):
[ ] (1) Non-Integrated Allocation
The Employer Contributions Account of each Participant
eligible to share in the allocation for a Plan Year shall be
credited with a portion of the contribution, plus any
forfeitures if forfeitures are reallocated to Participants,
equal to the ratio that the Participant's Compensation for
the Plan Year bears to the Compensation for that Plan Year
of all Participants entitled to share in the contribution.
[ ] (2) Integrated Allocation
Contributions to Employer Contributions Accounts with
respect to a Plan Year, plus any forfeitures if forfeitures
are reallocated to Participants, shall be allocated to the
Employer Contributions Account of each eligible Participant
as follows:
(a) First, in the ratio that each such Participant's
Compensation eligible Participants but not in excess of
3% of each Participant's Compensation.
(b) Second, any remaining contributions and forfeitures will
be allocated in the ratio that each eligible
Participant's Compensation for the Plan Year in excess
of the Integration Level bears to all such Participants'
excess Compensation for the Plan Year but not in excess
of 3%.
(c) Third, any remaining contributions and forfeitures will
be allocated in the ratio that the sum of each
Participant's Compensation and Compensation in excess of
the Integration level bears to the sum of all
Participants' Compensation and Compensation in excess of
the Integration Level, but not in
15
<PAGE>
excess of the Maximum Profit-Sharing Disparity Rate
(defined below).
(d) Fourth, any remaining contributions or forfeitures will
be allocated in the ratio that each Participant's
Compensation for that year bears to all Participants'
Compensation for that year.
The Maximum Profit-Sharing Disparity Rate is equal to the
lesser of:
(a) 2.7% or
(b) The applicable percentage determined in accordance with
the following table:
If the Integration
Level is (as a % of the applicable
the Taxable Wage Base ("TWB")). percentage is:
20% (or $10,000 if greater)
or less of the TWB 2.7%
More than 20% (but not less
than $10,001) but not more
than 80% of the TWB 1.3%
More than 80% but not less
than 100% Of the TWB 2.4%
100% of the TWB 2.7%
C. Participants Eligible for Employer Contribution Allocation
The following Participants shall be eligible for an allocation to their
Employer Contributions Accounts (select all those applicable):
[ ] (1) Any Participant who was employed during the Plan Year.
[ ] (2) In the case of a Plan using the hourly record method for
determining Vesting Service, any Participant who was credited
with a Year of Service during the Plan Year.
[ ] (3) Any Participant who was employed on the last day of the Plan Year.
[ ] (4) Any Participant who was on a leave of absence on the last day of
the Plan Year.
16
<PAGE>
[ ] (5) Any Participant who during the Plan Year died or became
Disabled while an Employee or terminated employment after
attaining Normal Retirement Age.
[ ] (6) Any Participant who was credited with at least 501 Hours of
Service whether or not employed on the last day of the Plan Year.
[ ] (7) Any Participant who was credited with at least 1,000 Hours of
Service and was employed on the last day of the Plan Year.
ARTICLE V. Thrift Contributions
THIS ARTICLE IS NOT APPLICABLE
A. Employee Thrift Contributions
If selected below, Employee Thrift Contributions, which are required for
Matching Thrift Contributions, may be made by a Participant in an amount
equal to (select one):
[ ] (1) A dollar amount or a percentage of the Participant's
Compensation which may not be less than ____% nor may not exceed
____% of his or her Compensation.
[ ] (2) An amount not less than ____% of and not more than ____% of
each Participant's Compensation.
B. Making and modifying an Employee Thrift Contribution Election
A Participant shall be entitled to increase, decrease or resume his or her
Employee Thrift Contribution percentage with the following frequency during
the Plan Year (select one):
[ ] (1) annually
[ ] (2) semi-annually
[ ] (3) quarterly
[ ] (4) monthly
[ ] (5) other (specify):________________.
Any such increase, decrease or resumption shall be effective as of the
first payroll period coincident with or next following the first day of
each period set forth above. A Participant may completely discontinue
making Employee Thrift Contributions at any time effective for the payroll
period after written notice is provided to the Administrator.
C. Thrift Matching Contributions
If selected below, the Employer will make Matching Thrift Contributions for
each Plan Year (select one):
17
<PAGE>
[ ] (1) Discretionary Formula:
A discretionary Matching Thrift Contribution equal to such a dollar amount or
percentage as determined by the Employer, which shall be allocated (select one):
[ ] (a) based on the ratio of each Participant's Employee
Thrift Contribution for the Plan Year to the total
Employee Thrift Contributions of all Participants for
the Plan Year. If inserted, Matching Thrift
Contributions shall be subject to a maximum amount of
$_____ for each Participant or ____% of each
Participant's Compensation.
[ ] (b) in an amount not to exceed ____% of each
Participant's first ____% of Compensation contributed as
Employee Thrift Contributions for the Plan Year. If any
Matching Thrift Contribution remains, it is allocated to
each such Participant in an amount not to exceed ____%
of the next ____% of each Participant's Compensation
contributed as Employee Thrift Contributions for the
Plan Year.
Any remaining Matching Thrift Contribution shall be allocated to each such
Participant in the ratio that such Participant's Employee Thrift Contributions
for the Plan Year bears to the total Employee Thrift Contributions of all such
Participants for the Plan Year. If inserted, Matching Thrift Contributions shall
be subject to a maximum amount of $_____ for each Participant or ____% of each
Participant's Compensation.
[ ] (2) Nondiscretionary Formula:
A nondiscretionary Matching Thrift Contribution for each Plan
Year equal to (select one):
[ ] (a) ____% of each Participant's Compensation
contributed as Employee Thrift Contributions. If
inserted, Matching Thrift Contributions shall be subject
to a maximum amount of $_____ for each Participant or
____% of each Participant's
Compensation.
[ ] (b) ____% of the first ____% of the Participant's
Compensation contributed as Employee Thrift
Contributions and ____% of the next ____% of the
Participant's Compensation contributed as Employee
Thrift Contributions. If inserted, Matching Thrift
Contributions shall be subject to a maximum amount of
$_____ for each Participant or ____% of each
Participant's Compensation.
18
<PAGE>
D. Qualified Matching Contribution
If selected below, the Employer may make Qualified Matching Contributions
for each Plan Year (select all those applicable):
(1) In its discretion, the Employer may make Qualified Matching
Contributions on behalf of (select one):
[ ] (a) all Participants who make Employee Thrift Contributions.
[ ] (b) only those Participants who are Nonhighly
Compensated Employees and who make Employee Thrift
Contributions.
(2) Qualified Matching Contributions will be contributed and
allocated to each Participant in an amount equal to:
[ ] (a) ____% of the Participant's Employee Thrift
Contributions. If inserted, Qualified Matching
Contributions shall not exceed ____% of the
Participant's Compensation.
[ ] (b) such an amount, determined by the Employer, which
is needed to meet the ACP Test.
ARTICLE VI. Participant Contributions
Participant Voluntary Nondeductible Contributions
Participant Voluntary Nondeductible Contributions are (select one):
[ ] (a) permitted.
[X] (b) not permitted.
ARTICLE VII. Vesting
A. Employer Contribution Accounts
(1) A Participant shall have a vested percentage in his or her
Profit-Sharing Contributions, Matching 401(k) Contributions and/or
Matching Thrift Contributions, if applicable, in accordance with the
following schedule (select
one):
Matching 401(k)
and/or Matching
Thrift Profit-Sharing
Contributions Contributions
- ------------- -------------
[ ] [ ] (a) 100% vesting immediately upon participation.
19
<PAGE>
[ ] [ ] (b) 100% after ___ (not more than 5) years of Vesting Service.
[X] [ ] (c) Graded vesting schedule:
20 % % after 1 year of Vesting Service;
----- -----
40 % % after 2 years of Vesting Service;
----- -----
60 % % (not less than 20%) after 3 years of Vesting Service;
----- -----
80 % % (not less than 40%) after 4 years of Vesting Service;
----- -----
100 % % (not less than 60%) after 5 years of Vesting Service;
----- -----
% % (not less than 80%) after 6 years of Vesting Service;
----- -----
100% after 7 years of Vesting Service.
(2) Top Heavy Plan
Matching 401(k)
and/or Matching
Thrift Profit-Sharing
Contributions Contributions
- ------------- -------------
Vesting Schedule (select one):
[ ] [ ] (a) 100% vesting immediately upon participation.
[ ] [ ] (b) 100% after ______ (not more than 3) years of Vesting
Service.
[X] [ ] (c) Graded vesting schedule:
20 % % after 1 year of Vesting Service;
----- -----
40 % % (not less than 20%) after 2 years of Vesting Service;
----- -----
60 % % (not less than 40%) after 3 years of Vesting Service;
----- -----
80 % % (not less than 60%) after 4 years of Vesting Service;
----- -----
100 % % (not less than 80%) after 5 years of Vesting Service;
----- -----
100% after 6 years of Vesting Service.
20
<PAGE>
Top Heavy Ratio:
(a) If the adopting Employer maintains or has ever maintained a qualified
defined benefit plan, for purposes of establishing present value to
compute the top-heavy ratio, any benefit shall be discounted only for
mortality and interest based on the following:
Interest Rate: 8 %
Mortality Table: UP 84
(b) For purposes of computing the top-heavy ratio, the valuation date
shall be the last business day of each Plan Year.
B. Allocation of Forfeitures
Forfeitures shall be (select one from each applicable column):
Matching 401(k)
and/or Matching
Thrift Profit-Sharing
Contributions Contributions
- ------------- -------------
[X] [ ] (1) used to reduce Employer contributions for succeeding
Plan Year.
[ ] [ ] (2) allocated in the succeeding Plan Year in the ratio
which the Compensation of each Participant for the Plan
Year bears to the total Compensation of all
Participants entitled to share in the Contributions. If
the Plan is integrated with Social Security,
forfeitures shall be allocated in accordance with the
formula elected by the Employer.
C. Vesting Service
For purposes of determining Years of Service for Vesting Service [select
(1) or (2) and/or (3)]:
[X] (1) All Years of Service shall be included
[ ] (2) Years of Service before the Participant attained age 18 shall be
excluded.
[ ] (3) Service with the Employer prior to the effective date of the Plan
shall be excluded.
21
<PAGE>
ARTICLE VIII. Deferral of Benefit Distributions,
In-Service Withdrawals and Loans
A. Deferral of Benefit Distributions N/A
401(k) and/ Profit-
or Thrift Sharing
- --------- -------
[ ] [ ] If this item is checked, a Participant's vested
benefit in his or her Employer Accounts shall be payable as
soon as practicable after the earlier of: (1) the date the
Participant terminates Employment due to Disability or (2)
the end of the Plan Year in which a terminated Participant
attains Early Retirement Age, if applicable, or Normal
Retirement Age.
B. In-Service Distributions
[X] (1) In-service distributions may be made from any of the
Participant's vested Accounts, at any time upon or after the
occurrence of the following events (select all applicable):
[X] (a) a Participant's attainment of age 59-1/2.
[X] (b) due to hardships as defined in Section 5.9 of the Plan.
[ ] (2) In-service distributions are not permitted.
C. Loans are:
401(k) and/ Profit-
or Thrift Sharing
- --------- -------
[X] [ ] (1) permitted.
[ ] [ ] (2) not permitted.
ARTICLE IX. Group Trust
[ ] If this item is checked, the Employer elects to establish a Group Trust
consisting of such Plan assets as shall from time to time be transferred to
the Trustee pursuant to Article I of the Plan. The Trust Fund shall be a
Group Trust consisting of assets of this Plan plus assets of the following
plans of the Employer or of an Affiliate: ________________________________
__________________________________________
22
<PAGE>
ARTICLE X. Miscellaneous
A. Identification of Sponsor
The address and telephone number of the Sponsor's authorized representative
is 800 Scudders Mill road, Plainsboro, New Jersey 08536; (609) 282-2272.
This authorized representative can answer inquiries regarding the adoption
of the Plan, the intended meaning of any Plan provisions, and the effect of
the opinion letter.
The Sponsor will inform the adopting Employer of any amendments made to the
Plan or the discontinuance or abandonment of the Plan.
B. Plan Registration
(1) Initial Registration
This Plan must be registered with the Sponsor, Merrill Lynch, Pierce,
Fenner & Smith Incorporated, in order to be considered a Prototype
Plan by the Sponsor. Registration is required so that the Sponsor is
able to provide the Administrator with documents, forms and
announcements relating to the administration of the Plan and with Plan
amendments and other documents, all of which relate to administering
the Plan in accordance with applicable law and maintaining compliance
of the Plan with the law.
The Employer must complete and sign the Adoption Agreement. Upon
receipt of the Adoption Agreement, the Plan will be registered as a
Prototype Plan of Merrill Lynch, Pierce, Fenner & Smith Incorporated.
The Adoption Agreement will be countersigned by an authorized
representative and a copy of the countersigned Adoption Agreement will
be returned to the Employer.
(2) Registration Renewal
Annual registration renewal is required in order for the Employer to
continue to receive any and all necessary updating documents. There is
an annual registration renewal fee in the amount set forth with the
initial registration material. The adopting Employer authorizes
Merrill Lynch, Pierce, Fenner & Smith Incorporated, to debit the
account established for the Plan for payment of agreed upon annual
fee; provided, however, if the assets of an account are invested
solely in Participant-Directed Assets, a notice for this annual fee
will be sent to the Employer annually. The Sponsor reserves the right
to change this fee from time to time and will provide written notice
in advance of any change.
C. Prototype Replacement Plan
This Adoption Agreement is a replacement prototype plan for the (1) Merrill
Lynch special Prototype Defined Contribution Plan and Trust - 401(k) Plan
#03-004 and (2) Merrill Lynch Asset Management, Inc., Special Prototype
Defined Contribution Plan and Trust - 401(k) Plan Adoption Agreement
#03-004.
23
<PAGE>
D. Reliance
The adopting Employer may not rely on the opinion letter issued by the
National Office of the Internal Revenue Service as evidence that this Plan
is qualified under Code Section 401. In order to obtain reliance, the
Employer must apply to the appropriate Key District Director of the
Internal Revenue Service for a determination letter with respect to the
Plan.
EMPLOYER
Dated:___________________ By:_________________________________
Signature
To be executed by the sole proprietor, an
authorized partner or corporate officer, as
appropriate.
______________________________________
Print Name
______________________________________
Title, if a corporate officer
Sponsor Acceptance
Subject to the terms and conditions of the Prototype Plan and this Adoption
Agreement, this Adoption Agreement is accepted by Merrill Lynch, Pierce, Fenner
& Smith Incorporated as the Prototype Sponsor.
Authorized Signature:____________________________
24
<PAGE>
Merrill Lynch Trust Company is NOT a Trustee
ACCEPTANCE BY TRUSTEE(S)
A. This Trustee Acceptance is to be completed only if the Employer appoints
one or more Trustees and does not appoint a Merrill Lynch Trust Company as
Trustee.
The undersigned hereby accept all of the terms, conditions, and obligations
of appointment as Trustee under the Plan. If the Employer has elected a
Group Trust in this Adoption Agreement, the undersigned Trustee(s) shall be
the Trustee(s) of the Group Trust.
as TRUSTEE
________________________________ _______________________________________
(Signature) (print or type name)
as TRUSTEE
________________________________ _______________________________________
(Signature) (print or type name)
as TRUSTEE
________________________________ _______________________________________
(Signature) (print or type name)
as TRUSTEE
________________________________ _______________________________________
(Signature) (print or type name)
Dated:______________, 19__
25
<PAGE>
The Merrill Lynch Trust Companies as Trustee
This Trustee Acceptance and designation of Investment Committee are to be
completed only when Merrill Lynch Trust Company is appointed as Trustee.
The undersigned hereby accept all of the terms, conditions, and obligations
of appointment as Trustee under the Plan. If the Employer has elected a
Group Trust in this Adoption Agreement, the undersigned Trustee(s) shall be
the Trustee(s) of the Group Trust.
SEAL MERRILL LYNCH TRUST COMPANY [________________________]
_______________________________________________
Dated:____________, 19__ By: _______________________________________________
DESIGNATION OF INVESTMENT COMMITTEE
The Investment Committee for the Plan is (print or type name):
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
26
<PAGE>
The Merrill Lynch Trust Companies as one of the Trustees
This Trustee Acceptance is to be completed only if, in addition to a
Merrill Lynch Trust Companies Trustee, the Employer appoints an additional
Trustee of a second trust fund.
The undersigned hereby accept all of the terms, conditions, and obligations
of appointment as Trustee under the Plan. If the Employer has elected a
Group Trust in this Adoption Agreement, the undersigned Trustee(s) shall be
the Trustee(s) of the Group Trust.
as TRUSTEE
__________________________________ ___________________________________
(Signature) (print or type name)
Dated: ____________, 19_________
SEAL MERRILL LYNCH TRUST COMPANY [____________________________]
____________________________________________________
Dated: ____________, 19________
DESIGNATION OF INVESTMENT COMMITTEE
The Investment Committee for the Plan is (print or type name):
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
27
Exhibit 13.1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ______ to ______
Commission File Number: 0-17286
PRIME BANCORP, INC .
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 23-2528428
- ------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
6425 Rising Sun Avenue, Philadelphia, PA 19111
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (215) 742-5300
--------------
Securities registered pursuant to Section 12 (b) of the Act:
NONE
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, par value $1.00 per share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No__
[ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
<PAGE>
The aggregate market value of the voting stock held by nonaffiliates of the
registrant is approximately $53.7 million. (1)
The number of shares of the registrant's Common Stock outstanding as of
March 20, 1996 was 3,723,353 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Part II Part III
Annual Report to Stockholders Proxy Statement dated March 18, 1996
for the year ended December 31, 1995
(1) The aggregate dollar amount of the voting stock set forth equals the number
of shares of Common Stock outstanding, reduced by the number of shares of
Common Stock held by executive officers, directors and stockholders owning
in excess of 10% of the registrant's Common Stock multiplied by the closing
price for the Common Stock on the National Association of Securities
Dealers National Market System on March 20, 1996. The information provided
shall in no way be construed as an admission that any person whose holdings
are included in this figure is not an affiliate of the registrant and any
such admission is hereby disclaimed. The information provided herein is
included solely for record keeping purposes of the Securities and Exchange
Commission.
<PAGE>
Item 1. Business
Introduction
Prime Bancorp, Inc. ("the Company") was incorporated under the laws of the
State of Delaware in 1987 for the purpose of becoming a savings and loan holding
company for Prime Bank ("the Bank"). The Bank became a wholly-owned subsidiary
of the Company on November 14, 1988.
The Company is a unitary, nondiversified savings and loan holding company.
The Bank is a federally chartered savings bank which succeeded the business of
Cheltenham Federal Savings and Loan Association (Cheltenham") and North East
Federal Savings and Loan Association ("North East") upon the conversion of such
associations from federally chartered mutual savings and loan associations,
through merger, into the Bank, a stock savings bank on November 14, 1988.
The Bank's operations are headquartered in northeast Philadelphia,
Pennsylvania with eight additional full service branch offices in northeast
Philadelphia, five full service branches in Bucks County, Pennsylvania, and five
full service branches in Montgomery County, Pennsylvania.
Effective March 19, 1996, the Company's subsidiary, Prime Bank, a federal
savings bank, converted into a Pennsylvania chartered stock savings bank with
the legal name, "Prime Bank, a savings bank". After the conversion, the Bank
continues to do business under the name, "Prime Bank". After the conversion, the
Bank's deposits will continue to be insured by the Savings Association Insurance
Fund ("SAIF") administered by the Federal Deposit Insurance Corporation
("FDIC"). Because the Bank's deposits are SAIF insured, the Company is deemed to
be a "savings and loan holding company" regulated by the Office of Thrift
Supervision, and not a "bank holding company", which would be regulated by the
Board of Governors of the Federal Reserve System. The Bank continues to meet all
applicable "qualified thrift lender" tests. In the opinion of the Company's
management, there are not likely to be any material differences in the impact of
Pennsylvania banking laws and regulations on the ordinary activities of the
Bank, as compared to federal laws and regulations applicable to federal savings
associations.
Business
The Bank follows a community bank strategy which focuses on providing
individuals, businesses, and communities with high quality basic banking
services. Basic banking means lending money, gathering money and other
complementary fee generating services. Unlike the traditional thrift whose
primary products are related to residential real estate, the community bank
maintains a much greater degree of balance sheet diversification. Loans are
spread among consumer, commercial, construction and residential mortgages.
Deposits are gathered along four money lines which are checking, savings, retail
CDs and jumbo CDs.
Selected Consolidated Financial Data
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Years Ended December 31, 1991 1992 1993 1994 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Return on assets 1.15% 1.28% 1.28%(1) 1.16% 1.00%
Return on equity 10.23% 10.93% 11.47%(1) 11.93% 11.27%
Average equity to average assets 11.28% 11.74% 11.02% 8.40% 9.25%
Book value per share $12.15 $12.61 $13.70 $12.86 $15.18
Dividends per share $ 0.22 $ 0.37 $ 0.50 $ 0.54 $ 0.62
Dividend payout ratio 23.87% 27.66% 28.11% 34.50% 39.16%
========================================================================================
</TABLE>
(1) Excludes the cumulative effect on prior years of change in accounting
principle.
Lending Activities
The Bank's net loan portfolio, inclusive of mortgage-backed securities of
$135.8 million, totaled $480.5 million at December 31, 1995. This represented
approximately 79.0% of its total assets. At that date, approximately 61.2% of
its net loan portfolio consisted of loans secured by existing one-to-four family
residential properties (including mortgage-backed securities) and the remaining
balance consisted principally of multi-family residential and commercial real
estate loans (14.0% of the net loan portfolio), construction loans, net of loans
in process (5.2%), consumer loans (12.9%) and commercial business loans (7.1%).
1
<PAGE>
The following table sets forth detailed information concerning the
composition of the loan portfolios (inclusive of mortgage-backed securities) as
of the dates specified for the Bank. (Dollars in thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1991 1992 1993 1994 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Amount % Amount % Amount % Amount % Amount %
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Permanent first mortgage loans:
One-to four-family $ 115,135 39.7% $ 119,968 37.6% $ 123,400 32.3% $ 140,065 31.5% $ 157,816 32.9%
Multi-family 5,525 1.9% 5,394 1.7% 4,648 1.2% 4,148 0.9% 1,597 0.3%
Commercial 36,530 12.6% 39,988 12.5% 49,507 12.9% 62,240 14.0% 66,024 13.7%
- ------------------------------------------------------------------------------------------------------------------------------------
Total permanent loans 157,190 54.2% 165,350 51.8% 177,555 46.4% 206,453 46.4% 225,437 46.9%
Allowance for loan losses (747) -0.3% (827) -0.3% (1,007) -0.3% (1,247) -0.3% (814) -0.2%
- ------------------------------------------------------------------------------------------------------------------------------------
Total permanent first mortgage
loans, net 156,443 53.9% 164,523 51.5% 176,548 46.1% 205,206 46.1% 224,623 46.7%
Construction 68,867 23.8% 54,123 17.0% 58,375 15.2% 51,543 11.6% 42,264 8.8%
Loans in process (26,764) -9.2% (15,488) -4.9% (17,662) -4.6% (17,148) -3.9% (17,033) -3.5%
- ------------------------------------------------------------------------------------------------------------------------------------
Total construction loans, net 42,103 14.6% 38,635 12.1% 40,713 10.6% 34,395 7.7% 25,231 5.3%
Allowance for loan losses (632) -0.2% (580) -0.2% (634) -0.2% (829) -0.2% (399) -0.1%
- ------------------------------------------------------------------------------------------------------------------------------------
Total construction loans, net 41,471 14.4% 38,055 11.9% 40,079 10.4% 33,566 7.5% 24,832 5.2%
Commercial business loans 26,229 9.1% 37,488 11.7% 35,990 9.4% 35,350 8.0% 35,666 7.4%
Allowance for loan losses (328) -0.1% (463) -0.1% (1,152) -0.3% (873) -0.2% (1,301) -0.3%
- ------------------------------------------------------------------------------------------------------------------------------------
Total commercial loans, net 25,901 9.0% 37,025 11.6% 34,838 9.1% 34,477 7.8% 34,365 7.1%
Consumer loans:
Personal/lines of credit 13,939 4.8% 19,744 6.2% 18,683 4.9% 20,412 4.6% 19,141 4.0%
Second mortgage/equity 12,988 4.5% 14,781 4.6% 20,139 5.3% 22,663 5.1% 28,932 6.0%
Auto 6,297 2.2% 5,933 1.9% 4,900 1.3% 7,110 1.6% 10,046 2.1%
Education 1,467 0.5% 1,661 0.5% 2,230 0.6% 1,697 0.4% 2,992 0.6%
Home improvement and other 165 0.1% 164 0.1% 427 0.1% 367 0.1% 322 0.1%
Savings account 998 0.3% 1,029 0.3% 1,135 0.3% 1,464 0.3% 1,119 0.2%
- ------------------------------------------------------------------------------------------------------------------------------------
Total consumer loans 35,854 12.4% 43,312 13.6% 47,514 12.5% 53,713 12.1% 62,552 13.0%
Allowance for loan losses (359) -0.1% (433) -0.1% (412) -0.1% (695) -0.2% (612) -0.1%
- ------------------------------------------------------------------------------------------------------------------------------------
Total consumer loans, net 35,495 12.3% 42,879 13.5% 47,102 12.4% 53,018 11.9% 61,940 12.9%
Total unamortized loan origination
fees and costs (2,951) -1.0% (2,205) -0.7% (1,752) -0.5% (1,298) -0.3% (392) -0.1%
Allowance for loan loss (unallocated) (297) -0.1% (899) -0.3% (761) -0.2% (641) -0.1% (638) -0.1%
- ------------------------------------------------------------------------------------------------------------------------------------
Total loans receivable, net 256,062 88.5% 279,378 87.5% 296,054 77.3% 324,328 72.9% 344,730 71.7%
Total mortgage-backed securities 33,391 11.5% 39,778 12.5% 86,979 22.7% 120,453 27.1% 135,823 28.3%
- ------------------------------------------------------------------------------------------------------------------------------------
Total loans receivable and
mortgage-backed securities, net $ 289,453 100.0% $ 319,156 100.0% $ 383,033 100.0% $ 444,781 100.0% $ 480,553 100.0%
====================================================================================================================================
</TABLE>
2
<PAGE>
Contractual Maturities
The following table sets forth the contractual maturities of the Bank's
loan portfolio as of December 31, 1995 by categories of loans. Adjustable-rate
loans are included in the period in which they mature rather than in the period
in which they are next scheduled to adjust, and fixed-rate loans are included in
the period in which they mature without regard to any expected prepayments
(dollars in thousands).
<TABLE>
<CAPTION>
Within 1 Through Over Five
1 Year 5 Years Years Total
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fixed rate mortgages $ 2,935 $ 5,171 $ 56,483 $ 64,589
ARM'S 234 1,084 93,506 94,824
Construction loans, net 18,954 6,277 -- 25,231
Commercial real estate and business loans 18,328 19,089 64,273 101,690
Consumer loans 6,841 39,091 16,620 62,552
- ------------------------------------------------------------------------------------------
$ 47,292 $ 70,712 $230,882 $348,886
==========================================================================================
</TABLE>
The following table sets forth information regarding non-accrual loans and
real estate owned held by the Bank at the date indicated (dollars in thousands).
<TABLE>
<CAPTION>
Years Ended December 31,
- ------------------------------------------------------------------------------------
1991 1992 1993 1994 1995
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Non-accrual loans:
Single-Family residential $1,611 $1,594 $1,913 $1,859 $1,786
Multi-Family residential and
commercial real estate loans 170 -- -- -- --
- ------------------------------------------------------------------------------------
Total residential loans 1,781 1,594 1,913 1,859 1,786
- ------------------------------------------------------------------------------------
Consumer loans 409 359 665 2,311 269
Commercial real estate loans 533 1,348 1,679 150 925
- ------------------------------------------------------------------------------------
Total non-accrual loans $2,723 $3,301 $4,257 $4,320 $2,980
====================================================================================
Total non-accrual loans to
loans receivable and
mortgage-backed securities, net 1.06% 1.03% 1.11% .96% .62%
====================================================================================
Total real estate owned, net of
allowance for REO loss 586 479 344 274 370
====================================================================================
Total non-accrual loans and real
estate owned to total assets 0.91% 0.96% 1.02% .81% .55%
====================================================================================
</TABLE>
* Excludes the impact of the $10.1 million condominium project, which was
acquired by a deed in lieu of foreclosure and classified as land acquired for
development and resale.
At December 31, 1995, approximately $246,000 of interest would have been
recorded on loans accounted for on a non-accrual basis if such loans had been
current.
Potential problem loans consist of loans which are included in performing
loans at December 31, 1995, but for which potential credit problems of the
borrowers have caused management to have concerns as to the ability of such
borrowers to comply with present repayment terms. At December 31, 1995, such
potential problem loans amounted to approximately $3.0 million compared to
approximately $10.0 million one year ago. This decrease is primarily
attributable to a $9.6 million loan that a subsidiary of the Bank took title to
by a deed in lieu of foreclosure.
Allowance for Loan Losses
The allowance for loan losses is based on a periodic evaluation of the
portfolio and is maintained at a level that management considers adequate to
absorb losses known and inherent in the portfolio. Management considers a
variety of factors when establishing the allowance recognizing that an inherent
risk of loss always exists in the lending process. Consideration is given to the
impact of current economic conditions, diversification of the loan portfolio,
historical loss experience, delinquency statistics, results of detailed loan
reviews, borrowers' financial and managerial strengths, the adequacy of
underlying collateral, and other relevant factors. The allowance for loan losses
3
<PAGE>
is increased by the provision for loan losses and recoveries on previously
charged-off loans. While management uses available information to establish
allowance for loan losses, future additions to the allowance for loan losses may
be necessary based on changes in economic conditions. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the allowance for loan losses. Such agencies may require the
Bank to recognize additions to the allowance for loan losses based on their
assessments of information which is available to them at the time of their
examination.
<TABLE>
<CAPTION>
Years Ended December 31,
- ---------------------------------------------------------------------------------------------
1991 1992 1993 1994 1995
- ---------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $ 1,675 $ 2,363 $ 3,202 $ 3,966 $ 4,285
Charge-offs:
Real estate - construction (102) (76) -- -- --
Real estate - mortgages (140) (6) (48) (66) (118)
Commercial business loans (396) (436) (666) (615) (962)
Personal/lines of credit (30) (79) (82) (145) (234)
Second mortgage/equity -- -- (6) (74) (21)
Auto (27) (8) (14) (70) (13)
Education (11) -- -- -- --
Home improvement and other -- -- (35) (72) --
Savings account -- -- -- (8) --
- ---------------------------------------------------------------------------------------------
(706) (605) (851) (1,050) (1,348)
- ---------------------------------------------------------------------------------------------
Recoveries:
Real estate - construction -- -- -- 4 --
Real estate - mortgages 71 -- 23 63 7
Commercial business loans 2 40 142 47 167
Personal/lines of credit 1 1 8 1 7
Second mortgage/equity -- -- -- -- --
Auto -- -- -- 9 2
Education -- 1 -- -- --
Home improvement and other -- -- -- 2 --
- ---------------------------------------------------------------------------------------------
74 42 173 126 183
- ---------------------------------------------------------------------------------------------
Net charge-offs (632) (563) (678) (924) (1,165)
- ---------------------------------------------------------------------------------------------
Provision charged to operations 1,320 1,200 1,442 1,243 644
- ---------------------------------------------------------------------------------------------
Acquired allowance for loan losses
from the Bank of Delaware Valley -- 202 -- -- --
Balance at the end of period $ 2,363 $ 3,202 $ 3,966 $ 4,285 $ 3,764
=============================================================================================
Ratio of net charge-offs during
the period to average loans
outstanding during the period 0.25% 0.22% 0.23% 0.27% 0.34%
=============================================================================================
</TABLE>
Investment Activities
Federally chartered thrift institutions such as the Bank have authority to
invest in various types of securities, including United States Treasury
obligations, securities of various federal agencies, certain certificates of
deposit of insured banks and thrift institutions, bankers' acceptances and
federal funds. Subject to various restrictions, federally chartered thrift
institutions may also invest a portion of their assets in commercial paper and
corporate debt securities and in mutual funds whose assets conform to the
investments that a federally chartered thrift institution is otherwise
authorized to make directly.
At December 31, 1995, 6.2% of the total assets of the Company were
investment securities. See Note 5 of the Notes to the Company's Consolidated
Financial Statements.
4
<PAGE>
On December 31, 1993, the Company adopted SFAS No. 115, Accounting for
Certain Investments in Debt and Equity Securities and transferred all
then-existing investments from held to maturity to available for sale.
Management's investment strategy focuses on maintaining an adequate reserve of
shorter term investments to conservatively meet liquidity needs, combined with a
more permanent portfolio of medium term investments to serve asset/liability
management purposes.
The investment portfolio, cash and deposits in other institutions provide
not only a source of income but also a source of liquidity to meet lending
demands, fluctuations in deposit flows and required liquidity levels. The Bank
has in the past used such excess liquidity to meet loan demand. The relative mix
of investment securities and loans in the Bank's portfolio is dependent upon the
attractiveness of yields available on loans as compared to investment securities
as well as the relative safety of the investment securities and loans and the
liquidity needs of the Bank. The securities constituting the Bank's investments
are limited primarily to U.S. Government and U.S. Government agency obligations.
The following table presents the composition of the investment securities
portfolio of the Company at the dates indicated (dollars in thousands).
<TABLE>
<CAPTION>
Years Ended December 31,
- -----------------------------------------------------------------------------------------------------
1993 1994 1995
- -----------------------------------------------------------------------------------------------------
Fair Fair Fair
Cost Value Cost Value Cost Value
- -----------------------------------------------------------------------------------------------------
Held to Maturity
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
State and municipal $ -- $ -- $ 6,163 $ 5,880 $ -- $ --
Small Business Association Certificates -- -- 4,254 4,253 -- --
U.S. Government & U. S. Government
agency obligations -- -- -- -- 11,830 11,971
FHLB of Pittsburgh stock -- -- -- -- 1,750 1,750
Marketable equity securities:
FNMA stock -- -- -- -- 3 3
Atlantic Central Bankers Bank stock -- -- -- -- 75 75
Financial Institutions Insurance Group
stock -- -- -- -- 50 50
- -----------------------------------------------------------------------------------------------------
$ -- $ -- $10,417 $10,133 $13,708 $13,849
=====================================================================================================
Available for Sale
- -----------------------------------------------------------------------------------------------------
Small Business Association Certificates $ -- $ -- $ -- $ -- $17,233 $17,287
U.S. Government and U.S. Government
agency obligations 18,033 17,969 47,140 45,040 6,124 6,099
FHLB of Pittsburgh stock 1,345 1,345 2,471 2,471 -- --
Certificates of deposit 899 899 187 187 477 477
Commercial paper 2,993 2,993 -- -- -- --
Corporate notes/bonds 1,111 1,130 1,121 1,117 -- --
Marketable equity securities:
FNMA stock 3 3 3 3 -- --
Atlantic Central Bankers Bank stock -- -- 75 75 -- --
Financial Institutions Insurance Group
stock -- -- 50 50 -- --
- -----------------------------------------------------------------------------------------------------
$24,384 $24,339 $51,047 $48,943 $23,834 $23,863
=====================================================================================================
</TABLE>
5
<PAGE>
Service Corporation Activities
Federal regulations permit a federally chartered thrift institution to
invest an amount up to 3% of its assets in the stock, obligations or other
securities of subsidiary service corporations engaged in certain activities,
provided that any investment in excess of 2% of the institution's assets is used
primarily for community, inner-city, and community development purposes. In
addition, under certain circumstances a federally chartered thrift institution
is authorized to invest up to 50% of its regulatory capital in conforming loans
to service corporations.
The Bank presently conducts business through or has an investment in five
service corporations: Rowland Service Corporation ("Rowland"), Prime Financial
Inc. ("Prime Financial"), NEFA Corporation ("NEFA"), 723 Service Corporation and
6524 Service Corporation.
Hatboro Manor: Hatboro Manor is a joint venture between Rowland and one
local developer involving the construction of a 15,000 square foot
professional condominium complex.
Burholme Woods: Burholme Woods was established in June, 1988 for the
development and sale of forty-six single family twin homes in the Burholme
section of northeast Philadelphia.
Prime Financial Inc.: Prime Financial is a service corporation formed to
oversee full-service brokerage operations at the Bank.
NEFA Corporation: NEFA is a service corporation formed to acquire land for
development and resale.
723 Service Corporation: 723 Service Corporation was formed for the
acquisition of property for debts previously contracted by borrowers of the
Bank.
6524 Service Corporation: 6524 Service Corporation was formed for the
acquisition of property for debts previously contracted by borrowers of the
Bank.
At December 31, 1995, the Bank's aggregate debt and equity investment in
the service corporations and joint ventures in which it is participating was
$12.1 million. (2.00% of the Bank's total assets)
Prime Abstract Inc.
Prime Abstract Inc., a wholly owned subsidiary of the Company, is a
Delaware Corporation formed in 1988 for the purpose of performing title searches
within the Commonwealth of Pennsylvania. Prime Abstract receives income from the
title search business which it generates, while the actual title search is
performed by an associated entity. The net income of Prime Abstract is
immaterial to the consolidated financial results of the Company on a basis.
Del-Prime, Inc.
Del-Prime, Inc., a wholly owned subsidiary of the Company, was incorporated
as a Delaware Corporation on November 8, 1989 to do business exclusively in
Delaware. The subsidiary holds tax-free municipal investment securities.
Del-Prime Investments, Inc.
Del-Prime Investments, Inc., a wholly owned subsidiary of the Company, was
incorporated as a Delaware Corporation on November 28, 1994 to do business
exclusively in Delaware. The subsidiary was formed to hold taxable investments.
6
<PAGE>
Sources of Funds
General
The sources of funds to be used in lending and for other general business
purposes of the Bank are deposits, loan repayments, FHLB of Pittsburgh advances
and other borrowed funds. Deposit inflows and outflows are influenced
significantly by money market and general interest rate conditions, although the
Bank has the ability to respond to market conditions through the pricing of
deposit accounts. The Bank may also utilize advances from the FHLB of Pittsburgh
and other borrowed funds on a short-term basis to support expanded lending
activities.
Deposits
The Bank has a stable base of core deposits, with approximately 12.9% of
its deposits held in passbook accounts which currently earn 2.05%. The Bank also
offers short-term certificates of deposit and other deposit alternatives that
are more responsive to market conditions than passbook deposits and longer
maturity fixed-rate certificates. The core deposit base and overall variety of
deposits allow the Bank to be competitive in obtaining funds and to respond with
more flexibility to the threat of disintermediation. The Bank's deposits are
obtained primarily from the areas in Pennsylvania immediately surrounding its
offices.
The following table shows the maturity distribution of time deposits in
amounts of $100,000 or more at December 31, 1995 (dollars in thousands)
Jumbo Other Time Total Time
Deposits Deposits Deposits
- --------------------------------------------------------------------------------
Three months or less $12,077 $ 2,401 $14,478
Over three months to six months 5,117 514 5,631
Over six months to twelve months 7,886 2,005 9,891
Over twelve months 1,015 3,924 4,939
- --------------------------------------------------------------------------------
$26,095 $ 8,844 $34,939
================================================================================
The following table sets forth the deposit accounts of the Bank in dollar
amounts and weighted average interest rates at the dates indicated (dollars in
thousands).
<TABLE>
<CAPTION>
At December 31,
- ----------------------------------------------------------------------------------------------
1993 1994 1995
- ----------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Amount Average Amount Average Amount Average
<S> <C> <C> <C> <C> <C> <C>
Passbook and club $ 58,594 2.23% $ 66,293 2.04% $ 61,363 2.05%
NOW and Super NOW 20,627 2.19% 23,487 1.49% 25,884 1.22%
MMDA 73,452 3.09% 80,007 2.94% 93,580 3.73%
Fixed-rate certificates 130,869 4.37% 159,572 4.83% 169,094 5.24%
Jumbo certificates 20,427 4.78% 27,421 5.33% 26,095 5.67%
IRA (1) 39,455 5.72% 55,420 5.43% 56,157 5.87%
Commercial checking
accounts (2) 25,376 -- 35,451 -- 44,366 --
- ----------------------------------------------------------------------------------------------
Total Deposits $368,800 $447,651 $476,539
==============================================================================================
</TABLE>
(1) Funds in IRA accounts are invested primarily in certificates of deposit.
(2) Non-interest bearing.
Borrowings
The FHLB System functions as a reserve credit facility for thrift
institutions and certain other home financing institutions. As a member of the
FHLB System, the Bank is required to own capital stock in the FHLB of Pittsburgh
and will be authorized to apply for advances on the security of such stock and
certain of its home mortgages and other assets (principally securities which are
obligations of, or guaranteed by, the United States) provided certain
creditworthiness standards have been met. Such advances may be made pursuant to
several different credit programs, each with its own interest rate, maximum size
of advance and range of maturities. Depending on the program,
7
<PAGE>
limitations on the amount of such borrowings are based either on a percentage of
the Bank's capital or on the FHLB of Pittsburgh's assessment of the Bank's
creditworthiness. See "Regulation of the Bank - Federal Home Loan Bank System".
At December 31, 1995, the Bank had $34.0 million in borrowings from the FHLB of
Pittsburgh.
The Bank uses borrowings and reverse repurchase agreements when funds are
not available from other sources at more attractive rates. In addition, the Bank
has borrowed to match maturities of specific opportunities (particularly
commercial real estate loans) or to fund excess loan demand.
The following table sets forth the borrowings of the Company at the dates
indicated (dollars in thousands).
At December 31,
- --------------------------------------------------------------------------------
1993 1994 1995
- --------------------------------------------------------------------------------
Advances from FHLB of Pittsburgh $10,000 $ 6,000 $14,000
Repo plus agreements with the
FHLB of Pittsburgh -- -- 20,000
Reverse repurchase agreements 16,914 53,381 34,844
Other 350 329 --
- --------------------------------------------------------------------------------
$27,264 $59,710 $68,844
================================================================================
Employees
At December 31, 1995, the Bank had 225 employees, including 181 full-time
and 44 part-time employees. None of these employees are represented by a
collective bargaining agreement. Employee benefits include a profit sharing plan
and life, health and disability insurance. Management believes that relations
with its employees are good.
Competition
The Bank faces strong competition in the attraction of deposits. The Bank
is currently among the medium-sized SAIF-insured institutions in its market area
in terms of asset size. Its most direct competition for deposits is from the
other thrifts and commercial banks located in its primary market area. In times
of low interest rates the Bank faces additional competition for investor funds
from mutual funds, the stock market and other corporate and governmental
securities.
The Bank competes for deposits principally by offering depositors a wide
variety of savings programs, a market rate of return, tax-deferred retirement
programs and other related services and by the efficiency and quality of
services provided to borrowers, real estate brokers and builders. The Bank's
competition for loans varies from time to time depending upon the general
availability of lendable funds and credit, general and local economic
conditions, current interest rate levels, volatility in the markets and other
factors that are not readily predictable. The Bank does not rely upon any
individual, group or entity for a material portion of its deposits.
As a result of the Financial Institutions Reform, Recovery and Enforcement
Act of 1989 ("FIRREA") , which was enacted on August 9, 1989 to restructure the
regulation of the savings and loan industry, the deposits of the Bank are
insured to the maximum amount permitted by law by the Savings Association
Insurance Fund ("SAIF"), the successor to the Federal Savings and Loan Insurance
Corporation ("FSLIC"). The Bank is subject to comprehensive regulation and
examination by the Office of Thrift Supervision ("OTS"), as its chartering
authority and primary regulator, and by the Federal Deposit Insurance
Corporation ("FDIC"), which administers the SAIF.
The Bank is also a member of the Federal Home Loan Bank ("FHLB") of
Pittsburgh, which is one of 12 regional banks that comprise the FHLB System.
8
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HOLDING COMPANY REGULATION AND SUPERVISION
General
Prime Bancorp, Inc. is a savings and loan holding company within the
meaning of Section 10 of the Home Owners' Loan Act of 1933, as amended ("HOLA").
As such, the Company is registered with and subject to OTS examination and
supervision as well as certain reporting requirements. As a SAIF-insured
subsidiary of a savings institution holding company, the Bank is subject to
certain restrictions in dealing with the Company and with other persons from
time to time affiliated with the Bank.
The HOLA prohibits a savings and loan holding company, directly or
indirectly, from (1) acquiring control (as defined) of another insured
institution (or holding company thereof) without prior OTS approval, (2)
acquiring more than 5% of the voting shares of another insured institution (or
holding company thereof) which is not a subsidiary without prior regulatory
approval, (3) acquiring through merger, consolidation or purchase of assets,
another savings institution (whether or not it is insured by SAIF) or holding
company thereof without prior OTS approval, or (4) acquiring control of a
savings institution not insured by the SAIF (except through a merger with and
into the Bank approved by the OTS). A savings and loan holding company may not
acquire as a separate subsidiary an insured institution which has principal
offices outside of the state where the principal offices of its subsidiary is
located, except (i) in the case of certain emergency acquisitions approved by
the FDIC, (ii) if the holding company controlled (as defined) such insured
institution as of March 5, 1987, or (iii) when the laws of the state where an
insured institution which is to be acquired is located specifically authorize
such an acquisition. The Bank has no plans to acquire an insured institution
outside of Pennsylvania.
Activities Limitations
Unless and until the Company acquires as a separate subsidiary another
insured institution, the Company will be a unitary savings and loan holding
company. There are generally no restrictions on the activities of a unitary
savings and loan holding company, although historically the FSLIC did not permit
a savings and loan holding company to acquire or be acquired by a company
engaged in securities underwriting or market making. If the Company acquires as
a separate subsidiary another insured institution, the Company would then be a
multiple savings and loan holding company, subject to limitations on the types
of business activities in which it may engage. The Company has no current plans
to pursue any such acquisition.
If an insured institution subsidiary of a unitary savings and loan holding
company fails to meet the "qualified thrift lender " ("QTL") test specified in
HOLA and regulations thereunder, then such unitary holding company also would
become subject to severe restrictions regarding activities and other aspects of
its operations. See Regulation of the Bank - QTL Test. At December 31, 1994, the
Bank's asset composition was substantially in excess of that required to qualify
the Bank as a QTL under the current QTL test.
Under FIRREA, a savings and loan holding company may acquire up to 5% of
the voting shares of any savings bank or savings and loan holding company not a
subsidiary thereof without prior regulatory approval. Another provision of
FIRREA permits a savings and loan holding company to acquire up to 15% of the
voting shares of certain undercapitalized savings banks.
Change in Bank Control Act
Under the Change in Bank Control Act of 1978 ("Change in Control Act"), no
person, acting directly or indirectly or through or in concert with one or more
other persons, may acquire "control" of any federally insured depository
institution unless the appropriate Federal banking agency has been given 60
days' prior written notice of the proposed acquisition and within that period
has not issued a notice disapproving of the proposed acquisition or has issued
written notice of its intent not to disapprove the action. For this purpose,
"control" is generally defined as the power, directly, or indirectly, to direct
the management or policies of an institution or to vote 25% or more of any class
of its voting securities. The period for the agency's disapproval may be
extended by the agency. Upon receiving such notice, the Federal agency is
required to provide a copy to the appropriate state
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regulatory agency if the institution of which control is to be acquired is state
chartered, and the Federal agency is obligated to give due consideration to the
views and recommendations of the state agency. Upon receiving a notice, the
Federal agency is also required to conduct an investigation of each person
involved in the proposed acquisition. Notice of such proposal is to be published
and public comment solicited thereon. A proposal may be disapproved by the
Federal agency if the proposal would have anticompetitive effects, if the
proposal would jeopardize the financial stability of the institution to be
acquired or prejudice the interests of its depositors, if the competence,
experience or integrity of any acquiring person or proposed management personnel
indicates that it would not be in the interest of depositors or the public to
permit such person to control the institution, if any acquiring person fails to
furnish the Federal agency with all information required by the agency, or if
the Federal agency determines that the proposed transaction would result in an
adverse effect on a deposit insurance fund. In addition, the Change in Control
Act requires that, whenever any Federally insured depository institution makes a
loan or loans secured, or to be secured, by 25% or more of the outstanding
voting stock of a Federally insured depository institution, the president or
chief executive officer of the lending bank must promptly report such fact to
the appropriate Federal banking agency regulating the institution whose stock
secures the loan or loans.
1994 Interstate Banking Legislation.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(the "Interstate Banking Act"), enacted on September 29, 1994, permits bank
holding companies to acquire banks in any State beginning in 1995. Beginning in
1997, acquired banks in different states may be merged into a single bank, and
thereafter merged banks may establish and acquire additional branches anywhere
the acquiree could have branched. States may opt out until June 1, 1997, but if
so, domestic institutions will also be prohibited from branching interstate.
States may also enact laws permitting interstate merger transactions and
interstate de novo branching before June 1, 1997. Limited branch purchases are
still subject to state laws. On July 6, 1995, Pennsylvania adopted an interstate
banking act (the "PA Interstate Banking Act") to harmonize Pennsylvania banking
laws with the Federal Interstate Banking Act. The PA Interstate Banking Act
"opts in" early under the Federal Interstate Banking Act to permit interstate
mergers, non- Pennsylvania holding company acquisitions of Pennsylvania banks,
branch acquisitions and de novo branching in any of the manners contemplated by
the Federal Interstate Banking Act, subject to prior regulatory approvals or
filings. In general, the PA Interstate Banking Act permits out-of-state banking
institutions may establish branches in Pennsylvania with the approval of the
Pennsylvania Banking Department, provided the law of the state where the banking
institution is located would permit a Pennsylvania banking institution to
establish and maintain a branch in that state on substantially similar terms and
conditions. It also permits Pennsylvania banking institutions to maintain
branches in other states. Bank management anticipates that the federal and
Pennsylvania interstate banking legislation will increase competitive pressures
in the Bank's market by permitting entry of additional competitors but
management is of the opinion that they will not have a material impact upon the
anticipated results of operations of the Bank.
Pennsylvania Banking Laws
Under the Pennsylvania Banking Code of 1965, as amended ("PA Code"), the
Company is permitted to control an unlimited number of banks, subject to prior
approval of the OTS. The PA Code authorizes reciprocal interstate banking with
out any geographic limitation. Reciprocity between states exist when a foreign
state's law authorizes Pennsylvania bank holding companies to acquire banks or
bank holding companies located in that state on terms and conditions
substantially no more restrictive than those applicable to such an acquisition
by a bank holding company located in that state. Interstate ownership of banks
in Pennsylvania with banks in Delaware, Maryland, New Jersey, Ohio, New York and
other states, is currently authorized. A number of additional states are
considering legislation to authorize reciprocal interstate banking.
The PA Code and the regulations established by the Banking Department set
minimum capital requirements for Pennsylvania chartered institutions such as the
Bank. Under the PA code, institutions such as the Bank may establish branches
without geographic limitation throughout Pennsylvania. The establishment of new
branches or other offices of a Pennsylvania chartered savings bank are subject
to the approval of the Banking Department. A bank holding company may own banks
located in Pennsylvania and other states.
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With certain exceptions, the PA Code prohibits any person from acquiring,
directly or indirectly, more than 10% of any class of outstanding stock of a
Pennsylvania commercial bank such as the Bank (5% in certain circumstances)
without prior approval of the Banking Department.
REGULATION OF THE BANK
General
The Bank is a member of the FHLB System and its deposit accounts are
insured up to applicable limits by the FDIC under the SAIF. The Bank is subject
to extensive regulation by the Pennsylvania Banking Department (the "Banking
Department"), as its chartering agency, and the FDIC, as the deposit insurer.
The Bank must file reports with the Banking Department and the FDIC concerning
its activities and financial condition, in addition to obtaining regulatory
approvals prior to entering into certain transactions such as mergers with or
acquisitions of other savings institutions. There are periodic examinations by
the Banking Department and the FDIC to test the Bank's compliance with various
regulatory requirements. This regulation and supervision establishes a
comprehensive framework of activities in which an institution can engage and is
intended primarily for the protection of the insurance fund and depositors. The
regulatory structure also gives the regulatory authorities extensive discretion
in connection with their supervisory and enforcement activities and examination
policies including policies with respect to the classification of assets and the
establishment of adequate loan loss reserves for regulatory purposes. Any change
in such regulation whether by the Banking Department, the FDIC or the Congress
could have a material adverse impact on the Company, the Bank and their
operations.
Insurance and Regulatory Structure
Pursuant to the provisions of the Financial Institutions Reform, Recovery
and Enforcement Act of 1989 ("FIRREA"), a new insurance fund, administered by
the FDIC and named SAIF, insures the deposits of savings associations formerly
insured by the FSLIC. The FDIC fund existing prior to the enactment of FIRREA is
now known as the Bank Insurance Fund ("BIF") and continues to insure the
deposits of commercial banks and certain savings banks and to be administered by
the FDIC. Although the FDIC administers both funds, the assets and liabilities
are not commingled. In addition, FIRREA abolished the FHLBB and replaced it with
OTS, which is a bureau of the Department of Treasury. The OTS is headed by a
single Director who is appointed by the President.
Under the Federal Deposit Insurance Act ("FDI Act"), the OTS has primary
enforcement responsibility over savings institutions and has the authority to
bring enforcement action against all "bank-related parties," including
stockholders, and any attorneys, appraisers and accountants who knowingly or
recklessly participate in wrongful action likely to have an adverse effect on an
insured institution. Civil penalties cover a wide range of violations and
actions and range up to $25,000 per day and, under certain circumstances,
including knowing or reckless conduct, as high as $1 million per day. Criminal
penalties for most financial institution crimes are 15 years in prison. In
addition, regulators are provided with far greater flexibility to impose
enforcement action on an institution that fails to comply with its regulatory
requirements, particularly with respect to the capital requirements. Possible
enforcement action ranges from the imposition of a capital plan and capital
directive to receivership, conservatorship or the termination of deposit
insurance. Under the FDI Act, the FDIC has the authority to recommend to the
Director of OTS enforcement action to be taken with respect to a particular
savings institution. If action is not taken by the Director, the FDIC has
authority to take such action under certain circumstances.
Safety and Soundness
Under the Federal Deposit Insurance Act, federal regulators possess the
power to prohibit regulated institutions such as the Bank from engaging in any
activity that would be an unsafe and unsound banking practice and in violation
of the law. Moreover, recent Federal laws have expanded the circumstances under
which officers or directors of a bank may be removed by the institution's
federal supervisory agency, restrict and regulate lending by a bank to its
executive officers, directors, principal shareholders or related interests
thereof and restrict management personnel of a bank from serving as directors or
in other management positions with securities firms
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and with certain depository institutions whose assets exceed a specified amount
or which have an office within a specified geographic area, and restrict
management personnel from borrowing from another institution that has a
correspondent relationship with their bank.
Under the FDI Act, insurance of deposits may be terminated by the FDIC upon
a finding that the institution has engaged in unsafe and unsound practices, is
in an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC or the
OTS. The management of the Bank does not know of any practice, condition or
violation that might lead to termination of deposit insurance.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") requires financial institutions to take certain actions relating to
their internal operations including: providing annual reports on financial
condition to the appropriate federal banking regulators, having an annual
independent audit of financial statements performed by an independent public
accountant and establishing an independent audit committee comprised solely of
outside directors. The FDICIA also imposes certain operational and managerial
standards on financial institutions relating to internal controls, loan
documentation, credit underwriting, interest rate exposure, asset growth,
compensation, fees and benefits. A later amendment deals with compensation
standards. The FDICIA also requires the FDIC to assess deposit insurance
premiums based on risk. As noted below, the federal banking agencies, including
the OTS and the FDIC, have adopted certain rules implementing these standards.
Prompt Corrective Regulatory Action
The FDICIA also requires establishment of a system of prompt corrective
action to resolve the problems of undercapitalized institutions. The federal
banking regulators have adopted final rules, which require such regulators to
take certain supervisory actions against undercapitalized institutions. The
adopted rules create five categories consisting of "well capitalized",
"adequately capitalized", "undercapitalized", "significantly undercapitalized"
and "critically undercapitalized". Regulatory action taken will depend on the
level of capitalization of the institution and may range from restrictions on
distributions of dividends to seizure of the institution. Generally, subject to
a narrow exception, the FDICIA requires the institution's regulator to appoint a
receiver or conservator for an institution that is critically undercapitalized.
The FDICIA authorizes the institution's regulators to specify the ratio of
tangible capital to assets at which an institution becomes critically
undercapitalized and requires that the ratio be no less than 2% of assets. The
final rules also allow the regulators to downgrade an institution that meets
certain minimum capital requirements but is otherwise in a "less than
satisfactory" condition, which may result in an otherwise "adequately
capitalized" institution with other problems being classified as
"undercapitalized".
Under the OTS final rule implementing the prompt corrective action
provisions, generally a savings association that has a total risk-based capital
of less than 8.0% or a leverage ratio that is less than 4.0% would be considered
to be undercapitalized. A savings association that has total risk-based capital
less than 6.0%, a Tier 1 risk-based capital ratio of less than 3% or a leverage
ratio that is less than 3.0% would be considered to be "significantly
undercapitalized" and a savings association that has a tangible capital to
assets ratio equal to or less than 2% would be deemed to be "critically
undercapitalized." Generally, the rule requires an association to file a capital
restoration plan with the OTS within 45 days of the date it is deemed to be
"undercapitalized", "significantly undercapitalized" or "critically
undercapitalized". In addition, numerous mandatory supervisory actions become
immediately applicable to the institution, including, but not limited to,
restrictions on growth, investment activities, capital distributions, and
affiliate transactions. The OTS could also issue a capital directive to the
association which includes additional discretionary restrictions on the
association.
Other provisions of the FDICIA require supplemental disclosure in financial
statements filed with the regulators of the estimated fair market value of
assets and liabilities; permits thrift institutions to acquire commercial banks
and commercial banks to acquire thrift institutions with appropriate regulatory
approval; adjust the capital standards to account for interest rate risk; and
increase the amount of consumer loans that a savings association may invest in
from 30% to 35% of total assets.
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Business Activities
The activities of savings institutions are governed by the Home Owner's
Loan Act, as amended by FIRREA and FDICIA (the "HOLA") and, in certain respects,
the FDI Act. These statutes (1) restrict the use of brokered deposits by
troubled savings institutions that are not well-capitalized, (2) prohibit the
acquisition of any corporate debt security that is not rated in certain
categories, (3) restrict the aggregate amount of loans secured by
non-residential real estate property, (4) permit savings and loan holding
companies to acquire up to 5% of the voting shares of non-subsidiary savings
institutions or savings and loan holding companies without prior approval, (5)
permit bank holding companies to acquire healthy savings institutions, and (6)
require the federal banking agencies to establish by regulation loan-to-value
limitations on real estate lending. However, the Bank does have the authority
under the HOLA to make certain loans or investments, not exceeding, in the
aggregate, the greater of the Bank's capital or 5.0% of its total assets, on
each of (i) non-conforming loans (loans upon the security of or respecting real
property or interests therein used for primarily residential or farm purposes
that do not comply with specific limitations of the HOLA), and (ii) construction
loans without security for the purpose of financing what is or is expected to be
residential property. To assure repayment of such loans, the Bank relies
substantially on the borrower's general credit standing, personal guarantees and
projected future income on the properties.
Lending Standards
Under FDICIA and regulations adopted thereunder, savings associations must
adopt and maintain written policies that establish appropriate limits and
standards for extensions of credit that are secured by liens or interests in
real estate or are made for the purpose of financing permanent improvements to
real estate. These policies must establish loan portfolio diversification
standards, prudent underwriting standards (including loan-to-value limits) that
are clear and measurable, loan administration procedures, and documentation,
approval and reporting requirements. The real estate lending policies must
reflect consideration of the Interagency Guidelines for Real Estate Lending
Policies (the "Interagency Guidelines") that have been adopted by the federal
bank regulators.
The Interagency Guidelines, among other things, require depository
institutions to establish internal loan-to-value limits for real estate loans
that are not in excess of the following supervisory limits: (i) for loans
secured by raw land, the supervisory loan-to-value limit is 65% of the value of
the collateral; (ii) for land development loans, the supervisory limit is 75%;
(iii) for loans for the construction of commercial, multi-family or other
nonresidential property, the supervisory limit is 80%; (iv) for loans for the
construction of one- to four-family properties, the supervisory limit is 85%;
and (v) for loans secured by other improved property (e.g., farmland, completed
commercial property and other income-producing property including
non-owner-occupied, one- to four-family property), the limit is 85%. Although no
supervisory loan-to-value ratio that equals or exceeds 90% at origination is
prohibited, an institution should require appropriate credit enhancement in the
form of either mortgage insurance or readily marketable collateral.
The Interagency Guidelines state that it may be appropriate in individual
cases to originate or purchase loans with loan-to-value ratios in excess of the
supervisory loan-to-value limits, based on the support provided by other credit
factors. The aggregate amount of loans in excess of the supervisory
loan-to-value limits, however, should not exceed 100% of total capital and the
total of such loans secured by commercial, agricultural, multi-family and other
non-one- to four-family residential properties should not exceed 30% of total
capital. The supervisory loan-to-value limits do not apply to certain categories
of loans including loans insured or guaranteed by the U.S. government and its
agencies or by financially capable state, local or municipal governments or
agencies, loans backed by the full faith and credit of a state government, loans
that are to be sold promptly after origination without recourse to a financially
responsible party, loans that are renewed, refinanced or restructured without
the advancement of new funds, loans that are renewed, refinanced or restructured
in connection with a workout, loans to facilitate sales of real estate acquired
by the institution in the ordinary course of collecting a debt previously
contracted and loans where the real estate is not the primary collateral.
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Classification of Assets
Under current federal regulations, an institution's problem assets are
subject to classification according to one of three categories: "substandard",
"doubtful" and "loss". For assets classified "substandard", and "doubtful", the
institution is required to establish prudent general loan loss reserves in
accordance with generally accepted accounting principles. Assets classified
"loss" must be either completely written off or supported by a 100% specific
reserve. A classification category designated "special mention" also must be
established and maintained for assets not currently requiring classification but
having potential weaknesses or risk characteristics that could result in future
problems. An institution is required to develop an in-house program to classify
its assets, including investment in subsidiaries, on a regular basis and set
aside appropriate loss reserves on the basis of such classification. The Bank
believes that it is in compliance with the foregoing requirements.
Loans to One Borrower
Under the HOLA, as amended, savings institutions are subject to the
national bank limits on loans to one borrower. Generally, savings institutions
may not make a loan or extend credit to a single or related group of borrowers
in excess of 15% of the Bank's unimpaired capital and surplus. An additional
amount may be lent, equal to 10% of unimpaired capital and surplus, if such loan
is secured by readily-marketable collateral, which is defined to include certain
securities and bullion, but generally does not include real estate.
Alternatively the HOLA authorizes savings associations to make loans to one
borrower, for any purpose, in an amount not to exceed $500,000 or, by order of
the Director of OTS, in an amount not to exceed the lesser of $30,000,000 or 30%
of unimpaired capital and surplus to develop residential housing, provided: (i)
the purchase price of each single-family dwelling in the development does not
exceed $500,000; (ii) the savings association is in compliance with its fully
phased-in capital requirements; (iii) the loans comply with applicable
loan-to-value requirements; and (iv) the aggregate amount of loans made under
this authority does not exceed 150% of unimpaired capital and surplus. The HOLA
also authorized a savings association to make loans to one borrower to finance
the sale of real property acquired in satisfaction of debts in an amount up to
50% of unimpaired capital and surplus. Management believes that the Bank is in
compliance with the loans to one borrower regulation.
Capital Requirements
The OTS capital regulations require savings institutions to meet three
capital standards: a 1.5% tangible capital standard; a leverage (core capital)
ratio of 3% or more (as discussed below); and an 8.0% risk based capital
standard. Core capital is defined as common stockholder's equity (including
retained earnings), noncumulative perpetual preferred stock and related surplus,
minority interests in equity accounts of consolidated subsidiaries less
intangible assets (as defined by regulation) other than certain qualifying
supervisory goodwill and certain purchased mortgage servicing rights. The OTS
regulations also require that in meeting the leverage ratio, tangible and risk-
based capital standard institutions must deduct investments in loans and
extensions of credit to subsidiaries engaged in activities not permissible for a
national bank. The Bank currently has no subsidiaries engaged in such
activities.
The OTS has established a 3.0% leverage ratio (defined as the ratio of core
capital to adjusted total assets) for institutions in the strongest financial
and managerial condition, with a 1 MACRO Rating (the highest rating of the OTS
for savings institutions). For all other institutions, the minimum core capital
leverage ratio would be 3% plus at least an additional 100 to 200 basis points.
In determining the amount of additional capital under the proposal, the OTS
assesses both the quality of risk management systems and the level of overall
risk in each individual institution through the supervisory process on a
case-by-case basis.
The risk-based capital standard for savings institutions requires the
maintenance of total capital (which is defined as core capital and supplementary
capital) to risk weighted assets of 8.0%. In determining the amount of
risk-weighted assets, all assets, including certain off balance sheet assets,
are multiplied by a risk-weight of 0% to 100%, as assigned by the OTS capital
regulation based on the risks OTS believes are inherent in the type of asset.
The components of core capital are equivalent to those discussed earlier under
the 3.0% leverage standard. The components of supplementary capital currently
include cumulative preferred stock, long-term perpetual preferred stock,
mandatory convertible securities, subordinated debt and intermediate preferred
stock, issued in accordance with OTS regulations and memoranda, and allowance
for loan and lease losses. Allowance for loan and lease losses
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includable in supplementary capital is limited to a maximum of 1.25% of
risk-adjusted assets. Overall, the amount of capital counted toward
supplementary capital cannot exceed 100% of core capital.
In 1992, the Federal banking agencies proposed to revise the risk-based
capital rules to account for interest rate risk. Under the proposed rules,
institutions with interest rate risk exposure above a normal level would be
required to hold extra capital in proportion to that risk. Under the proposals,
the threshold for normal risk was defined as a 1% or less decline in the net
economic value of an institution based on a 100 basis point upward or downward
shift in interest rates. Effective September 1, 1995, the federal banking
agencies adopted a final rule to implement minimum capital standards for
interest rate risk exposures in a two-step process. The 1995 rule implements the
first step of that process by revising the capital standards of the banking
agencies to explicitly include a bank's exposure to declines in the economic
value of its capital due to changes in interest rates as a factor that the
banking agencies will consider in evaluating a bank's capital adequacy. The rule
uses information and exposure estimates collected through a new proposed
supervisory measurement process as one quantitative factor used by examiners to
determine the adequacy of an individual bank's capital for interest rate risk.
Under the rule, examiners also will consider qualitative factors, including the
adequacy of the bank's internal interest rate risk management. The 1995 rule
does not codify an explicit minimum capital charge for interest rate risk, based
on the level of bank's measured interest rate risk exposure, but the banking
agencies announced that they will implement this second step at some future
date, through a subsequent and separate proposed rule after the banking agencies
and the banking industry have gained more experience with the proposed
supervisory measurement and assessment process. Federal law requires the banking
agencies to coordinate the development of interest rate risk capital standards
with the Bank for International Settlements and members of the Basle Committee
on Banking Supervision. However, the timing and nature of any international
standard for monitoring and assessing capital for interest rate risk is
uncertain. The Bank currently monitors and manages its assets and liabilities
for interest rate risk, and management believes that the interest rate risk
rules which have been implemented and proposed will not materially adversely
affect the Bank's operations.
At December 31, 1995, the Bank met each of its capital requirements. See
Capital Adequacy in Management's Discussion and Analysis for a table which sets
forth in terms of dollars and percentages the OTS' tangible, core and risk-based
capital requirements and the Bank's historical amounts and percentages at
December 31, 1995.
Similar requirements will apply to the Bank under FDIC regulations after
its conversion to a Pennsylvania chartered savings bank.
Pennsylvania Minimum Capital Requirements
Effective February 4, 1995, the Banking Department adopted final
regulations establishing minimum capital requirements for Pennsylvania chartered
financial institutions such as the Bank (the "PA Capital Rules"). The PA Capital
Rules include a minimum requirement for leverage capital -- the ratio of "Tier
1" capital (as defined for federal bank regulatory purposes) to total assets --
of 4.00%, and a minimum requirement for "risked-based capital" as that which is
required by federal banking laws. The Banking Department may set a higher
minimum leverage ratio requirement for individual institutions. An institution
that falls below these minimums, except in specified circumstances, will be
deemed by the Banking Department to be in unsafe and unsound condition and
conducting business in an unsafe manner. However, an institution which is in
compliance with a written agreement or order, the purpose of which is to
increase its capital ratios, will not be deemed unsafe and unsound condition or
conducting business in an unsafe manner based on its capital ratios. Even if an
institution meets its minimum capital ratio requirements, the Banking Department
has authority to take enforcement action which is otherwise authorized against
an institution which is in an unsafe or unsound condition, is conducting its
business in an unsafe or unsound manner, is in violation of any agreement or
order of the Banking Department, another banking agency, any court, the
institution's charter, or other applicable laws, or as to which any other
banking statute or regulation authorizes such enforcement action.
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Liquidity
The Bank is required to maintain an average daily balance of liquid assets
(e.g., cash, certain time deposits, bankers' acceptances, specified United
States Government securities, state or federal agency obligations, shares of
certain mutual funds and certain corporate debt securities and commercial paper)
equal to a monthly average of not less than a specified percentage of its net
withdrawable deposit accounts plus short-term borrowings. This liquidity
requirement may be changed from time to time by the OTS to any amount within the
range of 4% to 10% depending upon economic conditions and the savings flows of
member institutions, and is currently 5%. OTS regulations also require each
member savings institution to maintain an average daily balance of short-term
liquid assets at a specified percentage (currently 1%) of the total of its net
withdrawable deposit accounts and borrowings payable in one year or less.
Monetary penalties may be imposed for failure to meet these liquidity
requirements. The monthly average liquidity of the Bank for December 31, 1995
was 7.17%. The Bank has never been subject to monetary penalties for failure to
meet its liquidity requirements.
Insurance of Deposit Accounts
The FDIC sets deposit insurance assessment rates on a semiannual basis
separately for the Bank Insurance Fund ("BIF") and the Savings Association
Insurance Fund ("SAIF"). The FDIC has authority to reduce the assessment rates
for either fund whenever the ratio of its reserves to insured deposits is equal
to or greater than 1.25%, and to increase deposit insurance assessments whenever
that ratio is less than 1.25%. Both funds' reserve levels have been less than
1.25% since the separate funds were established under FIRREA. The insurance
assessments paid by an institution are to be based on the probability that its
fund (BIF or SAIF) will incur a loss with respect to the institution.
An institution's semiannual deposit insurance assessment is computed
primarily by multiplying its "average assessment base" (generally, total
insurable domestic deposits) for the prior semiannual period by one-half the
annual assessment rate applicable to that institution depending upon its risk
category, which is based principally on two measures of risk. These measures
involve capital and supervisory factors.
For the capital measure, institutions are assigned semiannually to one of
three capital groups according to their levels of supervisory capital as
reported on their call reports: "well capitalized" (group 1), "adequately
capitalized" (group 2) and "undercapitalized" (group 3). The capital ratio
standards for classifying an institution in one of these three groups are total
risk-based capital ratio (10 percent or greater for group 1, and between 8 and
10 percent for group 2), the Tier 1 risk-based capital ratio (6 percent or
greater for group 1, and between 4 and 6 percent for group 2), and the leverage
capital ratio (5 percent or greater for group 1, between 4 and 5 percent for
group 2).
Within each capital group, institutions are assigned to one of three
supervisory risk subgroups -- subgroup A, B, or C, depending upon an assessment
of the institution's perceived risk based upon the results of its most recent
examination and other information available to regulators. Subgroup A will
consist of financially sound institutions with only a few minor weaknesses.
Subgroup B will consist of institutions that demonstrate weaknesses which, if
not corrected, could result in significant deterioration of the institution and
increased risk of loss to the BIF. Subgroup C will consist of institutions that
pose a substantial probability of loss to the deposit insurance fund unless
effective corrective action is taken. Thus, there are nine possible
classifications to which varying assessment rates are applicable. The regulation
generally prohibits institutions from disclosing their subgroup assignments or
assessment risk classifications without FDIC authorization.
16
<PAGE>
The following table sets forth the FDIC's current schedule of assessment
rates by capital group and supervisory risk subgroup:
================================================================================
Supervisory risk subgroup
Capital Group
------------------------------
A B C
- --------------------------------------------------------------------------------
"Well capitalized" 23 bp 26 bp 29 bp
- --------------------------------------------------------------------------------
"Adequately capitalized" 26 bp 29 bp 30 bp
- --------------------------------------------------------------------------------
Less than adequately capitalized 29 bp 30 bp 31 bp
================================================================================
The Bank's deposits are insured by SAIF, and the Bank's insurance premium
assessment is currently 23 basis points. There is no assurance whether this
assessment rate will change, either due to changes in the capital group or
supervisory risk subgroup assigned the Bank by banking regulators or other
action by regulators, or due to Congressional or regulatory changes to the
assessment schedule.
On November 14, 1995, the FDIC Board adopted a resolution to reduce to a
range of 0 to 27 basis points the assessment rate applicable to deposits
assessable by the BIF for the semiannual assessment period beginning January 1,
1996. The reduction represents a downward adjustment of 4 basis points from the
revised BIF assessment rate schedule which was in effect for the second
semiannual assessment period of 1995.
While reducing the BIF assessment rate, the FDIC maintained the SAIF
assessment rates at current levels because the FDIC does not project the SAIF
fund to reach the required reserve level of 1.25% of SAIF-insured deposits.
Legislation has been introduced in Congress which may cause the merger of the
BIF and SAIF funds. It is not possible to predict with any assurance if, or
when, legislation might be enacted to merge the two insurance funds or, if such
legislation is adopted, what impact the merger of the funds and the legislation
would have upon future FDIC deposit insurance assessments on the Bank.
Investment in Subsidiaries
Under FIRREA, investments in and extensions of credit to subsidiaries not
engaged in activities permissible for national banks must generally be deducted
from capital. However, certain exemptions generally apply where: (i) a
subsidiary is engaged in activities impermissible for national banks solely as
an agent for its customers; (ii) the subsidiary is engaged solely in
mortgage-banking activities; (iii) the subsidiary is itself an insured
depository institution or a company the sole investment of which is an insured
depository institution acquired by the parent insured depository institution
prior to May 1989; and (iv) the institution is a federal savings bank, which was
chartered prior to October 1982 as a federal savings bank, or acquired its
principal assets from a federal savings bank chartered prior to October 1982.
QTL Test
A new QTL test became effective as of January 1, 1992 and requires 65% of
an institution's assets to consist of certain housing and consumer-related
assets. Assets that qualify without limit for inclusion as part of the 65%
requirement are loans related to domestic residential housing and manufactured
housing; home equity loans; mortgage-backed securities (where the mortgages are
related to residential housing or manufactured housing); and direct or indirect
obligations of the FSLIC or FDIC; and shares of stock issued by any Federal Home
Loan Bank. In addition, the following assets may he included in meeting the test
subject to an overall limit of 20% of the savings bank's portfolio: 50% of
residential mortgage loans originated and sold within 90 days of origination;
100% of investments in service corporations that meet certain housing-related
standards; 200% of loans related to the acquisition, development and
construction of one-to-four family housing meeting certain low-income standards;
200% of certain loans in areas where credit needs of low and moderate income
residents are not being adequately met; 100% of certain loans to churches,
schools, nursing homes and hospitals; 100% of consumer and educational loans
(limited to 10% of total portfolio assets); and shares of stock issued by the
Federal Home Loan Mortgage Corporation and the Federal National Mortgage
Association. The Bank is in compliance with the current QTL test.
17
<PAGE>
Savings banks and subsidiaries may not acquire or retain investments in
corporate debt securities that at the time of acquisition were not rated in
certain rating categories by at least one nationally recognized rating
organization. Prime Bank does not hold any securities which are subject to the
foregoing requirements.
Enforcement
Under the FDI Act the OTS, as the primary regulator of savings
associations, is primarily responsible for enforcement action, but the FDIC also
has authority to impose enforcement action independently after following certain
procedures. FIRREA expanded the jurisdiction of the FDIC's enforcement powers to
all "institution- affiliated" parties, including stockholders, attorneys,
appraisers and accountants who knowingly or recklessly participate in wrongful
action having or likely to have an adverse effect on an insured institution.
Under FIRREA, civil penalties are classified into three levels, with amounts
increasing with the severity of the violation. The first tier provides for civil
penalties up to $5,000 per day for violation of law or regulation. A civil
penalty of up to $25,000 per day may be assessed if more than a minimal loss or
a pattern of misconduct is involved. Finally, a civil penalty of up to $1
million per day may be assessed for knowingly or recklessly causing a
substantial loss to an insured institution or taking action that results in a
substantial pecuniary gain or other benefit. Criminal penalties are increased to
$1 million per violation, up to $5 million for continuing violations or for the
actual amount of gain or loss. These monetary penalties may be combined with
prison sentences of up to five years.
FIRREA also provides regulators with far greater flexibility to impose
enforcement action on an insured institution that fails to comply with its
regulatory requirements, particularly with respect to the capital requirements.
Possible enforcement actions include the imposition of a capital plan and
termination of deposit insurance. The FDIC also may recommend that the chairman
of OTS take enforcement action. If action is not taken by the chairman, the FDIC
would have authority to compel such action under certain circumstances.
Community Reinvestment
Under the Community Reinvestment Act ("CRA"), as implemented by OTS
regulations, a savings institution has a continuing and affirmative obligation
consistent with its safe and sound operation to help meet the credit needs of
its entire community, including low and moderate income neighborhoods. The CRA
does not establish specific lending requirements or programs for financial
institutions nor does it limit an institution's discretion to develop the types
of products and services that it believes are best suited to its particular
community, consistent with the CRA. The CRA requires the OTS, in connection with
its examination of a savings institution, to assess the institution's record of
meeting the credit needs of its community and to take such record into account
in its evaluation of certain applications by such institution. The CRA requires
public disclosure of an institution's CRA rating and requires the OTS to provide
a written evaluation of an institution's CRA performance utilizing a four-tiered
descriptive rating system in lieu of the existing five-tiered numerical rating
system.
Transactions with Affiliates and Other Related Parties
The Bank's authority to engage in transactions with related parties or
"affiliates" (i.e., any company that controls or is under common control with an
institution, including the Company and its non-savings institution subsidiaries)
or to make loans to certain insiders, is limited by Section 23A and 23B of the
Federal Reserve Act ("FRA"). Section 23A limits the aggregate amount of
transactions with any individual affiliate to 10% of the capital and surplus of
the savings institution and also limits the aggregate amount of transactions
with all affiliates to 20% of the savings institution's capital and surplus.
Certain transactions with affiliates are required to be secured by collateral in
an amount and of a type described in Section 23A and the purchase of low quality
assets from affiliates is generally prohibited. Section 23B provides that
certain transactions with affiliates, including loans and asset purchases, must
be on terms and under circumstances, including credit standard, that are
substantially the same or at least as favorable to the institution as those
prevailing at the time for comparable transactions with nonaffiliated companies.
In the absence of comparable transaction, such transactions may only occur under
terms and circumstances, including credit standards, that in good faith would be
offered to or would apply to nonaffiliated companies. Notwithstanding Sections
23A and 23B, savings institutions are prohibited from lending to any affiliate
18
<PAGE>
that is engaged in activities that are not permissible for bank holding
companies under Section 4(c) of the Bank Holding Company Act ("BHC Act").
Further, no savings institution may purchase the securities of any affiliate
other than a subsidiary.
The Bank's authority to extend credit to executive officers, directors and
10% shareholders, as well as entities controlled by such persons, is currently
governed by Sections 22(g) and 22(h) of the FRA, Regulation 0 thereunder,
Section 22(g) of the FRA and the OTS's Conflicts Rule at 12 CFR 563.43. Among
other things, these regulations require such loans to be made on terms
substantially similar to those offered to unaffiliated individuals, place limits
on the amount of loans the Bank may make to such persons based, in part, on the
Bank's capital position, and require certain approval procedures to be followed.
OTS regulations, with certain minor variances, apply Regulation O to savings
institutions. At December 31, 1995, the Bank had 17 loans with an aggregate
balance of $1.7 million outstanding to its executive officers and directors.
Brokered Deposits
FDICIA imposes new restrictions on the acceptance of brokered deposits.
Absent a waiver from the FDIC, an insured depository institution will not be
permitted to accept brokered deposits unless the institution is "well
capitalized." The FDIC can only grant waivers to institutions that are
"adequately capitalized" or that are in conservatorship. Further, effective 90
days after an institution is placed in conservatorship, it may not accept any
brokered deposits. Adequately capitalized and conservatorship institutions that
accept brokered deposits pursuant to an FDIC waiver may not pay an above-market
rate of interest on those deposits. At December 31, 1995 the Bank had no
brokered deposits.
FEDERAL HOME LOAN BANK SYSTEM
The Bank is a member of the FHLB System. The FHLB System consists of 12
regional Federal Home Loan Banks, subject to supervision and regulation by a
newly created Federal Housing Finance Board. The Federal Home Loan Banks provide
a central credit facility primarily for member savings institutions. Prime Bank,
as a member of the FHLB of Pittsburgh, is required to acquire and hold shares of
capital stock in the FHLB of Pittsburgh in an amount at least equal to the
greater of 1% of the Bank's aggregate unpaid residential mortgage loans, home
purchase contracts and similar obligations at the beginning of each year, or 5%
of its outstanding advances from the FHLB of Pittsburgh. At December 31, 1995,
the Bank had a $1.8 million investment in the stock of the FHLB of Pittsburgh
and was in compliance with this requirement.
Advances from the FHLB are secured by a member's shares of stock in the
FHLB, certain types of mortgages and other assets. Interest rates charged on
advances vary with the maturity and the cost of funds to the FHLB. At December
31, 1995 the Bank had $14.0 million of advances from the FHLB of Pittsburgh.
The Bank is required to maintain a daily average balance of liquid assets
(cash, certain time deposits, bankers' acceptances, investment grade corporate
debt obligations and commercial paper, and specified United States government,
state or federal agency obligations) equal to a monthly average of not less than
a specified percentage of its net withdrawable savings deposits plus short-term
borrowings ("liquidity base"). This liquidity requirement may be changed from
time to time by OTS to any amount within the range of 4% to 10% and is currently
5%. Short-term liquid assets currently must constitute 1% of the liquidity base.
Monetary penalties may be imposed for failure to meet monthly liquidity
requirements.
FEDERAL RESERVE SYSTEM
The Federal Reserve Board regulations require savings institutions to
maintain non-interest earning reserves against their transaction accounts
(primarily NOW and regular checking accounts). The Federal Reserve Board
regulations generally require that reserves of 3% must be maintained against
aggregate transaction accounts of $51.9
19
<PAGE>
million or less (subject to adjustment by the Federal Reserve Board) and an
initial reserve of $1.557 million plus 10% (subject to adjustment by the Federal
Reserve Board between 8% and 14%) against that portion of total transaction
accounts in excess of $51.9 million. The first $4.0 million of otherwise
reservable balances (subject to adjustments by the Federal Reserve Board) are
exempted from the reserve requirements. The Federal Reserve Board may adjust
reserve requirements or impose supplemental reserve requirements under some
circumstances. The Bank is in compliance with the foregoing requirements. The
balances maintained to meet the reserve requirements imposed by the Federal
Reserve Board may be used to satisfy liquidity requirements imposed by the OTS.
Because required reserves must be maintained in the form of either vault cash, a
non-interest-bearing account at a Federal Reserve Bank or a pass-through account
as defined by the Federal Reserve Board, the effect of this reserve requirement
is to reduce the Bank's interest-earning assets. FHLB System members are also
authorized to borrow from the Federal Reserve "discount window," but Federal
Reserve Board regulations require institutions to exhaust all FHLB sources
before borrowing from a Federal Reserve Bank.
TAXATION
Federal Taxation
The Bank operates on a calendar year and files calendar year federal income
tax returns and reports its income and expenses using the accrual method of
accounting.
Thrift institutions are generally taxed in the same manner as other
corporations. Unlike other corporations, however, qualifying thrift institutions
such as the Bank that meet certain definitional tests relating to the nature of
their income, assets and business operations are allowed to establish a reserve
for bad debts and are permitted to deduct additions to that reserve on
"qualifying real property loans" using one of two alternative methods and on
"nonqualifying loans" using a 6 year moving average experience method.
"Qualifying real property loans" are, in general, loans secured by
interests in improved real property. "Nonqualifying loans" are all loans other
than qualifying real property loans. For each tax year,a qualifying institution
may compute the addition to its bad debt reserve for qualifying real property
loans using the most favorable of the following methods: (i) a method based on
the institution's actual loss experience (the "experience method") or (ii) a
method based on a specified percentage of an institution's taxable income (the
"percentage of taxable income method"). The addition to the reserve for
nonqualifying loans must be computed under the experience method and this amount
would serve to reduce the amount calculated under the percentage of taxable
income method for qualifying real property loans.
The Bank generally computes its addition to its allowance for loan losses
on qualifying real property loans using the percentage of taxable income method.
Under this method, a qualifying institution can deduct, as an addition to their
allowance for loan losses on qualifying real property loans, up to 8% of the
qualifying institution's taxable income (with certain adjustments). The
deduction may exceed the deduction computed under the experience method.
However, the deduction under the percentage of taxable income method is
reduced (but not below zero) by the amount determined to be a reasonable
addition to the reserve for losses on nonqualifying loans. In addition, the
deduction under this method may not exceed the amount necessary to increase the
balance at the close of the taxable year of the reserve for losses on qualifying
real property loans to 6% of such loans outstanding at such time.
A thrift institution that computes its bad debt deduction on the percentage
of taxable income method and files its federal income tax return as part of a
consolidated group is required to reduce proportionately its bad debt deduction
for losses attributable to the activities of other thrift institution members
and activities of nonthrift institution members of the consolidated group that
are "functionally related" to the activities of the thrift institution member.
In addition, the bad debt deduction otherwise allowable under the percentage of
taxable income method is eliminated entirely unless at least 60% of a thrift
institution's assets fall into certain designated categories. Also, the bad debt
deduction attributable to "qualifying real property loans" determined under the
percentage of taxable
20
<PAGE>
income method (after application of the limitation discussed above), cannot
exceed the greater of (i) the amount deductible under the experience method or
(ii) the amount which, when added to the bad debt deduction for nonqualifying
loans, equals the amount by which 12% of the sum of the total deposits or
withdrawable accounts of depositors at the end of the taxable year exceeds the
sum of the surplus, undivided profits and reserves at the beginning of the
taxable year. To date, these limitations have not restricted the amount of the
Bank, otherwise allowable deductions for additions to its bad debt reserve.
To the extent that (i) the Bank's reserve for losses on qualifying real
property loans exceeds the amount that would have been allowed under the
experience method (the "excess") and (ii) the Bank makes distributions to Prime
Bancorp that are considered to result in withdrawals from that excess bad debt
reserve, then the amounts deemed withdrawn will be included in the Bank's
taxable income. The amount considered to be withdrawn by a distribution will be
the amount of the distribution plus the amount necessary to pay the tax with
respect to the withdrawal. Dividends paid out of the Bank's current or
accumulated earnings and profits as calculated for federal income tax purposes,
however, will not be considered to result in withdrawals from the Bank's, bad
debt reserves for qualifying real property loans. Non-liquidating distributions
in excess of the Bank's, current and accumulated earnings and profits,
distributions in redemption of stock, and distributions in partial or complete
liquidation of the Bank will be considered to result in withdrawals first from
the Banks, bad debt reserves on qualifying real property loans to the extent
thereof, and finally out of such other accounts as may be proper. At December
31, 1995, the Bank had approximately $21.0 million in retained earnings (apart
from amounts allocated to its bad debt reserve) that would be available for
distribution to its stockholders, subject to various restrictions imposed by
OTS, without the imposition of this additional tax on the Bank.
Thrift institutions are subject to special tax treatment with respect to
the deductibility of interest expense relating to certain tax-exempt
obligations. Thrift institutions are entitled to deduct 100% of their interest
expense allocable to the purchase or carrying of tax-exempt obligations acquired
before 1983. The deduction is reduced to 80% for obligations acquired after 1982
and eliminated entirely for obligations acquired after August 7, 1986 (except
for certain issues by small municipal issuers and certain charitable
organizations).
Depending on the composition of its items of income and expense a thrift
institution may be subject to the alternative minimum tax. A thrift institution
must pay an alternative minimum tax equal to the amount (if any) by which 20% of
alternative minimum taxable income ("AMTI"), as reduced by an exemption varying
with AMTI, exceeds the regular tax due. AMTI equals regular taxable income
increased by certain tax preferences and adjustments, including depreciation
deductions in excess of those allowable for alternative minimum tax purposes,
tax-exempt interest on most private activity bonds issued after August 7, 1986
(reduced by any related interest expense disallowed for regular tax purposes),
the amount of bad debt reserve deduction claimed in excess of the deduction
based on the experience method and by 75% of the excess of adjusted current
earnings over AMTI. The AMTI may be reduced only up to 90% by net operating loss
carryovers, but alternative minimum tax paid attributable to most preferences
and adjustments (although not to post August 7, 1986 tax-exempt interest) can be
credited against regular tax due in later years.
TAX LITIGATION
The Bank was engaged in litigation in the United States Tax Court in
connection with a Statutory Notice of Deficiency issued by the Internal Revenue
Service for the tax years (December 31) 1969, 1970, 1971, 1972, 1973, 1974,
1975, 1976, 1977, 1978, 1980, and 1981. The Statutory Notice of Deficiency was
directed to Cheltenham Federal Savings and Loan Association ("Cheltenham") , a
predecessor to the Bank. The litigation involved two separate legal issues. The
controversy concerning these issues was resolved by the parties pursuant to a
Stipulation of Settled Issues which was entered into on or about November 20,
1991 (the "Stipulation"). The terms of the Stipulation reflected the results of
1991 U.S. Supreme Court decisions in Cottage Savings Association v. Commissioner
and United States of America v. Centennial Savings Bank. In January 1996, the
Bank settled its outstanding case with the IRS in connection with the
examination of the noted tax year returns. The United States Tax Court ruled
that Cheltenham properly recognized losses relating to the reciprocal purchase
and sale of mortgage
21
<PAGE>
loans in 1980. The U.S. Tax Court also ruled in favor of the IRS on the issue of
the permissibility of reducing the basis of assets by the early withdrawal
penalty on savings certificates. The Bank had previously accrued the estimated
liability for the amount of interest due relating to this issue, and the actual
amount payable is not expected to be materially different.
REVISED ACCOUNTING STANDARDS
On December 31, 1993, the Company adopted the provisions of SFAS No. 115,
Accounting for Certain Investments in Debt and Equity Securities. See
Investments, Mortgage-backed Securities and Other on page 36 of the 1995 Annual
Report to Stockholders.
Effective January 1, 1993, the Company adopted the provisions of SFAS No.
109, Accounting for Income Taxes and has reported the cumulative effect of that
change in the method of accounting for income taxes in the Consolidated
Statement of Operations. See Income Taxes on page 35 of the 1995 Annual Report
to Stockholders.
The Company adopted the provisions of SFAS No. 114, Accounting by Creditors
for Impairment of a Loan and SFAS No. 118, Accounting by Creditors of Impairment
of a Loan - Income Recognition and Disclosures in 1995. See Loan Impairment on
page 35 of the 1995 Annual Report to Stockholders.
The Company adopted SFAS No. 122 Accounting for Mortgage Servicing Rights.
See Mortgage Servicing Rights on page 35 of the 1995 Annual Report to
Stockholders.
In 1995, the Financial Accounting Standards Board issued SFAS No. 123,
Accounting for Stock Based Compensation. This statement encourages the adoption
of fair value accounting for stock options issued to employees. Further, in the
event that fair value accounting is not adopted, the statement requires pro
forma disclosures of net income and earnings per share as if fair value
accounting had been adopted. SFAS No. 123 is required to be adopted in 1996.
Management currently expects that it will not adopt fair value accounting for
stock options issued to employees, and therefore does not expect the adoption of
this statement to materially affect the company's results of operations or
financial condition.
STATE TAXATION
The Bank is subject to the Pennsylvania Mutual Thrift Institution Tax Act,
which imposes a tax measured by the Savings Bank's net income. Under the current
law, the MTIT rate is 11.5%.
As a Delaware business corporation, the Company will be required to file
annual returns with and pay annual fees to the Secretary of State of Delaware.
The Company is currently subject to an annual franchise tax based on its net
worth and imposed by the State of Delaware.
Item 2. Properties.
The Company neither owns nor leases any real property. At present, it uses
the premises, equipment and furniture of the Bank without direct payment of any
rental fees. In the future it may consider acquiring office facilities.
The Bank has eight offices in Philadelphia County, five in Bucks County,
and five in Montgomery County, Pennsylvania. Of the eighteen offices, eight are
owned, and ten offices are subject to leases. At its home office, the Bank
offers a full range of customer services. Except for safe deposit boxes, these
same services are available at each of the Bank's other offices. The Bank
participates in the MAC Money Access Service shared Automated Teller Machine
("ATM") network and the PLUS SYSTEM network which is the leading international
system of
22
<PAGE>
shared automated teller machines (ATMs) which enables customers to obtain cash
almost anytime and almost anywhere they travel in the United States. Eight
offices are equipped with ATMs owned by the Bank.
The following table sets forth certain information concerning the business
offices of the Bank at December 31, 1995 (dollars in thousands).
<TABLE>
<CAPTION>
Net Book
Value of
Property and
Owned Leasehold
or Lease Improvements Deposits at
Leased Expiration At December 31, December 31,
(2) Date 1995 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Philadelphia, 6425 Rising Sun Avenue Owned -- $ 1,280 $120,288
Philadelphia, 18th & JFK Blvd Leased 3/31/2000 -- 13,037
Philadelphia, 1841 E. Allegheny Avenue Owned -- 101 39,356
Philadelphia, 14425 Bustleton Avenue Owned -- 150 19,575
Philadelphia, 1000 Cottman Avenue Owned -- 470 27,219
Philadelphia, 8500 Germantown Avenue Leased 7/31/2000 -- 24,151
Philadelphia, 1695 Grant Avenue Leased 7/31/2000 45 22,817
Philadelphia, 423 E. Girard Avenue Owned -- 45 19,653
Oxford Valley, Bucks County
195 Bristol Oxford Valley Road Leased 6/30/2000 133 17,359
Fairless Hills, Bucks County
503 South Oxford Valley Road Owned -- 324 23,961
Richboro, Bucks County
984 Second Street Pike Owned -- 232 33,293
Southampton, Bucks County
723 Street Road Owned -- 612 53,075
Yardley, Bucks County
10 South Main Street Leased 10/31/2000 14 2,220
Horsham, Montgomery County
301 Horsham Road Leased 9/30/99 65 16,052
Huntingdon Valley, Montgomery County
Bethayres Shopping Center/618 Welsh Road Leased 11/30/2000 26 8,924
Jenkintown, Montgomery County
The Pavilion/261 Old York Road Leased 6/01/98 194 14,915
Montgomeryville/North Wales
Montgomery County...521 Stump Road Leased 1/21/99 -- 15,615
Willow Grove, Montgomery County
Old York & Moreland Roads Leased 9/23/2004 -- 5,029
- -------------------------------------------------------------------------------------------------------
$ 3,691 $476,539
=======================================================================================================
</TABLE>
Item 3. Legal Proceedings.
Except for litigation with the IRS concerning the deductibility of losses on the
reciprocal sale of mortgages (see TAX LITIGATION on pages 21 and 22), for which
the Bank has fully reserved against any potential liabilities and routine
foreclosures, there are no material legal proceedings to which the Company, the
Bank or its subsidiary service corporations are a party or to which any of their
properties are subject.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
23
<PAGE>
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The information contained under the captions "Market Information" (page 28)
and Notes 1 and 3 of "Notes to Consolidated Financial Statements" (pages 34 and
37) in the Company's 1995 Annual Report to Stockholders is incorporated herein
by reference thereto.
Market Information
The Company's common stock is traded on the over-the-counter market and
reported on the NASDAQ National Market System under the symbol "PSAB." On
February 1, 1996, there were 3,905,161 shares of common stock issued and
3,721,098 shares of common stock outstanding, which were held by approximately
760 stockholders. The following table sets forth the high and low closing sale
prices for the common stock, as quoted on the NASDAQ National Market System, and
the dividends declared per share, for the periods indicated.
Dividends
Declared
For The Quarter Ended High Low (Per Share)
- -----------------------------------------------------------
December 31, 1988 $ 5.39 $ 4.27 N/A
March 31, 1989 $ 5.76 $ 5.16 $.03
June 30, 1989 6.05 5.68 .03
September 30, 1989 6.87 5.76 .04
December 31, 1989 6.69 5.68 .04
- -----------------------------------------------------------
March 31, 1990 $ 5.95 $ 4.84 $.05
June 30, 1990 5.12 4.27 .05
September 30, 1990 4.46 4.00 .05
December 31, 1990 3.53 3.15 .05
- -----------------------------------------------------------
March 31, 1991 $ 5.58 $ 3.25 $.05
June 30, 1991 6.05 5.12 .05
September 30, 1991 8.36 5.31 .05
December 31, 1991 8.36 6.69 .07
- -----------------------------------------------------------
March 31, 1992 $ 9.11 $ 8.36 $.08
June 30, 1992 9.48 8.74 .09
September 30, 1992 8.93 8.28 .10
December 31, 1992 10.78 9.40 .10
- -----------------------------------------------------------
March 31, 1993 $13.39 $10.23 $.10
June 30, 1993 15.08 12.19 .18
September 30, 1993 15.08 13.23 .11
December 31, 1993 17.35 14.67 .11
- -----------------------------------------------------------
March 31, 1994 $17.56 $15.91 $.13
June 30, 1994 17.97 16.95 .13
September 30, 1994 15.91 14.87 .13
December 31, 1994 15.23 14.32 .15
- -----------------------------------------------------------
March 31, 1995 $17.27 $16.14 $.15
June 30, 1995 16.36 15.68 .15
September 30, 1995 19.09 18.18 .15
December 31, 1995 20.88 18.00 .17
- -----------------------------------------------------------
The Board of Directors of the Company, on December 20, 1995, declared a
special 10% stock dividend to shareholders in the form of a dividend and was
paid on February 1, 1996 to shareholders of record on January 2, 1996. The
trading information set forth above has been adjusted to reflect the stock split
and the 10% stock dividends through and including December 31, 1995 for the
purpose of comparability.
It is the Company's current policy to pay quarterly cash dividends. Future
cash dividends will be subject to determination and declaration by the Board of
Directors, which will take into account the Company's financial condition,
results of operations, industry standards, economic conditions and regulatory
and tax considerations. Funds for the payment of the dividends by the Company
are obtained from the
24
<PAGE>
Bank. The amount of dividends that may be declared or paid by the Bank are
subject to certain restrictions. See Note 3 to the consolidated financial
statements.
The listed market makers for the stock are: Robert W. Baird & Co., Inc.;
Wheat First Securities Inc.; Herzog, Heine, Geduld, Inc.; Sandler O'Neill &
Partners; Janney Montgomery Scott, Inc.; F.J. Morrissey & Co., Inc.; and Ryan
Beck & Co., Inc.
1. Summary of Significant Accounting Policies
The following is a description of the significant accounting policies of
Prime Bancorp, Inc. and subsidiaries (the "Company"). The accompanying
consolidated financial statements have been prepared in conformity with
generally accepted accounting principles ("GAAP"), which have been applied on a
consistent basis.
Business
The Company's principal subsidiary is Prime Bank (the "Bank") whose
principal business consists of attracting deposits and obtaining borrowings,
then converting those deposits and borrowings into various types of loans,
mortgage-backed securities, and other investments. These operations are
conducted through a branch network in Southeastern Pennsylvania. The Bank is
subject to competition from other financial institutions and it is also subject
to the regulations of certain federal agencies and undergoes periodic
examinations by those regulatory authorities.
Basis of Financial Statement Presentation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned and majority-owned subsidiaries. All
significant intercompany balances and transactions have been eliminated in
consolidation. Certain amounts in prior years have been reclassified for
comparative purposes.
In preparing the consolidated financial statements, management is required
to make estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the balance sheet and revenues and expenses for
the period. Actual results could differ significantly from those estimates.
Material estimates that are particularly susceptible to significant change in
the near term relate to the determination of the allowance for loan losses and
the valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans. In connection with the determination of the allowances
for loan losses and the estimated fair value of real estate owned, management
obtains independent appraisals for significant properties.
Cash and Cash Equivalents
For purposes of the Consolidated Statements of Cash Flows, the Company
considers cash and cash equivalents to include cash, due from banks and
interest-bearing deposits with maturities of 3 months or less.
Investments, Mortgage-backed Securities and Other
Securities classified as held-to-maturity are those securities in which the
Company has the ability and intent to hold the security until maturity and are
recorded at amortized cost, adjusted for the amortization of premiums and
discounts. All other securities not included in held-to-maturity are classified
as available-for-sale and are recorded at fair value.
Unrealized holding gains and losses, net of the related tax effect, on
available-for-sale securities are excluded from earnings and are reported as a
separate component of stockholders' equity until realized. Transfers of
securities between categories are recorded at fair value at the date of
transfer.
With the issuance of "A Guide to Implementation of Statement 115 Accounting
for Debt and Equity Securities," the Financial Accounting Standards Board has
allowed institutions to reassess the appropriateness of the
25
<PAGE>
classifications of all securities and account for any resulting
reclassifications at fair value. The reclassifications should occur no later
than December 31, 1995 and will not call into question the intent of an
institution to hold other debt securities to maturity in the future.
A decline in the fair value of any available-for-sale or held-to-maturity
security below cost that is deemed other than temporary is charged to earnings
resulting in the establishment of a new cost basis for the security.
Premiums and discounts are amortized or accreted over the life of the
related security as an adjustment to yield using the effective interest method.
Dividend and interest income are recognized when earned. Realized gains and
losses are included in earnings and are derived using the specific
identification method for determining the cost of securities sold.
The Company has one interest rate swap which is used to hedge the interest
rate risk of 7 year fixed certificated of deposits. The Company does not use
derivatives for trading purposes.
Real Estate Owned
Real estate acquired in partial or full satisfaction of loans are
classified as Real Estate Owned ("REO"). Prior to transferring a real estate
loan to REO it is written down to the lower of cost or fair value. This
write-down is charged to the allowance for loan losses. Subsequently, REO is
carried at the lower of fair value less estimated costs to sell or carrying
value.
Land Acquired for Development and Resale
Land acquired for development and resale represents land and construction
in progress and is carried at the lower of cost or net realizable value.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is computed using the straight-line method based upon the lesser of
the lease term (where applicable) or the estimated useful lives of the related
property, which range from 5 to 40 years. Maintenance and repairs are expensed
as incurred.
Loans Receivable
Interest income is recognized on the accrual basis. Generally, loans are
placed on non-accrual status when the loan becomes past due by 90 days or more
as to principal or interest. After a loan is placed on non-accrual status, any
interest previously accrued but not yet collected is reversed against current
interest income. A loan is returned to accrual status only when the borrower has
brought principal and interest current and full collectability is reasonably
assured.
Fees earned for servicing loans for others are reported as income when the
related loan payments are collected. Loan servicing costs are charged to expense
as incurred. If the Bank sells loans and continues to service such loans for the
investor, the computation of the gain or loss is adjusted to allow for a normal
servicing fee over the estimated remaining maturities of the loans sold. Normal
servicing fees are based on the minimum servicing rates of the relevant
federally-sponsored market makers or comparable rates for transactions with
other investors. The resulting deferral is amortized as an adjustment of
servicing fee income over a period generally not in excess of 7 years.
Loan Impairment
The Company adopted the provisions of SFAS No. 114, Accounting by Creditors
for Impairment of a Loan and SFAS No. 118, Accounting by Creditors of Impairment
of a Loan - Income Recognition and Disclosures in 1995.
26
<PAGE>
SFAS No. 114 and 118 require that "impaired" loans be measured based on the
present value of expected future cash flows, discounted at the loan's effective
interest rate or, as a practical expedient, at the loans observable market price
or the fair value of the collateral if the loan is collateral dependent.
Mortgage Servicing Rights
The Company adopted SFAS 122 "Accounting for Certain Mortgage Banking
Activities". SFAS 122 requires that a mortgage banking enterprise recognize, as
separate assets, rights to service mortgage loans. SFAS 122 requires that a
periodic assessment of its capitalized mortgage servicing rights (MSRs") for
impairment, based on the fair value of those rights.
The carrying value of capitalized MSR's at December 31, 1995 was $260
thousand which approximated fair value. Fair value was determined by calculating
the discounted present value of estimated expected net future cash flows,
considering estimated prepayments and defaults, projected interest rates and
other factors. For purposes of evaluating and measuring impairment, capitalized
MSRs are aggregated into groups having homogeneous risk characteristics, based
on the attributes of the underlying loans, and are separately valued, using
appropriate assumptions for each risk group. No valuation allowance was required
for capitalized MSRs at December 31, 1995.
Stock Based Compensation
In 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock Based Compensation." This statement encourages the
adoption of fair value accounting for stock options issued to employees.
Further, in the event that fair value accounting is not adopted, the statement
requires pro forma disclosures of net income and earnings per share as if fair
value accounting had been adopted. SFAS No. 123 is required to be adopted in
1996. Management currently expects that it will not adopt fair value accounting
for stock options issued to employees, and therefore does not expect the
adoption of this statement to materially affect the company's results of
operations or financial condition.
Loans Held for Sale
The Bank has adopted a policy to sell off fixed rate single family
residential mortgage loans and adjustable rate mortgages which meet the
underwriting and securitization characteristics of certain market makers.
Conforming loans are transferred to loans held for sale and are valued at the
lower of cost or market.
Deferred Loan Fees, Net
Loan origination fees, commitment fees and loan origination costs are
deferred and amortized as an adjustment to the yield over the life of the loan
in a manner which approximates the interest method.
Allowance for Loan Losses
The allowance for loan losses is based on a periodic evaluation of the
portfolio and is maintained at a level that management considers adequate to
absorb losses known and inherent in the portfolio. Management considers a
variety of factors when establishing the allowance recognizing that an inherent
risk of loss always exists in the lending process. Consideration is given to the
impact of current economic conditions, diversification of the loan portfolio,
historical loss experience, delinquency statistics, results of detailed loan and
regulatory reviews, borrowers's financial and managerial strengths, the adequacy
of underlying collateral, and other relevant factors. The allowance for loan
losses is increased by the provision for loan losses and recoveries on
previously charged-off loans, and is reduced by actual charge-offs. While
management uses available information to recognize losses on loans, future
additions to the allowance for loan losses may be necessary based on changes in
economic conditions. In addition, various regulatory agencies as an integral
part of their examination process, periodically review the allowance for loan
losses. Such agencies may require the Company to recognize additions to the
allowance for loan losses based on their judgments of information which is
available to them at the time of their examination.
27
<PAGE>
A substantial portion of the Company's loans are secured by real estate in
the Company's market area. Accordingly, the ultimate collectibility of a
substantial portion of the Company's loan portfolio and the recoverability of a
substantial portion of the carrying amount of real estate owned is susceptible
to changes in economic and market conditions in the market area. However,
management believes that the allowance for loan losses is adequate and that the
value assigned to properties included in real estate owned and land acquired for
development and resale do not exceed their current estimated fair values less
estimated costs to sell.
Income Taxes
The Company and its wholly owned subsidiaries file a consolidated federal
income tax return. Deferred income taxes result from recognizing items of income
or expense in one time period for tax reporting and in another for financial
reporting purposes.
Effective January 1, 1993, the Company adopted the provisions of SFAS No.
109, Accounting for Income Taxes and has reported the cumulative effect of that
change in the method of accounting for income taxes in the 1993 consolidated
statement of operations. Under the asset and liability method of SFAS 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
The Bank has qualified under provisions of the Internal Revenue Code which
permit it to deduct from taxable income an allowance for bad debts based on a
percentage of taxable income before such deduction. The maximum amount of this
deduction is 8% of taxable income.
Capital
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") regulations define specific capital categories based on an
institution's capital ratios. The capital categories, in declining order, are
"well capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized," and "critically undercapitalized".
To be considered "adequately capitalized," an institution must generally
have a leverage ratio of at least 4%, a Tier 1 risk-based capital ratio of at
least 4%, and a total risk-based capital ratio of at least 8%. The Bank's
regulatory capital ratios exceed the "well capitalized" ratio requirements of
10% total risk-based capital, 6.0% Tier 1 risk-based capital and a 5.0% leverage
ratio.
Earnings per share
Earnings per share have been calculated based on the weighted average
number of shares of common stock outstanding for the respective periods. Stock
options are considered common stock equivalents and are included in the
computation of the number of outstanding shares using the treasury stock method,
unless anti-dilutive. Earnings per share has been restated to reflect the stock
splits and stock dividends.
3. Stockholders' Equity
OTS regulations require that mutual associations converting to stock form
of ownership establish a "Liquidation Account" in an amount equal to the total
net worth of the association as of the date of the latest balance sheet
contained in the final offering circular. Each eligible savings account holder
is entitled to a proportionate share (subaccount) of this amount in the event of
a complete liquidation of the association, and only in such event. This
subaccount is reduced if the subaccount holders' savings deposits fall below the
amount at the date of record and will cease to exist if the savings account is
closed. The liquidation account will never be increased despite any increase
after conversion in the related savings deposits of a subaccount holder. At the
time of its conversion to
28
<PAGE>
a stock form of ownership, the Bank's liquidation account was approximately
$18,737,000. The Bank's liquidation account at December 31, 1995 was
approximately $4,500,000.
The creation and maintenance of the liquidation account does not restrict
use or application of any of the stockholders' equity accounts of the Bank
except that the Bank may not declare or pay any cash dividend on or repurchase
any of its common stock, if the effect of such dividend or repurchase would be
to cause the stockholders' equity of the Bank to be reduced below the aggregate
amount then required for the liquidation account or the regulatory net worth
requirement.
The Company offers to its stockholders a Dividend Reinvestment and Stock
Purchase Plan, which provides participants with a method of reinvesting all or a
portion of cash dividends paid on shares of common stock in additional shares of
common stock without the payment of brokerage commissions or charges. Shares
purchased under such plan are purchased in the open market.
The Board of Directors of the Company declared a special 10% stock dividend
to shareholders in the form of a dividend and was paid on February 1, 1996 to
shareholders on record on January 2, 1996. This is the third stock dividend in
the last three years that the Company has declared and paid.
Item 6. Selected Financial Data
The information set forth under the caption "Financial Condition Data" on
page 26 of the Company's 1995 Annual Report to Stockholders is incorporated
herein by reference thereto.
FINANCIAL CONDITION DATA
(Dollars in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
- ------------------------------------------------------------------------------------------
1991 1992 1993 1994 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Amount of:
Assets $364,110 $393,324 $450,912 $566,904 $607,975
Loans (2) and mortgage-backed
securities 289,453 320,778 386,140 449,441 487,422
Investment securities and
interest-bearing deposits 57,307 46,543 34,732 71,733 72,453
Land acquired for development
and resale 1,209 1,000 838 694 10,405
Deposits 294,840 338,006 368,800 447,651 476,539
Advances from Federal Home Loan
Bank of Pittsburgh 11,900 5,900 10,000 6,000 14,000
Other borrowings 10,911 371 17,264 53,710 54,844
Stockholders' equity 41,325 44,909 49,698 47,641 56,247
Number of:
Real estate loans
outstanding 4,137 3,826 3,425 3,374 3,145
Savings accounts 46,783 51,666 62,256 76,847 75,892
Offices open 9 10 12 16 18
==========================================================================================
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The information contained under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" (pages 18 through 27)
in the Company's 1995 Annual Report to Stockholders is incorporated herein by
reference thereto.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
29
<PAGE>
General
The activities of Prime Bancorp, Inc. (the "Company") are limited primarily
to holding the common stock of its principal subsidiary, Prime Bank (the
"Bank"). The Bank's mission is to provide individuals, businesses and
communities within the Philadelphia area with high quality basic banking
services. Prime lends and gathers deposit money through eighteen local offices.
Loans are diversified among residential mortgage, residential construction,
consumer and commercial lines. Deposits are gathered through multiple checking,
savings and CD product lines. Legally, Prime maintains a thrift status to avoid
thrift-to-bank conversion penalties, but otherwise is strategically positioned
as a full service community bank.
Net Income
Prime Bancorp, Inc. reported net income of $5.85 million during 1995, a
small gain over the $5.81 million reported during 1994. Both numbers are well
above the $5.42 million earned for 1993 before a one time adjustment of $1.06
million caused by adoption of the Financial Accounting Standards Board's FAS
109.
[The following table was represented as a bar graph in the printed material.]
In Millions
1993 1994 1995
- ------------------------
$5.42 $5.81 $5.85
Prime's 1995 income growth was driven by a $1.24 million increase in net
interest income and a $1.06 million increase in non-interest income, offset by a
by a $2.50 million dollar increase in non-interest expense and a $600 thousand
dollar decrease in the loan loss provision. In 1994, growth was supported by a
$1.77 million increase in net interest income after the provision for loan
losses offset by a $1.53 million increase in non-interest expenses.
Net Interest Income
Net interest income for a bank is analogous to the gross profit margin of a
business. It represents the difference between income earned on earning assets
and the interest expense paid on liabilities. Net interest income is affected by
market and economic conditions which influence rates and loan and deposit
growth.
[The following table was represented as a bar graph in the printed material.]
In Millions
1993 1994 1995
- --------------------------
$18.16 $19.73 $20.97
Prime's net interest income represented 88% of the revenues during 1995.
Net interest income increased to $20.97 million for 1995 compared to $19.73
million and $18.16 million for 1994 and 1993, respectively. Prime's net interest
income increased 6.3% during 1995 compared with 1994's 8.7% growth. 1995's
improvement in net interest income was due exclusively to the positive volume
variances compared with 1994's mixture of positive volume and rate variance (see
rate/volume analysis table).
30
<PAGE>
Prime's net interest margin declined from 4.65% during 1994 to 4.26% during
1995. This decline was caused mostly by a shift in balance sheet mix. The
September 1994 acquisition of two offices from the RTC and the deployment of
those moneys into investments caused most of the margin decline. Spreads
compressed only slightly during the year.
During the first quarter of 1995, a subsidiary of the bank took title to a
condominium project by deed in lieu of foreclosure. This had the effect of
converting a large earning asset into a non-earning asset. The carrying value of
the project averaged approximately $9.6 million during the year and negatively
impacted net interest income by approximately $800 thousand.
Management is committed toward maintaining long term stability in net
interest income despite changes in interest rates. This is accomplished through
the approximate matching of asset repricings and durations to liability
repricings and durations.
The two tables on pages twenty-four and twenty-five present an analytical
explanation of Prime's net interest income. The first provides a detailed spread
analysis. The second shows a differential rate/volume variance analysis.
Loan Loss Expense
The provision for loan losses for the years ending December 31, 1993, 1994
and 1995 was $1.44 million, $1.24 million and $.64 million respectively. The
lower 1995 provision was consistent with a decrease in non-performing loans
which was concentrated in low credit risk residential mortgages. The provision
was made in amounts sufficient to maintain the allowance for loan losses at an
adequate level.
[The following table was represented as a bar graph in the printed material.]
In Millions
1993 1994 1995
- -----------------------
$1.44 $1.24 $0.64
Non-Interest Income
Non-interest income increased dramatically rising from $1.80 million in
1994 to $2.86 million during 1995. This compares favorable to the small decrease
between 1993 and 1994. Increased service charges on deposit accounts accounted
for $480 thousand of the improvement. During 1995, gains in sales of mortgage
backed securities and excess servicing was $465 thousand and $260 thousand
respectively. Other income also improved in 1995 mostly due to revenues from the
corporation's title agent subsidiary. All of these gains were partly offset by
reductions in loan fee and rental incomes.
[The following table was represented as a bar graph in the printed material.]
In Millions
1993 1994 1995
- -----------------------
$1.85 $1.80 $2.86
Non-Interest Expense
Non-interest expenses increased by $2.50 million during 1995 compared to an
increase of $1.53 million last year. The higher expense increase supported the
expansion of the branch
31
<PAGE>
banking network, costs associated with the a condominium project, and normal
staffing and salary increases.
[The following table was represented as a bar graph in the printed material.]
In Millions
1993 1994 1995
- -------------------------
$9.51 $11.34 $13.83
Branch salary and benefits expense increased $1.17 million during the year.
Occupancy and equipment expense increased by $769 thousand. Most of the
increases supported the new offices. Two offices were acquired from the RTC in
September of 1994. Other new offices were opened in December 1994, March 1995,
and October 1995. In addition the condominium project incurred expenses of $382
thousand during the year.
Income Taxes
The provision for federal and state income taxes for the years ended
December 31, 1993, 1994 and 1995 was $3.35 million, $3.14 million and $3.50
million, respectively. The $3.35 million number for 1993 was prior to the FASB
109 adjustment.
The lower tax number for 1994 was caused by a one time deployment of some
of the corporations's assets in tax free state obligations and other activities
that had the effect of reducing state taxes during 1994. Income taxes increased
by $357 thousand from $3.14 million in 1994 to $3.50 million in 1995. This
increase was caused by an increase in income before income taxes as well as a
decrease in tax free investments.
[The following table was represented as a bar graph in the printed material.]
In Millions
1993 1994 1995
- -------------------------
$3.35 $3.14 $3.50
Balance Sheet Review
Prime's total assets grew from $566.9 million at year end 1994 to $608.0
million at year end 1995, a gain of $41.1 million or 7.2%. Balance sheet changes
are summarized in the following table (dollars in millions):
Balance Sheet 1994 1995 $Change %Change
- --------------------------------------------------------------------------------
Loans (Net)(1) $ 329.0 $ 351.5 $ 22.5 6.8%
Investments (2) 192.2 208.3 16.1 8.4%
Non-Earnings Assets 45.7 48.2 2.5 5.5%
- --------------------------------------------------------------------------------
Total Assets $ 566.9 $ 608.0 $ 41.1 7.3%
================================================================================
Deposits $ 447.7 $ 476.5 $ 28.8 6.4%
Purchased Funds 61.8 71.1 9.3 15.0%
Other Liabilities 9.8 4.2 (5.6) (57.1%)
Equity 47.6 56.2 8.6 18.1%
- --------------------------------------------------------------------------------
Total Liabilities
and Equity $ 566.9 $ 608.0 $ 41.1 7.3%
================================================================================
(1) Loans (net) includes loans receivable and loans held for sale.
(2) Investments includes investments, mortgage-backed securities and
interest-bearing deposits.
1995 balance sheet growth was supported by a $28.8 million increase in
deposits and a $9.3 million increase in purchased funds, as well as an $8.6
million increase in capital. These funds were used to support loan growth of
$22.5 million, investment growth of $16.1 million
32
<PAGE>
and net changes between non-earning assets and other liabilities.
Loans
Loans grew from $329.0 million at the end of 1994 to $351.5 million at the
end of 1995 an increase of 6.8%. During 1995 loan growth was sluggish through
most of the year. Growth was stable in residential mortgages, moderate in
consumer loans, and in commercial loans and negative in construction lending.
Investments
Investments increased moderately during the year, moving from $192.2
million at year-end 1994 to $208.3 million at year end 1995, a pick up of $16.1
million or 8.4% Management's investment strategy focuses on maintaining an
adequate reserve of shorter term investments to conservatively meet liquidity
needs, combined with a more permanent portfolio of medium-term investments to
serve asset/liability management purposes.
The composition of the investment portfolio was also influenced by the
"Qualified Thrift Lender" test established by Federal laws which requires the
Bank to maintain 65% of its assets in housing related loans and investments. In
order to meet this requirement and because of the Bank's loan diversification
into non-housing related products, most of the Bank's portfolio investments are
placed in Mortgage Backed Securities. Prime's mortgage backed securities are
among between Adjustable Rate Mortgages ("ARMs"), Variable Rate Collateralized
Mortgage Obligations ("CMOs") and medium term fixed rate CMOs.
Non-Interest Earning Assets
Non-interest earning assets increased from $45.7 to $48.2 million for 1994
and 1995 respectively. This increase reflects changes in deferred income taxes
as well as the movement of the condominium project into non-earning assets.
Deposits
Deposits increased $28.8 million or 6.4% during 1995. The year was
characterized by stable growth in checking account balances, moderate growth in
small savings and money market balances and moderate growth in Retail CDs.
During the year the Bank successfully promoted "Prime Basic and Prime Select"
two new relationship banking packages. The changes in the mix of deposit
accounts toward more transaction accounts was in keeping with the Bank's
community banking strategy.
Purchased Funds
Purchased funds at year-end 1995 were $71.1 million compared with $61.8
million at year-end 1994. Purchased funds at year end 1995 included $19.1
million in customer repos which were introduced during the year.
Allowance for Loan Losses
The allowance for loan losses decreased from $4.29 million at the end of
1994 to $3.76 million at the end of 1995.
The allowance for loan losses is based on a periodic evaluation of the
portfolio and is maintained at a level that management considers adequate to
absorb losses known and inherent in the portfolio. Management considers a
variety of factors when establishing the allowance recognizing that an inherent
risk of loss always exists in the lending process. Consideration is given to the
impact of current economic conditions, diversification of the loan portfolio,
historical loss experience, delinquency statistics, results of detailed loan
reviews, borrowers' financial and managerial strengths, the adequacy of
underlying collateral, and other relevant factors. The allowance for loan losses
is increased by the provision for loan losses and recoveries on previously
charged-off loans, and is reduced by actual charge-offs. While management uses
available information
33
<PAGE>
to establish allowances for losses on loans, future additions to the allowance
for loan losses may be necessary based on changes in economic conditions. In
addition, various regulatory agencies, as an integral part of their examination
process, periodically review the allowance for loan losses. Such agencies may
require the Bank to recognize additions to the allowance for loan losses based
on their assessments of information which is available to them at the time of
their examination.
A substantial portion of the Company's loans are secured by real estate in
the Company's market area. Accordingly, the ultimate collectibility of a
substantial portion of the Company's loan portfolio and the recoverability of a
substantial portion of the carrying amount of real estate owned is susceptible
to changes in economic and market conditions in the local area. However,
management believes that the allowance for loan losses is adequate and that the
value assigned to properties included in real estate owned do not exceed their
current estimated fair values less estimated costs to sell.
Capital Adequacy
The Company's equity increased by $8.6 million at year-end, reflective of
the differences between earnings of $5.85 million and dividends of $2.35
million, and the positive $5.1 million FASB 115 adjustment change. The Company's
equity ratio was 9.25% at year-end 1995 vs. 8.40% at year-end 1994. The
following table shows that the Bank's capital is well above federal adequacy
guidelines (dollars in thousands). These capital ratios qualify the Bank as
"well capitalized" under currrent regulatory guidelines and provide a foundation
for future growth.
Actual
Regulatory Regulatory
Requirement Capital %
- ------------------------------------------------------------------
Tangible capital $ 8,674 $43,484 7.52%
Core capital 17,348 43,484 7.52%
Risk-based capital 26,848 47,248 14.08%
- ------------------------------------------------------------------
34
<PAGE>
BANKING RISKS
Credit Risk
During 1995, Prime continued to place a heavy emphasis on generating high
quality loans. Approvals of small loans rest with experienced lenders who follow
detailed underwriting and appraisal standards. Larger loans in excess of
$1,000,000 require board approvals pursuant to comparable standards.
During the first quarter of 1995, a subsidiary of the Bank took title to
the project by deed in lieu of foreclosure. At December 31, 1995 total exposure
on the project was $10.1 million. Management believes that any losses that might
be incurred would not have a material impact on earnings.
The following table provides key asset quality trends (dollars in
thousands).
1991 1992 1993 1994 1995
- --------------------------------------------------------------------------------
Net Charge-offs (632) (563) (678) (924) (1,165)
Net Charge-offs as % of Loans .25% .22% .23% .27% .34%
Non-Performing Assets 3,309 3,780 4,601 4,594 3,349
Non-Performing Assets as % of
Assets .91% .96% 1.02% 0.81% 0.55%
Allowance for Loan Losses 2,363 3,202 3,966 4,285 3,764
Allowance as % Loans .92% 1.15% 1.34% 1.30% 1.07%
Allowance as % Non-Performing
Loans 86.78% 97.00% 93.16% 99.19% 112.39%
- --------------------------------------------------------------------------------
*Statistics do not include the impact of the $10.1 million condominium project
which was acquired by a deed in lieu foreclosure and classified as land acquired
for development and resale. Non-performing assets, and the ratio of
non-performing assets as a percentage of assets would have been $13.4 million
and 2.20%, respectively if the $10.1 million condominium project was included in
the non-performing assets.
A heavy emphasis on collections has always been a central element in the
Bank's credit culture. Steps were taken during 1995 to continue to improve loan
review effort. At the same time the Bank has intensified its efforts to improve
all aspects of credit monitoring to insure that credit quality remains high.
The allowance for loan losses decreased by $521 thousand from $4.3 million
in 1994 to $3.8 million in 1995. This decrease was consistent with a reduction
of non-performing assets of $1.3 million from $4.6 million in charge-offs of
$241 thousand.
Liquidity Risks
A solid base of stable core deposits is the first key to minimizing
liquidity risk. The second key is maintaining a pool of readily marketable
investments as a liquidity reserve to support unforeseen fluctuations in deposit
and loan volumes. The third and final key is to maintain plenty of excess
borrowing capacity.
Prime's loan to deposit ratio at year-end was an improvement in liquidity
from the prior year's. The Bank is required under federal regulations to
maintain specific levels of qualifying liquidity investments. The required level
is currently 5% of net withdrawable deposits plus short term liabilities. At
December 31, 1994 and 1995 the Bank's liquidity ratios were 7.17% and 11.25%
respectively. The Bank also exceeded the OTS 1% short-term liquidity ratio for
both years. The Bank's unused borrowing capacity at the Federal Home Loan Bank
was approximately $173.6 million at year end.
Interest Rate Risk
Prime's management strategy is to avoid speculative interest rate risk
Interest rate risk represents the volatility of net interest income and
portfolio market value of equity caused by changes in market interest rates.
Net interest income volatility is reduced primarily through the management
of deposit and loan rates, and the approximate rate sensitivity matching of
assets and liabilities over multiple time frames (the
35
<PAGE>
difference in assets and liabilities in these time frames being referred to as
"the gap"). The table below presents the Bank's gaps over multiple time frames.
The Bank's tactical gap (weighted average one year gap) of a negative $5.2
million or a negative .90% of earning assets is neutral. Consequently, changes
in market rates of interest should have a relatively minimal impact on net
interest income.
The Bank estimates risk to the market value of portfolio equity through the
use of an internal model and by applying the OTS Net Portfolio Value model. The
model estimates the sensitivity of the market value of portfolio equity to
changes in the level of interest rates. According to the OTS model, the Bank's
interest rate risk compares favorably to the Bank's peer group.
<TABLE>
<CAPTION>
GAP ANALYSIS
DECEMBER 31, 1995
3Mo More 3Mo More 6Mo More 1Yr More 3Yr More 5Yr Over
or less thru 6Mo thru 1Yr thru 3Yr thru 5Yr thru 10Yr 20 Years Total
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Earning Assets:
Construction 25,220 -- -- -- -- -- -- 25,220
ARM'S(7) 4,984 11,307 23,628 39,264 19,138 717 -- 99,038
Fixed Mortgages(1,7,8) 4,733 2,829 5,554 20,364 20,042 10,820 2,592 66,934
Consumer(7) 19,424 2,811 5,653 18,318 13,531 2,520 423 62,680
Commercial(7) 29,663 2,360 6,036 22,664 27,834 7,605 5,274 101,436
Liquidity(8) 44,292 1,957 2,995 1,827 2,297 -- -- 53,368
Portfolio(8) 64,177 10,822 31,709 33,996 15,061 -- -- 155,765
- ----------------------------------------------------------------------------------------------------------------------
Total Earning Assets 192,493 32,086 75,575 136,433 97,903 21,662 8,289 564,441
Liabilities:
Checking Accounts(2) 2,508 2,508 5,018 20,072 20,072 20,072 -- 70,250
Savings Accounts(2) 2,192 2,192 4,383 17,532 17,532 17,532 -- 61,363
Premier MM 20,098 20,098 -- -- -- -- -- 40,196
Money Market(3) 13,346 13,346 26,692 -- -- -- -- 53,384
Certificates(4) 60,508 38,970 66,892 47,925 27,521 9,530 -- 251,346
Borrowed Funds 54,844 -- 12,000 2,000 -- -- -- 68,844
Capital(5) 681 681 1,362 5,444 5,445 5,445 -- 19,058
- ----------------------------------------------------------------------------------------------------------------------
Total Liabilities 154,177 77,795 116,347 92,973 70,570 52,579 -- 564,441
GAP 38,316 (45,709) (40,772) 43,460 27,333 (30,917) 8,289
as % earning assets 6.8% (8.19)% (7.2)% 7.7% 4.8% (5.5)% 1.5%
Cumulative Gap 38,316 (7,393) (48,165) (4,705) 22,628 (8,289)
as % earning assets 6.8% (1.3)% (8.5)% (0.8)% 4.0% (1.5)%
Tactical Gap (5,235)
as % earning assets (0.90)%
</TABLE>
(1) Assumes Market Prepayment Rates.
(2) Assumes run-offs over 7 years.
(3) Assumes repricings over 1 year.
(4) Reflects the impact of interest rate swaps.
(5) Capital investment is targeted over 7 years.
(6) Includes loans held for sale.
(7) Reflects deferred fees net excluding allowance for loan loss.
(8) Does not reflect the FASB 115 market value adjustment.
36
<PAGE>
<TABLE>
<CAPTION>
Spread Analysis Report
1993 1994 1995
- -----------------------------------------------------------------------------------------------------------------------------------
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:(1)
Loans receivable, net(2,3,4)
Residential $128,596 $ 11,935 9.28% $132,906 $ 11,394 8.57% $154,542 $ 13,476 8.72%
Construction 38,793 3,925 10.12% 34,995 4,063 11.61% 27,798 3,357 12.08%
Commercial 83,196 7,283 8.75% 87,678 7,785 8.88% 97,973 9,329 9.52%
Consumer 42,266 3,637 8.61% 46,124 3,634 7.88% 50,268 4,361 8.68%
VISA Credit Card 2,478 438 17.68% 2,864 446 15.57% 5,320 763 14.35%
- -----------------------------------------------------------------------------------------------------------------------------------
295,329 27,218 9.22% 304,567 27,322 8.97% 335,901 31,286 9.31%
- -----------------------------------------------------------------------------------------------------------------------------------
Mortgage-backed securities 64,073 2,835 4.42% 104,284 5,928 5.68% 129,294 8,528 6.60%
Investment securities(4) 20,698 915 4.42% 47,394 3,251 6.86% 55,668 4,097 7.36%
Interest-earning deposits 11,267 342 3.04% 4,800 179 3.73% 7,962 423 5.31%
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest earning assets 391,367 31,310 8.00% 461,045 36,680 7.96% 528,825 44,334 8.38%
- -----------------------------------------------------------------------------------------------------------------------------------
Non-interest-earning assets 28,022 -- -- 37,885 -- -- 46,915 -- --
Total assets $419,389 $ 31,310 $498,930 $ 36,680 $575,740 $ 44,334
- -----------------------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:(1)
Savings $ 56,882 $ 1,284 2.26% $ 66,235 $ 1,333 2.01% $ 63,107 $ 1,291 2.05%
Money market accounts 69,670 1,957 2.81% 73,927 2,171 2.94% 84,718 3,156 3.73%
Commercial checking 24,823 -- -- 32,075 1 -- 39,141 1 --
N.O.W. Accounts 16,535 280 1.69% 21,240 291 1.37% 23,624 288 1.22%
Time deposits 180,985 8,993 4.97% 212,801 9,923 4.66% 250,745 13,594 5.42%
- -----------------------------------------------------------------------------------------------------------------------------------
348,895 12,514 3.59% 406,278 13,719 3.38% 461,335 18,330 3.97%
FHLB advances and other
borrowings 15,746 636 4.04% 32,763 1,534 4.68% 56,132 3,495 6.23%
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 364,641 13,150 3.61% 439,041 15,253 3.47% 517,467 21,825 4.22%
- -----------------------------------------------------------------------------------------------------------------------------------
Other liabilities 7,444 -- -- 11,219 -- -- 6,329 -- --
Stockholder's equity 47,304 -- -- 48,670 -- -- 51,944 -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
stockholder's equity $419,389 $ 13,150 $498,930 $ 15,253 $575,740 $ 21,825
Net interest income/interest
rate spread $ 18,160 4.39% $ 21,427 4.49% $ 22,509 4.16%
===================================================================================================================================
Net interest earning assets/net
yield interest-earning assets $ 26,726 4.64% $ 22,004 4.65% $ 11,358 4.26%
===================================================================================================================================
Net of interest-earning assets to
to interest-bearing liabilities 107% 105% 102%
===================================================================================================================================
</TABLE>
(1) Average balances are calculated on a monthly basis.
(2) Non-accrual loans are included in loans.
(3) Yields on loans include income from origination fees net of costs.
(4) Tax free income are calculated on a tax equivalent basis.
Rate/Volume Analysis
The table below sets forth certain information regarding changes in
interest income and interest expense of the Bank for the period indicated. For
each category of interest-earning asset and interest-bearing liability,
information is provided on changes attributable to (1) changes in volume
(changes in average volume multiplied by the prior years rate), and (2) changes
in rate (changes in rate multiplied by the prior years volume). The difference
in the rate/volume is allocated on a pro-rata basis to the change in rate
variance and the change in volume variance.
<TABLE>
<CAPTION>
Years Ended December 31,
- -------------------------------------------------------------------------------------------------------
1993 vs. 1994 1994 vs. 1995
- -------------------------------------------------------------------------------------------------------
Increase (Decrease) Due To Increase (Decrease) Due to
- -------------------------------------------------------------------------------------------------------
Volume Rate Total Volume Rate Total
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Loan portfolio:
Residential $ 400 $(1,808) $(1,408) $ 1,591 $ 446 $ 2,037
Construction (384) 522 138 (767) 61 (706)
Commercial 392 110 502 1,078 466 1,544
</TABLE>
37
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Consumer 332 (335) (3) 376 351 727
VISA Credit Card 68 (60) 8 382 (65) 317
- -----------------------------------------------------------------------------------------------------
808 (1,571) (763) 2,660 1,259 3,919
- -----------------------------------------------------------------------------------------------------
Mortgage-backed securities 1,777 1,316 3,093 1,421 1,179 2,600
Investment securities 1,180 329 1,509 568 478 1,046
Interest-earning deposits (197) 34 (163) 118 126 244
- -----------------------------------------------------------------------------------------------------
Total interest-earning assets 3,568 108 3,676 4,767 3,042 7,809
- -----------------------------------------------------------------------------------------------------
Interest expense:
Savings 211 (162) 49 (63) 21 (42)
Money market accounts 120 94 214 317 668 985
Commercial checking -- 1 1 -- -- --
NOW accounts 80 (69) 11 33 (36) (3)
Time deposits 1,581 (651) 930 1,768 1,903 3,671
- -----------------------------------------------------------------------------------------------------
1,992 (787) 1,205 2,055 2,556 4,611
- -----------------------------------------------------------------------------------------------------
Borrowings and Federal Home
Loan Bank advances 687 211 898 1,094 867 1,961
- -----------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 2,679 (576) 2,103 3,149 3,423 6,572
- -----------------------------------------------------------------------------------------------------
Net change in interest
income $ 889 $ 684 $ 1,573 $ 1,618 $ (381) $ 1,237
=====================================================================================================
</TABLE>
FINANCIAL CONDITION DATA
(Dollars in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
- -----------------------------------------------------------------------------------------------------------
1991 1992 1993 1994 1995
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Amount of:
Assets $364,110 $393,324 $450,912 $566,904 $607,975
Loans (2) and mortgage-backed
securities 289,453 320,778 386,140 449,441 487,422
Investment securities and
interest-bearing deposits 57,307 46,543 34,732 71,733 72,453
Land acquired for development
and resale 1,209 1,000 838 694 10,405
Deposits 294,840 338,006 368,800 447,651 476,539
Advances from Federal Home Loan
Bank of Pittsburgh 11,900 5,900 10,000 6,000 14,000
Other borrowings 10,911 371 17,264 53,710 54,844
Stockholders' equity 41,325 44,909 49,698 47,641 56,247
Number of:
Real estate loans
outstanding 4,137 3,826 3,425 3,374 3,145
Savings accounts 46,783 51,666 62,256 76,847 75,892
Offices open 9 10 12 16 18
===========================================================================================================
</TABLE>
OPERATING DATA
<TABLE>
<CAPTION>
Years Ended December 31,
- --------------------------------------------------------------------------------------------------
1991 1992 1993 1994 1995
- --------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Interest income $33,584 $30,691 $31,310 $34,986 $42,795
Interest expense 19,598 14,944 13,150 15,253 21,825
- --------------------------------------------------------------------------------------------------
Net interest income 13,986 15,747 18,160 19,733 20,970
Provision for loan losses 1,320 1,200 1,442 1,243 644
- --------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 12,666 14,547 16,718 18,490 20,326
Gain (loss) on sale of:
Mortgage loans -- 5 148 81 68
Mortgage-backed securities 179 148 -- -- 465
Investment securities (42) 138 157 (168) (21)
</TABLE>
38
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Mortgage servicing -- -- -- -- 260
Land acquired for
development
and resale 183 -- -- -- 20
Real estate owned -- (71) (26) (17) (64)
Rental income 227 214 350 321 174
Other income 1,702 1,668 1,233 1,578 1,954
Other expenses 8,197 8,769 9,807 11,336 13,831
- --------------------------------------------------------------------------------------------------
Income before income taxes and
effect of cumulative change
in accounting principle 6,718 7,880 8,773 8,949 9,351
Income tax expense 2,652 3,177 3,349 3,141 3,498
- --------------------------------------------------------------------------------------------------
Income before effect of
cumulative change in
accounting principle 4,066 4,703 5,424 5,808 5,853
Cumulative effect on prior
years of change in tax
accounting method -- -- 1,055 -- --
- --------------------------------------------------------------------------------------------------
Net income $ 4,066 $ 4,703 $ 6,479 $ 5,808 $ 5,853
==================================================================================================
Dividends paid and declared $ 970 $ 1,301 $ 1,821 $ 1,949 $ 2,348
==================================================================================================
Earnings per share(1) $ 1.19 $ 1.29 $ 1.74 $ 1.55 $ 1.55
==================================================================================================
</TABLE>
(1) Earnings per share have been adjusted to reflect the stock split and stock
dividends.
(2) Loans include loans receivable and loans held for sale.
Consolidated Summary of Quarterly Earnings
The following quarterly financial information for the years ended December
31, 1994 and 1995 is unaudited. However, in the opinion of management, all
adjustments, which include only normal recurring adjustments necessary to
present fairly the results of operations for the periods, are reflected in
conformity with generally accepted accounting principles. Results of operations
for the periods presented are not necessarily indicative of the results for the
entire year or for any other interim period.
<TABLE>
<CAPTION>
1994 1995
- ------------------------------------------------------------------------------------------------------------------------------
1st 2nd 3rd 4th 1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income $7,965 $8,381 $9,011 $9,629 $10,248 $10,796 $10,762 $10,989
Interest expense 3,254 3,505 3,969 4,525 5,058 5,541 5,536 5,690
- ------------------------------------------------------------------------------------------------------------------------------
Net interest income 4,711 4,876 5,042 5,104 5,190 5,255 5,226 5,299
Provision for loan losses (303) (250) (249) (441) (166) (190) (159) (129)
- ------------------------------------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 4,408 4,626 4,793 4,663 5,024 5,065 5,067 5,170
- ------------------------------------------------------------------------------------------------------------------------------
Other income 604 458 370 363 312 879 777 888
Other expense (2,723) (2,850) (2,937) (2,826) (3,092) (3,517) (3,446) (3,776)
- ------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 2,289 2,324 2,226 2,200 2,244 2,427 2,398 2,282
Income tax expense (873) (811) (806) (651) (784) (925) (907) (882)
- ------------------------------------------------------------------------------------------------------------------------------
Net Income $1,416 $1,423 $1,420 $1,549 $1,460 $1,502 $1,491 $1,400
==============================================================================================================================
Earnings per share $ 0.38 $ 0.38 $ 0.38 $ 0.41 $ 0.38 $ 0.40 $ 0.40 $ 0.37
==============================================================================================================================
</TABLE>
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements, the notes thereto, and the opinion
of independent certified public accountants thereon, appearing on pages 29
through 48 of the Company's 1995 Annual Report to Stockholders are incorporated
herein by reference thereto.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands)
December 31,
- -----------------------------------------------------------------------
1994 1995
- -----------------------------------------------------------------------
ASSETS:
39
<PAGE>
Cash and due from banks $ 14,479 $ 13,092
Interest-bearing deposits 12,373 34,937
- ------------------------------------------------------------------------
Cash and cash equivalents 26,852 48,029
- ------------------------------------------------------------------------
Investment securities (market value of $10,133 and
$13,849) 10,417 13,708
Investment securities available for sale 48,943 23,863
Mortgage-backed Securities (market value of $0 and
$82,045) -- 81,084
Mortgage-backed Securities available for sale 120,453 54,739
Loans receivable: 329,911 348,886
Deferred fees (1,298) (392)
Allowance for loan losses (4,285) (3,764)
- ------------------------------------------------------------------------
Loans receivable, net 324,328 344,730
- ------------------------------------------------------------------------
Loans held for sale 4,660 6,814
Accrued interest receivable 3,755 4,339
Real estate owned 274 370
Land acquired for development and resale 694 10,405
Property and equipment, net 8,897 9,229
Other assets 17,631 10,665
- ------------------------------------------------------------------------
Total assets $566,904 $607,975
========================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Liabilities:
Deposits $447,651 $476,539
Advances from Federal Home Loan Bank of
Pittsburgh 6,000 14,000
Other borrowed money 53,710 54,844
Advance payments by borrowers for taxes
and insurance 2,109 2,211
Other liabilities 9,793 4,134
- ------------------------------------------------------------------------
Total liabilities 519,263 551,728
- ------------------------------------------------------------------------
Commitments & Contingencies
Stockholders' equity:
Serial preferred, $1 par value; 5,000,000
shares authorized and unissued -- --
Common stock, $1 par value; 10,000,000
shares authorized and 3,889,707
and 3,889,597 issued and outstanding 3,890 3,890
Additional paid-in capital 30,455 30,455
Retained earnings (Note 3) 20,773 24,275
Valuation adjustment for debt securities
net of taxes (6,662) (1,558)
Treasury stock (184,063 shares at cost
in 1994 and 1995) (815) (815)
- ------------------------------------------------------------------------
Total stockholders' equity 47,641 56,247
- ------------------------------------------------------------------------
Total liabilities and stockholders' equity $566,904 $607,975
========================================================================
See accompanying notes to consolidated financial statements.
40
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
Years Ended December 31,
- ----------------------------------------------------------------------
1993 1994 1995
- ----------------------------------------------------------------------
Interest income:
Loans receivable $27,218 $26,455 $30,374
Mortgage-backed securities 2,835 5,928 8,528
Investment securities 915 2,424 3,470
Interest-bearing deposits 342 179 423
- ----------------------------------------------------------------------
Total interest income 31,310 34,986 42,795
- ----------------------------------------------------------------------
Interest expense:
Deposits 12,514 13,719 18,330
Short-term borrowings 290 1,298 3,375
Long-term borrowings 346 236 120
- ----------------------------------------------------------------------
Total interest expense 13,150 15,253 21,825
- ----------------------------------------------------------------------
Net interest income 18,160 19,733 20,970
- ----------------------------------------------------------------------
Provision for loan losses 1,442 1,243 644
- ----------------------------------------------------------------------
Net interest income after
provision for loan losses 16,718 18,490 20,326
- ----------------------------------------------------------------------
Non-interest income:
Fees and service charges 801 1,096 1,198
Gain (loss) on sale of:
Loans receivable, net 148 81 68
Investment securities, net 157 (168) (21)
Mortgage-backed securities, net -- -- 465
Mortgage servicing -- -- 260
Land acquired for development and
resale -- -- 20
Real estate owned (26) (17) (64)
Rental income 350 321 174
Other 432 482 756
- ----------------------------------------------------------------------
Total non-interest income 1,862 1,795 2,856
- ----------------------------------------------------------------------
Non-interest expense:
Salaries and employee benefits 5,333 5,685 6,850
Occupancy and equipment 1,669 2,010 2,779
Federal deposit insurance premiums 663 876 1,008
Other 2,142 2,765 3,194
- ----------------------------------------------------------------------
Total non-interest expense 9,807 11,336 13,831
- ----------------------------------------------------------------------
Income before income taxes and effect
of cumulative change in accounting
principle 8,773 8,949 9,351
Income taxes 3,349 3,141 3,498
- ----------------------------------------------------------------------
Income before effect of cumulative
change in accounting principle 5,424 5,808 5,853
Cumulative effect on prior years of
change in tax accounting method 1,055 -- --
- ----------------------------------------------------------------------
Net income $ 6,479 $ 5,808 $ 5,853
======================================================================
Primary and fully diluted earnings
per share:
Net income before effect of
cumulative change in accounting
principle $ 1.46 $ 1.55 $ 1.55
Cumulative effect on prior years of
change in tax accounting method .28 -- --
Net income 1.74 1.55 1.55
Weighted average number of shares
outstanding: 3,712,344 3,736,405 3,773,808
Dividends declared per share $ .50 $ .54 $ .62
======================================================================
41
<PAGE>
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
Valuation
Unrealized Adjustment
Loss on for Debt
Additional Marketable Securities Total
Common Paid in Retained Treasury Equity Net of Stockholders'
Stock Capital Earnings Stock Securities Taxes Equity
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992 3,414 $22,741 $ 19,679 $(815) $(110) $ -- $ 44,909
Retro active adjustment
for 10% stock dividend 354 7,069 (7,423) -- -- -- --
- ---------------------------------------------------------------------------------------------------------------
Balance at December 31, 1992
restate for adjustment 3,768 29,810 12,256 (815) (110) -- 44,909
Stock options exercised 56 271 -- -- -- -- 327
Tax benefit associated with
exercise of stock options -- 66 -- -- -- -- 66
Dividends declared
($0.50 per common share) -- -- (1,821) -- -- -- (1,821)
Unrealized gain on marketable
equity securities -- -- -- -- 110 -- 110
Valuation adjustment for debt
securities net of taxes -- -- -- -- -- (372) (372)
Net income -- -- 6,479 -- -- -- 6,479
- ---------------------------------------------------------------------------------------------------------------
Balance at December 31, 1993 3,824 $30,147 $ 16,914 $(815) $-- $ (372) $ 49,698
Stock options exercised 66 267 -- -- -- -- 333
Tax benefit associated with
exercise of stock options -- 41 -- -- -- -- 41
Dividends declared
($0.54 per common share) -- -- (1,949) -- -- -- (1,949)
Valuation adjustment for debt
securities net of taxes -- -- -- -- -- (6,290) (6,290)
Net income -- -- 5,808 -- -- -- 5,808
- ---------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 3,890 $30,455 $ 20,773 $(815) $-- $(6,662) $ 47,641
Dividends declared
($0.62 per common share) -- -- (2,351) -- -- -- (2,351)
Valuation adjustment for
debt securities net of taxes -- -- -- -- -- 5,104 5,104
Net income -- -- 5,853 -- -- -- 5,853
- ---------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 3,890 $30,455 $ 24,275 $(815) $-- $(1,558) $ 56,247
===============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
42
<PAGE>
Years Ended December 31,
- --------------------------------------------------------------------------------
1993 1994 1995
- --------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 6,479 $ 5,808 $ 5,853
Adjustments to reconcile net income
to net cash from operating
activities:
Cumulative effect on prior years of change
in accounting principle (1,055) -- --
Depreciation and amortization of
intangibles 842 1,158 1,549
(Gain) Loss on sale of:
Loans held for sale (148) (81) (68)
Mortgage-backed securities -- -- 465
Investment securities (157) 168 21
Land acquired for development and resale -- -- (20)
Real estate owned 26 17 64
Provision for loan losses 1,442 1,243 644
Increase in accrued interest receivable (35) (657) (584)
(Increase) decrease in other assets 322 (3,666) 1,854
Increase (decrease) in other liabilities 508 6,010 (5,718)
- --------------------------------------------------------------------------------
Net cash provided from operating
activities 8,224 10,000 3,130
- --------------------------------------------------------------------------------
Cash flows from investing activities:
Investment securities:
Purchases (51,791) (10,438) (20,186)
Maturities 50,158 21 5,271
Sales 2,048 -- --
Investment securities held for sale:
Purchases -- (37,515) (11,577)
Maturities -- 2,852 1,454
Sales 3,109 7,832 48,939
Mortgage-backed securities
Purchases -- -- (22,405)
Maturities -- -- 1,656
Mortgage-backed securities held for sale
Purchases (77,583) (59,516) (41,827)
Maturities 29,846 16,063 11,966
Sales -- 1,469 43,384
Loans receivable:
Originations, net of repayments (18,616) (30,474) (36,100)
Sales -- -- --
Loans held for sale:
Originations, net of repayments (10,838) (10,228) (7,015)
Sales 9,501 8,756 9,742
Decrease in land acquired
for development and resale 162 144 (819)
Purchase of property and equipment (1,079) (1,396) (1,477)
Proceeds from the sale of land acquired
for development and resale -- -- 520
Decrease in real estate owned (38) (5) (225)
Proceeds from sale of real estate
owned 645 1,015 914
Net cash and cash equivalents received
from banking institutions acquired 22,464 78,195 --
- --------------------------------------------------------------------------------
Net cash used in investing activities (42,012) (33,225) (17,785)
- --------------------------------------------------------------------------------
43
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Years Ended December 31,
- -------------------------------------------------------------------------------
1993 1994 1995
- -------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase in deposit 8,178 (3,272) 28,888
Advances from the Federal Home Loan Bank
of Pittsburgh 21,000 41,850 74,650
Repayments of advances from the Federal
Home Loan Bank of Pittsburgh (16,900) (45,850) (66,650)
Increase (decrease) in other borrowed money 16,893 36,446 1,134
Increase (decrease) in advance payments
by borrowers for taxes and insurance 280 9 102
Net proceeds from issuance of common stock 327 333 --
Cash dividends paid (1,778) (1,763) (2,292)
- -------------------------------------------------------------------------------
Net cash provided from financing
activities 28,000 27,753 35,832
- -------------------------------------------------------------------------------
Net change in cash and cash equivalents (5,788) 4,528 21,177
Cash and cash equivalents:
Beginning of year 28,112 22,324 26,852
End of year $ 22,324 $ 26,852 $ 48,029
===============================================================================
Supplemental disclosure of cash flow
information:
Cash paid during the year for:
Interest $ 13,199 $ 15,233 $ 21,500
Income taxes 3,626 3,566 3,288
Transfer of investment securities to
held to maturity -- -- 15,588
Transfer of investment securities to
available for sale 26,487 -- 27,212
Transfer of mortgage-backed securities to
held to maturity -- -- 71,447
Transfer of mortgage-backed securities to
available for sale 87,534 -- 11,112
Transfer of loans receivable to held for sale -- -- 4,813
Transfer of loans receivable to real
estate owned 498 957 849
Transfer of loans receivable to Land
acquired for development and resale -- -- 9,392
Acquisitions:
In conjunction with the acquisitions,
liabilities assumed and assets
acquired were as follows:
Assets acquired, net of cash and cash
received $ 333 $ 4,519 $ --
Cash and cash equivalents received 22,464 78,195 --
Liabilities assumed 22,797 82,714 --
===============================================================================
44
<PAGE>
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
The following is a description of the significant accounting policies of
Prime Bancorp, Inc. and subsidiaries (the "Company"). The accompanying
consolidated financial statements have been prepared in conformity with
generally accepted accounting principles ("GAAP"), which have been applied on a
consistent basis.
Business
The Company's principal subsidiary is Prime Bank (the "Bank") whose
principal business consists of attracting deposits and obtaining borrowings,
then converting those deposits and borrowings into various types of loans,
mortgage-backed securities, and other investments. These operations are
conducted through a branch network in Southeastern Pennsylvania. The Bank is
subject to competition from other financial institutions and it is also subject
to the regulations of certain federal agencies and undergoes periodic
examinations by those regulatory authorities.
Basis of Financial Statement Presentation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned and majority-owned subsidiaries. All
significant intercompany balances and transactions have been eliminated in
consolidation. Certain amounts in prior years have been reclassified for
comparative purposes.
In preparing the consolidated financial statements, management is required
to make estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the balance sheet and revenues and expenses for
the period. Actual results could differ significantly from those estimates.
Material estimates that are particularly susceptible to significant change in
the near term relate to the determination of the allowance for loan losses and
the valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans. In connection with the determination of the allowances
for loan losses and the estimated fair value of real estate owned, management
obtains independent appraisals for significant properties.
Cash and Cash Equivalents
For purposes of the Consolidated Statements of Cash Flows, the Company
considers cash and cash equivalents to include cash, due from banks and
interest-bearing deposits with maturities of 3 months or less.
Investments, Mortgage-backed Securities and Other
Securities classified as held-to-maturity are those securities in which the
Company has the ability and intent to hold the security until maturity and are
recorded at amortized cost, adjusted for the amortization of premiums and
discounts. All other securities not included in held-to-maturity are classified
as available-for-sale and are recorded at fair value.
Unrealized holding gains and losses, net of the related tax effect, on
available-for-sale securities are excluded from earnings and are reported as a
separate component of stockholders' equity until realized. Transfers of
securities between categories are recorded at fair value at the date of
transfer.
With the issuance of "A Guide to Implementation of Statement 115 Accounting
for Debt and Equity Securities," the Financial Accounting Standards Board has
allowed institutions to reassess the appropriateness of the classifications of
all securities and account for any resulting reclassifications at fair value.
The reclassifications should occur no later than December 31, 1995 and will not
call into question the intent of an institution to hold other debt securities to
maturity in the future.
A decline in the fair value of any available-for- sale or held-to-maturity
security below cost that is deemed other than temporary is charged to earnings
resulting in the establishment of a new cost basis for the security.
Premiums and discounts are amortized or accreted over the life of the
related security as an adjustment to yield using the effective interest
45
<PAGE>
method. Dividend and interest income are recognized when earned. Realized gains
and losses are included in earnings and are derived using the specific
identification method for determining the cost of securities sold.
The Company has one interest rate swap which is used to hedge the interest
rate risk of 7 year fixed certificated of deposits. The Company does not use
derivatives for trading purposes.
Real Estate Owned
Real estate acquired in partial or full satisfaction of loans are
classified as Real Estate Owned ("REO"). Prior to transferring a real estate
loan to REO it is written down to the lower of cost or fair value. This
write-down is charged to the allowance for loan losses. Subsequently, REO is
carried at the lower of fair value less estimated costs to sell or carrying
value.
Land Acquired for Development and Resale
Land acquired for development and resale represents land and construction
in progress and is carried at the lower of cost or net realizable value.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is computed using the straight-line method based upon the lesser of
the lease term (where applicable) or the estimated useful lives of the related
property, which range from 5 to 40 years. Maintenance and repairs are expensed
as incurred.
Loans Receivable
Interest income is recognized on the accrual basis. Generally, loans are
placed on non-accrual status when the loan becomes past due by 90 days or more
as to principal or interest. After a loan is placed on non-accrual status, any
interest previously accrued but not yet collected is reversed against current
interest income. A loan is returned to accrual status only when the borrower has
brought principal and interest current and full collectability is reasonably
assured.
Fees earned for servicing loans for others are reported as income when the
related loan payments are collected. Loan servicing costs are charged to expense
as incurred. If the Bank sells loans and continues to service such loans for the
investor, the computation of the gain or loss is adjusted to allow for a normal
servicing fee over the estimated remaining maturities of the loans sold. Normal
servicing fees are based on the minimum servicing rates of the relevant
federally-sponsored market makers or comparable rates for transactions with
other investors. The resulting deferral is amortized as an adjustment of
servicing fee income over a period generally not in excess of 7 years.
Loan Impairment
The Company adopted the provisions of SFAS No. 114, Accounting by Creditors
for Impairment of a Loan and SFAS No. 118, Accounting by Creditors of Impairment
of a Loan - Income Recognition and Disclosures in 1995. SFAS No. 114 and 118
require that "impaired" loans be measured based on the present value of expected
future cash flows, discounted at the loan's effective interest rate or, as a
practical expedient, at the loans observable market price or the fair value of
the collateral if the loan is collateral dependent.
Mortgage Servicing Rights
The Company adopted SFAS 122 "Accounting for Certain Mortgage Banking
Activities". SFAS 122 requires that a mortgage banking enterprise recognize, as
separate assets, rights to service mortgage loans. SFAS 122 requires that a
periodic assessment of its capitalized mortgage servicing rights (MSRs") for
impairment, based on the fair value of those rights.
The carrying value of capitalized MSR's at December 31, 1995 was $260
thousand which approximated fair value. Fair value was determined by calculating
the discounted present value of estimated expected net future cash flows,
considering estimated prepayments and defaults, projected interest rates and
other factors. For purposes of evaluating and measuring impairment, capitalized
MSRs are aggregated into groups having homogeneous risk characteristics, based
on the attributes of the underlying loans, and are separately valued, using
46
<PAGE>
appropriate assumptions for each risk group. No valuation allowance was required
for capitalized MSRs at December 31, 1995.
Stock Based Compensation
In 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock Based Compensation." This statement encourages the
adoption of fair value accounting for stock options issued to employees.
Further, in the event that fair value accounting is not adopted, the statement
requires pro forma disclosures of net income and earnings per share as if fair
value accounting had been adopted. SFAS No. 123 is required to be adopted in
1996. Management currently expects that it will not adopt fair value accounting
for stock options issued to employees, and therefore does not expect the
adoption of this statement to materially affect the company's results of
operations or financial condition.
Loans Held for Sale
The Bank has adopted a policy to sell off fixed rate single family
residential mortgage loans and adjustable rate mortgages which meet the
underwriting and securitization characteristics of certain market makers.
Conforming loans are transferred to loans held for sale and are valued at the
lower of cost or market.
Deferred Loan Fees, Net
Loan origination fees, commitment fees and loan origination costs are
deferred and amortized as an adjustment to the yield over the life of the loan
in a manner which approximates the interest method.
Allowance for Loan Losses
The allowance for loan losses is based on a periodic evaluation of the
portfolio and is maintained at a level that management considers adequate to
absorb losses known and inherent in the portfolio. Management considers a
variety of factors when establishing the allowance recognizing that an inherent
risk of loss always exists in the lending process. Consideration is given to the
impact of current economic conditions, diversification of the loan portfolio,
historical loss experience, delinquency statistics, results of detailed loan and
regulatory reviews, borrowers's financial and managerial strengths, the adequacy
of underlying collateral, and other relevant factors. The allowance for loan
losses is increased by the provision for loan losses and recoveries on
previously charged-off loans, and is reduced by actual charge-offs. While
management uses available information to recognize losses on loans, future
additions to the allowance for loan losses may be necessary based on changes in
economic conditions. In addition, various regulatory agencies as an integral
part of their examination process, periodically review the allowance for loan
losses. Such agencies may require the Company to recognize additions to the
allowance for loan losses based on their judgments of information which is
available to them at the time of their examination.
A substantial portion of the Company's loans are secured by real estate in
the Company's market area. Accordingly, the ultimate collectibility of a
substantial portion of the Company's loan portfolio and the recoverability of a
substantial portion of the carrying amount of real estate owned is susceptible
to changes in economic and market conditions in the market area. However,
management believes that the allowance for loan losses is adequate and that the
value assigned to properties included in real estate owned and land acquired for
development and resale do not exceed their current estimated fair values less
estimated costs to sell.
Income Taxes
The Company and its wholly owned subsidiaries file a consolidated federal
income tax return. Deferred income taxes result from recognizing items of income
or expense in one time period for tax reporting and in another for financial
reporting purposes.
Effective January 1, 1993, the Company adopted the provisions of SFAS No.
109, Accounting for Income Taxes and has reported the cumulative effect of that
change in the method of accounting for income taxes in the 1993 consolidated
statement of operations. Under the asset and liability method of SFAS 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating
47
<PAGE>
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
The Bank has qualified under provisions of the Internal Revenue Code which
permit it to deduct from taxable income an allowance for bad debts based on a
percentage of taxable income before such deduction. The maximum amount of this
deduction is 8% of taxable income.
Capital
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") regulations define specific capital categories based on an
institution's capital ratios. The capital categories, in declining order, are
"well capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized," and "critically undercapitalized".
To be considered "adequately capitalized," an institution must generally
have a leverage ratio of at least 4%, a Tier 1 risk-based capital ratio of at
least 4%, and a total risk-based capital ratio of at least 8%. The Bank's
regulatory capital ratios exceed the "well capitalized" ratio requirements of
10% total risk-based capital, 6.0% Tier 1 risk-based capital and a 5.0% leverage
ratio.
Earnings per share
Earnings per share have been calculated based on the weighted average
number of shares of common stock outstanding for the respective periods. Stock
options are considered common stock equivalents and are included in the
computation of the number of outstanding shares using the treasury stock method,
unless anti-dilutive. Earnings per share has been restated to reflect the stock
splits and stock dividends.
2. Acquisitions
On August 27, 1993, the Company completed the acquisition from the
Resolution Trust Corporation ("RTC") of the Home Unity Penn Treaty branch. The
office is located in the Fishtown section of Philadelphia. At closing, the
Company assumed deposits of approximately $22.8 million and acquired assets
consisting primarily of value associated with the deposit base of approximately
$258 thousand, and cash, collateral loans and other assets of approximately $75
thousand.
On March 25, 1994, the Company completed the acquisition from the RTC of
the Abraham Lincoln Fairless Hills branch, which is located in a suburb of
Philadelphia. At closing, the Company assumed liabilities of $20.1 million
consisting primarily of deposits of approximately $20.0 million and acquired
assets consisting primarily of value associated with the deposit base of
approximately $1.5 million, and cash and other assets of approximately $228
thousand.
On September 16, 1994, the Company completed the acquisition from the RTC
of the Second National 18th & JFK and Chestnut Hill branches, which are located
in Philadelphia. At closing, the Company assumed deposits of approximately $62.1
million and acquired assets consisting primarily of value associated with the
deposit base of approximately $2.7 million, and cash, collateral loans and other
assets of approximately $96 thousand.
All of the acquisitions were accounted for using the purchase method and
did not have a significant impact upon reported earnings in the year which the
acquisitions took place. Core deposit intangibles of $1.1 million were amortized
over 10 years and other intangibles of $3.1 million were amortized over 15
years.
3. Stockholders' Equity
OTS regulations require that mutual associations converting to stock form
of ownership establish a "Liquidation Account" in an amount equal to the total
net worth of the association as of the date of the latest balance sheet
contained in the final offering circular. Each eligible savings account holder
is entitled to a proportionate share (subaccount) of this amount in the event of
a complete liquidation of the association, and only in such event. This
subaccount is reduced if the subaccount holders' savings deposits fall below the
amount at the date of record and will cease to exist if the savings account is
closed. The liquidation account will never be increased despite
48
<PAGE>
any increase after conversion in the related savings deposits of a subaccount
holder. At the time of its conversion to a stock form of ownership, the Bank's
liquidation account was approximately $18,737,000. The Bank's liquidation
account at December 31, 1995 was approximately $4,500,000.
The creation and maintenance of the liquidation account does not restrict
use or application of any of the stockholders' equity accounts of the Bank
except that the Bank may not declare or pay any cash dividend on or repurchase
any of its common stock, if the effect of such dividend or repurchase would be
to cause the stockholders' equity of the Bank to be reduced below the aggregate
amount then required for the liquidation account or the regulatory net worth
requirement.
The Company offers to its stockholders a Dividend Reinvestment and Stock
Purchase Plan, which provides participants with a method of reinvesting all or a
portion of cash dividends paid on shares of common stock in additional shares of
common stock without the payment of brokerage commissions or charges. Shares
purchased under such plan are purchased in the open market.
The Board of Directors of the Company declared a special 10% stock dividend
to shareholders in the form of a dividend and was paid on February 1, 1996 to
shareholders on record on January 2, 1996. This is the third stock dividend in
the last three years that the Company has declared and paid.
4. Stock Option Plan
The Company's Incentive Stock Option Plan provides for the grant of
incentive options to directors and certain employees of the Company and its
subsidiaries and the grant of non-incentive options to directors who are not
full-time employees of the Company and its subsidiaries. The option plan is
administered by a stock option committee which consists of three directors of
the Company, none of whom are eligible to receive options. The exercise price
under the option plan must be at least equal to the fair market value of the
shares on the date of grant, and no option may be exercisable after the
expiration of ten years from the date it is granted.
Under the Company's original option plan, 367,356 shares of Common Stock
have been reserved for issuance, of which a total of 367,167 stock options have
been granted since inception of the plan at an option price of $4.32 per share
(after adjustment for the 10% stock dividends). The maximum number of shares
subject to the option plan may be adjusted for a change in capitalization or
reorganization. The option plan is designed primarily as an incentive for full
time employees responsible for the decision making, policy formation and
personnel supervision functions that most directly affect the earnings of the
Company and the welfare of its subsidiaries. Since the inception of the stock
option plan, 216,627 stock options were exercised and 12,345 stock options have
been forfeited.
On December 21, 1994, the Board of Directors of the Company adopted an
Incentive Stock Option Plan ("Option Plan") also for the benefit of officers and
other full-time employees of the Company and its subsidiaries. The Option Plan
provides for the grant of non-incentive options to directors who are not full
time employees of the Company. The Option Plan was approved by the shareholers
at the April 19, 1995 annual meeting. Under the Option Plan, 388,978 shares of
common stock, par value $1.00 per share, have been reserved for issuance of
which a total of 99,000 shares have been granted at an option price of $17.95
per share as of December 31, 1995. The Board of Directors had also reserved
100,000 shares of common stock, par value $1.00 per share, for options granted
to one officer
The following schedule summarizes stock option activity and status on an
after stock-split basis:
December 31,
- --------------------------------------------------------------------------------
1994 1995
- --------------------------------------------------------------------------------
Outstanding at beginning of period 143,066 150,657
Granted 85,628 94,000
Exercised (78,037) (110)
- --------------------------------------------------------------------------------
Outstanding at end of period 150,657 244,547
================================================================================
49
<PAGE>
5. Investment Securities
Investment securities at December 31, 1994 and 1995 were comprised of the
following (dollars in thousands):
<TABLE>
<CAPTION>
1994 1995
- ----------------------------------------------------------------------------------------------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
Cost Gains Losses Value Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Held to Maturity
- ---------------------------------------------------------------------------------------------------------------------------
State and municipal $ 6,163 $ -- $ (283) $ 5,880 $ -- $-- $ -- $ --
Small Business Association
Certificates 4,254 -- (1) 4,253 -- -- -- --
US Govt & US Govt Agency
obligations -- -- -- -- 11,830 141 -- 11,971
Marketable equity securities:
FHLB of Pittsburgh
stock -- -- -- -- 1,750 -- -- 1,750
FNMA stock -- -- -- -- 3 -- -- 3
Atlantic Central Bankers
Bank Stock -- -- -- -- 75 -- -- 75
Financial Institutions
Insurance Group Stock -- -- -- -- 50 -- -- 50
- ----------------------------------------------------------------------------------------------------------------------------
$10,417 $ -- $ (284) $10,133 $13,708 $ 141 $ -- $13,849
============================================================================================================================
Available for Sale
- ----------------------------------------------------------------------------------------------------------------------------
U.S. Government and
U.S. Government
Agency obligations $47,140 $ -- $ (2,100) $45,040 $ 6,124 $ 16 $ (41) $ 6,099
SBA Certificates -- -- -- -- 17,233 55 (1) 17,287
Certificate of Deposits 187 -- -- 187 477 -- -- 477
Corporate Notes/Bonds 1,121 2 (6) 1,117 -- -- -- --
Marketable equity
securities:
Federal Home Loan Bank
of Pittsburgh Stock 2,471 -- -- 2,471 -- -- -- --
FNMA Stock 3 -- -- 3 -- -- -- --
Atlantic Central Bankers
Bank Stock 75 -- -- 75 -- -- -- --
Financial Institutions
Insurance Group Stock 50 -- -- 50 -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
$51,047 $ 2 $ (2,106) $48,943 $23,834 $ 71 $ (42) $23,863
============================================================================================================================
</TABLE>
Gross gains of $157,000, $0 and $341,000 and gross losses of $0, $168,000
and $363,000 were realized on sales of investment securities for the years ended
December 31, 1993, 1994 and 1995, respectively.
At December 31, 1995, the Company had structured notes of $11,830,000 in
its securities held to maturity portfolio compared to $13,000,000 in its
securities available for sale portfolio at December 31, 1994 comprised of U.S.
Government Agency step-up notes. At December 31, 1995, a net unrealized gain of
$141,000 was associated with the Company's structured notes.
The amortized cost and estimated market value of investments securities at
December 31, 1995, by contractual maturity are shown below (dollars in
thousands). Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalities.
<TABLE>
<CAPTION>
HELD TO MATURITY AVAILABLE FOR SALE
- -------------------------------------------------------------------------------------------------------
Weighted Weighted
Amortized Fair Average Amortized Fair Average
Cost Value Yield Cost Value Yield
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Due in one year of less $ 2,952 $ 2,998 5.43% $ 2,477 $ 2,481 7.21%
Due after one year through five years 8,878 8,973 5.41% 5,210 5,181 7.65%
Due after five years through ten years -- -- -- 8,454 8,486 9.09%
Due after ten years -- -- -- 7,693 7,715 8.64%
- -------------------------------------------------------------------------------------------------------
11,830 11,971 5.12% 23,834 23,863 8.43%
</TABLE>
50
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Marketable equity securities 1,878 1,878 6.42% -- -- --
- -------------------------------------------------------------------------------------------------------
$13,708 $13,849 5.30% $23,834 $23,863 8.43%
=======================================================================================================
</TABLE>
6. Mortgage-backed Securities
Mortgage-backed securities at December 31, 1994 and 1995 were comprised of
the following (dollars in thousands):
<TABLE>
<CAPTION>
1994 1995
- ------------------------------------------------------------------------------------------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
Cost Gains Losses Value Cost Gains Losses Value
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GNMA pass-through
certificates $ -- $ -- $ -- $ -- $ 22 $ -- $ -- $ 22
FHLMC pass-through
certificates -- -- -- -- 207 -- (1) 206
Collateralized mortgage
obligations -- -- -- -- 80,855 1,031 (69) 81,817
- ------------------------------------------------------------------------------------------------------------------------
$ -- $ -- $ -- $ -- $81,084 $ 1,031 $ (70) $82,045
========================================================================================================================
Available for Sale
- ------------------------------------------------------------------------------------------------------------------------
GNMA pass-through
certificates $ 15,720 $ 1 $ (966) $ 14,755 $11,773 $ 87 $ (91) $11,769
FHLMC pass-through
certificates 7,968 -- (537) 7,431 4,962 16 (86) 4,892
FNMA pass-through
certificates 14,018 -- (484) 13,534 10,062 41 (32) 10,071
Mortgage pass-through
obligations 178 -- (8) 170 158 -- -- 158
Collateralized mortgage
obligations 91,079 -- (6,516) 84,563 28,615 27 (793) 27,849
- ------------------------------------------------------------------------------------------------------------------------
$128,963 $ 1 $ (8,511) $120,453 $55,570 $ 171 $ (1,002) $54,739
========================================================================================================================
</TABLE>
Gross gains of $0, $0 and $481,000 and gross losses of $0, $0 and $16,000
were realized on sales of mortgage-backed securities for the years ended
December 31, 1993, 1994 and 1995, respectively.
On December 22, 1995, the Company reclassified $11,112,000 in debt
securities from held to maturity to available for sale. The net unrealized gain
at the time of reclassification was $17,000.
Interest rate risk is reduced through investments in medium term
Collateralized Mortgage Obligations ("CMOs") and Adjustable Rate Mortgages.
Approximately 96% of the CMO investments are U.S. Agency or backed by U.S.
Agency collateral and have average lives less than 4.7 years. The market value
of mortgage-backed securities are inversely related to interest rates, market
values generally rise as interest rates fall, and fall as interest rates rise.
Prepayment speeds, which are partly a function of interest rates, also influence
mortgage-backed security performance.
7. Loans Receivable
Loans receivable at December 31, 1993, 1994 and 1995 were comprised of the
following (dollars in thousands):
1993 1994 1995
- --------------------------------------------------------------------------------
First mortgage loans:
Residential:
One to four units $ 123,400 $ 140,065 $ 157,816
Over four units 4,648 4,148 1,597
Commercial and land 49,507 62,240 66,024
Construction (net of loans in
process of $17,291, $17,148 and
$17,033) 40,713 34,395 25,231
- --------------------------------------------------------------------------------
Total first mortgage loans 218,268 240,848 250,668
- --------------------------------------------------------------------------------
Other loans:
Commercial 35,990 35,350 35,666
Installment 46,379 52,249 61,433
Loans on savings accounts 1,135 1,464 1,119
- --------------------------------------------------------------------------------
Total other loans 83,504 89,063 98,218
- --------------------------------------------------------------------------------
Total loans 301,772 329,911 348,886
51
<PAGE>
Deferred loan fees (1,752) (1,298) (392)
Allowance for possible loan losses (3,966) (4,285) (3,764)
- --------------------------------------------------------------------------------
Total loans receivable, net $ 296,054 $ 324,328 $ 344,730
================================================================================
At December 31, 1994 and 1995, the principal amounts of outstanding loans
on a non-accrual basis was approximately $4,320,000 and $2,980,000. Interest
income not accrued for non-accrual loans for the years ended December 31, 1993,
1994 and 1995 was approximately $350,000, $299,000 and $246,000, respectively.
At December 31, 1995, there were no loans for which impairment was required
to be recognized under SFAS No. 114 and 118.
The Bank is principally a local lender and therefore has a significant
concentration of loans to borrowers who reside in and/or which are
collateralized by real estate located primarily in Philadelphia, Montgomery and
Bucks counties.
In addition, the Company has taken a deed in lieu of foreclosure of a
condominium project of approximately $10.1 million. Such amounts are classified
as land acquired for development and resale. Interest income not recorded on the
project was approximately $800,000 for the year ended December 31, 1995.
The following is a summary of the activity in the allowance for loan losses
for the years ended December 31, 1993, 1994, and 1995 (dollars in thousands):
1993 1994 1995
- --------------------------------------------------------------------------------
Balance at beginning of period $ 3,202 $ 3,966 $ 4,285
Provision for loan losses 1,442 1,243 644
Recoveries 173 126 183
Losses charged against allowance (851) (1,050) (1,348)
- --------------------------------------------------------------------------------
Balance at end of period $ 3,966 $ 4,285 $ 3,764
================================================================================
The following is an analysis of loans to directors and officers for the
years ended December 31, 1995 (dollars in thousands):
1995
- --------------------------------------------------------------------------------
Balance at beginning of period $ 2,653
Additions 539
Repayments (534)
- --------------------------------------------------------------------------------
Balance at end of period $ 2,658
================================================================================
The loans to directors and officers are based upon substantially the same
underwriting criteria as those generally used by the Bank and do not involve
more than the normal risk of collectibility or present other unfavorable
features. At December 31, 1993, 1994 and 1995, the outstanding loans to
directors and officers was $2,094,000, $2,653,000 and $2,658,000 respectively.
At December 31, 1993, 1994 and 1995, the Bank was servicing loans for
others in the amount of $33,790,000, $34,462,000, and $17,649,000 respectively.
Loan servicing income for the years ended December 31, 1993, 1994, and 1995 was
$(28,000), $123,000, and $217,000 respectively.
8. Property and Equipment
Property and equipment, less accumulated depreciation and amortization, are
summarized by major classification at December 31, 1994 and 1995 as follows
(dollars in thousands):
1994 1995
- --------------------------------------------------------------------------------
Land $ 606 $ 606
Buildings 7,009 7,166
Furniture and equipment 4,906 6,210
Leasehold improvements 567 568
- --------------------------------------------------------------------------------
13,088 14,550
Less accumulated depreciation and amortization (4,191) (5,321)
- --------------------------------------------------------------------------------
52
<PAGE>
$ $ 8,897 $ 9,229
================================================================================
Depreciation expense for the years ended December 31, 1993, 1994 and 1995
was $828,000, $939,000 and $1,151,000, respectively.
9. Deposits
Deposits at December 31, 1994 and 1995 consisted of the following (dollars
in thousands):
1994 1995
- --------------------------------------------------------------------------------
Interest % of Interest % of
Rate Amount Total Rate Amount Total
- --------------------------------------------------------------------------------
NOW accounts 1.49% $ 23,487 5.25% 1.22% $ 25,884 5.43%
Money market deposit accounts 2.94% 80,007 17.87% 3.73% 93,580 19.64%
Passbook and club accounts 2.04% 66,293 14.81% 2.05% 61,363 12.88%
Commercial checking accounts -- 35,451 7.92% -- 44,366 9.31%
-------- ------- -------- -------
205,238 45.85% 225,193 47.26%
-------- ------- -------- -------
IRA accounts 5.43% 55,420 12.38% 5.87% 56,157 11.78%
14 to 31 day certificates 4.39% 149 0.03% 5.96% 462 0.10%
91 day certificate accounts 3.94% 5,301 1.18% 5.21% 11,374 2.39%
Certificates with a
$100,000 minimum balance
1 to 57 month maturities 5.33% 27,421 6.13% 5.67% 26,095 5.48%
6 month certificates 4.00% 28,914 6.46% 4.61% 17,807 3.74%
9 month certificates 5.72% 5,517 1.23% 5.06% 28,653 6.01%
18 month certificates 6.16% 1,825 0.41% 5.92% 11,027 2.31%
12 to 24 month certificates 3.86% 38,587 8.62% 4.98% 24,052 5.05%
30 to 60 month certificates 5.53% 69,479 15.52% 5.34% 64,357 13.50%
72 to 120 month certificates 5.86% 9,800 2.19% 5.98% 11,362 2.38%
-------- ------- -------- -------
242,413 54.15% 251,346 52.74%
-------- ------- -------- -------
$447,651 100.00% $476,539 100.00%
======== ======= ======== =======
A summary of certificates by maturity at December 31, 1995 follows (dollars in
thousands):
Years Ending December 31, Amount % of Total
- ------------------------------------------------------------------------
1996 $166,370 58.20%
1997 28,625 14.37%
1998 19,300 6.88%
1999 14,232 5.84%
Thereafter 22,819 9.08%
- ------------------------------------------------------------------------
$251,346 100.00%
========================================================================
Interest expense on deposit accounts for the years ended December 31, 1993,
1994, and 1995 as follows (dollars in thousands):
1993 1994 1995
- ----------------------------------------------------------------------------
NOW accounts $ 281 $ 291 $ 284
Money market deposit accounts 1,908 2,171 3,161
Passbook and club accounts 1,331 1,334 1,291
Time deposits 8,994 9,923 13,594
- -----------------------------------------------------------------------------
$ 12,514 $ 13,719 $ 18,330
=============================================================================
53
<PAGE>
10. Advances from Federal Home Loan Bank of Pittsburgh
Under terms of its collateral agreement, the Bank is required to maintain
otherwise unencumbered qualifying assets in an amount of at least as much as
advances from The Federal Home Loan Bank of Pittsburgh. The advances had
maturities and weighted interest rates as follows at December 31, 1994 and 1995
(dollars in thousands):
December 31,
- --------------------------------------------------------------------------------
1994 1995
- --------------------------------------------------------------------------------
Weighted Weighted
Interest Interest
Maturing Period Amount Rate Amount Rate
- --------------------------------------------------------------------------------
1995 $2,000 5.89% $ -- --
1996 2,000 4.82% 12,000 5.79%
1998 2,000 5.43% 2,000 5.43%
- --------------------------------------------------------------------------------
$6,000 5.38% $14,000 5.74%
================================================================================
11. Other Borrowed Money
Other borrowed money at December 31, 1993, 1994 and 1995 was comprised of
the following (dollars in thousands):
1993 1994 1995
- --------------------------------------------------------------------------------
Securities sold under agreements to repurchase
with a weighted average interest rate of
3.35% in 1993, 6.27% in 1994 and 5.75%
in 1995 $16,914 $53,381 $34,844
Repo plus agreements with the Federal Home
Loan Bank of Pittsburgh with a weighted
average interest rate of 0% in 1993, 0%
in 1994 and 5.79% in 1995 -- -- 20,000
Mortgage loans, secured by real estate payable
in monthly installments, bearing interest at
a weighted interest rate of 4.50% in 1993,
6.38% in 1994 and 0.00% in 1995 350 329 --
- --------------------------------------------------------------------------------
$17,264 $53,710 $54,844
================================================================================
The Bank has entered to repurchase agreements which are collateralized by
investment and mortgage-backed securities with a carrying value, including
accrued interest of $17,844,000, $58,344,000 and $46,386,000 at December 31,
1993, 1994 and 1995, respectively. The market value of the underlying collateral
was $17,756,000, $54,823,000 and $44,599,000 at December 31, 1993, 1994 and
1995, respectively. The maximum balance of repurchase agreements outstanding at
any month-end during the year was $16,914,000, $53,381,000, and $54,844,000 at
December 31, 1993, 1994 and 1995 and the average balance outstanding for the
year was $3,636,000, $23,575,000 $50,229,000 for the years
54
<PAGE>
ended December 31, 1993, 1994 and 1995, respectively.
The foregoing includes repurchase agreements with the Federal Home Loan
Bank of Pittsburgh under its repo plus program. These agreements do not identify
specific securities as collateral.
12. Employee Benefit Plans
The Bank's defined benefit plan was terminated and all plan liabilities
were rolled over into the Company's retirement savings plan (401(k) Savings
Plan).
Under the 401(k) plan employees can contribute up to 15% of their
compensation to this plan. The Bank contributes 50% of the employee contribution
up to 6% of compensation. The Bank contributed $224,000, $223,000 and $210,000
into this plan during the years ended December 31, 1993, 1994 and 1995,
respectively. The plan also includes a profit sharing feature. Under this
feature, all eligible employees share in the Company's profit sharing
contributions. The Bank contributed 66 2/3% of the employee's contribution up to
6% of compensation. The contributions for 1993, 1994 and 1995 were $98,000,
$168,000 and $134,000, respectively.
The Bank has entered into individual contracts with two senior executives
to provided supplemental benefits after retirement. The benefit under one
contract is based on the executive's average annual compensation for five years
offset by social security and qualified retirement plan payments. The second
contract provides a flat benefit offset by social security and regular
retirement plan payments. The benefits provided under these individual contracts
are not funded. The amounts expensed for these contracts for the years ended
December 31, 1993, 1994 and 1995 were $254,000, $190,000 and $0.
The Company does not provide post-retirement benefits nor post-employment
benefits to its employees other than the 401(k) Savings Plan as may be required
by applicable law.
13. Income Taxes
The provision (and benefit) for income taxes for the years ended December
31, 1993, 1994 and 1995 consisted of the following (dollars in thousands):
1993 1994 1995
- --------------------------------------------------------------------------------
Current:
State $ 644 $ 286 $ 543
Federal 3,169 2,592 2,693
- --------------------------------------------------------------------------------
3,813 2,878 3,236
Deferred:
State (24) -- --
Federal (440) 263 262
- --------------------------------------------------------------------------------
(464) 263 262
- --------------------------------------------------------------------------------
$ 3,349 $3,141 $3,498
================================================================================
The provision for income taxes for the years ended December 31, 1993, 1994
and 1995 differed from the statutory rate due to the following (dollars in
thousands):
1993 1994 1995
- --------------------------------------------------------------------------------
Pretax income $ 8,733 $ 8,949 $ 9,351
- --------------------------------------------------------------------------------
Tax at statutory rate 2,982 3,043 3,179
Tax exempt interest (17) (97) (123)
State taxes, net of federal
benefit and other 425 189 358
Other, net (41) 6 84
- --------------------------------------------------------------------------------
$ 3,349 $ 3,141 $ 3,498
================================================================================
Deferred income taxes result from temporary differences in recording
certain revenues and expenses for financial reporting purposes. The deferred tax
assets at December 31, 1993, 1994, and 1995 consisted of the following debits
and (credits):
1993 1994 1995
- --------------------------------------------------------------------------------
Deferred tax assets
Provision for loan losses
and REO losses $1,354 $1,471 $1,217
Deferred loan fees 596 589 401
Deferred
compensation 465 525 514
Valuation adjustment
for debt securities 204 3,953 862
Other, net 270 300 362
- --------------------------------------------------------------------------------
Gross deferred tax
assets 2,889 6,838 3,405
- --------------------------------------------------------------------------------
Deferred tax liabilities
Loss on sale of loans 51 36 23
FDIC insurance
premium -- 203 268
Valuation adjustment
for debt securities -- 179 --
Depreciation 246 342 383
Other 25 25 31
- --------------------------------------------------------------------------------
Gross deferred tax
liabilities 322 785 705
- --------------------------------------------------------------------------------
Net deferred tax
assets $2,567 $6,053 $2,700
================================================================================
55
<PAGE>
Included in the table above is the effect of certain temporary differences
for which no deferred tax expense or benefit was recognized. Such items
consisted primarily of unrealized losses on certain investments in debt and
equity securities accounted for under SFAS 115,
In January 1996 the Bank settled its outstanding case with the IRS in
connection with the examination of its 1980 and subsequent tax year returns. The
United States Tax Court ruled in favor of the IRS on the issue of the
permissibility of reducing the basis of assets by the early withdrawal penalty
on savings certificates. The Bank had previously accrued the estimated liability
for the amount of interest due relating to this issue, and the actual amount
payable will not be materially different.
The realizability of deferred tax assets is dependent upon a variety of
factors, including the generation of future taxable income, the existence of
taxes paid and recoverable, the reversal of deferred tax liabilities and tax
planning strategies. Based upon these and other factors, management believes it
is more likely than not that the Company will realize the benefits of these
deferred tax assets.
As discussed in note 1, the Company adopted SFAS No. 109 as of January 1,
1993. The cumulative effect of this change in accounting for income taxes of
$1,055,000 has been calculated as of January 1, 1993 and is reported separately
in the consolidated statement of operations for the year ended December 31,
1993.
Retained earnings at December 31, 1995, the latest tax year end, include
earnings of approximately $7.7 million representing bad debt deductions for
which no provision for federal income taxes has been made.
14. Fair Value of Financial Instruments
The Company is required to disclose information about the fair value of
financial instruments.
The limitations on the making of estimates of fair value are: Estimates are
made at a specific point in time, based upon, where available, relevant market
prices and information about the financial instruments. For a substantial
portion of the Company's financial instruments, no quoted market exists.
Therefore, estimates of "fair value" are based on a number of subjective
assumptions. Such assumptions include perceived risks associated with these
financial instruments, market rates of discount, and expected durations. Given
the uncertainties associated with these estimates, the reported "fair values"
represent estimates only and, therefore, cannot be compared to the historical
accounting model. Use of different assumptions would likely result in different
"fair value" estimates.
Under SFAS 107, the fair value of deposit accounts with no stated maturity
is equal to their carrying amount. This approach excludes significant benefits
that result from the low-cost funding provided by such deposits.
The following methods and assumptions were used to estimate the fair value
of each major classification of financial instruments at December 31, 1995:
Cash and Short Term Investments: Current carrying amounts approximate
estimated fair value.
Securities: Current quoted market prices are used to determine fair
value.
Net Loans: The fair value of loans was estimated using a duration
method which approximates the effect of discounting the estimated
future cash flows over the expected repayment periods for loans using
rates which consider credit risk, servicing costs and other relevant
factors.
Deposits with no stated maturity: Current carrying amounts approximate
estimated fair value.
Time Deposits: Fair value was estimated using a duration method which
approximates the effect of discounting the estimated future cash flows
over the expected periods using rates which consider alternative
borrowing costs, servicing costs and other relevant factors.
Other Borrowed Funds: Fair value was estimated using a duration method
which approximates the effect of discounting the
56
<PAGE>
estimated cash flows over the expected periods using rates which
consider alternative borrowing costs.
Off-balance sheet financial instruments: Commitments to extend credit and
standby letters of credit carry current market interest rates if converted to
loans. Because commitments to extend credit and standby letters of credit, the
majority of which carry current interest rates, are generally unassignable by
either the Bank or the borrower, they only have value to the Bank and the
borrower. However, the estimated net amount payable (receivable) represents the
fees currently charged to enter into similar agreements, taking into account the
remaining term of the agreement and the present credit risk assessment of the
counter-party.
The Company enters into derivative instruments primarily to hedge the
interest rate risk associated with various assets and liabilities. Such hedge
instruments generally take the form of interest rate swaps. In part through the
use of these instruments, the Company strives to be essentially insensitive to
changes in interest rates within reasonable ranges (i.e., plus or minus 200
basis points). Such instruments are subject to the same type of credit and
market risk as other financial instruments, and are monitored and controlled in
accordance with the Company's credit and risk management policies.
On May 4, 1994, the Company entered into an interest rate swap with the
Federal Home Loan Bank of Pittsburgh ("FHLB" ) for $5,000,000 notional amount
with a term of 6 years due May 6, 2000. The swap hedges approximately $5,000,000
in 7 year fixed rate retail CD's with a remaining term to maturity of 6.1 years.
FHLB pays the Company a fixed rate of 7.01% and the Company in turn pays FHLB a
floating rate based on the London Interbank Offered Rate ("Libor") which as of
December 31, 1995 was 5.938%.
Estimated
Fair Value of Financial Instruments Carrying Amount Fair Value
- --------------------------------------------------------------------------------
(dollars in millions)
Financial Assets:
Cash $ 48.0 $ 48.0
Investments 37.5 37.5
Mortgage-backed securities 135.9 135.8
Net Loans(A) 351.5 354.1
Financial Liabilities:
Deposits with no stated
maturity 225.2 225.2
Time Deposits 251.3 251.2
Other Borrowed Funds and FHLB
Advances 68.8 68.8
57
<PAGE>
(A) The carrying amount of net loans includes loans receivable net and loans
held for sale.
Contract or Net Amount
Notional Amount Payable (Receivable)
--------------- --------------------
Off-balance sheet financial
instruments:
Commitments to extend credit 20.2 0.1
Standby letters of credit 1.6 --
Commercial loan commitments 12.2 0.3
Loan commitments 4.9 --
Loans in process for construction
loans 17.0 --
Interest rate swap 5.0 (0.3)
15. Commitments and Contingencies
In the normal course of business, the Company enters into financial
instruments which are not recorded in the consolidated financial statements but
are required to meet the financing needs of its customers and to reduce its own
exposure to fluctuations in interest rates. These financial instruments include
commitments to extend credit and standby letters of credit. Those instruments
involve, to varying degrees, elements of credit and interest rate risk in excess
of the amount recognized in the statement of financial position. The contract or
notional amounts of those instruments reflect the extent of involvement the
Company has in particular classes of financial instruments.
The Company's exposure to credit loss in the event of non-performance by
the other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual amount of those
instruments. The Company uses the same credit policies in making commitments and
conditional obligations as it does for on-balance sheet instruments.
The following is a summary of significant commitments and contingent
liabilities:
58
<PAGE>
December 31,
- --------------------------------------------------------------------------------
1994 1995
- --------------------------------------------------------------------------------
Loan commitments:
Fixed rate (rates ranging $ 1,168,000 $ 2,195,000
from 7.25% to 9.63% in 1994
and 6.13% to 8.50% in 1995)
Variable rate (rates ranging 2,867,000 2,735,000
from 4.88% to 8.50% in 1994
and 6.38% to 9.95% in 1995)
Commercial loan commitments 5,618,000 12,163,000
Standby letters of credit 3,506,000 1,621,000
Commitments to extend credit 6,228,000 20,211,000
Commitments to sell residential loans 165,000 --
Construction loans in process 17,148,000 17,033,000
The Bank is required to maintain certain average reserve balances as
established by the Federal Reserve Bank Board. The amounts of these reserve
balances for the reserve computation periods which included December 31, 1994
and 1995 were $1,760,000 and $3,060,000, respectively, which amounts were
satisfied through the restriction of vault cash.
The Company is party to certain claims and litigation arising in the
ordinary course of business. In the opinion of management, the resolution of
such claims and litigation will not materially affect the consolidated financial
position or results of operations. The Company has entered into employment
agreements with certain officers, which range from three to five years. Under
the terms of such agreements, the Company was obligated on December 31, 1995 to
pay, under current base salary levels, an aggregate amount of $2,539,766 over
the remaining term. In the event employment is terminated under circumstances as
defined by the agreements, the employees may be entitled to severance pay equal
to between 1.00 and 2.99 times their base salaries.
In connection with the operation of certain branch offices, the Bank has
entered into operating leases for periods ranging from one to five years. Total
rental expense for the years ended December 31, 1993, 1994 and 1995 was
$155,000, $200,000, and $357,000, respectively. Future minimum lease payments
under such operating leases are $399,000, $403,000, $391,000, $346,000, and
$227,000 for the years ended December 31, 1996 through 2000, respectively.
59
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. Parent Company Financial Information
Presented below are the parent company only financial statements as of
December 31, 1994, and 1995 (dollars in thousands):
Prime Bancorp, Inc.
(parent company only)
Statements of Financial Condition
December 31,
- --------------------------------------------------------------------------------
1994 1995
- --------------------------------------------------------------------------------
Assets:
Cash on deposit with subsidiary $ 660 $ 599
Investments in bank subsidiaries 42,590 50,101
Investments in non-bank subsidiaries 4,830 6,048
- --------------------------------------------------------------------------------
Total Assets $48,080 $56,748
================================================================================
Liabilities and stockholders' equity:
Liabilities:
Other liabilities 439 501
- --------------------------------------------------------------------------------
Total liabilities 439 501
- --------------------------------------------------------------------------------
Shareholders'equity:
Common stock 3,890 3,890
Additional paid-in capital 30,455 30,455
Retained earnings 14,111 22,717
Treasury stock (184,063 shares at cost) (815) (815)
- --------------------------------------------------------------------------------
Total stockholders' equity 47,641 56,247
- --------------------------------------------------------------------------------
Total liabilities and stockholders' equity $48,080 $56,748
================================================================================
Statements of Operations
December 31,
- --------------------------------------------------------------------------------
1993 1994 1995
- --------------------------------------------------------------------------------
Income:
Dividends and interest from
subsidiary $ 681 $2,928 $3,008
Equity in undistributed income
of subsidiaries 5,878 2,919 2,875
- --------------------------------------------------------------------------------
Total income 6,559 5,847 5,883
Operating expense 80 39 30
- --------------------------------------------------------------------------------
Net income $6,479 $5,808 $5,853
================================================================================
Statements of Cash Flows
Cash flows from operating activities:
Net income $ 6,479 $ 5,808 $ 5,853
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed income of subsidiaries (5,878) (2,919) (2,875)
Increase (decrease) in liabilities (6) (20) 3
- -------------------------------------------------------------------------------
Net cash provided by net operating activities 595 2,869 2,981
- -------------------------------------------------------------------------------
Cash flows from investing activities:
Contribution to subsidiaries 0 (1,000) (750)
- -------------------------------------------------------------------------------
Cash used in investing activities 0 (1,000) (750)
Cash flows from financing activities:
Stock options exercised 327 333 0
Cash dividends paid (1,778) (1,763) (2,292)
- -------------------------------------------------------------------------------
Net cash used in financing activities (1,451) (1,430) (2,292)
- -------------------------------------------------------------------------------
Net increase in cash (856) 439 (61)
Cash and cash equivalents:
Beginning of year 1,077 221 660
End of year $ 221 $ 660 $ 599
===============================================================================
Supplemental disclosure of cash flow information:
Tax benefit from exercise of stock options $ 66 $ 41 $ --
60
<PAGE>
Management's Statement on Financial Reporting
Management of Prime Bancorp, Inc. is responsible for establishing and
maintaining an effective internal control structure over financial reporting
presented in conformity with both generally accepted accounting principles and
the Federal Financial Institutions Examination Council instructions for
Consolidated Reports of Condition and Income (Thrift Financial Report
instructions). The structure contains monitoring mechanisms, and actions are
taken to correct deficiencies identified.
There are inherent limitations in the effectiveness of any internal control
structure, including the possibility of human error and the circumvention or
overriding of controls. Accordingly, even an effective internal control
structure can provide only reasonable assurance with respect to financial
statement preparation. Further, because of changes in conditions, the
effectiveness of an internal control structure may vary over time.
Management assessed the Company's internal control structure over financial
reporting presented in conformity with both generally accepted accounting
principles and call report instructions as of December 31, 1995. This assessment
was based on criteria for effective internal control over financial reporting
described in Internal Control - Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on this assessment,
management believes that, as of December 31, 1995, the Company maintained an
effective internal control structure over financial reporting presented in
conformity with both generally accepted accounting principles and Thrift
Financial Report instructions.
_______________________________ ___________________________________
Erwin T. Straw, President & CEO Walter L. Tillman, Jr. EVP & COO
61
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable
Part III
Item 10. Directors and Executive Officers of the Registrant.
The information contained under the caption "Election of Directors" on
pages 4 through 6 of the Company's Proxy Statement dated March 18, 1996 is
incorporated herein by reference thereto.
The Bylaws of the Company currently provide that the Board of Directors
shall consist of seven members, In accordance with the Certificate of
Incorporation and the Bylaws, the Board of Directors is divided into three
classes as nearly equal in number as possible. One class of directors is to be
elected annually. The members of each class are to be elected for a term of
three years and until their successors are elected and qualified.
The class of directors serving until 1997 are Frederick G. Betz, Oskar R.
Huber and David H. Platt. The class of directors serving until 1998 consists of
Joseph G. Markmann, Ernest Larenz and Joseph A. Fluehr, III. The class of
directors with terms expiring at this year's Annual Meeting are Mrs. Dorothy M.
Bernhard and Messrs Raymond Weinmann and Erwin T. Straw. The Board has nominated
Messrs. Raymond L. Weinmann and Erwin T. Straw for re-election at the 1996
Annual Meeting, each for a three-year term ending at the 1999 Annual Meeting and
until their successors are elected and qualified. Under Article III, Section 16
of the Company's Bylaws, a director may not serve beyond the annual meeting
following the date on which such director attains the age of 70. Because current
directors Dorothy M. Bernhard and Joseph G. Markmann have reached age 70, they
are ineligible to serve as directors following the 1996 Annual Meeting of
Stockholders. The Board of Directors of the Company on December 13, 1995 adopted
resolutions accepting the resignation of Oskar R. Huber whose term expires in
1997 and appointing James J. Lynch to fill the vacancy created by the
resignation of Mr. Huber from the Board of Directors effective January 29, 1996.
The Company has no reason to believe that any of the nominees will be
unavailable for election; however, should any nominee become unavailable for any
reason, the Board of Directors may designate a substitute nominee. The proxy
agents intend (unless authority has been withheld) to vote for the election of
the Company's nominees.
The following table sets forth certain information regarding management's
nominees for the Board of Directors of Prime Bancorp all of whom are currently
serving as directors of Prime Bancorp.
Term of
Position(s) Held Director of Office as
with Prime Bancorp Prime Bancorp Director
Name Age and Prime Bank Since to Expire
- --------------------------------------------------------------------------------
62
<PAGE>
Raymond L. Weinmann.... 54 Director of 1994 1999
Prime Bancorp and
Prime Bank
Erwin T. Straw......... 66 Chairman of the 1988 1999
Board of Prime
Bancorp and Prime
Bank
The following table sets forth certain information regarding the members of
the Board of Directors who are continuing in office.
Joseph A. Fluehr, III.. 50 Secretary of Prime 1988 1998
Bancorp and Director
of Prime Bancorp and
Prime Bank
Ernest Larenz.......... 64 Director of Prime 1988 1998
Bancorp and Prime
Bank
Frederick G. Betz...... 66 Director of Prime 1988 1997
Bancorp and Prime
Bank
James E. Lynch......... 46 President, Chief 1988 1997
Executive Officer
and Director of Prime
Bancorp and Prime
Bank
David H. Platt......... 47 Director, Prime 1988 1997
Bancorp and Prime
Bank
The business experience during at least the last five years for each of the
nominees and each of the directors continuing in office is as follows:
Mr. Betz served as a director of Cheltenham from 1988 until the
merger/conversion. Presently he is President of Fred Betz and Sons, Inc., a
custom home building company located in Southampton, Pennsylvania.
Mr. Fluehr served as a director of North East from 1983 until the date of
the merger/conversion. He is a funeral director and the owner of the Joseph A.
Fluehr,III Funeral Home in Richboro, Pennsylvania. He is also the Chairman of
the Board of Trustees of St. Mary's Medical Center, a division of the Franciscan
Health System, in Langhorne, PA and a Director of St. Joseph's Home for the
Aged, Holland, PA.
Mr. Straw served as President and Chief Executive Officer of Cheltenham
Federal Savings and Loan Association ("Cheltenham") from January 1985 until the
date of the merger/conversion. Prior to joining Cheltenham, Mr. Straw was
employed for 24 years with Cheltenham Bank, ultimately serving as a Vice
President. Prior thereto, Mr. Straw spent six years with Household International
as a manager in the consumer finance industry.
Mr. Larenz served as a director of North East from 1976 until the date of
the merger/conversion. He is the President of Medicare Management Nursing Homes
which is responsible for the operation of various nursing homes. He is also a
63
<PAGE>
builder/developer of residential and commercial properties.
Mr. Lynch served as Executive Vice President of MidLantic Bank from 1994 to
1995. Prior thereto, Mr. Lynch has held various positions within Continental
Bank culminating as President from 1992 to 1994. He helped orchestrate
Continental's merger with MidLantic. Prior thereto, Mr. Lynch was with First
Pennsylvania Bank from 1968 to 1976.
Mr. Platt served as a director of North East from 1983 until the
merger/conversion. He is the President of Somerton Springs Pro-Golf Shoppes
which has ten golf shops and two golf facilities throughout the Delaware Valley
area. He is also President of the Ballroom at Somerton Springs, Inc. and Newtown
Swim Club Inc.
Mr. Weinmann served as a director of Cheltenham from 1986 until the
merger/conversion. Mr. Weinmann is President of The Weinmann Group, a company
that provides consulting services to developers and builders. In 1977, he co-
founded Meehan-Weinmann, Inc. which became one of the ten largest construction
companies in the Delaware Valley, building many of the notable projects in
Philadelphia and Atlantic City. In 1983, the company was designated as
redeveloper of Conshohocken and was the prime mover of that community's
resurgence.
Item 11. Executive Compensation.
The information contained under the caption "Executive Compensation" on
pages 11 through 16 and under the caption "Board Compensation Committee Report
on Executive Compensation" on pages 17 and 18 of the Company's definitive Proxy
Statement dated March 18, 1996 is incorporated herein by reference.
EXECUTIVE COMPENSATION
Remuneration
Because the business of the Company essentially consists of the
business of the Bank no separate cash compensation was paid to executive
officers of the Company, all of whom are executive officers of the Bank and
received compensation as such. The following table sets forth information as to
all cash compensation paid for the year ended December 31, 1995 by the Bank, to
each executive officer whose cash compensation exceeded $100,000 during that
period, and to all executive officers as a group.
SUMMARY COMPENSATION TABLE(1)
Annual
Compensation(2)
---------------
Securities
Underlying
Name and Principal Salary Bonus Options/
Position Year Amount Amount SARs
- ------------------------------------------------------------------------------
Erwin T. Straw(3) 1993 $260,000 $ 56,000 --
President and CEO 1994 286,000 104,000 22,875
1995 293,000 50,000 27,500
Walter L. Tillman, Jr 1993 100,000 10,000 --
Executive Vice 1994 110,000 20,000 9,966
President 1995 130,000 10,000 11,000
and Chief Operating
Officer
(1) The Bank furnishes Mr. Straw with automobiles and also pays certain club
dues for Mr. Straw for the purpose of promoting the business of the Bank.
The Bank has determined, after reasonable inquiries, that the aggregate
64
<PAGE>
amount of any personal benefits from the automobiles and club memberships
did not exceed 10% of Mr. Straw's cash compensation for the periods
reported and that the aggregate fringe benefits to all executive officers
did not exceed 10% of aggregate compensation. Therefore, these items have
not been included in the table.
(2) Information regarding group life, health, hospitalization, and medical
reimbursement plans maintained by the Company or the Bank is omitted
because those plans do not discriminate in scope, terms or operation in
favor of executive officers or directors and are generally available to all
salaried employees.
(3) Under the Company's Unfunded Executive Benefit Plan, which benefits
designated senior officers of the Company and the Bank, upon retirement Mr.
Straw would be entitled to a retirement benefit equal to 60% of the average
gross compensation paid to Mr. Straw during the five calendar years
preceding his retirement, less primary social security benefits and other
pension benefits. If Mr. Straw were to die before retirement, the Company's
Unfunded Executive Benefit Plan would provide for payments of death
benefits in the amount of $13,333.00 per month for 12 months from the date
of death, reducing to $6,667.00 per month until 192 months from date of
death.
The following table sets forth the number of stock options granted during 1995
by the Named Executives.
OPTION/SAR GRANTS IN LAST FISCAL YEAR(1)
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of
Stock Price
Appreciation for
Individual Grants Option Term
- ----------------------------------------------------------------------------------------------------------
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise or
Options/SARs Employees in Base Price Expiration
Name Granted Fiscal Year Date 5% 10%
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Erwin T. Straw 27,500 18.46% $19.75 12/13/2005 $310,500 $ 787,000
James J. Lynch(2) 55,000 36.91% $19.00 01/29/2006 $657,250 $1,665,400
Walter L. Tillman, Jr 11,000 7.38% $19.75 12/13/2005 $124,200 $ 314,800
</TABLE>
(1) The number of shares have been restated to reflect the 10% stock dividend
payable on February 1, 1996 to shareholders of record on January 2, 1996.
(2) Pursuant to an Employment Agreement dated December 13, 1995, Mr. Lynch was
given the contractual right to the issuance of 50,000 shares upon
commencement of his employment with the Company on January 29, 1996. As
with other stock options granted by the Company, the number of shares was
adjusted to 55,000 with the 10% stock dividend payable on February 1, 1996
to shareholders of record on January 2, 1996.
The following table sets forth certain information regarding individual
exercises of stock options during 1995 by the Named Executives.
AGGREGATED OPTION/SAR EXERCISES AND
65
<PAGE>
1995 YEAR-END OPTION/SAR VALUE TABLE (1)
Number of Shares Value of
Underlying Unexercised
Shares Unexercised In-the-Money
Acquired Options/SARs Options/SARs
on Value at December at December
Name Exercise Realized 31, 1995 (#)(2) 31, 1995
- --------------------------------------------------------------------------------
($)(2)
Erwin T. Straw -- $ -- 45,796 $ 927,369
James J. Lynch -- -- 55,000 1,113,750
Walter L. Tillman, Jr -- -- 20,966 424,562
Value of Common Stock on December 31, 1995 was $20.25 per share.
(1) The number of shares have been restated to reflect the 10% stock dividend
payable on February 1, 1996 to shareholders of record on January 2, 1996.
(2) All of the stock options granted in 1995 are exercisable.
Compensation of Directors
A description of the standard compensation arrangements for directors of
the company and the Bank is set forth under "The Board of Directors and its
Committees".
Employment Agreements
On December 13, 1995, the Board of Directors appointed James J. Lynch,
formerly Executive Vice President of MidLantic Bank, as President and CEO of the
Company, succeeding Erwin T. Straw. Mr. Straw, who has served as President and
CEO of the Bank since 1983, will continue to serve the Company as Chairman of
the Board.
The Company and the Bank have entered into employment agreements with Erwin
T. Straw, James J. Lynch and Walter L. Tillman, Jr.. Mr. Straw's agreement is
for a term of six years and provides for an automatic one-year extension on each
anniversary date of the agreement commencing on the second anniversary of the
agreement, unless notice to the contrary is given by Mr. Straw or the Company to
the other. The base salary payable under the agreement is $293,000. Mr. Lynch's
agreement is for a term of five years and provides for an automatic one-year
extension on each anniversary from the date of commencement of the term unless
notice to the contrary is given by Mr. Lynch or the Company to the other. The
base salary payment under the agreement is $300,000. In addition, Mr. Lynch will
be entitled to a bonus of not less than $100,000 per annum provided that the
overall performance of the Company is reasonably consistent with that of
previous years. Also, Mr. Lynch is entitled to participate in the Company's
Incentive Stock Option Plan and was granted 50,000 shares on January 29, 1996
and an additional 10,000 shares will be granted each year on his anniversary
date for the next five years. Tillman's agreement is for a term of three years
and provides for an automatic one-year extension on each anniversary date of the
agreement commencing on the second anniversary of the agreement unless notice to
the contrary is given by Mr. Tillman or Prime Bancorp to the other. The base
salary payable under the agreement is $130,000. The Company currently
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<PAGE>
renewed these agreements on similar terms. The employment agreements also
provide, among other things, for participation in any bonuses which the Boards
of Directors, in its discretion, may authorize from time to time, as well as
participation in stock options and other benefits applicable to executive
personnel.
In connection with a termination of employment by the employees for "good
reason," other than in connection with a change of control, such as for breach
of contract or a purported termination not affected pursuant to a notice of
termination, the agreements provide for severance payments. Mr. Straw's and
Lynch's agreement provide that such payments would be equal to the annual base
salary in effect as of the date of termination multiplied by the greater of the
number of years (including partial years) remaining under the agreement or the
number 2.99. The agreement for Mr.Tillman provides that such payments would be
equal to the employee's annual base salary in effect as of the date of
termination multiplied by the number of years (including partial years)
remaining in the term of employment.
Assuming that Messrs. Straw, Lynch and Tillman, continue to earn their
current base salaries, plus bonuses equal to those earned for 1995, their
maximum severance payments upon a termination for good reason, not in connection
with a change of control, would approximate $876,070, $1,500,000 and $162,500,
respectively.
"Good reason," according to the agreements, also includes, subsequent to a
change in control of Prime Bancorp and without the employee's express written
consent, the assignment of the employee to duties inconsistent with those
performed immediately prior to the change in control, a change in the employee's
reporting responsibilities, title or office, any removal of the employee from,
or any failure to re-elect the employee to, any such position, a reduction in
annual salary, the failure of Prime Bancorp to continue for him any bonus,
benefit or compensation plan or any action that would affect adversely
participation in or materially reduce his benefits under any such plan. The
agreements define "change in control" to include any of the following: (1) any
change in control required to be reported pursuant to item 5(f) of Schedule 14A,
promulgated under the Exchange Act; (2) the acquisition of beneficial ownership
by any person (as defined in Sections 13(d) and 14(d) of the Exchange Act) of
25% or more of the combined voting power of Prime Bancorp's then outstanding
securities; or (3) during any period of two consecutive years, there is a change
in the majority of the Board of Directors for any reason, unless the election of
each new director was approved by at least two-thirds of the directors then
still in office who were directors at the beginning of the period.
If Mr. Straw terminates his employment for "good reason" in connection with
a change in control, he will receive severance payments covering the remaining
term of his agreement equal to the product of the number 2.99 multiplied by his
average aggregate annual compensation includable in his gross income for federal
income tax purposes for the past five calendar years. If Mr. Lynch similarly
terminates his employment, he is entitled to severance payments equal to the
product of his annual base salary in effect as of the date of termination by the
greater number of years remaining in the term of his contract or the number
2.99. If Mr. Tillman similarly terminates his employment, he is entitled to
severance payments equal to the product of his annual base salary in effect as
of the date of termination and the number of years (including partial years)
remaining in the term of his employment. All such severance payments will be
paid in a lump sum on or before the fifth day following the date of termination.
However, if the severance
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<PAGE>
payments would be deemed to constitute "parachute payments" under Section 280G
of the Internal Revenue Code (the "Code") of 1986, as amended, the severance
payments will be reduced to the extent necessary to ensure that no portion of
the severance payments are subject to the excise tax imposed by Section 4999 of
the Code.
Assuming that Messrs. Straw, Lynch and Tillman continue to earn their
current base salaries, plus bonuses equal to those earned for 1995, their
maximum severance payments, upon a termination for good reason, in connection
with a change in control, and without consideration of the excise tax imposed by
Section 4999 of the Code, would be $950,000, $1,500,000 and $162,500.
In the event an agreement is terminated by Prime Bancorp or the Bank for
just cause (as defined in the agreement), then the executive is not entitled to
compensation or other benefits for the period following such termination.
Unfunded Executive Benefit Plan
Erwin T. Straw is currently included in the Bank's Executive Benefit Plan,
an unfunded, non-qualified retirement benefit plan which provides a retirement
benefit (or, in event of death before retirement, a death benefit) supplemental
to the Company's other plans. Under Mr. Straw's agreement, the supplemental
annual benefit is 60% of his "Average Annual Compensation" less primary social
security benefits and other pension benefits. Average Annual Compensation is the
average of gross compensation paid to Mr. Straw during the five calendar years
preceding the date of his retirement. As of May 1994, Mr. Sokol is receiving a
monthly distribution from the plan. His annual benefit is $50,000.00 less
primary social security benefits and other pension benefits. Under the plan, if
Mr. Straw dies prior to retirement, the plan provides for payments of death
benefits to designated beneficiaries; for Mr. Straw, in the amount of $13,333.00
per month for 12 months from the date of death, reducing to $6,667.00 per month
until 192 months from date of death. Payments are taxed to the recipient for
Federal and Pennsylvania tax purposes as ordinary income on receipt.
Indebtedness of Management
I Loans to directors and executive officers are made only in conformance
with, and subject to the limitations of, applicable banking regulations. Such
loans were made in the ordinary course of business and were made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other borrowers. These
loans do
68
<PAGE>
not involve more than normal collection risk, nor do they present any other
unfavorable features.
BOARD COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
Committee Interlocks and Insider Participation in Group Decisions
The Board of Directors of the Company has no Compensation Committee, as all
compensation for executive officers and employees, other than the payment of
director's fees to directors of the Company, the approval by the Board of
Directors of stock option grants (if any), as required by Delaware law, and the
payment of matching contributions to the Company's 401(k) Plan, is paid to
executive officers and employees in their capacities as executive officers or
employees, as the case may be, of the Bank. Accordingly, this report was
prepared by the Compensation Committee of the Bank. The Board of Directors of
the Company has also reviewed and approved this Report.
Committee Report on Executive Compensation
The Compensation Committee administers the Bank's executive compensation
programs and has responsibility for recommending to the board of directors of
the Bank the compensation of all employees, including executive officers. The
current members of the Compensation Committee are Joseph A. Fluehr, III, who
serves as Committee Chair, Oskar R. Huber, Joseph Markmann and Robert Stahl,
none of whom is an employee of the Company or the Bank.
At the direction of the Board of Directors and pursuant to the charter of
the Committee, the Committee endeavors to ensure that the compensation programs
for executive officers of the Bank are effective in attracting and retaining key
executives responsible for the success of the Company and are administered in an
appropriate fashion in the long-term interest of the Company and its
shareholders. The Committee seeks to align total compensation for senior
management with
69
<PAGE>
corporate performance. Committee actions related to the compensation of the
chief executive officer of Bank are submitted to the full board for
ratification.
The Committee believes that the Company's overall financial performance
should be an important factor in the compensation of the Bank's executive
officers. At the executive officer level, the Committee has a policy that a
significant proportion of total compensation should consist of variable,
performance-based components, such as stock options, bonuses, and profit sharing
plans which can increase or decrease to reflect changes in corporate and
individual performance. In addition, the availability of the Company's 401(k)
Plan, pursuant to which employees including executive officers (other than Mr.
Straw), may purchase common stock was considered by the Committee in making its
determination of the kind and amount of compensation to be paid to each
executive officer. These incentive compensation programs are intended to
reinforce management's commitment to enhancement of profitability and
shareholder value.
The Committee takes into account various qualitative and quantitative
indicators of corporate and individual performance in determining the level and
composition of compensation for the chief executive officer and other executive
officers. While the Committee considers such corporate performance measures as
net income, earnings per common share, return on average common stockholders'
equity and return on average total assets, the Committee does not apply any
specific qualitative factors, such as successful supervision of major corporate
projects, demonstrated leadership ability and contributions to industry and
community development.
The salary of Mr. Straw, the CEO, is fixed largely by his Employment
Agreement. However, in determining his bonus, the Committee considered the
following criteria: the Bank's financial performance, which continues to be
superior to many comparable institutions, its capital position, which continues
to be strong, and the opening of two new offices, which positioned the Bank for
growth in a new market area. The Committee was particularly mindful that Mr.
Straw has guided the Bank successfully through difficult economic times that
have caused many other banks to fail. The Committee believes that the Bank,
under Mr. Straw's leadership, has illustrated the vision to propel itself into
the next century, while at all times taking into consideration the welfare of
stockholders as well as the overall financial condition of the institution.
Finally, in determining an appropriate bonus level, the Committee consulted
several surveys of executive compensation in the Banking industry.
In accordance with the compensation philosophy and process described above,
the Committee authorized a bonus of $50,000 to Mr. Straw. In addition, the Stock
Option Committee has awarded stock options to all of the directors of the
Company.
Compensation Committee
Joseph A. Fluehr, III Chairman
Dorothy M. Bernhard
David H. Platt
Robert G. Stahl
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<PAGE>
Item 12. Security Ownership of Management
The information contained under the caption "Beneficial Ownership of Voting
Securities" on page 2 of the Company's definitive Proxy Statement dated March
18, 1996 is incorporated herein by reference.
BENEFICIAL OWNERSHIP OF VOTING SECURITIES
The Company does not know of any person or group that is the beneficial
owner of more than five percent of the outstanding Common Stock, except as
indicated herein. The following table reflects as of February 28, 1996 the
Common Stock beneficially owned by beneficial owners of more than five percent
of the outstanding common stock, directors and all officers and directors as a
group. Except as otherwise noted, each beneficial owner listed has sole
investment and voting power with respect to the Common Stock owned by him or
her.
Amount
and Nature Percent
of Beneficial of
Beneficial Owner Ownership(1) Class(2)
- ---------------- ------------ --------
Erwin T. Straw 263,092(4) 7.07%
Dorothy M. Bernhard 11,565(5) 0.31%(3)
Frederick G. Betz 48,858(6) 1.32%
Joseph A. Fluehr, III 42,698(7) 1.15%
Ernest Larenz 139,023(8) 3.74%
James J. Lynch 60,000 1.61%
Joseph G. Markmann 44,518(9) 1.20%
David H. Platt 18,768 0.50%(3)
Raymond L. Weinmann 16,437 0.44%(3)
All directors and
officers as a group,
consisting of
14 persons (10) 780,087 20.96%
- ----------
(1) The securities "beneficially owned" by an individual are determined in
accordance with the definition of "beneficial ownership" set forth in the
regulations of the Securities and Exchange Commission and, accordingly, may
include securities owned by or for, among others, the spouse and/or minor
children of the individual and any other relative who has the same home as
such individual, as well as other securities as to which the individual has
or shares voting or investment power or which the individual has the right
to acquire under outstanding stock options within 60 days after March 31,
1996. Beneficial ownership may be disclaimed as to certain of the
securities.
(2) Based on 3,721,098 shares outstanding on February 28, 1996, except when the
percentage reported relates to shares of Common Stock that a person has a
right to acquire, in which case it is based on the number of shares of
Common Stock that would be outstanding after the exercise of such right.
The following persons own stock options, for the amount of shares
indicated: Erwin T. Straw - 50,374; Dorothy M. Bernhard -
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<PAGE>
8,770; Frederick G. Betz - 19,552; Joseph A. Fluehr, III - 7,368; Ernest
Larenz - 7,368; James J. Lynch - 55,000; Joseph G. Markmann - 7,368; David
H. Platt - 12,327; and Raymond L. Weinmann - 14,066.
(3) Less than 1%.
(4) 93,833 shares are held jointly by Mr. Straw and his wife. 47,834 shares are
owned by Mr. Straw's wife. Also includes 13,549 shares of Common Stock held
by Mr. Straw in the Company's 401(k) Plan.
(5) 2,795 shares are held jointly by Mrs. Bernhard, her husband and daughter.
(6) 3,635 shares of Common Stock are held by Fred Betz & Sons Profit Sharing
Trust of which Mr. Betz is the Trustee and 2,524 shares are held in an IRA
account for Mr. Betz's wife.
(7) 23,148 shares are held jointly by Mr. Fluehr and his wife.
(8) 17,820 shares are held jointly by Mr. Larenz and his wife and 3,807 shares
are held in an IRA account of Mr. Larenz' wife.
(9) 35,543 shares are held jointly by Mr. Markmann and his wife.
(10) This amount includes an aggregate of 226,751 shares of Common Stock
issuable upon the exercise of options held by certain officers and
directors of the Company.
Item 13. Certain Relationships and Related Transactions.
The information contained under the caption "Indebtedness of Management" on
page 16 of the Company's definitive Proxy Statement dated March 18, 1996 is
incorporated herein by reference.
Indebtedness of Management
Loans to directors and executive officers are made only in conformance
with, and subject to the limitations of, applicable banking regulations. Such
loans were made in the ordinary course of business and were made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other borrowers. These
loans do not involve more than normal collection risk, nor do they present any
other unfavorable features.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) The following documents are filed as a part of this report:
(1) The following consolidated financial statements of the Company and the
opinion of independent certified public accountants thereon which
appears on pages 29 through 49 of the Company's 1995 Annual Report
included as an exhibit to this report:
Page Reference
Annual Report
Financial Statements to Shareholders
---------------------------------------------------------------------
Consolidated Statements of Financial Condition 29
Consolidated Statements of Operations 30
Consolidated Statements of Stockholders' Equity 31
Consolidated Statements of Cash Flow 32 - 33
Notes to Consolidated Financial Statements. 34 - 47
72
<PAGE>
Management's Statement on Financial Reporting 48
Independent Auditors' Report 49
(2) Other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable and
therefore have been omitted.
(3) The following exhibits:
Exhibit #
- ---------
3.1 Certificate of Incorporation of Prime Bancorp, Inc. - Incorporated
herein by reference to Exhibit 3.1 of Registration Statement
#33-23083.
Certificate of Correction of Certificate of Incorporation of Prime
Bancorp, Inc. filed on November 8, 1991 - Incorporated herein by
reference to Exhibit 3.1 of the registrant's Annual Report on Form
10-K for the transition period ending December 31, 1991, filed with
the Securities and Exchange Commission on March 27, 1992.
3.2 Bylaws - Incorporated by reference to Exhibit 3.2 of Registration
Statement #33-23083 and by reference to Exhibit 3.2 to the
Registrant's Annual Report on Form 10-k for the transition period
ending December 31, 1991, filed with the Securities and Exchange
Commission on March 27, 1992.
10.1 (a) Employment agreement between the Holding Company, Prime Savings and
each of Erwin T. Straw, Joseph Sokol, Richard M. Tull, Robert T.
Strong, and Thomas P. Kirwin - Incorporated by reference to Exhibit
10.1 to registrant's Annual Report on Form 10-K for the fiscal year
ending June 30, 1989, filed with the Securities and Exchange
Commission on September 27, 1989.
(b) Employment agreement between the Holding Company, Prime Savings and
Walter L. Tillman, Jr. Incorporated by reference to Exhibit 10.1 to
registrant's Annual Report on Form 10-K for the fiscal year ending
June 30, 1990, filed with the Securities and Exchange Commission on
September 27, 1990.
(c) Employment agreement between the Holding Company, Prime Bank and James
J. Lynch
10.2 Incentive Stock Option Plan - Incorporated by reference to Exhibit
10.2 to registrant's Annual Report on Form 10-K for the fiscal year
ending December 31, 1994, filed with the Securities and Exchange
Commission on March 30, 1995.
10.3 Prime Bancorp, Inc. Salary Continuation and Supplemental Retirement
Plan - Incorporated by reference to Exhibit 10.3 to registrant's
Annual Report on Form 10-K for the fiscal year ending June 30, 1989,
filed with the Securities and Exchange Commission on September 27,
1989.
10.4 Prime Bancorp, Inc. Retirement Plan - Incorporated by reference to
Exhibit 10.4 to registrant's Annual Report on Form 10-K for the fiscal
year ending June 30, 1989, filed with the Securities and Exchange
Commission on September 27, 1989.
10.5 Prime Bancorp, Inc. Employee Retirement Savings Plan - Incorporated by
reference to Exhibit 10.5 to
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<PAGE>
registrant's Annual Report on Form 10-K for the fiscal year ending
June 30, 1989, filed with the Securities and Exchange Commission on
September 27, 1989.
10.6 Lease Agreement between Prime Savings and Lotz Realty, Inc. -
Incorporated by reference to exhibit to registrant's Annual Report on
Form 10-K for the fiscal year ending June 30, 1989, filed with the
Securities and Exchange Commission on September 27, 1989
10.7 Lease Agreement, between Prime Savings and Village Plaza Shopping
Center. - Incorporated by reference to exhibit 10.7 to registrant's
Annual Report on Form 10-K for the fiscal year ending June 30, 1989,
filed with the Securities and Exchange Commission on September 27,
1989.
10.8 Lease Agreement, between Prime Savings and Grant Plaza. - Incorporated
by reference to Exhibit 10.8 to registrant's Annual Report on Form
10-K for the fiscal year ending June 30, 1989, filed with the
Securities and Exchange Commission on September 27, 1989.
10.9 Report on Form 11-K, Prime Bancorp, Inc. Retirement Savings Plan for
the year ended December 31, 1995. (to be filed by amendment)
10.10 Lease Agreement, between the Bank and Hopkinson Corporation -
Incorporated by reference to Exhibit 10.10 to registrant's annual
report on Form 10-K for the fiscal year ending December 31, 1993,
filed with the Securities and Exchange Commission on April 14, 1993.
10.11 Lease Agreement, between the Bank and Foxcroft Square Company -
Incorporated by reference to Exhibit 10.11 to registrant's quarterly
report on Form 10-Q for the quarter ended March 31, 1993, filed with
the Securities and Exchange Commission on April 14, 1993.
10.12 Lease Agreement, between the Bank and Bell Atlantic Properties, Inc.
dated January 7, 1985. Incorporated by reference to Exhibit 10.2 to
registrant's Annual Report on Form 10-K for the fiscal year ending
December 31, 1994, filed with the Securities and Exchange Commission
on March 30, 1995.
10.13 Lease Agreement, between the Bank and the Trust of Russell A. Allen,
deceased dated July 31, 1985. Incorporated by reference to Exhibit
10.2 to registrant's Annual Report on Form 10-K for the fiscal year
ending December 31, 1994, filed with the Securities and Exchange
Commission on March 30, 1995.
10.14 Lease Agreement, between the Bank and Mark Cohen dated September 24,
1994. - Incorporated by reference to Exhibit 10.2 to registrant's
Annual Report on Form 10-K for the fiscal year ending December 31,
1994, filed with the Securities and Exchange Commission on March 30,
1995.
10.15 Lease Agreement, between the Bank and Corestates Bank dated March 1,
1995.
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<PAGE>
10.16 Lease Agreement, between the Bank and Cameron C. Troilo and Olga Jean
Troilo dated June 26, 1995.
13.1 1995 Annual Report to Stockholders.
22.1 Subsidiaries - Incorporated by reference to Exhibit 22.1 to
registrant's Annual Report on Form 10-K for the fiscal year ending
December 31, 1994, filed with the Securities and Exchange Commission
on March 30, 1995.
28.1 Purchase and Assumption Agreement By and among B.M.J. Financial Corp.,
Bank of Delaware Valley and Prime Savings Bank, fsb dated August 19,
1992 - Incorporated by reference to Exhibit 23.1 to registrant's Form
10-Q for the quarter ended September 30, 1992, filed with the
Securities and Exchange Commission on November 16, 1992.
28.2 Purchase and Assumption Agreement between the Bank and the Resolution
Trust Corporation dated July 26, 1993 - Incorporated by reference to
Exhibit 28.2 to registrant's Form 10-Q for the quarter ended September
30, 1993, filed with the Securities and Exchange Commission on
November 15, 1993.
28.3 Purchase and Assumption Agreement between the Bank and the Resolution
Trust Corporation dated December 25, 1993 - Incorporated by reference
to Exhibit 28.3 to registrant's Form 10-K for the fiscal year ended
December 31, 1994, filed with the Securities and Exchange Commission
on March 31, 1995.
28.4 Purchase and Assumption Agreement between the Bank and the Resolution
Trust Corporation dated September 16, 1994 - Incorporated by reference
to Exhibit 28.4 to registrant's Form 10-Q for the quarter ended
September 30, 1994 filed with the Securities and Exchange Commission
on November 14, 1994. (b) Reports on Form 8-K No reports on Form 8-K
were filed during the last quarter of the period covered by this
report. However, on January 15, 1993, the registrant did file a Report
on Form 8-K relating to the Acquisition or Disposition of Assets -
with the Securities and Exchange Commission.
PRIME BANCORP, INC.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly caused his report to be signed on its
behalf by the undersigned, hereunto duly authorized.
PRIME BANCORP, INC.
/s/ James J. Lynch
------------------
James J. Lynch, President and
Chief Executive Officer
Date: March 27, 1996
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<PAGE>
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------- -------- ---------------
/s/ Dorothy M. Bernhard Director March 27, 1996
- -------------------------
Dorothy M. Bernhard
/s/ Frederick G. Betz Director March 27, 1996
- -------------------------
Frederick G. Betz
/s/ Joseph A. Fluehr, III Director March 27, 1996
- -------------------------
Joseph A. Fluehr, III
/s/ Ernest Larenz Director March 27, 1996
- -------------------------
Ernest Larenz
/s/ James J. Lynch Director, President March 27, 1996
- ------------------------- and Chief Executive
James J. Lynch Officer (Principal
Executive Officer)
/s/ Joseph G. Markmann Director March 27, 1996
- -------------------------
Joseph G. Markmann
/s/ David H. Platt Director March 27, 1996
- -------------------------
David H. Platt
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<PAGE>
Signature Title Date
- --------- -------- ---------------
/s/ Raymond L. Weinmann Director March 27, 1996
- -------------------------
Raymond L. Weinmann
/s/ Michael E. Sexton Treasurer and March 27, 1996
- ------------------------- Chief Financial Officer
Michael J. Sexton
/s/ Erwin T. Straw Chairman March 27, 1996
- ------------------------
Erwin T. Straw
/s/ Walter L. Tillman, Jr. Executive Vice-President March 27, 1996
- ------------------------- and Chief Operating
Walter L. Tillman, Jr. Officer
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<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION Page
- --------------------------------------------------------------------------------
3.1 Certificate of Incorporation of Prime Bancorp, Inc. - 33
Incorporated herein by reference to Exhibit 3.1 of
Registration Statement #33-23083
3.2 Certificate of Correction of Certificate of 34
Incorporation of Prime Bancorp, Inc. filed on
November 8, 1991 - Incorporated herein by reference to
Exhibit 3.1 of the registrant's Annual Report on Form
10-K for the transition period ending December 31,
1991, filed with the Securities and Exchange Commission
on March 27, 1992.
Bylaws - Incorporated by reference to Exhibit 3.2 of
Registration Statement #33-23083 and by reference to
Exhibit 3.2 to the Registrant's Annual Report on Form
10-K for the transition period ending December 31,
1991, filed with the Securities and Exchange Commission
on March 27, 1992.
10.1 (a) Employment agreement between the Holding Company, Prime 35
Savings and each of Erwin T. Straw, Joseph Sokol,
Richard M. Tull, Robert T. Strong, and Thomas P. Kirwin -
Incorporated by reference to Exhibit 10.1 to
registrant's Annual Report on Form 10-K for the fiscal
year ending June 30, 1989, filed with the Securities
and Exchange Commission on September 27, 1989.
(b) Employment agreement between the Holding Company, Prime 36
Savings and Walter L. Tillman, Jr. - Incorporated by
reference to Exhibit 10.1 to registrant's Annual Report
on Form 10-K for the fiscal year ending June 30, 1990,
filed with the Securities and Exchange Commission on
September 27, 1990.
(c) Employment agreement between the Holding Company, Prime 37 - 47
Bank and James J. Lynch dated December 13,
1995.
10.2 Incentive Stock Option Plan - Incorporated by reference 48
to Exhibit 10.2 to registrant's Annual Report on
Form 10-K for the fiscal year ending December 31, 1994,
filed with the Securities and Exchange Commission on
March 30, 1995.
10.3 Prime Bancorp, Inc. Salary Continuation and 49
Supplemental Retirement Plan - Incorporated by
reference to Exhibit 10.3 to registrant's Annual Report
on Form 10-K for the fiscal year ending June 30, 1989,
filed with the Securities and Exchange Commission on
September 27, 1989.
10.4 Prime Bancorp, Inc. Retirement Plan - Incorporated by 50
reference to Exhibit 10.4 to registrant's Annual
Report on Form 10-K for the fiscal year ending June 30,
1989, filed with the Securities and Exchange Commission
on September 27, 1989.
10.5 Prime Bancorp, Inc. Employee Retirement Savings Plan - 51
Incorporated by reference to Exhibit 10.5 to
registrant's Annual Report on Form 10-K for the fiscal
year ending June 30, 1989, filed with the Securities
and Exchange Commission on September 27, 1989.
10.6 Lease Agreement between Prime Savings and Lotz Realty, 52
Inc. - Incorporated by reference to Exhibit 10.6 to
registrant's Annual Report on Form 10-K for the fiscal
year ending June 30, 1989, filed with the Securities
and Exchange Commission on September 27, 1989
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<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION Page
- --------------------------------------------------------------------------------
10.7 Lease Agreement, between Prime Savings and Village 53
Plaza Shopping Center. - Incorporated by reference
to Exhibit 10.7 to registrant's Annual Report on Form
10-K for the fiscal year ending June 30, 1989, filed
with the Securities and Exchange Commission on
September 27, 1989.
10.8 Lease Agreement, between Prime Savings and Grant Plaza. - 54
Incorporated by reference to Exhibit 10.8 to
registrant's Annual Report on Form 10-K for the fiscal
year ending June 30, 1989, filed with the Securities
and Exchange Commission on September 27, 1989.
10.9 Report on Form 11-K, Prime Bancorp, Inc. Retirement 55
Savings Plan for the year ended December 31, 1995.
(to be filed by amendment)
10.10 Lease Agreement, between the Bank and Hopkinson 56
Corporation - Incorporated by reference to Exhibit
10.10 to registrant's Annual Report on Form 10-K for
the fiscal year ending December 31, 1992, filed with
the Securities and Exchange Commission on April 14,
1993.
10.11 Lease Agreement, between the Bank and Foxcroft Square 57
Company - Incorporated by reference to Exhibit 10.11
to registrant's quarterly report on Form 10-Q for the
quarter ended March 31, 1993, filed with the Securities
and Exchange Commission on April 14, 1994.
10.12 Lease Agreement, between the Bank and Bell Atlantic 58
Properties, Inc. dated January 7, 1985. -
Incorporated by reference to Exhibit 10.12 to
registrant's annual report on Form 10-K for the fiscal
year ending December 31, 1994, filed with the
Securities and Exchange Commission on March 30, 1995.
10.13 Lease Agreement, between the Bank and the Trust of 59
Russell A. Allen, deceased dated July 31, 1985. -
Incorporated by reference to Exhibit 10.12 to
registrant's annual report on Form 10-K for the fiscal
year ending December 31, 1994, filed with the
Securities and Exchange Commission on March 30, 1995.
10.14 Lease Agreement, between the Bank and Mark Cohen dated 60
September 24, 1994. - Incorporated by reference to
Exhibit 10.12 to registrant's annual report on Form
10-K for the fiscal year ending December 31, 1994,
filed with the Securities and Exchange Commission on
March 30, 1995.
10.15 Lease Agreement, between the Bank and Corestates Bank 61 - 82
dated March 1, 1995.
10.16 Lease Agreement, between the Bank and Cameron C. Troilo 83 - 100
and Olga Jean Troilo dated June 26, 1995.
13.1 1995 Annual Report to Stockholders. 101 - 129
22.1 Subsidiaries - Incorporated by reference to Exhibit 130
10.12 to registrant's annual report on Form 10-K
for the fiscal year ending December 31, 1994, filed
with the Securities and Exchange Commission on March
30, 1995.
79
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION Page
- --------------------------------------------------------------------------------
28.1 Purchase and Assumption Agreement By and among B.M.J. 131
Financial Corp., Bank of Delaware Valley and Prime
Savings Bank, fsb dated August 19, 1992 - Incorporated
by reference to Exhibit 23.1 to registrant's Form 10-Q
for the quarter ended September 30, 1992, filed with
the Securities and Exchange Commission on November 16,
1992.
28.2 Purchase and Assumption Agreement between the Bank and 132
the Resolution Trust Corporation dated July 26,
1993 - Incorporated by reference to Exhibit 28.2 to
registrant's Form 10-Q for the quarter ended September
30, 1993, filed with the Securities and Exchange
Commission on November 15, 1993.
28.3 Purchase and Assumption Agreement between the Bank and 133
the Resolution Trust Corporation dated December 25,
1993 - Incorporated by reference to Exhibit 28.3 to
registrant's Form 10-K for the fiscal year ended
December 31, 1993, filed with the Securities and
Exchange Commission on March 31, 1994.
28.4 Purchase and Assumption Agreement between the Bank and 134
the Resolution Trust Corporation dated September
16, 1994 - Incorporated by reference to Exhibit 28.4 to
registrant's Form 10-Q for the quarter ended September
30, 1994, filed with the Securities and Exchange
Commission on November 14, 1994.
80
<PAGE>
EXHIBIT 3.1
Certificate of Incorporation of Prime Bancorp, Inc. Incorporated herein by
reference to Exhibit 3.1 of Registration Statement #33-23083.
The Certificate of Correction of Certificate of Incorporation of Prime Bancorp,
Inc. filed on November 8, 1991 - Incorporated herein by reference to Exhibit 3.1
of the registrant's Annual Report on From 10-K for the transition period ending
December 31, 1991, filed with the Securities and Exchange Commission on March
27, 1992.
81
<PAGE>
EXHIBIT 3.2
Bylaws - Incorporated by reference to Exhibit 3.2 of Registration Statement
#33-23083 as Exhibit 3.2 to the registrant's Annual Report on Form 10-K for the
transition period ending December 31, 1991, filed with the Securities and
Exchange Commission on March 27, 1992.
82
<PAGE>
EXHIBIT 3.2
Bylaws of Prime Bancorp, Inc.
Article III, Section 2, as amended on 3/18/92:
SECTION 2. Number and Term. The board of directors shall consist of 10
members and shall be divided into three classes as nearly equal in number as
possible. The members of each class shall be elected for a term of three years
and until their successors are elected for a term of three years and until their
successors are elected and qualified or until their earlier resignation or
removal. one class shall be elected annually. The size of the board of directors
may be increased or decreased only by a vote of two-thirds of the members of the
board of directors or by a vote of two-thirds of the shares eligible to be voted
at a duly constituted meeting of stockholders called for such purpose.
136
<PAGE>
EXHIBIT 10.1(a)
Employment agreement between the Holding Company, Prime Savings and each of
Erwin T. Straw, Joseph Sokol, Richard M. Tull, Robert T. Strong, and Thomas P.
Kirwin. - Incorporated by reference to Exhibit 10.1 to registrant's Annual
report on Form 10-K for the fiscal year ending June 30, 1989, filed with the
Securities and Exchange Commission on September 27, 1989.
83
<PAGE>
EXHIBIT 10.1(b)
Employment agreement between the Holding Company, Prime Savings and Walter L.
Tillman, Jr. - Incorporated by reference to Exhibit 10.1 to registrant's annual
report on Form 10-K for the fiscal year ending June 30, 1990, filed with the
Securities and Exchange Commission on September 27, 1990.
84
<PAGE>
EXHIBIT 10.1(c)
Employment agreement between the Holding Company, Prime Bank and James J. Lynch
dated December 13, 1995.
48
<PAGE>
EXHIBIT 10.2
Incentive Stock Option Plan - Incorporated by reference to Exhibit 10.2 to
registrant's Annual Report on Form 10-K for the fiscal year ending December 31,
1994, filed with the Securities and Exchange Commission on March 31, 1995.
49
<PAGE>
EXHIBIT 10.3
Prime Bancorp, Inc. Salary Continuation and Supplemental Retirement Plan -
Incorporated by reference to Exhibit 10.3 to registrant's annual report on Form
10-K for the fiscal year ending June 30, 1989, filed with the Securities and
Exchange Commission on September 27, 1989.
50
<PAGE>
EXHIBIT 10.4
Prime Bancorp, Inc. - Incorporated by reference to Exhibit 10.4 to registrant's
annual report on Form 10-K for the fiscal year ending June 30, 1989, filed with
the Securities and Exchange Commission on September 27, 1989.
51
<PAGE>
EXHIBIT 10.5
Prime Bancorp, Inc. Employee Retirement Savings Plan - Incorporated by reference
to Exhibit 10.5 to registrant's annual report on Form 10-K for the fiscal year
ending June 30, 1989, filed with the Securities and Exchange Commission on
September 27, 1989.
52
<PAGE>
EXHIBIT 10.6
Lease Agreement, between Prime Savings and Lotz Realty, Inc. - Incorporated by
reference to Exhibit 10.6 to registrant's annual report on Form 10-K for the
fiscal year ending June 30, 1989, filed with the Securities and Exchange
Commission on September 27, 1989.
53
<PAGE>
EXHIBIT 10.7
Lease Agreement, between the Prime Savings and Village Plaza Shopping Center.
Incorporated to by reference Exhibit 10.7 to registrant's annual report on Form
10-K for the fiscal year ending June 30, 1989, filed with the Securities and
Exchange Commission on September 27, 1989.
54
<PAGE>
EXHIBIT 10.8
Lease Agreement, between Prime Savings and Grant Plaza. - Incorporated by
reference to Exhibit 10.8 to registrant's annual report on Form 10-K for the
fiscal year ending June 30, 1989, filed with the Securities and Exchange
Commission on September 27, 1989.
55
<PAGE>
EXHIBIT 10.9
Report on Form 11-K, Prime Bancorp, Inc. Retirement Savings Plan for the year
ended December 31, 1995 (to be filed by amendment).
56
<PAGE>
EXHIBIT 10.10
Lease Agreement, between the Bank and Hopkinson Corporation - Incorporated by
reference to Exhibit 10.10 to registrant's annual report on Form 10-K for the
fiscal year ended December 31, 1992, filed with the Securities and Exchange
Commission on April 14, 1994.
57
<PAGE>
EXHIBIT 10.11
Lease Agreement, between the Bank and Foxcroft Square Company - Incorporated by
reference to Exhibit 10.11 to registrant's quarterly report on Form 10-Q for the
quarter ended March 31, 1993, filed with the Securities and Exchange Commission
on April 14, 1994.
58
<PAGE>
EXHIBIT 10.12
Lease Agreement, between the Bank and Bell Atlantic Properties, Inc. dated -
January 7, 1985. - Incorporated by reference to Exhibit 10.12 to registrant's
Annual Report on Form 10-K for the fiscal year ending December 31, 1994, filed
with the Securities and Exchange Commission on March 31, 1995.
59
<PAGE>
EXHIBIT 10.13
Lease Agreement, between the Bank and the Trust of Russell A. Allen, deceased
dated July 31, 1985. - Incorporated by reference to Exhibit 10.13 to
registrant's Annual Report on Form 10-K for the fiscal year ending December 31,
1994, filed with the Securities and Exchange Commission on March 31, 1995.
60
<PAGE>
EXHIBIT 10.14
Lease Agreement, between the Bank and Mark Cohen dated September 24, 1994. -
Incorporated by reference to Exhibit 10.13 to registrant's Annual Report on Form
10-K for the fiscal year ending December 31, 1994, filed with the Securities and
Exchange Commission on March 31, 1995.
61
<PAGE>
EXHIBIT 10.15
Lease Agreement, between the Bank and Corestates Bank dated March 1, 1995.
83
<PAGE>
EXHIBIT 10.16
Lease Agreement, between the Bank and Cameron C. Troilo and Olga Jean Troilo
dated June 26, 1995.
101
<PAGE>
EXHIBIT 13.1
1995 Annual Report to Stockholders
130
<PAGE>
EXHIBIT 22.1
Subsidiaries - Incorporated by reference to Exhibit 10.13 to registrant's Annual
Report on Form 10-K for the fiscal year ending December 31, 1994, filed with the
Securities and Exchange Commission on March 31, 1995.
131
<PAGE>
EXHIBIT 22.1
Name of Subsidiary State of Incorporation
- ------------------ ----------------------
Prime Abstract, Inc. Delaware
Rowland Service Corporation Pennsylvania
NEFA Corporation Pennsylvania
Prime Financial, Inc. Pennsylvania
Del-Prime, Inc. Delaware
143
<PAGE>
EXHIBIT 28.1
Purchase and Assumption Agreement By and among B.M.J. Financial Corp., Bank of
Delaware Valley and Prime Savings Bank, fsb dated August 19, 1992 - Incorporated
by reference to Exhibit 23.1 to registrant's Form 10-Q for the Quarter Ended
September 30, 1992, filed with the Securities and Exchange Commission on
November 16, 1992.
132
<PAGE>
EXHIBIT 28.2
Purchase and Assumption Agreement between the Bank and the Resolution Trust
Corporation dated July 26, 1993 - Incorporated by reference to Exhibit 28.2 to
registrant's Form 10-Q for the Quarter Ended September 30, 1993, filed with the
Securities and Exchange Commission on on November 15, 1993.
133
<PAGE>
EXHIBIT 28.3
Purchase and Assumption Agreement between the Bank and the Resolution Trust
Corporation dated December 25, 1993 - Incorporated by reference to Exhibit 28.4
to registrant's Form 10-K for the fiscal year ended December 31, 1993, filed
with the Securities and Exchange Commission on March 31, 1994.
134
<PAGE>
EXHIBIT 28.4
Purchase and Assumption Agreement between the Bank and the Resolution Trust
Corporation dated September 16, 1994 - Incorporated by reference to Exhibit 28.4
to registrant's Form 10-Q for the quarter ended September 30, 1994, filed with
the Securities and Exchange Commission on November 14, 1994.
135
EXHIBIT 13.2
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
(X) Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
OR
( ) Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarter Ended:
June 30, 1996 Commission File Number: 0-17286
-------
PRIME BANCORP, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 23-2528428
-------- ----------
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6425 Rising Sun Avenue, Philadelphia, Pennsylvania 19111
--------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(215) 742-5300
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------ ------
The number of shares outstanding of the Registrant's common stock as of
June 30, 1996:
Common Stock -- 3,725,056
<PAGE>
PRIME BANCORP, INC.
INDEX
Part I Financial Information
Item 1. Consolidated Financial Statements
Consolidated Statements of Financial 1
Condition:
December 31, 1995 and June 30, 1996
(Unaudited)
Consolidated Statements of Operations, 2
Three Months Ended:
June 30, 1995 and 1996
(Unaudited)
Consolidated Statements of Operations, 3
Six Months Ended:
June 30, 1995 and 1996
(Unaudited)
Consolidated Statements of Cash Flows, 4 - 5
Six Months Ended:
June 30, 1995 and 1996
(Unaudited)
Notes to Consolidated Financial Statements 6 - 7
Item 2. Management's Discussion and Analysis of 8 - 15
Financial Condition and Results of Operations
Part II Other Information 16 - 42
Signatures 43
<PAGE>
PRIME BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996
--------- ---------
(Unaudited)
<S> <C> <C>
Assets
Cash and due from banks ..................... $ 13,092 $ 17,338
Interest-bearing deposits ................... 34,937 3,286
--------- ---------
Cash and cash equivalents ................ 48,029 20,624
--------- ---------
Investment securities (market value of
($13,849 and $10,241) .................... 13,708 10,368
Investment securities available for sale .... 23,863 43,587
Mortgage-backed securities (market value of
($82,045 and $95,704) .................... 81,084 96,403
Mortgage-backed securities available for sale 54,739 55,544
Loans receivable ............................ 348,886 380,064
Deferred fees ............................. (392) (80)
Allowance for loan losses ................. (3,764) (3,737)
--------- ---------
Loans receivable, net .................. 344,730 376,247
--------- ---------
Loans held for sale ......................... 6,814 6,654
Accrued interest receivable ................. 4,339 4,894
Real estate owned ........................... 370 481
Land acquired for development and resale .... 10,405 10,107
Property and equipment ...................... 9,229 9,200
Other assets ................................ 10,665 10,451
--------- ---------
Total assets .......................... $ 607,975 $ 644,560
========= =========
Liabilities and Stockholders' Equity
Liabilities:
Deposits ................................. $ 476,539 $ 499,781
Advances from Federal Home Loan Bank of
Pittsburgh ............................. 14,000 12,000
Other borrowed money ..................... 54,844 68,760
Advance payments by borrowers for taxes
and insurance ...................... 2,211 2,163
Other liabilities ........................ 4,134 3,808
--------- ---------
Total liabilities ..................... 551,728 586,512
--------- ---------
Stockholders' equity
Serial preferred, $1 par value; 5,000,000
shares authorized and unissued ..... -- --
Common stock, $1 par value; 10,000,000
shares authorized; 3,889,707 and
3,909,119 shares issued respectively 3,890 3,909
Additional paid-in capital ............... 30,455 30,637
Retained earnings substantially restricted 24,275 26,257
Valuation adjustment for debt securities
net of taxes ....................... (1,558) (1,940)
Treasury stock (184,063 shares at cost) .. (815) (815)
--------- ---------
Total stockholders' equity ............... 56,247 58,048
--------- ---------
Total liabilities and stockholders' equity $ 607,975 $ 644,560
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
PRIME BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended June 30,
-----------------------------
1995 1996
----------- -----------
(Unaudited)
<S> <C> <C>
Interest income:
Loans receivable, net .................. $ 7,623 $ 8,378
Mortgage-backed securities ............. 2,077 2,425
Investment securities .................. 870 781
Interest-bearing deposits .............. 226 37
----------- -----------
Total interest income ......... 10,796 11,621
----------- -----------
Interest expense:
Deposits ............................... 4,693 4,704
Short-term borrowings .................. 821 914
Long-term borrowings ................... 27 27
----------- -----------
Total interest expense ........ 5,541 5,645
----------- -----------
Net interest income ........... 5,255 5,976
----------- -----------
Provision for loan losses ....................... 190 350
----------- -----------
Net interest income after provision
for loan losses ..................... 5,065 5,626
----------- -----------
Non-interest income:
Fees and service charges ............... 331 298
Gain (loss) on sale of:
Loans receivable, net ................ 30 23
Investment securities, net ........... (53) 18
Mortgage-backed securities, net ...... 178 --
Land acquired for development and sale (73) --
Mortgage servicing rights ................ 260 --
Rental income ............................ 36 75
Other .................................. 170 196
----------- -----------
Total non-interest income ..... 879 610
----------- -----------
Non-interest expense:
Salaries and employee benefits ......... 1,768 1,790
Occupancy and equipment ................ 637 873
Federal insurance premiums ............. 257 251
Other .................................. 855 788
----------- -----------
Total non-interest expense .... 3,517 3,702
----------- -----------
Income before income taxes ...................... 2,427 2,534
Income taxes .................................... 925 889
----------- -----------
Net Income .................... $ 1,502 $ 1,645
----------- -----------
Earnings per share:
Primary and fully diluted ....................... $ .40 $ .43
Weighted average number of shares
outstanding .................................... 3,761,713 3,783,142
Dividends declared per share .................... .15 .17
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
PRIME BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-----------------------------
1995 1996
----------- -----------
(Unaudited)
Interest income:
<S> <C> <C>
Loans receivable, net .................. $ 14,945 $ 16,138
Mortgage-backed securities ............. 4,159 4,682
Investment securities .................. 1,658 1,558
Interest-bearing deposits .............. 282 182
----------- -----------
Total interest income ......... 21,044 22,560
----------- -----------
Interest expense:
Deposits ............................... 8,754 9,352
Short-term borrowings .................. 1,779 1,662
Long-term borrowings ................... 66 54
----------- -----------
Total interest expense ........ 10,599 11,068
----------- -----------
Net interest income ........... 10,445 11,492
----------- -----------
Provision for loan losses ....................... 356 650
----------- -----------
Net interest income after provision
for loan losses ..................... 10,089 10,842
----------- -----------
Non-interest income:
Fees and service charges ............... 516 702
Gain (loss) on sale of:
Loans receivable, net ................ 41 49
Investment securities, net ........... (345) 149
Mortgage-backed securities, net ...... 396 --
Land acquired for development and sale 49 --
Mortgage servicing rights ............ 260 --
Real estate owned ........................ (73) --
Rental income ............................ 54 143
Other .................................. 293 331
----------- -----------
Total non-interest income .............. 1,191 1,374
----------- -----------
Non-interest expense:
Salaries and employee benefits ......... 3,211 3,634
Occupancy and equipment ................ 1,239 1,657
Federal insurance premiums ............. 514 496
Other .................................. 1,645 1,448
----------- -----------
Total non-interest expense .... 6,609 7,235
----------- -----------
Income before income taxes ...................... 4,671 4,981
Income taxes .................................... 1,709 1,733
----------- -----------
Net Income .................... $ 2,962 $ 3,248
----------- -----------
Earnings per share:
Primary and fully diluted ....................... $ .79 $ .86
Weighted average number of shares
outstanding .................................... 3,756,606 3,780,589
Dividends declared per share .................... .30 .34
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
PRIME BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1995 1996
--------- ---------
(Unaudited)
Cash flows from operating activities:
<S> <C> <C>
Net Income .................................................................. $ 2,963 $ 3,248
Adjustments to reconcile net income
to net cash from operating
activities:
Depreciation ...................................................... 759 1,036
(Gain) loss on sale of:
Loans receivable ................................................ (41) (49)
Investment securities ............................................... 345 (149)
Mortgage-backed securities .......................................... (396) --
Land acquired for development & resale .......................... (49) --
Real estate owned ................................................... 73 --
Provision for loan losses ......................................... 356 650
Increase in accrued interest
receivable .......................................................... (509) (555)
Decrease in other assets .......................................... 5,343 724
Decrease in other liabilities ..................................... (6,595) (329)
-------- --------
Net cash provided from operating
activities ......................................... 2,249 4,576
-------- --------
Cash flows from investing activities: Investment securities available for sale:
Purchases ................................................................. (9,577) (24,144)
Maturities ................................................................ 1,903 4,077
Sales ..................................................................... 21,779 --
Mortgage-backed securities available for sale:
Purchases ................................................................. (23,103) (5,098)
Repayments ................................................................ 5,122 3,551
Sales ..................................................................... 29,131 --
Investment securities:
Purchases ................................................................. (11,706) (7,492)
Maturities ................................................................ 389 10,981
Mortgage-backed securities:
Purchases ................................................................. -- (20,256)
Repayments ................................................................ -- 4,937
Loans receivable:
Originations, net of repayments ........................................... (17,666) (32,432)
Loans held for sale:
Originations, net of repayments ........................................... (2,759) (3,028)
Sales ..................................................................... 5,008 3,237
Proceeds from sale of land acquired for
development and resale .................................................... 520 1,374
Increase in land acquired for development
and resale ................................................................ (524) (1,076)
Purchase of property and equipment .......................................... (585) (814)
Increase real estate owned .................................................. (124) (12)
Proceeds from sale of real estate owned ..................................... 130 166
-------- --------
Net cash used in investing activities ....................................... (2,062) (66,029)
-------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
PRIME BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Dollars in thousands)
Six Months Ended June 30,
-------------------------
1995 1996
--------- ---------
(Unaudited)
Cash flows from financing activities:
Net increase in deposits ...................... 21,790 23,242
Advances from the Federal Home Loan Bank
of Pittsburgh .............................. 68,450 30,800
Repayments of advances from the Federal
Home Loan Bank of Pittsburgh ................ (60,450) (32,800)
Increase (decrease) in other borrowed money ... (28,588) 13,916
Increase (decrease) in advance payments by
borrowers for taxes and insurance ...... 25 (48)
Net proceeds from issuance of common stock .... -- 201
Cash dividends paid ........................... (1,161) (1,263)
-------- --------
Net cash provided from financing
activities ............................... 66 34,048
-------- --------
Net change in cash and cash equivalents 253 (27,405)
-------- --------
Cash and cash equivalents:
Beginning of year ............................ 26,852 48,029
-------- --------
End of period ................................ 27,105 20,624
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest ............................. $ 10,404 $ 10,976
Income taxes ......................... 1,478 1,003
======== ========
Non-cash investing activity consist of:
Transfer of loans to real estate owned $ 782 $ 265
======== ========
Transfer of loans to land acquired for
development and resale ................ $ 9,932 $ --
======== ========
Tax benefit associated with the exercise
of stock options ..................... $ -- $ 74
======== ========
See accompanying notes to consolidated financial statements.
5
<PAGE>
PRIME BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a description of the significant accounting policies
of Prime Bancorp, Inc. and subsidiaries (the "Company"). The accompanying
consolidated financial statements have been prepared in conformity with
generally accepted accounting principles, which have been applied on a
consistent basis except for the change in accounting principle as described
below.
Business
The Company's principal business is conducted through Prime Bank (the
"Bank"). The Bank's principal business consists of attracting deposits and
obtaining borrowings, then investing those deposits and borrowings in various
types of loans, mortgage-backed securities, and other investments. These
operations are conducted through a branch network in Southeastern Pennsylvania.
The Bank is subject to the regulations of certain federal agencies and,
therefore, undergoes periodic examinations by those regulatory authorities.
Basis of Financial Statement Presentation
The accompanying consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiaries. The Company's principal
subsidiary is the Bank. All significant intercompany balances and transactions
have been eliminated in consolidation. Certain reclassifications have been made
to prior year amounts to conform with the current year's presentation; such
reclassifications have no impact on income. The financial information included
herein is unaudited; however, such information reflects all adjustments
(consisting solely of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair statement of results for the interim periods.
Results of operations for the six month period ended June 30, 1996 are not
necessarily indicative of the results to be expected for the full year.
Earnings Per Share
Earnings per share was calculated based on the weighted average number
of shares of common stock outstanding for the respective periods. Stock options
are considered common stock equivalents and are included in the computation of
the number of outstanding shares using the treasury stock method.
6
<PAGE>
PRIME BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Loan Impairment
On January 1, 1995, the Company adopted the provisions of Statement on
Financial Accounting Standards ("SFAS") No. 114, Accounting by Creditors for
Impairment of a Loan and SFAS No. 118, Accounting for Creditors of Impairment of
a Loan - Income Recognition and Disclosures. SFAS No. 114 and 118 require that
"impaired" loans be measured based on present value of expected future cash
flows, discounted at the loan's effective interest rate or, as a practical
expedient, at the loans observable market price or the fair value of the
collateral if the loan is collateral dependent.
As of June 30, 1996, the Company has impaired loans which consist of
non-accrual loans with a specific reserve of $70 thousand.
Acquisition
On June 12, 1996, Prime Bancorp, Inc. ("Prime") has entered into an
Agreement and Plan of Reorganization ("Agreement") with First Sterling Bancorp,
Inc. ("FSB"). Under the terms of the Agreement, Prime will exchange one (1)
share of Prime common stock for each FSB share outstanding. This will result in
the issuance of approximately 1.66 million shares of Prime common stock to the
shareholders of FSB. The transaction is based on a fixed exchange ratio, and is
expected to be accounted for as a pooling of interests. The transaction is also
expected to be tax-free to the shareholders for federal income tax purposes.
Prime is the savings and loan holding company for Prime Bank ("the
Bank"), a Pennsylvania chartered stock savings bank. The Bank with approximately
$629 million in assets, has 18 branches located in Philadelphia, Bucks and
Montgomery counties. Headquartered in Devon, Pennsylvania, FSB is the holding
company of First Sterling Bank ("First Sterling"), a Pennsylvania state
chartered commercial bank with approximately $228 million in assets. First
Sterling currently operates 4 branches located in Montgomery and Chester
counties and recently received approval for a fifth location in Media, Delaware
county.
The transaction is subject to customary regulatory approvals and is anticipated
to close on or about December 31, 1996.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial Condition
Assets of the Company increased on a consolidated basis 6.04% or $36.7
million from $607.9 million at December 31, 1995 to $644.6 at June 30, 1996.
This increase is primarily attributable to a $31.5 million increase in loans
receivable, net, a $16.4 million increase in investment securities, a $16.1
million increase in mortgage-backed securities which was partially offset by a
decrease in cash and cash equivalents of $27.4 million. Because of the Bank's
efforts to diversify lending away from traditional thrift residential lending,
investments are disproportionally weighted into mortgage-backed securities, so
that the Bank can continue to pass the Qualified Thrift Lending test. Interest
rate risk is reduced through investments in medium term Collateral Mortgage
Obligations ("CMOs") and Adjustable Rate Mortgages. A large percentage of the
CMO investments are U.S. Agency or backed by U.S. Agency collateral and have
average lives less than 4.5 years. The market value of mortgage-backed
securities are inversely related to interest rates, market values generally rise
as interest rates fall, and fall as interest rates rise. Prepayment speeds,
which are partly a function of interest rates, also influence mortgage-backed
security performance.
The Company's liabilities increased by 6.30% or $34.8 million, from
$551.7 million at December 31, 1995 to $586.5 million at June 30, 1996. This was
due primarily to an increase $23.2 million in deposits. Borrowed money, which
consists primarily of reverse repurchase agreements, increased $13.9 million.
Funds obtained from deposit and reverse repurchase agreements were used to pay
off a $2.0 million FHLB advance and to fund loan originations and security
purchases.
Liquidity and Capital Resources
Liquidity for a financial institution is a measure of the financial
institution's ability to fund customers' needs for borrowings and deposit
withdrawals. The Company's policy has always been to maintain a strong liquidity
position, in addition to cash and short-term investments. The Company's
principal sources of funds are savings deposits, principal repayments on loans,
proceeds from the sale of loans, funds from operations, advances from the FHLB
of Pittsburgh and other borrowed money.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Liquidity and Capital Resources - Continued
Cash flows used in investing activities were $66.0 million for the six
months ended June 30, 1996 compared to $2.1 million for the same period in 1995.
This increase was attributable to an increase in loan originations, net of
prepayments of $14.8 million, an increase in investment activity of $19.4
million, an increase in mortgage-backed security activity of $28.0 million and a
$2.0 million decrease in loans held for sale.
Cash flows provided from financing activities were $34.0 million for
the six months ended June 30, 1996 compared to $66 thousand for the same period
in 1995. This change is primarily attributable to an increase of $42.5 million
in other borrowed money and an increase of $1.5 million in deposits which is
partially offset by an increase of $10.0 million in FHLB advances activity.
Cash flows from operating activities provided $4.6 million and $2.2
million for the six months ended June 30, 1996 and 1995, respectively. This
increase is primarily attributable to a decrease in other liabilities of $6.3
million offset by an increase in other assets of $4.6 million.
The Bank is required under federal regulations to maintain specific
levels of "liquidity" investments in qualifying types of U.S. Treasury and
federal agency obligations and other types of investments having maturities of
five years or less. The required level of these liquid investments, which is
currently 5% of the Bank's net withdrawable deposits plus short-term
liabilities, of which not less than 1% must consist of short term liquid assets
as defined by the OTS, is changed from time to time by the OTS as a result of
changes in economic conditions. Such investments are intended to provide a
source of liquid funds upon which the Bank may rely, if necessary, to fund
deposit withdrawals and for other short-term funding needs. At June 30, 1995 and
1996, the Bank's liquidity ratio as measured by OTS standards was 9.3% and 9.2%,
respectively. The short-term liquidity ratios exceeded the regulatory
requirement of 1% for both periods. Under the liquidity standards set forth by
the Federal Deposit Insurance Corporation, the Bank's liquidity ratio was 31.44%
at June 30, 1996.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Capital
The following table sets forth, at June 30, 1996, the OTS capital and
the PA minimum leverage ratio requirements and the actual amount of regulatory
capital that the Bank had under each requirement (dollars in thousands):
Actual
Regulatory Regulatory
Requirement Capital Percent
----------- ------- -------
Tangible Capital 9,133 $45,915 7.54%
Risk-based Capital 31,729 49,652 12.52%
PA Leverage Ratio 24,355 45,915 7.54%
The Bank meets the fully phased in risk-based capital requirements.
Net Income
The Company reported net income of $3.2 million and $1.6 million for
the six months and three months ended June 30, 1996. This represents an increase
of $286 thousand and $143 thousand when compared to the net income for the same
periods in 1995. The six month increase was primarily attributable to an
increase in net interest income after provision for loan losses of $753 thousand
and an increase of non-interest income of $183 thousand which is partially
offset by increases of $626 thousand in non-interest expense and $24 thousand in
income taxes. The three month increase was primarily attributable to an increase
in net interest income after provision for loan losses of $561 thousand which is
partially offset by an increase in non-interest expenses of $185 thousand and
decreases in non-interest income of $269 thousand and income taxes of $36
thousand.
On a fully diluted per share basis net income was $.86 and $.43 for the
six months and three months ended June 30, 1996 compared to the same period in
1995. The Company's return on average assets was 1.04% and 1.05% for the six
months and three months ended June 30, 1996 compared to 1.04% and 1.06% for the
same period in 1995. The Company's return on average equity for the six months
and three months ended June 30, 1996 were 11.37% and 11.39% compared with 11.59%
and 11.25% for the same periods in 1995. Net income for the three month period
ended June 30, 1996, increased 2.6% to $1.6 million when compared to the quarter
ended March 31, 1996.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Net Interest Income
The major component of the Bank's earnings is net interest income. Net
interest income is the difference between interest income earned on loans and
other interest-earning assets and interest expense paid on deposits and
borrowings. Net interest income was $11.5 million and $6.0 million for the six
months and three months ended June 30, 1996. This represents a 10.02% and 13.7%
increase when compared to consolidated net interest income of $10.4 million and
$5.3 million for the same period in 1995. Net interest income increased by $460
thousand for the quarter ended June 30, 1996 from $5.5 million for the three
months ended March 31, 1996.
The net interest margin decreased from 4.35% to 4.23% in the six months
ended June 30, 1996 compared to the same period in 1995. The decrease is
primarily the result of a change in the mix of earning assets caused by leverage
in the investment portfolio at somewhat lower spreads.
The yield on average interest-earning assets decreased 32 and 38 basis
points for the six months and the three months ended June 30, 1996 compared to
the respective periods in 1995. The yields on investment and mortgage-backed
securities increased 13 and 35 basis points, respectively, between the three
month period ended June 30, 1996 and the comparable period in 1995.
The cost of average interest-bearing liabilities decreased 42 basis
points to 3.95% for the three months ended June 30, 1996 from 4.37% for the
comparable period in 1995. This decrease is attributable to a general decrease
in rates being offered on deposit products.
The table below illustrates the changes in the net interest rate margin
and interest rate spread for the six months and three months ended June 30, 1995
and 1996.
Six Months Three Months
Ended Ended
June 30, June 30,
------------- --------------
1995 1996 1995 1996
----- ----- ----- -----
Rate on interest-earning assets.... 8.45% 8.13% 8.55% 8.17%
Rate on interest-bearing
liabilities............... 4.19% 4.01% 4.37% 3.95%
----- ----- ----- -----
Net interest rate spread........... 4.26% 4.12% 4.18% 4.22%
===== ===== ===== =====
Net interest rate margin........... 4.35% 4.23% 4.28% 4.30%
===== ===== ===== =====
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Net Interest Income - continued
Net interest income has also been affected by growth in
interest-earning assets and an increase in interest-bearing liabilities. Total
average interest-earning assets increased $49.8 million for the six months ended
June 30, 1996 to $567.0 million from $517.2 million at June 30, 1995. Total
average interest-bearing liabilities increased $46.6 million for the six months
ended June 30, 1996 to $552.4 million from $505.8 million at June 30, 1995.
Provisions for Loan Losses
The provision for loan losses was $650 thousand and $350 thousand for
the six months and the three months ended June 30, 1996 compared to $356
thousand and $190 thousand for the same periods in 1995. The allowance for loan
losses was $3.8 million and $3.7 million at December 31, 1995 and June 30, 1996,
respectively. The Bank had net charge-offs of $747 thousand and $457 thousand
for the six months and three months ended June 30, 1996, compared to $1.0
million and $726 thousand for the respective periods in 1995.
The following is a summary of the activity in the allowance for loan
losses for the six months ended June 30, 1995 and 1996:
(Dollars in thousands):
1995 1996
-------- --------
Balance at the beginning of period $ 4,285 $ 3,764
Provision for loan losses 356 650
Recoveries 15 70
Losses charged against allowance (1,039) (747)
-------- --------
Balance at the end of period $ 3,617 $ 3,737
======== ========
Non-Interest Income
Non-interest income increased 15.4% and decreased 30.6% for the six
months and three months ended June 30, 1996 to $1.4 million and $610 thousand in
1996 from 1.2 million and $879 thousand for the comparable periods in 1995. The
increase for the six month period was primarily attributable to a $186 thousand
increase in fees and service charges, a net increase of $98 thousand realized on
the sale of investment and mortgage-backed securities, and a $127 thousand
increase in other and rental income offset by a decrease in the gain on sale of
mortgage servicing rights of $260 thousand. The decrease for the three month
period is primarily attributable to a decrease of $260 thousand on the gain on
sale of mortgage servicing rights and a decrease of $107 thousand from the
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Non-Interest Income - Continued
sale of investment and mortgage-backed securities which is partially offset by a
loss of $73 thousand on the sale of land acquired for development and resale.
Non-interest income for the three month period ended June 30, 1996
decreased $154 thousand from the three month period ended March 31, 1996.
Non-Interest Expense
Overall non-interest expenses, which include salaries, employee
benefits, occupancy and equipment, federal insurance premiums and other
increased $169 thousand for the three month period ended June 30, 1996 compared
to March 31, 1996.
The primary component of other expenses is salaries and employee
benefits, which increased 13.2% and 1.2% for the six months and three months
ended June 30, 1996 from $3.2 million and $1.8 million in 1995 to $3.6 million
and $1.8 million in 1996. The number of full time equivalent employees increased
from 203 at June 30, 1995 to 217 at June 30, 1996 due to branch office expansion
as well as increased staffing in the lending area.
Occupancy and equipment expense increased 33.7% to $1.7 million and
37.0% to $873 thousand for the six months and three months ended June 30, 1996
from $1.2 million and $637 thousand for the same periods in 1995. The increase
is primarily attributable to an increase in maintenance expense as well as the
additional rent expense incurred from the opening of two branch offices and the
acquisition of two branches since June 30, 1995.
Federal insurance premiums decreased $18 thousand and $6 thousand for
the six months and three months ended June 30, 1996 as compared to the same
period in 1995.
Other expenses decreased $197 thousand and $67 thousand for the six
months and three months ended June 30, 1996 compared to the same period in 1995.
This decrease is attributable to decreased marketing and supply expenses.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Dividend Policy
The Board of Directors of the Company declared a cash dividend of $0.17
per share of common stock on June 19, 1996, payable August 1, 1996, to
shareholders of record on July 5, 1996. It is currently the Board's intention to
continue to pay dividends on a quarterly basis. This is the Company's thirtieth
consecutive quarterly cash dividend.
Future payment of dividends, however, will be subject to determination
and declaration by the Board of Directors, which will take into account the
Company's financial condition, results of operations, industry standards,
economic conditions and other factors including regulatory restrictions.
Currently, the Company must rely on the Bank's payment of a dividend to the
Company in order to generate the cash and income to pay the dividend. The Board
may also consider the payment of stock dividends from time to time in addition
to, or in lieu of, cash dividends.
The Bank may not declare or pay a cash dividend on any of its stock if
the effect thereof would cause the Bank's net worth to be reduced below (1) the
amount required for the liquidation account, or (2) the net worth requirement
imposed by OTS.
Credit Risk
The Bank manages credit risk by maintaining diversification in its loan
portfolio, by establishing and enforcing underwriting standards, by requiring
annual reviews of all loan relationships in excess of $1,000,000 by the Credit
Committee of the Bank's Board of Directors, by intensive collection efforts, and
by performing regular loan classification reviews of loans by the loan review
officer.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Asset Quality
Non-performing assets, which include non-accrual loans and real estate
owned, totaled $3.4 million at December 31, 1995 compared to $4.9 million at
June 30, 1996. The following table sets forth non-performing assets as of
December 31, 1995 and June 30, 1996 (Dollars in thousands):
December 31, June 30,
1995 1996
-------- --------
Non-accrual loans:
Residential loans $ 1,786 $ 1,126
Construction loans -- 1,398
Consumer loans 269 316
Commercial loans 925 1,676
-------- --------
Total non-accrual loans 2,980 4,516
Real estate owned 370 481
-------- --------
Total non-performing assets (1) $ 3,350 $ 4,997
======== ========
Total non-performing assets to
loans receivable, net (1) 0.97% 1.33%
======== ========
Total non-performing assets to
total assets (1) 0.55% 0.78%
======== ========
Ratio of allowance for loan
losses to non-performing loans 112.36% 82.75%
======== ========
- ----------
(1) Statistics do not include the impact of the $10.0 million condominium
project, which was acquired by a deed in lieu of foreclosure and classified
as land acquired for development and resale. Non-performing assets, the
ratio of non-performing assets to loans receivable, net and the ratio of
non-performing assets to total assets would have been $13.4 million, 3.9%
and 2.2% at December 31, 1995 and $15.0 million, 4.0% and 2.3% at June 30,
1996 if the condominium project was included in non-performing assets.
Interest income not recorded on the project during the three months ended
December 31, 1995 and June 30, 1996 was approximately $240 thousand and $243
thousand, respectively.
Interest income not recognized for non-accrual loans during the three
months ended December 31, 1995 and June 30, 1996 was $7 thousand and $67
thousand, respectively.
15
<PAGE>
PART II
OTHER INFORMATION
Item 1 Legal Proceedings
The Company is not engaged in any legal proceedings of a material
nature at the present time. From time to time, the Company is a party to legal
proceedings wherein it enforces its security interest in mortgage loans
made by it.
Item 2 Changes in Securities
Not applicable.
Item 3 Defaults Upon Senior Securities
Not applicable.
Item 4 Submission of Matters to a Vote of Security Holders
Not applicable
Item 5 Other Information
As a result of the conversion of Prime Bank, a federal savings bank,
("Prime Bank") to a Pennsylvania chartered stock savings bank under the name
"Prime Bank, a savings bank", effected on March 19, 1996, the regulatory
framework with in which the Registrant (sometimes referred to as "Prime") and
Prime Bank operate has changed significantly. In addition, the acquisition of
First Sterling Bancorp, Inc. ("First Sterling") by means of a merger (the
Merger"), pursuant to an Agreement and Plan Reorganization dated June 12, 1996,
(the "Merger Agreement") announced on June 12, 1996 and reported on Form 8-K
filed June 27, 1996, will also impact the Registrant from the bank regulatory
perspective since First Sterling Bank ("First Sterling Bank") is a Pennsylvania
chartered bank. Consequently, the descriptions in the Registrant's annual report
on Form 10-K for the year ended December 31, 1995 relating to "Holding Company
Regulation and Supervision", " Regulation of the Bank", "Federal Home Loan bank
System" and "Federal Reserve System" are no longer accurate. Set forth in this
item 5 is current information with respect to these matters which takes into
account the events described above.
16
<PAGE>
PART II
OTHER INFORMATION
Item 5. Other Information - (Continued)
REGULATION AND SUPERVISION
Prime Bank, First Sterling Bank, Prime, First Sterling and New Prime
are and will be subject to extensive federal and state regulation by various
bank regulatory agencies. Certain activities of each of those entities may also
be subject to regulation by federal or state securities regulatory agencies,
state insurance regulatory agencies, and other federal, state and local
governmental bodies. The following is only a general summary of the laws and
regulations which will apply to Prime, Prime Bank and First Sterling Bank after
the Merger.
The statutes and regulations governing banks establish a comprehensive
framework for the regulation of activities in which an institution can engage
and is intended primarily for the protection of the insurance fund and
depositors. The regulatory structure also gives the regulatory authorities
extensive discretion in connection with their supervisory activities and
examination policies including policies with respect to the classification of
assets and the establishment of adequate loan loss reserves for regulatory
purposes. Any change in such regulation whether by the Pennsylvania Department
of Banking ("PADOB"), the Federal Deposit Insurance Corporation ("FDIC") or the
Congress could have a material adverse impact on Prime, Prime Bank, First
Sterling Bank and their operations.
Bank regulatory agencies have authority to impose a wide variety of
enforcement actions and penalties on an institution that fails to comply with
its regulatory requirements, particularly with respect to the capital
requirements. Possible enforcement actions include the imposition of a capital
plan, imposition of civil money penalties, conservatorship or receivership, and
termination of deposit insurance. Under certain provisions of federal and state
banking laws and regulations, banking agencies' enforcement powers extend to
directors and officers of banks and other financial institutions and to other
"institution-affiliated" parties, including stockholders, attorneys, appraisers
and accountants.
Regulation of the Holding Companies
Prime is a savings and loan holding company within the meaning of
Section 10 of the Home Owners' Loan Act of 1933, as amended ("HOLA"). As such,
Prime is registered with and subject to OTS examination and supervision as well
as certain reporting requirements. First Sterling is, and it is intended that
upon consummation of the Merger Prime will also be, a bank holding company
within the meaning of Section 3 of the Bank Holding Company
17
<PAGE>
PART II
OTHER INFORMATION
Item 5. Other Information - (Continued)
Act of 1956, as amended ("BHCA"). As such, First Sterling is, and Prime is
expected to be, registered with and subject to FRB examination and supervision
as well as certain reporting requirements. Prime will also be subject to certain
regulation by Pennsylvania banking statutes affecting bank holding companies.
Federal Bank Holding Company Regulation
Prime will be required to file with the Federal Reserve Board ("FRB")
an annual report and such additional information as the FRB may require pursuant
to the BHCA. The FRB may also make examinations of Prime and each of its
non-bank subsidiaries. The BHCA requires each bank holding company to obtain the
approval of the FRB before it may acquire substantially all the assets of any
bank, or before it may acquire ownership or control of any voting shares of any
bank if, after such acquisition, it would own or control, directly or
indirectly, more than five percent of the voting shares of such bank. Pursuant
to the BHCA, Prime may only engage in or own companies that engage in banking or
in activities deemed by the FRB to be so closely related to the business of
banking or managing or controlling banks as to be a proper incident thereto, and
Prime must gain permission from the FRB prior to engaging in many new business
activities.
Under FRB regulations, a bank holding company is required to serve as a
source of financial and managerial strength to its subsidiary banks and may not
conduct its operations in an unsafe or unsound manner. In addition, it is the
FRB's policy that in serving as a source of strength to its subsidiary banks, a
bank holding company should stand ready to use available resources to provide
adequate capital funds to its subsidiary banks during periods of financial
stress or adversity and should maintain the financial flexibility and
capital-raising capacity to obtain additional resources for assisting its
subsidiary banks. A bank holding company's failure to meet its obligations to
serve as a source of strength to its subsidiary banks will generally be
considered by the FRB to be an unsafe and unsound banking practice or a
violation of the FRB regulations or both.
Federal Savings and Loan Holding Company Regulation
Prime will be required to file with the OTS an annual report and such
additional information as the OTS may require pursuant to HOLA. The OTS may also
make examinations of New Prime and its subsidiaries.
18
<PAGE>
PART II
OTHER INFORMATION
Item 5. Other Information - (Continued)
The HOLA prohibits a savings and loan holding company, directly or
indirectly, from (1) acquiring control (as defined under HOLA) of another
insured institution (or holding company thereof) without prior OTS approval, (2)
acquiring more than 5% of the voting shares of another insured institution (or
holding company thereof) which is not a subsidiary without prior regulatory
approval, (3) acquiring through merger, consolidation or purchase of assets,
another savings institution (whether or not it is insured by Savings Association
Insurance Fund ("SAIF) or holding company thereof without prior OTS approval, or
(4) acquiring control of a savings institution not insured by the SAIF (except
through a merger approved by the OTS). A savings and loan holding company may
not acquire as a separate subsidiary an insured institution which has principal
offices outside of the state where the principal offices of its savings
association subsidiary is located, except (i) in the case of certain emergency
acquisitions approved by the FDIC, (ii) if the holding company controlled (as
defined) such insured institution as of March 5, 1987, or (iii) when applicable
law specifically authorizes such an acquisition.
Prime will be a nondiversified, "unitary" savings and loan holding
company, which is a savings and loan holding company which controls only one
savings association --- in this case, Prime Bank. There are generally no
restrictions on the non-banking activities of such a savings and loan holding
company and its nonbanking subsidiaries, although historically the FSLIC did not
permit a savings and loan holding company to acquire or be acquired by a holding
company engaged in securities underwriting or market making. Because Prime also
will be a bank holding company after the Merger, the restrictions on bank
holding company activities described above will limit Prime's nonbanking
activities, even if applicable OTS regulations would permit such activities. If
Prime acquires another savings association as a separate subsidiary, Prime would
then be classified as a "multiple" savings and loan holding company. If the
activities of Prime Bank and related activities were, at some time in the
future, to represent less than 50% of the consolidated net earnings of Prime for
any fiscal year, Prime would then be classified as a "diversified" savings and
loan holding company. In either case, Prime would become subject to additional
limitations by OTS regulation on the types of business activities in which it or
its subsidiaries might engage.
If an insured institution subsidiary of a unitary savings and loan
holding company fails to meet the "qualified thrift lender" ("QTL") test
specified in HOLA and regulations thereunder, such unitary holding company also
would become subject to severe restrictions regarding activities and other
aspects of its operations. (See, "Regulation of the Banks - QTL Test".)
19
<PAGE>
PART II
OTHER INFORMATION
Item 5. Other Information - (Continued)
Under the Financial Institutions Reform, Recovery and Enforcement Act
of 1989 ("FIRREA"), a savings and loan holding company may acquire up to 5% of
the voting shares of any savings bank or savings and loan holding company not a
subsidiary thereof without prior regulatory approval. Another provision of
FIRREA permits a savings and loan holding company to acquire up to 15% of the
voting shares of certain undercapitalized savings banks.
Prime has the option to elect not to continue to be treated as a
savings and loan holding company and to deregister as a savings and loan holding
company. There is no assurance that Prime will continue to elect to be treated
as a savings and loan holding company.
Dividends
Dividend payments by Prime will be subject to federal and state
regulation. Because Prime does not engage directly in any income producing
activities, payment of dividends will also generally be subject to receipt of
sufficient dividends from the Banks or other non-bank subsidiaries of Prime.
Dividend payments by the Banks are subject to limitations imposed by federal and
state laws. Under the Pennsylvania Banking Code (the "PA Code"), no dividends
may be paid by institutions such as the Banks except from "accumulated net
earnings" (generally, undivided profits). Under the Federal Deposit Insurance
Act ("FDIA"), no dividends may be paid by an insured bank if the bank is in
arrears in the payment of any insurance assessment due to the FDIC. State and
federal regulatory authorities have adopted standards for the maintenance of
adequate levels of capital by banks. Adherence to such standards further limits
the ability of banks to pay dividends, and the "prompt corrective action"
regulations adopted by federal bank regulatory agencies further restrict
payments of dividends by banks which are not adequately capitalized. Further,
the payment of dividends by a bank can also be prohibited under certain
circumstances if it is deemed an unsafe or unsound practice or would leave a
bank in an unsafe or unsound condition. Federal banking regulators have formal
and informal policies which provide that insured banks and bank holding
companies should generally pay dividends only out of current operating earnings,
with some exceptions.
Capital Adequacy
The FRB has adopted risk-based capital and leverage ratio requirements
for bank holding companies such as First Sterling. Prime will be subject to
these guidelines upon completion of the Merger.
20
<PAGE>
PART II
OTHER INFORMATION
Item 5. Other Information - (Continued)
Risk-Based Capital Guidelines. The FRB's risk-based capital guidelines
for bank holding companies set a required minimum ratio of total capital to
risk-weighted assets (including off-balance sheet activities, such as standby
letters of credit) of 8%. At least half of the total capital is required to be
"Tier 1 capital", consisting principally of common shareholders' equity,
noncumulative perpetual preferred stock, a limited amount of cumulative
perpetual preferred stock and minority interests in the equity accounts of
consolidated subsidiaries, less goodwill. The remainder ("Tier 2 capital") may
consist of a limited amount of subordinated debt and intermediate-term preferred
stock, certain hybrid capital instruments and other debt securities, perpetual
preferred stock and a limited amount of the general loan loss allowance.
Tier 1 Capital Leverage Ratio. The FRB has also established a minimum
level of Tier 1 capital to total assets of 3% for those bank holding companies
which have the highest regulatory examination ratings and are not contemplating
or experiencing significant growth or expansion. All other bank holding
companies are required to maintain a Tier 1 capital leverage ratio of at least
1% to 2% above the 3% stated minimum.
First Sterling currently meets these minimum capital requirements, and
it is anticipated that, upon completion of the Merger, Prime will also meet
these requirements. Set forth below is a table which shows in dollars and
percentages the risk-based capital and Tier 1 capital leverage requirements
applicable to First Sterling and Prime, together with the actual dollar amount
and percentage of capital in each category at June 30, 1996 for First Sterling,
and the pro forma dollar amount and percentage of capital in each category for
Prime assuming the Merger had been completed by June 30, 1996:
<TABLE>
<CAPTION>
Prime
Required First Sterling Pro Forma
Capital Requirement Ratio At 6/30/96 At 6/30/96
- ------------------- ----- ---------- ----------
<S> <C> <C> <C>
Risk-Based Capital
Tier 1 Ratio 4.00% $12,676 8.23% $58,638 10.66%
Total Capital Ratio 8.00% $15,389 9.99% $65,088 11.83%
Tier 1 Leverage Ratio 4.00%/5.00% $12,676 5.56% $57,638 6.89%
</TABLE>
21
<PAGE>
PART II
OTHER INFORMATION
Item 5. Other Information - (Continued)
Change in Bank Control Act
Under the Change in Bank Control Act of 1978 ("Change in Control Act"),
no person, acting directly or indirectly or through or in concert with one or
more other persons, may acquire "control" of any federally insured depository
institution unless the appropriate Federal banking agency has been given 60
days' prior written notice of the proposed acquisition and within that period
has not issued a notice disapproving of the proposed acquisition or has issued
written notice of its intent not to disapprove the action. For this purpose,
"control" is generally defined as the power, directly, or indirectly, to direct
the management or policies of an institution or to vote 25% or more of any class
of its voting securities. In addition, a person will be presumed to have
acquired "control" of an institution or holding company upon most acquisitions
of power to vote 10% or more (but less than 25%) of any class of voting
securities if the institution or holding company has registered securities under
Section 12 of the Securities Exchange Act of 1934 or if no other person will own
a greater percentage of that class of voting securities immediately after the
transaction, but this presumption may be rebutted upon a formal finding by the
appropriate Federal banking agency that the acquisition will not result in
control. The period for the agency's disapproval may be extended by the agency.
Upon receiving such notice, the Federal agency is required to provide a copy to
the appropriate state regulatory agency if the institution of which control is
to be acquired is state chartered, and the Federal agency is obligated to give
due consideration to the views and recommendations of the state agency. Upon
receiving a notice, the Federal agency is also required to conduct an
investigation of each person involved in the proposed acquisition. Notice of
such proposal is to be published and public comment solicited thereon. A
proposal may be disapproved by the Federal agency if the proposal would have
anticompetitive effects, if the proposal would jeopardize the financial
stability of the institution to be acquired or prejudice the interests of its
depositors, if the competence, experience or integrity of any acquiring person
or proposed management personnel indicates that it would not be in the interest
of depositors or the public to permit such person to control the institution, if
any acquiring person fails to furnish the Federal agency with all information
required by the agency, or if the Federal agency determines that the proposed
transaction would result in an adverse effect on a deposit insurance fund. In
addition, the Change in Control Act requires that, whenever any Federally
insured depository institution makes a loan or loans secured, or to be secured,
by 25% or more of the outstanding voting stock of a Federally insured depository
institution, the president
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Item 5. Other Information - (Continued)
or chief executive officer of the lending bank must promptly report such fact to
the appropriate Federal banking agency regulating the institution whose stock
secures the loan or loans.
Interstate Banking Legislation
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(the "Interstate Banking Act"), enacted on September 29, 1994, permits bank
holding companies to acquire banks in any State beginning in 1995. Beginning in
1997, acquired banks in different states may be merged into a single bank, and
thereafter merged banks may establish and acquire additional branches anywhere
the acquiree could have branched. States may opt out until June 1, 1997, but if
so, domestic institutions will also be prohibited from branching interstate.
States may also enact laws permitting interstate merger transactions and
interstate de novo branching before June 1, 1997. Limited branch purchases are
still subject to state laws.
On July 6, 1995, Pennsylvania adopted an interstate banking act (the
"PA Interstate Banking Act") to harmonize Pennsylvania banking laws with the
Federal Interstate Banking Act. The PA Interstate Banking Act "opts in" early
under the Federal Interstate Banking Act to permit interstate mergers,
non-Pennsylvania holding company acquisitions of Pennsylvania banks, branch
acquisitions and de novo branching in any of the manners contemplated by the
Federal Interstate Banking Act, subject to prior regulatory approvals or
filings. In general, the PA Interstate Banking Act permits out-of-state banking
institutions to establish branches in Pennsylvania with the approval of the
Pennsylvania PADOB, provided the law of the state where the banking institution
is located would permit a Pennsylvania banking institution to establish and
maintain a branch in that state on substantially similar terms and conditions.
It also permits Pennsylvania banking institutions to maintain branches in other
states. Prime management anticipates that the federal and Pennsylvania
interstate banking legislation will increase competitive pressures in Prime
Bank's and First Sterling Bank's respective markets by permitting entry of
additional competitors but management is of the opinion that they will not have
a material impact upon the anticipated results of operations of either Bank or
of Prime.
Pennsylvania Banking Laws
Under the PA Code as presently enacted, Prime will be permitted to
control an unlimited number of banks, subject to prior approval of applicable
federal bank regulatory agencies and, in certain cases, the PADOB. The PA Code
authorizes reciprocal
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Item 5. Other Information - (Continued)
interstate banking with out any geographic limitation. Reciprocity between
states exist when a foreign state's law authorizes Pennsylvania bank holding
companies to acquire banks or bank holding companies located in that state on
terms and conditions substantially no more restrictive than those applicable to
such an acquisition by a bank holding company located in that state. Interstate
ownership of banks in Pennsylvania with banks in many other states, including
the adjoining states of Delaware, Maryland, New Jersey, Ohio, New York and other
states, is currently authorized.
With certain exceptions, the PA Code prohibits any person from
acquiring, directly or indirectly, the power to elect a majority of the board of
directors of a Pennsylvania commercial bank or stock savings bank, or more than
10% of any class of outstanding stock of such institutions (5% in certain
circumstances) without prior approval of PADOB.
REGULATION OF THE BANKS
Prime Bank is a Pennsylvania chartered stock savings bank which is a
member of the Federal Home Loan Bank ("FHLB") System. Its deposit accounts are
insured up to applicable limits by the FDIC under the SAIF. Prime Bank is
subject to extensive regulation by the PADOB, as its chartering agency, and the
FDIC as its deposit insurer and primary federal banking regulator. Prime Bank
must file reports with the PADOB and the FDIC concerning its activities and
financial condition, in addition to obtaining regulatory approvals prior to
entering into certain transactions. Prime Bank is periodically examined by PADOB
and the FDIC.
First Sterling Bank is a Pennsylvania chartered commercial bank which
is a member of the Federal Reserve System. Its deposit accounts are insured up
to applicable limits by the FDIC under the Bank Insurance Fund ("BIF"). First
Sterling Bank is subject to extensive regulation by the PADOB, as its chartering
agency, the FRB, as its primary federal banking regulator, and the FDIC as its
deposit insurer. First Sterling Bank must file reports with the PADOB and the
FRB concerning its activities and financial condition, in addition to obtaining
regulatory approvals prior to entering into certain transactions. First Sterling
Bank is periodically examined by PADOB and the FRB.
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Item 5. Other Information - (Continued)
Pennsylvania Banking Laws
The activities of Pennsylvania chartered commercial banks and savings
banks are governed by the PA Code. Because First Sterling Bank is a member of
the Federal Reserve System, certain of its activities are also governed by FRB
regulations applicable to member banks. Because Prime Bank is a state chartered
savings bank which is not a member of the Federal Reserve System, certain of its
activities are also governed by FDIC regulations.
The PA Code limits the powers and activities of Pennsylvania chartered
commercial banks and savings banks, including the investment and lending
activities of those institutions. Subject to certain exclusions and
qualifications, each of the Banks is limited in making loans to any one customer
to an amount which equals 15% of each Bank's unimpaired capital accounts from
time to time. Aggregate loans to related groups of customers may also be limited
to this amount if so determined by the PADOB. Certain loans, such as real estate
loans, consumer loans and residential mortgage loans, are subject to
requirements and restrictions.
PADOB regulations establish minimum capital requirements for
Pennsylvania chartered financial institutions such as the Banks (the "PA Capital
Rules"). The PA Capital Rules include a minimum requirement for leverage capital
- --- the ratio of "Tier 1" capital (as defined for federal bank regulatory
purposes) to total assets -- of 4.00%, and a minimum requirement for
"risked-based capital" as that which is required by federal banking laws. PADOB
may set a higher minimum leverage ratio requirement for individual institutions.
An institution that falls below these minimums, except in specified
circumstances, will be deemed by PADOB to be in unsafe and unsound condition and
conducting business in an unsafe manner. However, an institution which is in
compliance with a written agreement or order, the purpose of which is to
increase its capital ratios, will not be deemed unsafe and unsound condition or
conducting business in an unsafe manner based on its capital ratios. Even if an
institution meets its minimum capital ratio requirements, PADOB has authority to
take enforcement action which is otherwise authorized against an institution
which is in an unsafe or unsound condition, is conducting its business in an
unsafe or unsound manner, is in violation of any agreement or order of PADOB,
another banking agency, any court, the institution's charter, or other
applicable laws, or as to which any other banking statute or regulation
authorizes such enforcement action. At June 30, 1996, Prime Bank and First
Sterling Bank each met the Pennsylvania minimum capital requirements.
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Item 5. Other Information - (Continued)
The table set forth below shows each capital requirement, together with
the actual capital levels of each Bank expressed in both dollar amounts and
percentages:
<TABLE>
<CAPTION>
Required Prime Bank First Sterling
Capital Requirement Ratio At 6/30/96 At 6/30/96
- ------------------- ----- ---------- ----------
<S> <C> <C> <C> <C> <C>
PA Risk-Based Capital
Tier 1 Ratio 4.00% $45,915 11.58% $12,676 8.23%
Total Capital Ratio 8.00% $49,652 12.52% $15,389 9.99%
PA Tier 1 Leverage Ratio 4.00% $45,915 7.54% $12,676 5.56%
</TABLE>
Under the PA Code, each Bank may establish branches and other offices
without geographic limitation throughout Pennsylvania. The establishment of new
branches or other offices of Pennsylvania chartered institutions such as the
Banks are subject to the prior approval of PADOB.
Federal Deposit Insurance Regulation
Pursuant to the provisions of FIRREA, a new insurance fund,
administered by the FDIC and named SAIF, insures the deposits of savings
associations formerly insured by the FSLIC. The FDIC fund existing prior to the
enactment of FIRREA is now known as Bank Insurance Fund ("BIF") and continues to
insure the deposits of commercial banks and certain savings banks and to be
administered by the FDIC. Although the FDIC administers both funds, the assets
and liabilities are not commingled.
Safety and Soundness. Under the FDIA, federal regulators possess the
power to prohibit regulated institutions such as Prime Bank and First Sterling
Bank from engaging in any activity that would be an unsafe and unsound banking
practice and in violation of the law. Moreover, recent Federal laws have
expanded the circumstances under which officers or directors of a bank may be
removed by the institution's federal supervisory agency, restrict and regulate
lending by a bank to its executive officers, directors, principal shareholders
or related interests thereof and restrict management personnel of a bank from
serving as directors or in other management positions with securities firms and
with certain depository institutions whose assets exceed a specified amount or
which have an office within a specified geographic area, and restrict management
personnel from borrowing from another institution that has a correspondent
relationship with their bank.
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Item 5. Other Information - (Continued)
Under the FDIA, insurance of deposits may be terminated by the FDIC
upon a finding that the institution has engaged in unsafe and unsound practices,
is in an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC or the
OTS. The management of Prime does not know of any practice, condition or
violation that might lead to termination of deposit insurance.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") requires financial institutions to take certain actions relating to
their internal operations including: providing annual reports on financial
condition to the appropriate federal banking regulators, having an annual
independent audit of financial statements performed by an independent public
accountant and establishing an independent audit committee comprised solely of
outside directors. The FDICIA also imposes certain operational and managerial
standards on financial institutions relating to internal controls, loan
documentation, credit underwriting, interest rate exposure, asset growth,
compensation, fees and benefits. A later amendment deals with compensation
standards. The FDICIA also requires the FDIC to assess deposit insurance
premiums based on risk. As noted below, the federal banking agencies, including
the OTS and the FDIC, have adopted certain rules implementing these standards.
Prompt Corrective Action. The FDICIA also requires establishment of a
system of prompt corrective action to resolve the problems of undercapitalized
institutions. The federal banking regulators have adopted final rules, which
require such regulators to take certain supervisory actions against
undercapitalized institutions. The adopted rules create five categories
consisting of "well capitalized", "adequately capitalized", "undercapitalized",
"significantly undercapitalized" and "critically undercapitalized". Regulatory
action taken will depend on the level of capitalization of the institution and
may range from restrictions on distributions of dividends to seizure of the
institution. Generally, subject to a narrow exception, the FDICIA requires the
institution's regulator to appoint a receiver or conservator for an institution
that is critically undercapitalized. The FDICIA authorizes the institution's
regulators to specify the ratio of tangible capital to assets at which an
institution becomes critically undercapitalized and requires that the ratio be
no less than 2% of assets. The final rules also allow the regulators to
downgrade an institution that meets certain minimum capital requirements but is
otherwise in a "less than satisfactory" condition, which may result in an
otherwise "adequately capitalized" institution with other problems being
classified as "undercapitalized".
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Item 5. Other Information - (Continued)
Under the OTS final rule implementing the prompt corrective action
provisions, generally a savings association that has a total risk-based capital
of less than 8.0% or a leverage ratio that is less than 4.0% would be considered
to be undercapitalized. A savings association that has total risk-based capital
less than 6.0%, a Tier 1 risk-based capital ratio of less than 3% or a leverage
ratio that is less than 3.0% would be considered to be "significantly
undercapitalized" and a savings association that has a tangible capital to
assets ratio equal to or less than 2% would be deemed to be "critically
undercapitalized." Generally, the rule requires an association to file a capital
restoration plan with the OTS within 45 days of the date it is deemed to be
"undercapitalized", "significantly undercapitalized" or "critically
undercapitalized". In addition, numerous mandatory supervisory actions become
immediately applicable to the institution, including, but not limited to,
restrictions on growth, investment activities, capital distributions, and
affiliate transactions. The OTS could also issue a capital directive to the
association which includes additional discretionary restrictions on the
association.
Other provisions of the FDICIA require supplemental disclosure in
financial statements filed with the regulators of the estimated fair market
value of assets and liabilities; permits thrift institutions to acquire
commercial banks and commercial banks to acquire thrift institutions with
appropriate regulatory approval; adjust the capital standards to account for
interest rate risk; and increase the amount of consumer loans that a savings
association may invest in from 30% to 35% of total assets.
Liability of Commonly Controlled Institutions; Priority Over Claims of
Shareholders and Affiliates. Pursuant to provisions of the FDIA, if one or more
insured depository institutions are under common control (as is the case with
the Banks), each institution (the "Obligated Institution") is potentially liable
to the FDIC for any loss incurred by the FDIC in connection with a default by
the any other insured depository institution which is under common control (the
"Defaulting Institution"). The FDIC's claim against the assets of an Obligated
Institution for the payment of this liability has priority over any obligations
which the Obligated Institution owes to its shareholders or affiliates, but is
generally subordinate to obligations owed to persons other than shareholders or
affiliates.
Real Estate Lending Standards. Under FDICIA and regulations adopted
thereunder, federally insured depository institutions must adopt and maintain
written policies that establish appropriate limits and standards for extensions
of credit that are secured by liens or interests in real estate or are made for
the purpose of
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Item 5. Other Information - (Continued)
financing permanent improvements to real estate. These policies must establish
loan portfolio diversification standards, prudent underwriting standards
(including loan-to-value limits) that are clear and measurable, loan
administration procedures, and documentation, approval and reporting
requirements. The real estate lending policies must reflect consideration of the
Interagency Guidelines for Real Estate Lending Policies (the "Interagency
Guidelines") that have been adopted by the federal bank regulators. The
Interagency Guidelines, among other things, require depository institutions to
establish internal loan-to-value limits for real estate loans that are not in
excess of the following supervisory limits: (i) for loans secured by raw land,
the supervisory loan-to-value limit is 65% of the value of the collateral;
(ii) for land development loans, the supervisory limit is 75%; (iii) for loans
for the construction of commercial, multi-family or other nonresidential
property, the supervisory limit is 80%; (iv) for loans for the construction of
one- to four-family properties, the supervisory limit is 85%; and (v) for loans
secured by other improved property (e.g., farmland, completed commercial
property and other income-producing property including non-owner- occupied, one-
to four-family property), the limit is 85%, or 90% with appropriate credit
enhancement in the form of either mortgage insurance or readily marketable
collateral.
Brokered Deposits. Federal law and regulations impose restrictions on
the acceptance of brokered deposits. Absent a waiver from the FDIC, an insured
depository institution will not be permitted to accept brokered deposits unless
the institution is "well capitalized." The FDIC can only grant waivers to
institutions that are "adequately capitalized" or that are in conservatorship.
At June 30, 1996, neither Prime Bank nor First Sterling Bank had any brokered
deposits.
Transactions with Affiliates and Other Related Parties
Each of the Banks is subject to certain restrictions on transactions
with "affiliates" such as Prime and any other non-bank subsidiaries of Prime
pursuant to Sections 23A and 23B of the Federal Reserve Act ("FRA"). In summary,
Section 23A (i) imposes individual and aggregate percentage of capital limits on
the dollar amount of a wide variety of affiliate dealings coming within the
definition of a "covered transaction" (in general, the aggregate amount of
transactions of either Bank with any one non-bank affiliate (other than the
other Bank) is limited to 10% of the capital and surplus of the Bank and the
aggregate amount of either Bank's transactions with all non-bank affiliates is
limited to 20% of the Bank's capital and surplus.; (ii) establishes rules for
ensuring arms' length dealings between a bank and its affiliates;
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Item 5. Other Information - (Continued)
(iii) precludes the acquisition of "low quality" assets by a bank from its
affiliates; and (iv) imposes detailed collateralization requirements for
affiliate credit transactions. For purposes of Section 23A a "covered
transaction" includes the following (with certain exceptions and exemptions):
(A) a loan or extension of credit to an affiliate; (B) a purchase of, or an
investment in, securities issued by an affiliate; (C) a purchase of assets
(including assets subject to an agreement to repurchase) from an affiliate, with
certain exceptions; (D) the acceptance of securities issued by an affiliate as
collateral security for a loan or extension of credit to any person or Prime;
and (E) the issuance of a guarantee, acceptance, or letter of credit, including
an endorsement or standby letter of credit, on behalf of an affiliate. Section
23B requires a wide range of transactions which must be on terms which are at
least as favorable to each Bank as would apply to similar transactions with
non-affiliated companies. The transactions covered by section 23B include
"covered transactions" that are subject to section 23A, as well as (I) a sales
of securities or other assets to an affiliate including assets subject to an
agreement to repurchase; (II) a payment of money or the furnishing of services
to an affiliate under contract, lease, or otherwise; (III) any transaction in
which an affiliate acts as an agent or broker or receives a fee for its services
to the association or to any other person; or (IV) any transaction or series of
transactions with a third party if an affiliate has an interest in the third
party or participates in the transaction.
Each Bank's authority to extend credit to executive officers, directors
and 10% shareholders, as well as entities controlled by such persons, is
currently governed by Sections 22(g) and 22(h) of the FRA. Among other things,
these regulations require such loans to be made on terms substantially similar
to those offered to unaffiliated individuals, place limits on the amount of
loans either Bank may make to such persons based, in part, on the Bank's capital
position, and require certain approval and reporting procedures to be followed.
Classification of Assets
Under current federal regulations, an institution's problem assets are
subject to classification according to one of three categories: "substandard",
"doubtful" and "loss". For assets classified "substandard", and "doubtful", the
institution is required to establish prudent general loan loss reserves in
accordance with generally accepted accounting principles. Assets classified
"loss" must be either completely written off or supported by a 100% specific
reserve. A classification category designated "special mention" also must be
established and
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Item 5. Other Information - (Continued)
maintained for assets not currently requiring classification but having
potential weaknesses or risk characteristics that could result in future
problems. An institution is required to develop an in-house program to classify
its assets, including investment in subsidiaries, on a regular basis and set
aside appropriate loss reserves on the basis of such classification. Management
believes that Prime Bank and First Sterling Bank are each in compliance with the
foregoing requirements.
Federal Minimum Capital Requirements - Prime Bank
The FDIC has adopted risk-based capital and leverage ratio requirements
for nonmember insured banks such as Prime Bank.
Risk-Based Capital Guidelines. The FDIC's risk-based capital guidelines
for nonmember banks set a required minimum ratio of total capital to
risk-weighted assets (including off-balance sheet activities, such as standby
letters of credit) of 8%. At least half of the total capital is required to be
"Tier 1" (or "core") capital, consisting principally of common shareholders'
equity, noncumulative perpetual preferred stock, a limited amount of cumulative
perpetual preferred stock and minority interests in the equity accounts of
consolidated subsidiaries, less goodwill. The remainder ("Tier 2 capital") may
consist of a limited amount of subordinated debt and intermediate-term preferred
stock, certain hybrid capital instruments and other debt securities, perpetual
preferred stock and a limited amount of the general loan loss allowance.
Tier 1 Capital Leverage Ratio. The FDIC has also established a minimum
level of Tier 1 capital to total assets of 3% for those nonmember banks which
have the highest regulatory examination ratings and are not contemplating or
experiencing significant growth or expansion. All other nonmember banks are
required to maintain a Tier 1 capital leverage ratio of at least 1% to 2% above
the 3% stated minimum.
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Item 5. Other Information - (Continued)
At June 30, 1996, Prime Bank met each of its capital requirements. Set
forth below is a table which sets forth in terms of dollars and percentages the
tangible, core and risk-based capital requirements applicable to Prime Bank,
together with the actual dollar amounts and percentages of capital for Prime
Bank in each category at June 30, 1996:
Required Prime Bank
Capital Requirement Ratio At 6/30/96
- ------------------- ----- ----------
Risk-Based Capital
Tier 1 Ratio 4.00% $45,915 11.58%
Total Capital Ratio 8.00% $49,652 12.52%
Tier 1 Leverage Ratio 4.00%/5.00% $45,915 7.54%
Federal Minimum Capital Requirements - First Sterling Bank
Leverage Ratio. For banks which are members of the Federal Reserve
System, the FRB has established a minimum level of "primary capital" to total
assets of 5.5% and a minimum level of "total capital" to total assets of 6.0%.
For these purposes, the components of "primary capital" generally include common
stock, surplus, undivided profits, contingency and other capital reserves, and
the allowance for possible loan and lease losses, and "total capital" includes
the primary capital components plus limited life preferred stock and certain
subordinated debt. In calculating the regulatory capital ratios, goodwill is
deducted from both the numerator (capital) and the denominator (total assets) of
the ratio, and the loan loss reserve is added to the denominator (total assets).
Generally, the FRB expects member banks to operate above the minimum levels.
Those member banks whose operations are deemed by the FRB to involve or to be
exposed to high or inordinate degrees of risk may be expected to hold additional
capital to compensate for those risks.
In addition, the FRB has established three "zones" for total capital
for banking organizations of all sizes for the purpose of determining the nature
and intensity of supervisory actions:
Zone Total Capital Ratio
---- -------------------
1 Above 7.0%
2 6.0% to 7.0%
3 Below 6.0%
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Item 5. Other Information - (Continued)
A member bank whose total capital places it in "Zone 1" will generally
be considered adequately capitalized provided its "primary capital" is above the
5.5% minimum. In contrast, a member bank whose total capital places it in "Zone
3" will generally be considered undercapitalized, absent clear extenuating
circumstances. Member banks in "Zone 2" will be scrutinized for a variety of
financial risks and capital adequacy will be determined accordingly.
At June 30, 1996, First Sterling Bank met each of its regulatory
capital requirements. Set forth below is a table which sets forth in terms of
dollars and percentages the tangible, core and risk-based capital requirements
applicable to First Sterling Bank, together with the actual dollar amounts and
percentages of capital for First Sterling Bank in each category at June 30,
1996:
Required First Sterling
Capital Requirement Ratio At 6/30/96
- ------------------- ----- ----------
Primary Capital Ratio 5.50% $12,676 8.23%
Total Capital Ratio 6.00% $15,389 9.99%
First Sterling's total capital ratio would place it in "Zone 1" for these
purposes as of June 30, 1996.
Insurance of Deposit Accounts
The FDIC sets deposit insurance assessment rates on a semiannual basis
separately for SAIF. The FDIC has authority to reduce the assessment rates for
either fund whenever the ratio of its reserves to insured deposits is equal to
or greater than 1.25%, and to increase deposit insurance assessments whenever
that ratio is less than 1.25%. Both funds' reserve levels have been less than
1.25% since the separate funds were established under FIRREA. The insurance
assessments paid by an institution are to be based on the probability that its
fund (BIF or SAIF) will incur a loss with respect to the institution.
An institution's semiannual deposit insurance assessment is computed
primarily by multiplying its "average assessment base" (generally, total
insurable domestic deposits) for the prior semiannual period by one-half the
annual assessment rate applicable to that institution depending upon its risk
category, which is based principally on two measures of risk. These measures
involve capital and supervisory factors.
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Item 5. Other Information - (Continued)
For the capital measure, institutions are assigned semiannually to one
of three capital groups according to their levels of supervisory capital as
reported on their call reports: "well capitalized" (group 1), "adequately
capitalized" (group 2) and "undercapitalized" (group 3). The capital ratio
standards for classifying an institution in one of these three groups are total
risk-based capital ratio (10 percent or greater for group 1, and between 8 and
10 percent for group 2), the Tier 1 risk-based capital ratio (6 percent or
greater for group 1, and between 4 and 6 percent for group 2), and the leverage
capital ratio (5 percent or greater for group 1, between 4 and 5 percent for
group 2).
Within each capital group, institutions are assigned to one of three
supervisory risk subgroups -- subgroup A, B, or C, depending upon an assessment
of the institution's perceived risk based upon the results of its most recent
examination and other information available to regulators. Subgroup A will
consist of financially sound institutions with only a few minor weaknesses.
Subgroup B will consist of institutions that demonstrate weaknesses which, if
not corrected, could result in significant deterioration of the institution and
increased risk of loss to the BIF. Subgroup C will consist of institutions that
pose a substantial probability of loss to the deposit insurance fund unless
effective corrective action is taken. Thus, there are nine possible
classifications to which varying assessment rates are applicable. The regulation
generally prohibits institutions from disclosing their subgroup assignments or
assessment risk classifications without FDIC authorization.
Prime Bank's deposits are insured by SAIF. Institutions with
SAIF-insured deposits are obligated to pay assessments at rates which range from
23 to 31 basis points. Prime Bank's insurance premium assessment is currently 23
basis points. There is no assurance whether this assessment rate will change,
either due to changes in the capital group or supervisory risk subgroup assigned
Prime Bank by banking regulators or other action by regulators, or due to
Congressional or regulatory changes to the assessment schedule.
First Sterling Bank's deposits are insured by BIF. On November 14,
1995, the FDIC Board adopted a resolution to reduce to a range of 0 to 27 basis
points the assessment rate applicable to deposits assessable by the BIF for the
semiannual assessment period beginning January 1, 1996. The reduction represents
a downward adjustment of 4 basis points from the revised BIF assessment rate
schedule which was in effect for the second semiannual assessment period of
1995. First Sterling Bank's insurance premium assessment is currently $500 per
quarter.
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Item 5. Other Information - (Continued)
While reducing the BIF assessment rate, the FDIC maintained the SAIF
assessment rates at current levels because the FDIC does not project the SAIF
fund to reach the required reserve level of 1.25% of SAIF-insured deposits.
Legislation has been introduced in Congress which may cause the merger of the
BIF and SAIF funds. It is not possible to predict with any assurance if, or
when, legislation might be enacted to merge the two insurance funds or, if such
legislation is adopted, what impact the merger of the funds and the legislation
would have upon future FDIC deposit insurance assessments on the Banks.
Regulators have predicted that a failure to merge the SAIF and BIF funds will
result in an increased incidence of conversions of deposits from SAIF to BIF as
institutions attempt to reduce their costs of funds. One impact of the entry of
new deposits into the BIF fund would be to dilute the proportion of coverage the
BIF fund gives to existing BIF-insured deposits, which in turn could, over time,
increase the cost of BIF deposit insurance. One impact of a reduction in the
total deposits insured by SAIF fund could be an increased risk of higher
assessment rates if an increased incidence of failures of SAIF- insured
institutions occurs.
QTL Test - Prime Bank
A "qualified thrift lender", or "QTL," test is applicable under FIRREA
for purposes of determining the scope of permissible activities, pursuant to
HOLA, for a savings and loan holding company which controls a "savings
association". Under certain circumstances, a state chartered, FDIC-insured
savings bank may be determined by the Director of the OTS to be a "savings
association" for these purposes. Prime Bank is deemed, and it is expected that
Prime Bank immediately after the Merger will continue to be deemed, a "savings
association" for these purposes. In addition, any savings association which
fails to meet the QTL test may be prohibited from engaging in activities not
permitted to both national banks and savings associations, may be forced to
convert to a national bank, and may be denied the privilege of advances, and
ultimately may be required to repay outstanding advances, from any Federal Home
Loan Bank. In addition, such a savings association may be required to be BIF
insured and to pay the necessary "exit" and "entrance" fees for converting to
BIF from SAIF.
A new QTL test became effective as of January 1, 1992 and requires 65%
of an institution's assets to consist of certain housing and consumer-related
assets. Assets that qualify without limit for inclusion as part of the 65%
requirement are loans related to domestic residential housing and manufactured
housing; home equity loans; mortgage-backed securities (where the mortgages
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Item 5. Other Information - (Continued)
are related to residential housing or manufactured housing); and direct or
indirect obligations of the FSLIC or FDIC; and shares of stock issued by any
Federal Home Loan Bank. In addition, the following assets may be included in
meeting the test subject to an overall limit of 20% of the savings bank's
portfolio: 50% of residential mortgage loans originated and sold within 90 days
of origination; 100% of investments in service corporations that meet certain
housing-related standards; 200% of loans related to the acquisition, development
and construction of one-to-four family housing meeting certain low-income
standards; 200% of certain loans in areas where credit needs of low and moderate
income residents are not being adequately met; 100% of certain loans to
churches, schools, nursing homes and hospitals; 100% of consumer and educational
loans (limited to 10% of total portfolio assets); and shares of stock issued by
the Federal Home Loan Mortgage Corporation and the Federal National Mortgage
Association. To management's knowledge, the OTS has not made any determination
regarding the applicability of the QTL test to Prime Bank. However, to the
extent it might apply, management believes that Prime Bank is in compliance with
the QTL test.
There is no assurance that Prime Bank will continue to comply with the
QTL Test or will continue to elect to be treated as a "savings association" for
various purposes.
Community Reinvestment
Under the Community Reinvestment Act ("CRA"), as implemented by federal
banking regulations, a bank or savings bank has a continuing and affirmative
obligation consistent with its safe and sound operation to help meet the credit
needs of its entire community, including low and moderate income neighborhoods.
The CRA does not establish specific lending requirements or programs for
financial institutions nor does it limit an institution's discretion to develop
the types of products and services that it believes are best suited to its
particular community, consistent with the CRA. The CRA requires the applicable
federal regulator for each bank (the FRB in the case of First Sterling and the
FDIC in the case of Prime Bank), in connection with its examination of the bank,
to assess the institution's record of meeting the credit needs of its community
and to take such record into account in its evaluation of certain applications
by such institution. The CRA requires public disclosure of an institution's CRA
rating and requires the OTS to provide a written evaluation of an institution's
CRA performance utilizing a four-tiered descriptive rating system in lieu of the
existing five-tiered numerical rating system.
36
<PAGE>
PART II
OTHER INFORMATION
Item 5. Other Information - (Continued)
Federal Home Loan Bank System
Prime Bank is a member of the FHLB System by way of investment in the
Federal Home Loan Bank of Pittsburgh ("FHLBP"). The FHLB System consists of 12
regional Federal Home Loan Banks, subject to supervision and regulation by a
newly created Federal Housing Finance Board. The Federal Home Loan Banks provide
a central credit facility primarily for member financial institutions. Each
financial institution member is required to acquire and hold shares of Federal
Home Loan Bank capital stock in an amount at least equal to the greater of 1% of
the financial institution's aggregate unpaid residential mortgage loans, home
purchase contracts and similar obligations at the beginning of each year, or 5%
of its outstanding advances from the FHLBP. At June 30, 1996, Prime Bank had a
$2.9 million investment in the stock of the FHLBP and was in compliance with
this requirement. Advances from a FHLB are secured by a member's shares of stock
in the FHLB, certain types of mortgages and other assets. Interest rates charged
on advances vary with the maturity and the cost of funds to the FHLB. At June
30, 1996 Prime Bank had $58.0 million of advances and borrowings from the FHLBP.
FHLB System members are also authorized to borrow from the Federal Reserve
"discount window," but FRB regulations require institutions to exhaust all FHLB
sources before borrowing from a Federal Reserve Bank.
Federal Reserve System
Federal Reserve Membership - First Sterling Bank. First Sterling Bank
is a member of the Federal Reserve System. Member banks are entitled to certain
borrowing, item clearing and other privileges at Federal Reserve Banks, and are
obligated to purchase shares in the local Federal Reserve Bank. In the case of a
state bank such as First Sterling Bank, the amount of Federal Reserve Bank stock
which it is required to purchase and maintain must be equal to 6% of the paid-up
capital and surplus of the member institution. Member banks are also required to
comply with applicable regulations of the FRB. These include, without
limitation, capital requirements, reporting requirements, submission to
examination, limitations on certain activities, investments and loans,
regulation of payment of dividends, and compliance with certain prompt
corrective action, safety and soundness and real estate lending standards.
Reserve Requirements. FRB regulations require each of the Banks to
maintain non-interest earning reserves against their transaction accounts
(primarily NOW and regular checking accounts). The FRB regulations generally
require that reserves of 3% must be
37
<PAGE>
PART II
OTHER INFORMATION
Item 5. Other Information - (Continued)
maintained against aggregate transaction accounts of $51.9 million or less
(subject to adjustment by the FRB) and an initial reserve of $1.557 million plus
10% (subject to adjustment by the FRB between 8% and 14%) against that portion
of total transaction accounts in excess of $51.9 million. The first $4.0 million
of otherwise reservable balances (subject to adjustments by the FRB) are
exempted from the reserve requirements. The FRB may adjust reserve requirements
or impose supplemental reserve requirements under some circumstances. Each of
the Banks is in compliance with the foregoing requirements. Because required
reserves must be maintained in the form of either vault cash, a
non-interest-bearing account at a Federal Reserve Bank or a pass-through account
as defined by the FRB, the effect of this reserve requirement is to reduce the
effective return or yield on the Banks' assets.
Other Laws and Regulations
Prime, First Sterling and the Banks are, and will continue after
consummation of the Merger to be, subject to a variety of laws and regulations
which are not limited to banking organizations. Without limiting the foregoing,
in lending to commercial and consumer borrowers, and in owning and operating
their properties, the Banks are each subject to regulations and risks under
state and federal environmental laws.
Compliance
While the expense of compliance can be substantial and could have an
adverse effect on the net income of all regulated institutions such as the
Banks, management believes that Prime, First Sterling and the Banks are
presently in compliance with applicable laws and regulations in all material
respects.
Legislation and Regulatory Changes
Legislation and regulations may be proposed or enacted from time to
time which could increase the cost of doing business, limit or expand
permissible activities, or affect the competitive balance between banks and
other competing financial services providers. No prediction can be made as to
the likelihood of any major changes or the impact such changes might have on New
Prime or either of the Banks.
38
<PAGE>
PART II
OTHER INFORMATION
Item 5. Other Information - (Continued)
Effect of Government Monetary Policies
The earnings of Prime and First Sterling are, and the earnings of Prime
after the Merger will be, affected by domestic and international economic
conditions and the monetary and fiscal policies of the United States government
and its agencies, as well as those of foreign countries. It is not possible to
predict the nature and impact of future changes in economic conditions or
governmental monetary or fiscal policies.
Recent Legislative Developments
Legislation Regarding Bad Debt Reserve. Under Section 593 of the Code,
thrift institutions such as Prime 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. Prime 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 Prime Bank's
actual loss experience (the "experience method"), or a percentage equal to 8.0%
of Prime 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 a non-qualifying reserve.
Under provisions of H.R. 3448 passed by Congress on August 2, 1996 ("H.R.
3448"), the percentage of taxable income method would be repealed and thrift
institutions such as Prime Bank would be permitted to deduct bad debts only as
they occur. In addition, Prime Bank would be required to recapture (i.e., take
into income) over a 6-year period the excess of the balance of such reserves as
of December 31, 1995, over the greater of (a) the balance of such reserves as of
December 31, 1987 or (b) an amount that would have been the balance of such
reserves as of December 31, 1995 had Prime Bank always computed the additions to
its reserves using the experience method. However, under H.R. 3448, such
recapture requirements would be suspended for each of two successive taxable
years beginning January 1, 1996, in which Prime Bank originates an amount of
certain residential loans in excess of the average of the principal amounts of
such loans made by Prime Bank during its six taxable years preceding 1996.
If H.R. 3448 were not adopted, Prime would continue to be subject to
recapture of approximately $7.7 million in excess bad debt reserve deductions if
Prime Bank were to convert or merge
39
<PAGE>
PART II
OTHER INFORMATION
Item 5. Other Information - (Continued)
into a commercial bank. However, if H.R. 3448 is enacted, a recapture of excess
bad debt reserve deductions would not be required.
Recapitalization of SAIF. The deposits of Prime Bank are currently
insured by the SAIF. 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
issued in the late 1980's by the Financing Corporation ("FICO") to recapitalize
the now defunct Federal Savings and Loan Insurance Corporation.
The U.S. Congress has been considering legislation which would provide
for recapitalization of the SAIF. The legislation being considered by the House
Banking Committee in August 1996 would provide that all SAIF member institutions
would pay a special one-time assessment to recapitalize the SAIF, which in the
aggregate would be sufficient to bring the reserve ratio in the SAIF to 1.25% of
insured deposits. Based on recent levels of reserves maintained by the SAIF
Fund, estimates of the amount of the special assessment required to recapitalize
the SAIF have ranged from 75 to 80 basis points times the SAIF-assessable
deposits. The special assessment would be payable upon enactment of the
legislation, based on the amount of SAIF deposits on March 31, 1995. It is
anticipated that, after the recapitalization of the SAIF, premiums of
SAIF-insured institutions would be reduced so that they are comparable to those
currently being assessed upon BIF-insured commercial banks. The legislation
would also provide for the merger of the BIF and SAIF in 1999, and would direct
the U.S. Treasury Department to make recommendations by March 31, 1997 on
elements of a single charter for financial institutions. As considered by the
House Banking Committee, the legislation included provisions empowering banking
regulators to take steps to prevent affiliated institutions from facilitating
deposit shifts from the SAIF to the BIF.
It is presently uncertain whether legislation recapitalizing SAIF,
reducing SAIF premiums and/or imposing a special one-time assessment on
institutions with SAIF-insured deposits, will be adopted or, if adopted, the
amount of the assessments, if any, that would be imposed on Prime Bank as a
result.
40
<PAGE>
PART II
OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K - Report dated June 12, 1996 and June 27, 1996,
and amended August 12, 1996, relating to execution of Agreement and
Plan of Reorganization dated June 12, 1996 ("Agreement") with First
Sterling Bancorp, Inc. The following financial statements were
filed with such reports:
Financial Statements, Pro Forma Financial Information and
Exhibits
a) Financial Statements of Business Acquired.
Annual Financial Statements:
Report of Independent Accountant's
Consolidated Balance Sheets at December 31, 1995 and 1994
Consolidated Statements of Income for the
Years Ended December 31, 1995, 1994 and 1993
Consolidated Statements of Shareholders' Equity for the
Years Ended December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements
Interim Financial Statements:
Consolidated Balance Sheets at June 30, 1996 and December 31, 1995
Consolidated Statements of Income (Unaudited) for the Three and
Six Months Ended June 30, 1996 and 1995
Consolidated Statements of Cash Flows (Unaudited) for the
Six Months Ended June 30, 1996 and 1995
Notes to Consolidated Financial Statements (Unaudited)
b) Pro Forma Financial Information
The following unaudited pro forma condensed consolidated financial
statements are filed with this report:
Pro Forma Combined Balance Sheet at June 30, 1996
Pro Forma Condensed Combined Statement of Operations Six Months
Ended June 30, 1996 and 1995
Pro Forma Condensed Combined Statement of Operations
Years Ended December 31, 1995 and 1994
Years Ended December 31, 1993
Notes to Pro Forma Combined Financial Information
41
<PAGE>
PART II
OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K - (Continued)
The Pro Forma Combined Balance Sheet of Prime and First Sterling as of June 30,
1996, give effect to the Merger using a pooling of interest method of
accounting. The Pro Forma Financial Information should be read in conjunction
with the Consolidated Financial Statements of the Registrant. The data set forth
is not necessarily indicative of the results of the future operations of Prime
upon consummation of the Merger or the actual results that would have been
achieved had the Merger been consummated for the periods presented.
42
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 15, 1996 /s/ James J. Lynch
------------------ --------------------------
James J. Lynch
President and Chief
Executive Officer
Date: August 15, 1996 /s/ Michael J. Sexton
------------------ --------------------------
Michael J. Sexton
Treasurer and Chief
Financial
43
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 of our
report dated February 23, 1996, on our audits of the consolidated financial
statements of First Sterling Bancorp, Inc. as of December 31, 1995 and 1994,
and for the years ended December 31, 1995, 1994 and 1993. We also consent to
the reference to our firm under the caption "Experts."
/s/ COOPERS & LYBRAND L.L.P.
- ------------------------------
Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
October 4, 1996
EXHIBIT 23.2
The Board of Directors
Prime Bancorp., Inc.
We consent to the use of our report incorporated herein by reference and to the
reference to our firm under the heading "Experts" in the registration statement
and prospectus. Our report dated January 26, 1996, contains an explanatory
paragraph that states that the Company adopted the provisions of the Financial
Accounting Standards Board's Statement of Financial Accounting Standards
No. 109, Accounting for Income Taxes, and No. 115, Accounting for Certain
Investments in Debt and Equity Securities, in 1993.
/s/ KPMG PEAT MARWICK LLP
- ----------------------------
KPMG Peat Marwick LLP
Philadelphia, PA
October 7, 1996
EXHIBIT 23.4
October 8, 1996
Board of Directors
First Sterling Bancorp, Inc.
80 West Lancaster Avenue
Devon, PA 19333
Gentlemen:
Reference is made to the information set forth under the heading "THE
MERGER -- Certain Federal Income Tax Consequences" contained in the Joint Proxy
Statement/Prospectus included in Prime Newco, Inc.'s ("Prime") Registration
Statement on Form S-4 relating to 1,654,546 shares of Prime's Common Stock that
may be issued in connection with the proposed merger (the "Merger") of First
Sterling Bancorp' Inc. ("First Sterling") with and into Prime. The discussion
under that heading, to the extent it reflects the opinion of Kania, Lindner,
Lasak and Feeney to be delivered at the closing of the Merger, and subject to
the assumptions and conditions described therein, accurately summarizes the
opinion we anticipate rendering at such closing.
Our opinion will be based on the case law, Internal Revenue Code, Treasury
Regulations and Internal Revenue Service rulings as they exist at the time the
opinion is rendered. These authorities are all subject to change and such change
may be made with retroactive effect. We can give no assurances that, after such
change, our opinion would not be different. We undertake no responsibility to
update or supplement our opinion.
We hereby consent to the filing with the Securities and Exchange Commission
of the opinion as an exhibit to the Registration Statement of which the Joint
Proxy Statement/Prospectus is a part and to the reference to our firm under the
heading "THE MERGER -- Certain Federal Income Tax Consequences" contained
therein. In giving such consent, we do not thereby admit that we are in the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933.
Very truly yours,
KANIA, LINDNER, LASAK AND FEENEY
EXHIBIT 23.5
[ BERWIND LETTERHEAD ]
October 4, 1996
Board of Directors
Prime Bancorp, Inc.
6425 Rising Sun Avenue
Philadelphia, PA 19111
Dear Directors:
Berwind expressly consents to the filing of our fairness opinion as an
exhibit to the registration statement on Form S-4 filed with the Securities and
Exchange Commission by New Prime in connection with the Proposed Merger, and its
inclusion in the Prospectus/Joint Proxy Statement which forms a part of said
registration statement. Berwind further consents to the references to Berwind in
the Prospectus/Joint Proxy Statement as the financial advisor to Prime.
Sincerely,
/s/ Berwind Financial Group, L.P.
-------------------------------------
BERWIND FINANCIAL GROUP, L.P.
