Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
[ X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarter ended September 30, 1995.
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ________ to _____.
Commission File Number: 0-14815
Progress Financial Corporation
(Exact name of registrant as specified in its charter)
Delaware 23-2413363
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Plymouth Meeting Executive Campus
600 West Germantown Pike
Plymouth Meeting, Pennsylvania 19462-1060
(address of principal executive offices (Zip Code)
Registrant's telephone number, including area code: (610) 825-8800
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock ($1.00 par value) 3,280,000
Title of Each Class Number of Shares Outstanding
as of November 7, 1995
<PAGE>
Progress Financial Corporation
Table of Contents
PART I - Financial Information
Page
Item 1. Financial Statements
Consolidated Statements of Financial Condition as of
September 30, 1995 (unaudited) and December 31, 1994.................3
Consolidated Statements of Operations for the three
and nine months ended September 30, 1995 and 1994 (unaudited)........4
Consolidated Statements of Cash Flows for the nine months
ended September 30, 1995 and 1994 (unaudited)........................5
Notes to Consolidated Financial Statements (unaudited)...............7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (unaudited)................................9
PART II - Other Information
Item 1. Legal Proceedings...................................................29
Item 2. Changes in Securities...............................................29
Item 3. Defaults upon Senior Securities.....................................29
Item 4. Submission of Matters to a Vote of Security Holders.................29
Item 5. Other Information...................................................29
Item 6. Exhibits and Reports on Form 8-K....................................29
Signatures..........................................................30
PROGRESS FINANCIAL CORPORATION
_______________________________________________________________________________
PART I- FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition
September 30, December 31,
1995 1994
(Dollars in Thousands)
(unaudited)
Assets
Cash and due from banks:
Interest bearing $ 168 $ 311
Non-interest bearing 6,127 7,764
Investment securities:
Available for sale at fair value
(amortized cost: $7,029 in 1995
and $5,029 in 1994) 6,936 4,627
Held to maturity
(fair value: $12,757 in 1995 and
$11,928 in 1994) 12,918 12,866
Mortgage-backed securities:
Available for sale at fair value
(amortized cost: $15,774 in 1995
and $9,752 in 1994) 15,530 9,103
Held to maturity
(fair value: $82,519 in 1995
and $87,105 in 1994) 84,476 93,673
Loans 212,165 207,274
Less: allowance for loan losses (1,556) (1,502)
Net loans 210,609 205,772
Loans held for sale
(fair value: $2,139 in 1995 and $361 in 1994) 2,139 351
Real estate owned, net 3,479 4,534
Premises and equipment 5,275 1,909
Accrued interest receivable 2,460 2,210
Other assets 6,599 5,069
Total assets $356,716 $348,189
Liabilities and Stockholders' Equity
Liabilities:
Deposits $288,883 $283,958
Advances from the Federal Home Loan Bank 44,950 44,052
Subordinated debt 3,000 3,000
Advance payments by borrowers for taxes and insurance 1,400 2,352
Accrued interest payable 1,238 588
Other liabilities 2,371 1,218
Total liabilities 341,842 335,168
Stockholders' equity:
Serial preferred stock - 1,000,000 shares
authorized but unissued --- ---
Junior participating preferred stock - $ .01 par
value - 1,010 shares authorized but unissued --- ---
Common stock - $1 par value; 6,000,000 shares
authorized; 3,280,000 and 3,275,000 shares
issued and outstanding at September 30, 1995 and
December 31, 1994, respectively 3,280 3,275
Capital surplus 15,706 15,706
Retained earnings (deficit) (3,775) (4,909)
Unrealized loss on securities available for sale (337) (1,051)
Total stockholders' equity 4,874 13,021
Total liabilities and stockholders' equity $356,716 $348,189
See Notes to Consolidated Financial Statements.
PROGRESS FINANCIAL CORPORATION
________________________________________________________________________________
Consolidated Statements of Operations
For The Three Months For The Nine Months
Ended September 30, Ended September 30,
1995 1994 1995 1994
(Dollars in Thousands) (Dollars in Thousands)
(unaudited) (unaudited)
Interest income:
Loans, including fees $4,712 $3,911 $13,905 $10,924
Mortgage-backed securities 1,675 1,716 5,025 4,873
Investment securities 312 343 850 675
Other 27 11 104 46
Total interest income 6,726 5,981 19,884 16,518
Interest expense:
Deposits 3,171 2,558 9,077 7,398
Advances from the Federal
Home Loan Bank 695 648 2,214 1,560
Subordinated debt 69 67 202 67
Total interest expense 3,935 3,273 11,493 9,025
Net interest income 2,791 2,708 8,391 7,493
Provision for loan losses 100 56 350 406
Net interest income after
provision for loan losses 2,691 2,652 8,041 7,087
Other income:
Mortgage origination
and servicing 183 211 585 600
Service charges on deposits 253 199 737 597
Gain (loss) from mortgage
banking activities 18 1 46 (171)
Gain (loss) from sales
of securities --- (55) (35) (124)
Income (loss) on properties
sold (16) (42) (34) (60)
Other 379 139 541 400
Total other income 817 453 1,840 1,242
Other expense:
Salaries and employee
benefits 1,241 1,125 3,695 3,228
Occupancy 346 321 1,037 994
Data processing 216 221 612 611
Furniture, fixtures, and
equipment 145 138 418 362
Insurance premiums 251 264 766 786
Provision for real estate owned 49 52 455 1,541
Loan and real estate
owned expense, net 84 121 35 301
Professional services 162 190 456 593
Other 560 331 1,273 977
Total other expense 3,054 2,763 8,747 9,393
Income (loss) before
income taxes 454 342 1,134 (1,064)
Income tax expense --- --- --- ---
Net income (loss) $ 454 $ 342 $ 1,134 $ (1,064)
Earnings (loss) per share:
Primary earnings (loss) $ .13 $ .10 $ .33 $ (.32)
Fully diluted
earnings (loss) $ .13 $ .10 $ .33 $ (.32)
Weighted average number of
shares outstanding:
Primary 3,394,869 3,275,000 3,385,693 3,275,000
Fully diluted 3,401,357 3,275,000 3,388,689 3,275,000
See Notes to Consolidated Financial Statements.
PROGRESS FINANCIAL CORPORATION
_______________________________________________________________________________
Consolidated Statements of Cash Flows
For The Nine Months
Ended September 30,
1995 1994
(Dollars in Thousands)
(unaudited)
Cash flows from operating activities:
Net income (loss) $ 1,134 $ (1,064)
Add (deduct) items not affecting cash flows
from operating activities:
Depreciation and amortization 425 403
Provision for real estate owned 455 1,541
Provision for loan losses 350 406
Capitalized interest on real estate owned --- (11)
(Gain) loss from loan sales and securitizations (18) 171
Loss from sales of securities available for sale 35 124
Loss on properties sold 34 60
Amortization of deferred loan fees (414) (419)
Amortization of premiums/accretion
of discounts on securities 429 1,833
Originations and purchases of loans held
for sale (7,391) (14,742)
Sales of loans 13,648 33,144
(Increase) decrease in accrued interest
receivable (250) 426
(Increase) decrease in other assets (1,530) 1,157
Increase in other liabilities 1,153 2,212
Increase in accrued interest payable 650 450
Net cash flows provided by operating activities 8,710 25,691
(continued)
See Notes to Consolidated Financial Statements.<PAGE>
PROGRESS FINANCIAL CORPORATION
_______________________________________________________________________________
Consolidated Statements of Cash Flows (continued)
For The Nine Months
Ended September 30,
1995 1994
(Dollars in Thousands)
(unaudited)
Cash flows from investing activities:
Capital expenditures $ (3,791) $ (390)
Purchases of mortgage-backed securities
held to maturity --- (13,368)
Repayments on mortgage-backed securities
held to maturity 8,795 20,000
Repayments on mortgage-backed securities
available for sale 1,053 3,633
Purchases of mortgage-backed securities
available for sale (7,072) (13,187)
Sales of mortgage-backed securities
available for sale --- 16,786
Net increase in loans (13,037) (41,362)
Purchases of investments held to maturity (831) (10,893)
Purchases of investments available for sale (2,998) (9,023)
Proceeds from sales of investments available
for sale 965 3,945
Maturities of investments held to maturity 747 1,126
Proceeds from sales of real estate owned 1,437 6,929
Net decrease in investments/advances to
affiliates and joint ventures --- 254
Advances for construction of real estate owned (634) (949)
Net cash flows used in investing activities (15,366) (36,499)
Cash flows from financing activities:
Net (decrease) increase in demand,
NOW and saving deposits (2,402) 49
Net increase in time deposits 7,327 3,385
Net increase in advances from
the Federal Home Loan Bank 898 9,857
Net decrease in advance payments by borrowers
for taxes and insurance (952) (1,066)
Net proceeds from issuance of subordinated debt --- 3,000
Net proceeds from issuance of common stock 5 ---
Net cash flows provided by financing activities 4,876 15,225
Net (decrease) increase in cash and
cash equivalents (1,780) 4,417
Cash and cash equivalents:
Beginning of year 8,075 4,204
End of period $ 6,295 $ 8,621
Supplemental disclosures:
Non-monetary transfers:
Net conversion of loans receivable to
real estate owned $ 237 $ 496
Securitization of mortgage loans
into mortgage-backed securities $ 241 $ 24,979
Cash payments for:
Interest $ 10,843 $ 8,587
See Notes to Consolidated Financial Statements.
PROGRESS FINANCIAL CORPORATION
________________________________________________________________________________
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1) In the opinion of management, the financial information, which is
unaudited, reflects all adjustments (consisting solely of normal recurring
adjustments) necessary for a fair presentation of the financial
information as of and for the three and nine months ended September 30,
1995 and 1994 in conformity with generally accepted accounting principles.
These financial statements should be read in conjunction with Progress
Financial Corporation's (the "Company") 1994 Annual Report and Form 10-K.
Prior period amounts have been reclassified when necessary to conform with
current period classifications. The Company's principal subsidiary is
Progress Federal Savings Bank (the "Bank").
The year end consolidated statement of financial condition was derived
from the Company's 1994 audited financial statements, but does not include
all disclosures required by generally accepted accounting principles.
(2) In May 1993, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 114, "Accounting by
Creditors for Impairment of a Loan" ("SFAS 114"). SFAS 114 requires
adjustment to the carrying value of a loan through the provision for
credit losses when it is "probable" that a creditor will be unable to
collect all amounts due according to the contractual terms of the loan.
SFAS 114 was subsequently amended by Statement of Financial Accounting
Standards No. 118, "Accounting by Creditors for Impairment of a Loan-
Income Recognition and Disclosures" ("SFAS 118") to allow a creditor
to use existing methods for recognizing interest income on an impaired
loan. The adoption of SFAS 114 and SFAS 118 in the first quarter of 1995
resulted in the identification of impaired loans which amounted to $2.9
million with a related allowance for loan losses of $4 thousand. As of
September 30, 1995, the Company had no impaired loans, as defined under
SFAS 114.
Also, in May 1993, the FASB issued Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS 115"). SFAS 115 requires debt and equity securities to
be classified in one of three categories and to be accounted for as
follows: debt securities which the Company has the positive intent and
ability to hold to maturity are classified as "securities held to maturity"
and are reported at amortized cost; debt and equity securities that are
bought and held principally for the purpose of selling them in the near
term are classified as "trading securities" and are reported at fair value
with unrealized gains and losses included in earnings; and debt and equity
securities not classified as either held to maturity or trading securities
are classified as "securities available for sale" and reported at fair
value with unrealized gains and losses excluded from earnings, but reported
as a separate component of stockholders' equity. The Company adopted SFAS
115 in the first quarter of 1994. The cumulative effect of adopting SFAS
115 on January 1, 1994 resulted in a $61 thousand reduction in
stockholders' equity for unrealized losses on mortgage-backed securities
and investments classified as available for sale of $46 thousand and
$15 thousand, respectively. As of September 30, 1995, stockholders' equity
was reduced by $337 thousand for unrealized losses on mortgage-backed
securities and investments classified as available for sale of $244
thousand and $93 thousand, respectively.
In May 1995, the FASB issued Statement of Financial Accounting Standards
No. 122, "Accounting for Mortgage Servicing Rights and Excess Servicing
Receivables and for Securitization of Mortgage Loans" ("SFAS 122").
SFAS 122, which is effective for the years beginning after December 15,
1995, will require the Company, which serves mortgage loans for others
in return for servicing fees, to recognize these servicing rights as
assets, regardless of how such assets were acquired. Additionally, the
Company would be required to assess the fair value of these assets at each
reporting date to determine any potential impairment. Management of the
Company has not yet completed an analysis of the effects this pronouncement
will have on its results of operations or financial position.
PROGRESS FINANCIAL CORPORATION
________________________________________________________________________________
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
On August 7, 1995, the Federal Deposit Insurance Corporation ("FDIC") approved
a final rule regarding deposit insurance premiums. The final rule will reduce
deposit insurance premiums for Bank Insurance Fund ("BIF") member institutions
from 23 to 4 points for institutions in the lowest risk category, while holding
deposit insurance premiums for Savings Association Insurance Fund ("SAIF")
members at their current levels (23 basis points for institutions in the lowest
risk category). The reduction was effective with respect to the September 30,
1995 premium assessment. Accordingly, in the absence of further legislative
action, SAIF members such as the Bank will be competitively disadvantaged as
compared to commercial banks by the resulting premium differential.
A number of proposals have recently been introduced in Congress in order to
address the disparity in commercial bank and thrift deposit insurance premiums.
On September 19, 1995, legislation was approved by the House Banking Committee
that would, among other things: (i) impose a requirement on all SAIF member
institutions to fully recapitalize the SAIF by paying a one-time special
assessment of at least approximately 85 basis points on all assessable
deposits, which assessment would be due as of January 1, 1996, (ii) spread the
responsibility for Financing Corporation interest payments across all
FDIC-insured institutions on a pro rata basis, subject to certain exceptions,
(iii) make SAIF member institutions subject to the same deposit insurance
premium schedule as is applicable to BIF member institutions, upon
recapitalization of the SAIF, (iv) provide for a merger of the BIF and the SAIF
as of January 1, 1998, (v) require federal savings associations to convert to
state or national bank charters by January 1, 1998, (vi) require savings
associations to divest of any activities not permissible for commercial banks
within five years, (vii) eliminate the bad-debt reserve deduction for savings
associations, although savings associations would not be required to fully
recapture into income their accumulated bad-debt reserves, (viii) provide for
the conversion of savings and loan holding companies into bank holding companies
as of January 1, 1998, although unitary savings and loan holding companies
authorized to engage in activities as of September 13, 1995 would have such
authority grandfathered (subject to certain limitations) and (ix) abolish the
Office of Thrift Supervision ("OTS") and transfer the OTS' regulatory authority
to the other federal banking agencies. The proposed legislation would also
provide that any savings association that would become undercapitalized under
the FDIC's prompt corrective action regulations as a result of the special
deposit premium assessment could be exempted from payment of the assessment,
provided that the institution would continue to be subject to the payment of
semiannual assessments under the current rate schedule following the
recapitalization of the SAIF.
The Senate Banking Committee approved similar legislation at its meeting held
on September 20, 1995. The Senate proposal would also impose a one-time special
assessment on savings associations in order to recapitalize the SAIF, and
includes provisions similar to certain of the other provisions contained in the
House Legislation. Unlike the House legislation, however, the Senate bill does
not include a comprehensive approach for merging the savings association and
commercial bank charters.
While the outcome of the proposed legislation cannot be predicted with
certainty, it is likely that some kind of legislative or regulatory action
will be undertaken that will impact the Bank's insured deposits. A one-time
special assessment of 85 basis points would result in the Bank paying
approximately $2.3 million, net of related tax benefits, if any. In addition,
the enactment of such legislation may have the effect of immediately reducing
the capital of SAIF-member institutions by the amount of the special assessment.
As of September 30, 1995, after giving effect to the payment and deduction
of an 85 basis point special assessment, the Bank's tangible, core and
risk-based capital ratios would have amounted to, on a pro forma basis,
approximately 4.13%, 4.13%, and 8.18%, respectively.
In light of the different proposals currently under consideration and the
uncertainty of the legislative process generally, management cannot predict
whether legislation reducing SAIF premiums and/or imposing a special one-time
assessment will be adopted, or, if adopted, the amount of the assessment,
if any, that would imposed on the Bank.<PAGE>
PROGRESS FINANCIAL CORPORATION
_______________________________________________________________________________
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (unaudited)
The following discussion and analysis of financial condition and results of
operations should be read in conjunction with the Company's Consolidated
Financial Statements and accompanying notes. Certain reclassifications have
been made to prior period data throughout the following discussion and analysis
for comparability with 1995 data.
SUMMARY
The Company recorded net income of $454 thousand or $.13 per share for the
three months ended September 30, 1995 in comparison with net income of $342
thousand or $.10 per share for the three months ended September 30, 1994.
Return on average stockholders' equity was 12.35% and return on average
assets was .51% for the three months ended September 30, 1995 compared to
10.56% and .39%, respectively, for the three months ended September 1994.
For the nine months ended September 30, 1995, the Company had net income of
$1.1 million or $.33 per share in comparison with a net loss of $1.1 million
or $.32 per share for the nine months ended September 30, 1994. Return (loss)
on average stockholders' equity was 10.80% and return (loss) on average assets
was .43% for the nine months ended September 30, 1995 compared to (10.26)% and
(.42)%, respectively, for the nine months ended September 30, 1994.
Net interest income was $2.8 million and $2.7 million for the three months
ended September 30, 1995 and 1994, respectively. Operating results for the
three months ended September 30, 1995 and 1994 included $100 thousand and
$56 thousand, respectively, in provision for losses on loans. Other income for
the three months ended September 30, 1995 included gains of $18 thousand from
mortgage banking activities compared to gains of $1 thousand for the three
months ended September 30, 1994. Other expense totalled $3.1 million for the
three months ended September 30, 1995 in comparison with $2.8 million for the
same period in 1994, primarily due to increased salaries and employee benefits
expense and other miscellaneous expenses.
For the nine months ended September 30, 1995, net interest income was $8.4
million in comparison with $7.5 million for the nine months ended September 30,
1994. Operating results for the nine months ended September 30, 1995 and 1994
included $350 thousand and $406 thousand, respectively, in provision for losses
on loans. Gains from mortgage banking activities totalled $46 thousand for the
nine months ended September 30, 1995 in comparison with losses of $171 thousand
for the nine months ended September 30, 1994. Other expenses totalled $8.7
million for the nine months ended September 30, 1995 in comparison with $9.4
million for the same period in 1994, primarily due to a $1.1 million decrease
in the provision for real estate owned ("REO").
On July 17, 1995 the Company acquired a majority interest in Quaker State
Financial Corporation which is engaged in the equipment leasing business.
In November 1994, the Company received final approval from the Office of
Thrift Supervision ("OTS") to open a retail branch office in Paoli,
Pennsylvania. The Company commenced operations at this location in
September 1995.
On June 30, 1994, the Company completed the sale of $3.0 million in
subordinated debentures in a private placement. Twelve units were sold,
with each unit consisting of $250 thousand in principal amount of 8.25%
subordinated notes due 2004 and warrants to purchase 25,000 shares of
common stock. Each warrant entitles the holder to purchase one share
of the Company's common stock at an exercise price of $6.00. The warrants
are not exercisable until the earlier to occur of May 31, 1996 or the
effectiveness of the Common Stock Registration Statement. The warrants are
exercisable subsequent thereto, in whole or in part, at any time prior to
June 30, 1999. Interest on the subordinated debentures is payable quarterly.
The subordinated debentures are due June 30, 2004 and are not redeemable prior
to July 1, 1996. The Company made a $2.4 million capital contribution to the
Bank from the proceeds.<PAGE>
PROGRESS FINANCIAL CORPORATION
_______________________________________________________________________________
RESULTS OF OPERATIONS
Net Interest Income
For the three months ended September 30, 1995, net interest income amounted to
$2.8 million in comparison with $2.7 million for the same period in 1994.
Net interest income for the three months ended September 30, 1995 was
positively impacted by a $5.1 million increase in average interest-earning
assets, while average interest-bearing liabilities increased $2.2 million.
The interest rate spread decreased 3 basis points for the three months ended
September 30, 1995 compared to the same period in 1994, due to an 81 basis
point increase in the average rate on interest-bearing liabilities which was
partially offset by a 78 basis point increase in the average yield on
interest-earning assets.
For the nine months ended September 30, 1995, net interest income amounted to
$8.4 million in comparison with $7.5 million for the same period in 1994.
Net interest income for the nine months ended September 30, 1995 was positively
impacted by a $16.2 million increase in average interest-earning assets, while
average interest-bearing liabilities increased $10.6 million. In addition,
the interest rate spread increased 9 basis points for the nine months ended
September 30, 1995 compared to the same period in 1994, due to a 101 basis
point increase in the average yield on interest-earning assets which was
partially offset by a 92 basis point increase in the average rate on
interest-bearing liabilities.
Net interest income is affected by the interest rate spread, which is the
difference between the yield on average interest-earning assets and the cost
of average interest-bearing liabilities, as well as by the relative amounts of
interest-earning assets and interest-bearing liabilities. When interest-rate
sensitive liabilities exceed interest-rate sensitive assets (a negative gap),
the net interest margin (net interest income divided by average interest-
earning assets) will generally be negatively affected during periods of
increasing interest rates and will generally be positively affected during
periods of decreasing interest rates. Where interest-rate sensitive assets
exceed interest-rate sensitive liabilities (a positive gap), the net interest
margin is positively affected during periods of increasing interest rates and
negatively affected during periods of decreasing interest rates.<PAGE>
PROGRESS FINANCIAL CORPORATION
_______________________________________________________________________________
The following table sets forth, for the periods indicated, information regarding
(i) the total dollar amount of interest income on interest-earning assets and
the resultant average yield; (ii) the total dollar amount of interest expense
on interest-bearing liabilities and the resultant average cost; (iii) net
interest income; (iv) interest rate spread; and (v) net interest margin.
Information is based on average daily balances during the indicated periods.
For the purposes of this table, non-accrual loans have been included in the
appropriate average balance category, but accrued interest on non-accrual loans
has not been included for purposes of determining interest income.
<TABLE>
<CAPTION>
For The Three Months Ended September 30,
1995 1994
(Dollars in Thousands)
Average Yield/ Average Yield/
Balance Interest Rate<1> Balance Interest Rate<F1>
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Mortgage loans <F2> $175,281 $3,891 8.81% $166,404 $3,247 7.74%
Mortgage-backed securities <F2> 102,346 1,674 6.49 110,753 1,716 6.15
Other loans 35,223 822 9.26 29,101 664 9.05
Investment securities and other
interest-earning assets <F3> 20,371 339 6.60 21,904 354 6.41
Total interest-earning assets 333,221 $6,726 8.01% 328,162 $5,981 7.23%
Non-interest-earning assets 20,679 18,329
Total assets $353,900 $346,491
Interest-bearing liabilities:
Interest-bearing deposits:
NOW and Super NOW $ 28,004 $ 198 2.81% $ 21,426 $ 136 2.52%
Money market accounts 32,691 255 3.09 39,625 284 2.84
Passbook and statement savings 27,392 199 2.88 28,538 212 2.95
Time deposits 179,519 2,519 5.57 168,233 1,926 4.54
Total interest-bearing
deposits 267,606 3,171 4.70 257,822 2,558 3.94
Advances from the Federal
Home Loan Bank 43,587 695 6.33 51,194 648 5.02
Subordinated debt 3,000 69 9.13 3,000 67 8.86
Total interest-bearing
liabilities 314,193 $3,935 4.97% 312,016 $3,273 4.16%
Non-interest-bearing liabilities 25,125 21,621
Total liabilities 339,318 333,637
Stockholders' equity 14,582 12,854
Total liabilities and
stockholders' equity $353,900 $346,491
Net interest income; interest
rate spread <F4> $2,791 3.04% $2,708 3.07%
Net interest margin <F4> 3.32% 3.27%
Average interest-earning assets
to average interest-bearing
liabilities 106.06% 105.17%
<FN>
<F1> As adjusted for fees treated as adjustments to loan yields.
<F2> Includes mortgage loans held for sale and mortgage-backed securities
classified as available for sale.
<F3> Includes investment securities classified as available for sale.
<F4> Interest rate spread represents the difference between the weighted
average yield on interest-earnings assets and the weighted average cost of
interest-bearing liabilities, and net interest margin represents net
interest income divided by average interest-earning assets.<PAGE>
</F>
</TABLE>
PROGRESS FINANCIAL CORPORATION
________________________________________________________________________________
The following table sets forth, for the periods indicated, information regarding
(i) the total dollar amount of interest income on interest-earning assets and
the resultant average yield; (ii) the total dollar amount of interest expense on
interest-bearing liabilities and the resultant average cost; (iii) net
interest income; (iv) interest rate spread; and (v) net interest margin.
Information is based on average daily balances during the indicated periods.
For the purposes of this table, non-accrual loans have been included in the
appropriate average balance category, but accrued interest on non-accrual loans
has not been included for purposes of determining interest income.
<TABLE>
For The Nine Months Ended September 30,
1995 1994
(Dollars in Thousands)
<CAPTION>
Average Yield/ Average Yield/
Balance Interest Rate<F1> Balance Interest Rate<F1>
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Mortgage loans <F2> $178,128 $ 11,570 8.68% $157,409 $ 9,147 7.77%
Mortgage-backed securities<F2> 101,793 5,025 6.60 115,968 4,873 5.62
Other loans 33,252 2,335 9.39 26,804 1,778 8.87
Investment securities and other
interest-earning assets<F3> 19,577 954 6.52 16,351 720 5.89
Total interest-earning assets 332,750 $19,884 7.99% 316,532 $16,518 6.98%
Non-interest-earning assets 18,474 21,439
Total assets $351,224 $337,971
Interest-bearing liabilities:
Interest-bearing deposits:
NOW and Super NOW $ 26,558 $ 549 2.76% $ 20,733 $ 372 2.40%
Money market accounts 33,522 778 3.10 42,746 873 2.73
Passbook and statement savings 27,396 599 2.92 27,635 609 2.95
Time deposits 176,074 7,151 5.43 166,794 5,544 4.44
Total interest-bearing
deposits 263,550 9,077 4.60 257,908 7,398 3.83
Advances from the Federal
Home Loan Bank 46,382 2,214 6.38 43,408 1,560 4.80
Subordinated debt 3,000 202 9.00 1,022 67 8.77
Total interest-bearing
liabilities 312,932 $11,493 4.91% 302,338 $ 9,025 3.99%
Non-interest-bearing liabilities 24,255 21,763
Total liabilities 337,187 324,101
Stockholders' equity 14,037 13,870
Total liabilities and
stockholders' equity $351,224 $337,971
Net interest income;
interest rate spread<F4> $ 8,391 3.08% $ 7,493 2.99%
Net interest margin<F4> 3.37% 3.17%
Average interest-earning assets
to average interest-bearing
liabilities 106.33% 104.69%
<FN>
<F1> As adjusted for fees treated as adjustments to loan yields.
<F2> Includes mortgage loans held for sale and mortgage-backed securities classified as available for sale.
<F3> Includes investment securities classified as available for sale.
<F4> Interest rate spread represents the difference between the weighted average yield on interest-earnings
assets and the weighted average cost of interest-bearing liabilities, and net interest margin represents
net interest income divided by average interest-earning assets.<PAGE>
</FN>
</TABLE>
PROGRESS FINANCIAL CORPORATION
________________________________________________________________________________
Total interest income amounted to $6.7 million for the three months ended
September 30,1995, a $745 thousand or 12.5% increase when compared to the
same period in 1994. Interest income on mortgage loans increased $644 thousand,
as the average balance outstanding increased $8.9 million and the average yield
increased 107 basis points. Interest income on mortgage-backed securities
decreased $42 thousand, as the average balance decreased $8.4 million, which
offset a 34 basis point increase in the average yield. Interest income on other
loans increased $158 thousand, as the average balance outstanding increased
$6.1 million and the average yield increased 21 basis points. Interest income
on investment securities and other interest-earning assets decreased $15
thousand, as the average balance decreased $1.5 million, which offset a 19 basis
point increase in the average yield.
Total interest expense amounted to $3.9 million for the three months ended
September 30, 1995, a $662 thousand or 20.2% increase in comparison to the same
period in 1994. Interest expense on deposits increased $613 thousand, as the
average rate on deposits increased 76 basis points and the average balance
increased $9.8 million. Interest expense on Federal Home Loan Bank of
Pittsburgh ("FHLB") advances increased $47 thousand, as the average rate
increased 131 basis points, which offset a $7.6 million decrease in the
average balance. These increases reflect the general overall market increase
in interest rates over the past year. Interest expense on subordinated debt
amounted to $69 thousand for the three months ended September 30, 1995 as
compared to $67 thousand for the three months ended September 30, 1994.
For the nine months ended September 30, 1995, total interest income amounted to
$19.9 million, a $3.4 million or 20.4% increase when compared to the same
period in 1994. Interest income on mortgage loans increased $2.4 million, as
the average balance outstanding increased $20.7 million and the average yield
increased 91 basis points. Interest income on mortgage-backed securities
increased $152 thousand, as the average yield increased 98 basis points, which
offset a $14.2 million decrease in the average balance. Interest income on
other loans increased $557 thousand as the average balance and yield on other
loans increased $6.4 million and 52 basis points, respectively. Interest income
on investment securities and other interest-earning assets increased $234
thousand, as the average balance outstanding increased $3.2 million and the
average yield increased 63 basis points.
For the nine months ended September 30, 1995, total interest expense amounted
to $11.5 million, a $2.5 million or 27.3% increase when compared to the same
period in 1994. Interest expense on deposits increased $1.7 million, as the
average balance of deposits increased $5.6 million and the average rate on
deposits increased 77 basis points. Interest expense on FHLB advances
increased $654 thousand, as the average balance and average rate increased $3.0
million and 158 basis points, respectively. These increases reflect higher
levels of FHLB advances to meet loan demand and the general overall market
increase in interest rates over the past year. Interest expense on
subordinated debt amounted to $202 thousand for the nine months ended
September 30 1995, as compared to $67 thousand for the nine months
ended September 30, 1994 due to the issuance of $3.0 million of subordinated
debentures in June 1994.<PAGE>
PROGRESS FINANCIAL CORPORATION
________________________________________________________________________________
Provision for Loan Losses
The Company's provision for loan losses represents the charge against earnings
that is required to fund the provision for loan losses. The level of the
allowance for loan losses is determined by inherent risks within the Company's
loan portfolio. Management's periodic evaluation is based upon an examination
of the portfolio, past loss experience, current economic conditions, the results
of the most recent regulatory examinations and other relevant factors. See
"Non-Performing Assets."
During the nine months ended September 30, 1995, the Company recorded a
$350 thousand provision compared with $406 thousand for the comparable period
in 1994, and had net charge-offs of $296 thousand during the nine months ended
September 30, 1995 in comparison with $941 thousand in net charge-offs during
the comparable period in 1994. At September 30, 1995, the allowance for loan
losses amounted to $1.6 million or .73% of total loans and 111.62% of total
non-performing loans. See "Non-Performing Assets - Allowance for Loan Losses."
The Company's allowance for loan losses declined by $22 thousand or 1.4% from
September 30, 1994 to September 30, 1995. The decline in such allowance
reflects the decline in non-performing loans, the decline in net charge-offs
and the decline in loan delinquencies during the nine months ended
September 30, 1995 as compared to the same period in 1994. In addition, the
ratio of the allowance for loan losses to total non-performing loans increased
from 27.18% at September 30, 1994 to 111.62% at September 30, 1995.
Nevertheless, although management utilizes its best judgement in providing for
losses, there can be no assurance that the Company will not have to increase
its provision for loan losses in the future as a result of increases in
non-performing loans or for other reasons. Any such increase could adversely
affect the Company's results of operations. In addition, various regulatory
agencies, as an integral part of their examination process, periodically review
the Company's allowance for loan losses and the carrying value of its other
non-performing assets. Such agencies may require the Company to recognize
additions to its allowance for losses on loans and adjust the carrying value
of its REO based on their judgements about information available to them at
the time of their examination.
<PAGE>
PROGRESS FINANCIAL CORPORATION
_______________________________________________________________________________
Other Income
The following table details other income for the periods indicated.
For The Three Months For The Nine Months
Ended September 30, Ended September 30,
1995 1994 1995 1994
(Dollars in Thousands) (Dollars in Thousands)
(unaudited) (unaudited)
Other income:
Mortgage origination and
servicing $ 183 $ 211 $ 585 $ 600
Service charges on deposits 253 199 737 597
Gain (loss) from mortgage
banking activities 18 1 46 (171)
Gain (loss) from sales of
securities --- (55) (35) (124)
Income (loss) on properties
sold (16) (42) (34) (60)
Other 379 139 541 400
Total other income $ 817 $ 453 $1,840 $1,242
Total other income amounted to $817 thousand for the three months ended
September 30, 1995, an increase of $364 thousand compared with the $453 thousand
in other income for the three months ended September 30, 1994. Total other
income for the three months ended September 30, 1995 included $183 thousand in
fees from mortgage origination and servicing in comparison to $211 thousand for
the same period in 1994. The decrease in such fees was primarily due to a lower
amount of mortgage servicing income. The Company's portfolio of loans serviced
for others amounted to $285.4 million at September 30, 1995. Service charges
on deposits increased $54 thousand for the three months ended September 30, 1995
primarily due to higher volumes of account transactions.
Gains from mortgage banking activities were $18 thousand for the three months
ended September 30, 1995 in comparison with a gain of $1 thousand for the
comparable period in 1994. There were no gains or losses from sales of
securities for the three months ended September 30, 1995, in comparison with
losses of $55 thousand for the comparable period in 1994. The Company may
decide to sell securities from its investment and mortgage-backed securities
classified as available for sale in accordance with its asset/liability strategy
or in response to changes in interest rates, prepayment rates, the need to
increase the Bank's regulatory capital or similar factors. The ability to
recognize gains from mortgage banking activities and sales of securities is
dependent on market and economic conditions and, accordingly, there can be no
assurance of gains in future periods or that there will not be significant
inter-period variation in the results of such activities. In 1995, the Bank
intends to sell substantially all residential mortgage loan originations in the
secondary market or to private investors. In addition, the Bank has recently
expanded its lending activities to include the origination of nonconforming
residential mortgage loans.
Losses on properties sold were $16 thousand for the three months ended
September 30, 1995, in comparison with losses of $42 thousand in the comparable
1994 period, primarily due to declining real estate owned activities. Other
miscellaneous income for the three months ended September 30, 1995 increased
$240 thousand from the three months ended September 30, 1994 primarily due to
fee income generated by the Company's subsidiary, Progress Realty Advisors, L.P.
Total other income amounted to $1.8 million for the nine months ended
September 30, 1995, an increase of $598 thousand from the $1.2 million
recognized for the comparable 1994 period. The increase was primarily
due to gains from mortgage banking activities which totalled $46 thousand
for the nine months ended September 30, 1995 in comparison with losses of
$171 thousand for the first nine months of 1994 and $35 thousand in losses
from the sale of securities classified as available for sale in 1995 in
comparison with $124 thousand in losses in 1994. Results for the nine months
ended September 30, 1995 also included increases of $140 thousand in service
charges on deposits and $141 thousand in other miscellaneous income.<PAGE>
PROGRESS FINANCIAL CORPORATION
_______________________________________________________________________________
Other Expense
The following table details other expense for the periods indicated.
For The Three Months For The Nine Months
Ended September 30, Ended September 30,
1995 1994 1995 1994
(Dollars in Thousands) (Dollars in Thousands)
(unaudited) (unaudited)
Other expense:
Salaries and employee
benefits $1,241 $1,125 $3,695 $3,228
Occupancy 346 321 1,037 994
Data processing 216 221 612 611
Furniture, fixtures and
equipment 145 138 418 362
Insurance premiums 251 264 766 786
Provision for real estate
owned 49 52 455 1,541
Loan and real estate owned
expense, net 84 121 35 301
Professional services 162 190 456 593
Other 560 331 1,273 977
Total other expense $3,054 $2,763 $8,747 $9,393
Total other expense amounted to $3.1 million for the three months ended
September 30, 1995, a decrease of $291 thousand from the $2.8 million recognized
during the comparable 1994 period, primarily due to costs associated with the
opening of the Bank's new Paoli branch office. Salaries and employee benefits
increased $116 thousand to $1.2 million for the three months ended
September 30, 1995 in comparison with $1.1 million for the three months ended
September 30, 1994 primarily due to staffing additions to support the Bank's
lending initiatives. The provision for REO amounted to $49 thousand at
September 30, 1995 as compared to $52 thousand for the comparable 1994 period,
due to a decrease in fair value writedowns on REO in 1995. Professional
services expense, which consists primarily of legal, accounting, tax and
supervisory examination fees, decreased $28 thousand from $190 thousand for
the three months ended September 30, 1994 to $162 thousand for the three months
ended September 30, 1995 primarily due to higher legal expenses associated with
loan and REO workouts in 1994. Loan and REO expense, net decreased from $121
thousand for the three months ended September 30, 1994 to $84 thousand for the
three months ended September 30, 1995 due to the lower level of non-performing
assets. Other miscellaneous expenses increased $229 thousand primarily due to
increased advertising and postage expenses and other general and administrative
expenses.
Total other expenses amounted to $8.7 million for the nine months ended
September 30, 1995, a decrease of $646 thousand from $9.4 million for the
comparable 1994 period, primarily due to a $1.1 million decrease in provision
for REO due to a decrease in fair value writedowns on REO in 1995. Salaries
and employee benefits increased $467 thousand for the nine months ended
September 30, 1995 to $3.7 million in comparison with $3.2 million for the nine
months ended September 30, 1994 primarily due to staffing additions to support
the Bank's lending initiatives. Professional services expense decreased $137
thousand from $593 thousand for the nine months ended September 30, 1994 to
$456 thousand for the nine months ended September 30, 1995 primarily due to a
reduction in legal expenses associated with loan workouts and the reimbursement
of certain legal expenses in 1995. Loan and REO expense, net decreased from
$301 thousand for the nine months ended September 30, 1994 to $35 thousand for
the nine months ended September 30, 1995 due to the lower level of
non-performing assets and positive cash flow from the operation of certain REO
properties. Other miscellaneous expenses increased $296 thousand primarily due
to increased advertising and postage expenses and other general and
administrative expenses.
<PAGE>
PROGRESS FINANCIAL CORPORATION
_______________________________________________________________________________
Income Tax Expense
The Company recorded no income tax expense for the three and nine months ended
September 30, 1995 and September 30, 1994, respectively, due to the utilization
of net operating loss carryforwards. At September 30, 1995, the Company had a
net operating loss carryforward for federal income tax purposes of approximately
$7.3 million, $417 thousand of which expires in 2006, $4.5 million of which
expires in 2007, $654 thousand of which expires in 2008 and $1.7 million of
which expires in 2009.
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS 109") on a prospective basis in the first
quarter of 1993. Under SFAS 109, deferred income taxes are recognized in full,
subject to a valuation allowance for the future tax consequences attributable
to differences between financial statement carrying amounts of existing assets
and liabilities using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to be recovered or
settled. At September 30, 1995, the Company had a valuation allowance of
$2.0 million against net deferred tax assets of $3.4 million. The amount of
the valuation allowance was determined based on management's estimate of
deferred tax assets that will be realized using the "more likely than not"
realization criteria contained in SFAS 109 in consideration of management's
projections of future taxable income.
<PAGE>
PROGRESS FINANCIAL CORPORATION
_______________________________________________________________________________
FINANCIAL CONDITION
Liquidity and Funding
The Company must maintain sufficient liquidity to meet the funding needs of
current loan demand, savings deposit withdrawals and to pay operating
expenses. The Company generally has no significant source of income other than
dividends from the Bank and its other subsidiaries and any fees paid by the
Bank and its other subsidiaries to the Company. In April 1995, the Bank
began paying a monthly management fee to the Company in order to compensate
the Company for certain operating expenses. Such operating expenses consist
primarily of accounting, tax, legal, transfer agent and other stockholder
related expenses of the Company.
The Bank is required under applicable federal regulations to maintain specified
levels of "liquid" investments in qualifying types of United States Treasury,
federal agency and other investments having maturities of five years or less.
Regulations currently in effect require the Bank to maintain liquid assets of
not less than 5% of its net withdrawable accounts plus short-term borrowings,
of which short-term liquid assets must consist of not less than 1%. These
levels are changed from time to time by the OTS to reflect economic conditions.
The Bank's average liquidity ratio for the three months ended September 30,
1995 was 6.92%.
The Bank monitors its liquidity in accordance with guidelines established by
the Bank and applicable regulatory requirements. The Company's need for
liquidity is affected by loan demand and net changes in retail deposit levels.
The Company can minimize the cash required during the times of heavy loan
demand by modifying its credit policies or reducing its marketing efforts.
Liquidity demand caused by net reductions in retail deposits are usually caused
by factors over which the Company has limited control. The Company derives its
liquidity from both its assets and liabilities. Liquidity is derived from
assets by receipt of interest and principal payments and prepayments, by the
ability to sell assets at market prices and by utilizing unpledged assets as
collateral for borrowings. Liquidity is derived from liabilities by
maintaining a variety of funding sources, including retail deposits and advances
from the FHLB.
The Company's primary source of funds has historically consisted of deposits,
amortization and prepayments of outstanding loans, borrowings from the FHLB and
sales of investment securities, loans and mortgage-backed securities. During
1994, the Company obtained additional funds through a private placement of $3.0
million of subordinated debentures, of which $2.4 million was contributed to
the Bank. During the nine months ended September 30, 1995, the Company used its
capital resources primarily to meet its ongoing commitments to fund maturing
savings certificates and deposit withdrawals, fund existing and continuing loan
commitments and maintain its liquidity.
For the nine months ended September 30, 1995, cash was provided by operating and
financing activities and used in investing activities. Operating activities
provided $8.7 million of cash, primarily due to sales of loans totalling $13.6
million. Investing activities used $15.4 million in cash as net originations of
loans, purchases of mortgage-backed securities, and capital expenditures
exceeded repayments of mortgage-backed securities and sales of investment
securities. In addition, financing activities provided $4.9 million in cash due
to an increase in time deposits which more than offset a decrease in demand,
NOW and savings deposits.
At September 30, 1995, the Bank had $30.7 million in loan commitments and $25.9
million of undisbursed loan funds. At September 30, 1995, FHLB advances which
were scheduled to mature through September 30, 1996 totalled $31.9 million. The
subordinated debentures are due June 30, 2004 and are not redeemable prior to
July 1, 1996. At September 30, 1995, the total amount of time deposits which
were scheduled to mature through September 30, 1996 totalled $114.6 million.
<PAGE>
PROGRESS FINANCIAL CORPORATION
_______________________________________________________________________________
Management has focused considerable attention on the retention of the Bank's
core deposit base, which has been impacted by increased competition for deposit
funds.
The Bank's deposits are obtained primarily from residents near the Bank's six
full service offices in Montgomery County, one office in Delaware County,
one office in Chester County and one office in the Andorra section of
Philadelphia. The Bank generally does not advertise for deposits outside of
its market area and does not use brokers to solicit deposits on its behalf.
The Bank has a drive-up banking facility at one of its offices and has automated
teller machines ("ATM's") at all of its offices.
The Bank offers a wide variety of options to its customer base, including
consumer and commercial demand deposit accounts, negotiable order of withdrawal
("NOW") accounts, money market accounts, passbook accounts, certificates
of deposit and retirement plans.
Deposits increased $4.9 million during the nine months ended September 30, 1995
from $284.0 million at December 31, 1994 to $288.9 million at September 30,
1995. The ability of the Bank to attract and maintain deposits and the
Bank's cost of funds on these deposit accounts have been, and will continue
to be, significantly affected by economic and competitive conditions.
As a member of the FHLB, the Bank is required to own capital stock in the FHLB
and is 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
standards related to creditworthiness have been met. Advances are made
pursuant to several different credit programs. Each credit program has its own
interest rate and range of maturities. Depending on the program, limitations
on the amount of advances are based either on a fixed percentage of a savings
bank's assets or on the FHLB's assessment of the savings bank's
creditworthiness. The FHLB credit policies may change from time to time at
its discretion.
The following table presents certain information regarding FHLB advances for
the periods indicated.
At or For the Nine Months
Ended September 30,
1995 1994
(Dollars in thousands)
Average balance outstanding $46,382 $43,408
Maximum amount outstanding at
any month-end during the period $50,845 $57,244
Weighted average interest rate
during the period 6.38% 4.80%
Weighted average interest rate
at end of the period 6.18% 5.04%
The Bank continued to utilize advances from the FHLB as a source of funds to
meet loan demand during the three months ended September 30, 1995. FHLB
advances increased $898 thousand to $45.0 million at September 30, 1995
from $44.1 million at December 31, 1994.
At September 30, 1995, the Bank had commitments under standby letters of credit
and commercial and consumer unused lines of credit of approximately $693
thousand and $9.4 million, respectively. These commitments can be funded,
if required, from the sources outlined above.
PROGRESS FINANCIAL CORPORATION
________________________________________________________________________________
Capital Resources
The Bank is required pursuant to OTS regulations to have (i) tangible capital
equal to at least 1.5% of adjusted total assets, (ii) core capital equal to
at least 3.0% of adjusted total assets, and (iii) total risk-based capital equal
to at least 8.0% of risk-weighted assets.
At September 30, 1995, the Bank met all regulatory capital requirements. The
following is a reconciliation of the Bank's capital determined in accordance
with generally accepted accounting principles ("GAAP") to regulatory tangible,
core, and risk-based capital at September 30, 1995:
Tangible Core Risk-Based
Capital % Capital % Capital %
(Dollars in Thousands)
GAAP Capital $17,411 $ 17,411 $ 17,411
General valuation
allowance --- --- 1,556
Unrealized loss on
securities available
for sale 337 337 337
Goodwill (150) (150) (150)
Investment in joint
venture (8) (8) (8)
Non-qualifying deferred
tax asset (520) (520) (520)
Total 17,070 4.79% 17,070 4.79% 18,626 9.36%
Minimum capital
requirement 5,345 1.50 10,690 3.00 15,914 8.00
Regulatory
capital - excess $11,725 3.29% $6,380 1.79% $ 2,712 1.36%
The prompt corrective action regulations under the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA") defined specific capital
categories based on an institution's capital ratios. The capital categories,
in declining order, are "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized," and "critically
undercapitalized." Institutions categorized as "undercapitalized" or worse
are subject to certain restrictions, including the requirement to file a
capital plan with its primary Federal regulator, prohibitions on the payment of
dividends and management fees, restrictions on executive compensation, and
increased supervisory monitoring, among other things. 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%.
At September 30, 1995, the Bank's leverage ratio was 4.79%, Tier 1 risk-based
ratio was 8.58%, total risk-based ratio was 9.36%, and tangible equity ratio
was 4.79%, based on leverage capital of $17,070,000, Tier 1 capital of
$17,070,000, total risk-based capital of $18,626,000 and tangible equity
capital of $17,070,000, respectively. As of September 30, 1995, the
Bank was classified as "adequately capitalized."
Cash and Due From Banks
Interest-bearing deposits in other banks totalled $168 thousand at
September 30, 1995 in comparison with $311 thousand at December 31, 1994.
At September 30, 1995, the Bank also had $6.1 million in cash and non-interest
bearing deposits in other banks compared with $7.8 million at December 31, 1994.
<PAGE>
PROGRESS FINANCIAL CORPORATION
________________________________________________________________________________
Investment Securities
The Bank is required under current OTS regulations to maintain defined levels of
liquidity and utilizes certain investments that qualify as liquid assets. The
Bank utilizes deposits with the FHLB, including bankers' acceptances, loans to
financial institutions whose deposits are insured by the FDIC, Federal funds and
United States government and agency obligations. Investments held to maturity
are carried at amortized cost. Investments classified as available for sale
are carried at fair value in accordance with SFAS 115. The Company also invests
in equity investments from time to time and held $30 thousand of such
securities on its books at September 30, 1995.
The following table sets forth the amortized cost, gross unrealized losses,
estimated fair value and carrying value of the investment portfolio at the
dates indicated.
At September 30, 1995
Gross Estimated
Amortized Unrealized Fair Carrying
Cost<F1> Losses Value Value
(Dollars in Thousands)
Available for sale:
U.S. agency obligations $ 6,999 $ (93) $ 6,906 $ 6,906
Equity investments 30 --- 30 30
Total available for sale $ 7,029 $ (93) $ 6,936 $ 6,936
Held to maturity:
FHLB stock, pledged $ 2,386 $ --- $ 2,386 $ 2,386
U.S. agency obligations 10,532 (161) 10,371 10,532
Total held to maturity $12,918 $ (161) $12,757 $12,918
At December 31, 1994
Available for sale:
U.S. agency obligations $ 4,999 $ (402) $ 4,597 $ 4,597
Equity investments 30 --- 30 30
Total available for sale $ 5,029 $ (402) $ 4,627 $ 4,627
Held to maturity:
FHLB stock, pledged $ 2,302 $ --- $ 2,302 $ 2,302
U.S. agency obligations 10,564 (939) 9,625 10,564
Total held to maturity $12,866 $ (939) $ 11,927 $12,866
The amortized cost and estimated fair value of investment securities by
contractual maturity at September 30, 1995 are as follows:
Available for sale Held to maturity
Amortized Estimated Amortized Estimated
Cost<F1> Fair Value Cost<F1> Fair Value
(Dollars in Thousands)
Due after one year through
five years $6,000 $5,906 $ 1,000 $ 973
Due after five years through
ten years 998 1,000 7,532 7,409
Due after ten years --- --- 2,000 1,989
No stated maturity 30 30 2,386 2,386
Total investment securities $7,029 $6,936 $12,918 $12,757
[FN]
<F1> Original cost of securities adjusted for repayments, amortization of
premiums and accretion of discounts.
</F>
There were no sales of investment securities available for sale during the three
months ended September 30, 1995.<PAGE>
PROGRESS FINANCIAL CORPORATION
_______________________________________________________________________________
Mortgage-Backed Securities
Since July 1991, the Bank has significantly increased its investment in
mortgage-backed securities that are guaranteed by Federal agencies as part
of management's strategy to diversify the interest-earning assets of the
Bank and improve core earnings. The cost, gross unrealized gains and losses,
estimated fair value and carrying value of mortgage-backed securities by
classification at the dates indicated were as follows.
<TABLE>
At September 30, 1995
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair Carrying
Cost<F1> Gains Losses Value Value
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Available for sale:
GNMA pass-through certificates $ 4,607 $ 68 $ (9) $ 4,666 $ 4,666
FNMA pass-through certificates 996 --- (40) 956 956
FHLMC pass-through certificates 3,160 1 (101) 3,060 3,060
Non-agency pass-through certificates 2,012 --- --- 2,012 2,012
FHLMC collateralized mortgage
obligations 3,003 --- (78) 2,925 2,925
Non-agency collateralized
mortgage obligations 1,996 --- (85) 1,911 1,911
Total available for sale $15,774 $ 69 $ (313) $15,530 $15,530
Held to maturity:
GNMA pass-through certificates $27,366 $ --- $ (778) $26,588 $27,366
FNMA pass-through certificates 19,652 --- (465) 19,187 19,652
FHLMC pass-through certificates 37,458 --- (713) 36,745 37,458
Total held to maturity $84,476 $ --- $(1,956) $82,520 $84,476
At December 31, 1994
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair Carrying
Cost<F1> Gains Losses Value Value
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> Available for sale:
GNMA pass-through
certificates $ 227 $ --- $ (8) $ 219 $ 219
FNMA pass-through
certificates 1,098 --- (84) 1,014 1,014
FHLMC pass-through
certificates 3,429 --- (274) 3,155 3,155
FHLMC collateralized
mortgage obligations 3,003 --- (78) 2,925 2,925
Non-agency collateralized
mortgage obligations 1,995 --- (205) 1,790 1,790
Total available
for sale $ 9,752 $ --- $ (649) $ 9,103 $ 9,103
Held to maturity:
GNMA pass-through
certificates $29,325 $ --- $(2,246) $27,079 $29,325
FNMA pass-through
certificates 21,577 --- (1,645) 19,932 21,577
FHLMC pass-through
certificates 42,771 --- (2,677) 40,094 42,771
Total held to maturity $93,673 $ --- $(6,568) $87,105 $93,673
<FN>
<F1> Original cost of securities adjusted for repayments, amortization of premiums and accretion of discounts.<PAGE>
</FN>
</TABLE>
PROGRESS FINANCIAL CORPORATION
_______________________________________________________________________________
Mortgage-backed securities increase the credit quality of the Bank's assets by
virtue of the guarantees that back them, are more liquid than individual
mortgage loans and may be used to collateralize borrowings or other obligations
of the Bank. The mortgage-backed securities portfolio contains no speculative
derivative securities at September 30, 1995. In addition, since August 1992,
the Bank has classified a portion of its mortgage-backed securities portfolio
as available for sale and has sold certain securities from this portfolio in
accordance with the Bank's asset/ liability strategy or in response to changes
in interest rates, changes in prepayment rates, the need to increase the Bank's
regulatory capital or similar factors.
Mortgage-backed securities classified as held to maturity are carried at
amortized cost and are adjusted for amortization of premiums and accretion
of discounts over the life of the related security pursuant to the level
yield method. Mortgage-backed securities that are held for an indefinite
period of time are classified as available for sale and are carried at fair
value pursuant to SFAS 115, which was adopted by the Company in the first
quarter of 1994. Mortgage-backed securities are classified as available for
sale primarily based on the yield and duration of specific investments.
The fixed-rate balloons and collateralized mortgage obligations held by the
Bank approximate the duration of the type of loan the Bank originates and
therefore, such securities may be sold to allow for additional loan growth
and/or other asset/liability management strategies. There were no sales of
mortgage-backed securities classified as available for sale during the
three months ended September 30, 1995.
Although the Bank's mortgage-backed securities portfolio may have a shorter
average term to maturity and greater liquidity than the Bank's single-family
residential real estate loans, the Bank is subject to reinvestment risk with
respect to such portfolio. Specifically, as the Bank's mortgage-backed
securities amortize or prepay, the Bank may not be able to reinvest the
proceeds of such repayment and prepayments at a comparable favorable rate,
particularly if the mortgage-backed securities were acquired in a higher
interest rate environment. In addition, mortgage-backed securities classified
as available for sale are carried at fair value, which could result in
fluctuations in the Company's stockholders' equity, due to changes in the
fair value of such securities. Accordingly, the Bank's portfolio of
mortgage-backed securities classified as available for sale may result
in increased volatility in the Bank's liquidity, operations and capital.
The Bank attempts to address such risks by actively managing its portfolio
in relation to changes in interest rates and the Bank's liquidity needs.
<PAGE>
PROGRESS FINANCIAL CORPORATION
_______________________________________________________________________________
Loan Portfolio
The Bank's net loan portfolio, including loans held for sale, totalled
$212.7 million at September 30, 1995 or 59.6% of its total assets, an
increase of $6.6 million or 3.2% from the $206.1 million outstanding at
December 31, 1994. The following table depicts the composition of the
Bank's loan portfolio at the dates indicated.
September 30, 1995 December 31, 1994
Amount Percent Amount Percent
(Dollars in Thousands)
Real estate loans:
Single family residential <F1> $ 90,298 42.14% $ 99,917 48.12%
Commercial real estate <F2> 76,023 35.47 71,273 34.33
Construction 10,803 5.04 5,379 2.59
Total real estate loans 177,124 82.65 176,569 85.04
Commercial business loans 15,279 7.13 12,005 5.78
Consumer loans:
Home equity and lines
of credit 20,053 9.36 17,927 8.64
Other 1,848 .86 1,124 .54
Total consumer loans 21,901 10.22 19,051 9.18
Total loans 214,304 100.00% 207,625 100.00%
Allowance for possible
loan losses (1,556) (1,502)
Net loans $212,748 $206,123
[FN]
<F1> Includes $2.1 million and $351 thousand of loans held for sale at
September 30, 1995 and December 31, 1994, respectively.
<F2> Includes $16.3 million and $18.6 million of multi-family residential loans
at September 30, 1995 and December 31, 1994, respectively.
[FN]
Loans Held For Sale
At September 30, 1995, the Bank had $2.1 million of fixed-rate residential
loans held for sale in comparison with $351 thousand at December 31, 1994.<PAGE>
PROGRESS FINANCIAL CORPORATION
________________________________________________________________________________
PERFORMING ASSETS
General
Non-performing assets, consisting of non-accrual loans, accruing loans 90 days
or more past due and REO, increased dramatically in 1990 and 1991, and reached
$50.6 million at March 31, 1992. Such increases were to a great extent the
result of a deterioration in the economy and in particular decreases in the
market values of real estate which secured the Bank's loans. As a result
of certain steps taken by the Bank, total non-performing assets have been
substantially reduced, and amounted to $4.9 million at September 30, 1995.
The Bank's future results of operations will be affected by its ability
to continue to reduce the $4.9 million of non-performing assets without
incurring additional losses.
The accrual of interest on commercial and mortgage loans is generally
discontinued when loans become 90 days past due and when, in management's
judgement, it is determined that a reasonable doubt exists as to its
collectibility. The accrual of interest is also discontinued on residential
and consumer loans when such loans become 90 days past due, except for those
loans in the process of collection which are secured by real estate with a loan
to value less than 80% where the accrual of interest ceases at 180 days.
Consumer loans generally are charged-off when the loan becomes over 120 days
delinquent, unless secured by real estate and meeting the above-mentioned
criteria. When a loan is placed on non-accrual status, interest accruals cease
and uncollected accrued interest is reversed and charged against current
income. Additional interest income on such loans is recognized only when
received. A loan remains on non-accrual status until the factors which
indicate doubtful collectibility no longer exist, or the loan is liquidated,
or when the loan is determined to be uncollectible and is charged-off against
the allowance for loan losses.
Real estate acquired in partial or full satisfaction of loans is recorded at
the lower of cost (recorded balance of the loan at foreclosure plus foreclosure
costs) or fair value through a charge to the allowance for loan losses and the
lower of this new cost basis or fair value less estimated costs to sell
thereafter. Valuations are periodically performed by management, and any
subsequent decline in fair value is charged to operations. Costs relating to
the development and improvement of property are capitalized, whereas costs
relating to the holding of property are only capitalized when carrying value
does not exceed fair value. The interest costs relating to the development of
real estate are capitalized. Gains on the sale of real estate are recognized
upon disposition of the property and losses are charged to operations as
incurred.<PAGE>
PROGRESS FINANCIAL CORPORATION
________________________________________________________________________________
The following table details the Bank's non-performing assets at the dates
indicated:
September 30, December 31, September 30,
1995 1994 1994
(Dollars in Thousands)
Loans accounted for on a
non-accrual basis <F1> $1,394 $4,369 $ 5,728
Accruing loans 90 or
more days past due --- 182 78
Total non-performing loans 1,394 4,551 5,806
REO, net of related reserves 3,479 4,534 4,503
Total non-performing assets $4,873 $9,085 $10,309
Non-performing loans as a
percentage of total loans .66% 2.19% 2.92%
Non-performing assets as a
percentage of total assets 1.37% 2.61% 2.95%
[FN]
<F1> Includes $0, $326 thousand and $328 thousand of loans which were considered
troubled debt restructurings as of September 30, 1995, December 31, 1994
and September 30, 1994, respectively.
[FN]
Non-performing assets decreased $4.2 million to $4.9 million at September 30,
1995 from $9.1 million at December 31, 1994. This decrease primarily resulted
from the restructuring of a large commercial real estate loan. The $2.9 million
loan, which was over 120 days delinquent as of December, 31, 1994, was
originated in 1987 for the construction of a three-story restaurant and
catering facility located in Voorhees, New Jersey. The loan converted to a
permanent loan and matured on September 30, 1992. In May 1995, in accordance
with an order of the bankruptcy court, the Company restructured the loan for
a two-year term at a premium to the Company's designated prime lending rate,
the borrower paid in advance seven months of debt service payments (five of
which are being held in escrow), and, as a result, the loan has been returned
to accruing status.
The $1.4 million of non-accrual loans at September 30, 1995 consisted of $995
thousand of loans secured by single-family residential property, $35 thousand
of commercial business loans and $364 thousand of consumer loans. The $3.5
million of REO at September 30, 1995 consisted primarily of a medical office
building located in the Bronx, New York with an aggregate carrying value of
$3.1 million which is net of $10.4 million in charge-offs. The Bank has entered
into an agreement to sell its REO property located in the Bronx for $3.2
million. The sale required a $331 thousand REO provision in the second quarter
of 1995 and is expected to close prior to year end. At September 30, 1995, the
medical office building was 71% leased and covering operating expenses.
Furthermore, at September 30, 1995, REO also included three single-family
residences with an aggregate carrying value of $400 thousand. With the exception
of the medical office building, all of the Bank's REO consists of properties
located within the Bank's primary market area.<PAGE>
PROGRESS FINANCIAL CORPORATION
_______________________________________________________________________________
Delinquencies
All loans are reviewed on a regular basis and are placed on non-accrual status
when, in the opinion of management, the collection of additional interest is
deemed insufficient to warrant further accrual. See "Non-Performing
Assets-General."
The following table sets forth information concerning the principal balances
and percent of the total loan portfolio represented by delinquent loans at the
dates indicated:
September 30, December 31, September 30,
1995 1994 1994
Amount Percent Amount Percent Amount Percent
(Dollars in Thousands)
Delinquencies:
30 to 59 days $2,027 .9% $ 719 .4% $ 761 .4%
60 to 89 days 1,137 .5% 282 .1% 454 .2%
90 or more days
and non-accrual
loans <F1> 1,394 .7% 4,551 2.2% 5,806 2.9%
Total $4,558 2.1% $5,552 2.7% $7,021 3.5%
[FN]
<F1> Includes $0, $182 thousand and $78 thousand of loans that were accruing
interest at September 30, 1995, December 31, 1994 and September 30, 1994,
respectively.<PAGE>
[FN]
PROGRESS FINANCIAL CORPORATION
_______________________________________________________________________________
Allowance for Loan Losses
The following table details the Bank's allowance for loan losses for the periods
indicated:
At or At or
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1995 1994 1995 1994
(Dollars in thousands) (Dollars in thousands)
Average loans outstanding $210,504 $195,506 $211,380 $184,212
Balance beginning of period $1,459 $1,790 $1,502 $2,113
Charge-offs:
Residential real estate --- --- 9 ---
Real estate construction --- 46 --- 46
Consumer 4 --- 21 18
Commercial --- 330 281 1,054
Total charge-offs 4 376 311 1,118
Recoveries:
Residential real estate --- 70 --- 132
Real estate construction --- --- 1 ---
Consumer 1 4 11 11
Commercial --- 34 3 34
Total recoveries 1 108 15 177
Net charge-offs 3 268 296 941
Additions charged to operations 100 56 350 406
Balance at end of period $1,556 $1,578 $1,556 $1,578
Ratio of net charge-offs
during the period to average
loans outstanding during
the period --- .14% .14% .51%
Ratio of allowance for loan
losses to non- performing
loans at end of period 111.62% 27.18% 111.62% 27.18%
An allowance for loan losses is maintained at a level that management considers
adequate to provide for potential losses based upon an evaluation of known and
inherent risks in the loan portfolio. The allowance for possible loan losses
is based on estimated net realizable value unless it is probable that loans will
be foreclosed, in which case the allowance for loan losses is based on fair
value. Management's periodic evaluation is based upon examination of the
portfolio, past loss experience, current economic conditions, the results of
the most recent regulatory examination, and other relevant factors. While
management uses the best information available to make such evaluations, future
adjustments to the allowance may be necessary if economic conditions differ
substantially from the assumptions used in making such evaluations.<PAGE>
PROGRESS FINANCIAL CORPORATION
_______________________________________________________________________________
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in routine legal proceeding occurring in the ordinary
course of business which management, after reviewing the foregoing actions
with legal counsel, is of the opinion that the liability, if any, resulting
from such actions will not have a material effect on the financial condition
or results of operations of the Company.
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
On November 6, 1995, the Company filed a Current Report on Form 8-K with the
Securities and Exchange Commission reporting under Item 5 the termination
of the Agreement and Plan of Reorganization between Progress Financial
Corporation and FJF Financial, M.H.C.<PAGE>
27.1 Financial Data Schedule
PROGRESS FINANCIAL CORPORATION
_______________________________________________________________________________
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.
Progress Financial Corporation
November 7, 1995
Date W. Kirk Wycoff, Chairman,
President and Chief Executive
Officer
November 7, 1995
Date Peter J. Meier, Vice President
and Corporate Controller
(Principal Accounting Officer)
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<PERIOD-END> SEP-30-1995
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