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 March 31, 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) 3,275,000
Title of Each Class Number of Shares Outstanding
as of May 12, 1995
Progress Financial Corporation
Table of Contents
PART I - Financial Information Page
Item 1. Financial Statements
Consolidated Statements of Financial Condition as of March 31, 1995
(unaudited) and December 31, 1994....................................3
Consolidated Statements of Operations for the three months ended
March 31, 1995 and 1994 (unaudited)..................................4
Consolidated Statements of Cash Flows for the three months ended
March 31, 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)....................................8
PART II - Other Information
Item 1. Legal Proceedings..............................................27
Item 2. Changes in Securities..........................................27
Item 3. Defaults upon Senior Securities................................27
Item 4. Submission of Matters to a Vote of Security Holders............27
Item 5. Other Information..............................................27
Item 6. Exhibits and Reports on Form 8-K...............................27
Signatures.....................................................28
PART I- FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition
<TABLE>
March 31, December 31,
1995 1994
(Dollars in Thousands)
(unaudited)
<S> <C> <C>
Assets
Cash and due from banks:
Interest bearing $ 185 $ 311
Non-interest bearing 5,333 7,764
Investment securities:
Available for sale at fair value
(amortized cost: $4,030 in 1995 and $5,029 in 1994) 3,810 4,627
Held to maturity (fair value: $12,479 in 1995 and
$11,928 in 1994) 13,022 12,866
Mortgage-backed securities:
Available for sale at fair value
(amortized cost: $9,646 in 1995 and $9,752 in 1994) 9,145 9,103
Held to maturity (fair value: $86,714 in 1995 and
$87,105 in 1994) 90,601 93,673
Loans 211,758 207,274
Less: allowance for possible loan losses (1,611) (1,502)
Net loans 210,147 205,772
Loans held for sale (fair value: $739 in 1995 and
$361 in 1994) 727 351
Real estate owned, net 4,454 4,534
Premises and equipment 1,918 1,909
Accrued interest receivable 2,159 2,210
Other assets 5,457 5,069
Total assets $ 346,958 $348,189
Liabilities and Stockholders' Equity
Liabilities:
Deposits $ 277,849 $ 283,958
Advances from the Federal Home Loan Bank 47,821 44,052
Subordinated debt 3,000 3,000
Advance payments by borrowers for taxes
and insurance 2,355 2,352
Accrued interest payable 825 588
Other liabilities 1,379 1,218
Total liabilities 333,229 335,168
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; 3,275,000 shares issued and outstanding 3,275 3,275
Capital surplus 15,706 15,706
Retained earnings (deficit) (4,531) (4,909)
Unrealized loss on securities available for sale (721) (1,051)
Total stockholders' equity 13,729 13,021
Total liabilities and stockholders' equity $ 346,958 $ 348,189
See Notes to Consolidated Financial Statements.
</TABLE>
Consolidated Statements of Operations
<TABLE>
For The Three Months
Ended March 31,
1995 1994
(Dollars in Thousands)
(unaudited)
<S> <C> <C>
Interest income:
Loans, including fees $ 4,548 $ 3,433
Mortgage-backed securities 1,654 1,546
Investment securities 267 78
Other 29 21
Total interest income 6,498 5,078
Interest expense:
Deposits 2,839 2,400
Advances from the Federal Home Loan Bank 749 431
Subordinated debt 66 ---
Total interest expense 3,654 2,831
Net interest income 2,844 2,247
Provision for possible loan losses 100 50
Net interest income after provision for possible loan losses 2,744 2,197
Other income:
Mortgage origination and servicing 207 222
Service charges on deposits 231 192
Gain (loss) from mortgage banking activities (1) (126)
Gain ( loss) from sales of securities (35) (70)
Income (loss) on properties sold (24) (37)
Other 24 193
Total other income 402 374
Other expense:
Salaries and employee benefits 1,200 1,047
Occupancy 325 333
Data processing 191 187
Furniture, fixtures, and equipment 127 108
Insurance premiums 258 261
Provision for real estate owned 75 ---
Loan and real estate owned expense, net 43 110
Professional services 274 218
Other 275 262
Total other expense 2,768 2,526
Income before income taxes 378 45
Income tax expense --- ---
Net income $ 378 $ 45
Earnings per share $ .12 $ .01
Weighted average number of shares outstanding 3,275,000 3,275,000
See Notes to Consolidated Financial Statements.
</TABLE>
Consolidated Statements of Cash Flows
<TABLE>
For The Three Months
Ended March 31,
1995 1994
(Dollars in Thousands)
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 378 $ 45
Add (deduct) items not affecting cash flows from operating
activities:
Depreciation and amortization 132 134
Provision for real estate owned 75 ---
Provision for possible loan losses 100 50
Capitalized interest on real estate owned --- (11)
Loss from mortgage banking activities 1 126
Loss from sales of securities available for sale 35 70
Loss on properties sold 24 37
Amortization of deferred loan fees (129) (180)
Amortization of premiums/accretion
of discounts on securities 145 1,226
Originations and purchases of loans held for sale (1,009) (11,511)
Sales of loans held for sale 631 27,953
Decrease (increase) in accrued interest receivable 51 (423)
(Increase) decrease in other assets (388) 556
Increase in other liabilities 161 320
Increase in accrued interest payable 237 190
Net cash flows provided by operating activities 444 18,582
Cash flows from investment activities:
Capital expenditures $ (141) $ (202)
Purchases of mortgage-backed securities held to maturity --- (8,186)
Repayments on mortgage-backed securities held to maturity 2,939 11,302
Repayments on mortgage-backed securities available for sale 103 2,232
Purchases of mortgage-backed securities available for sale --- (11,133)
Sales of mortgage-backed securities available for sale --- 14,707
Net increase in loans (4,345) (21,222)
Purchase of investments held to maturity (395) (2,804)
Purchase of investments available for sale --- (2,989)
Proceeds from sales of investments available for sale 965 ---
Maturities of investments held to maturity 229 784
Proceeds from sale of real estate owned 297 4,707
Advances for construction of real estate owned (316) (404)
Net cash flows used in investment activities (664) (13,208)
Cash flows from financing activities:
Net (decrease) increase in demand, NOW and saving deposits (7,485) 3,683
Net increase in time deposits 1,376 743
Net increase (decrease) in advances from
the Federal Home Loan Bank 3,769 (9,995)
Net increase in advance payments by borrowers
for taxes and insurance 3 177
Net cash flows used in financing activities (2,337) (5,392)
Net decrease in cash and cash equivalents (2,557) (18)
Cash and cash equivalents:
Beginning of year 8,075 4,204
End of period $ 5,518 $ 4,186
Supplemental disclosures:
Non-monetary transfers:
Net conversion of loans receivable to real estate owned $ 0 $ 125
Securitization of mortgage loans into mortgage-backed
securities $ 0 $ 20,970
Cash payments for:
Income taxes
Interest $ 3,416 $ 2,642
See Notes to Consolidated Financial Statements.
</TABLE>
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 months ended March 31, 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
classification. 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"). SFAS114 requires
adjustment to the carrying value of a loan through the provision for
possible 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 did not have
a material effect on the Company's financial condition or results of
operations based on the Company's current loan portfolio. As of March 31,
1995, impaired loans amounted to $2.9 million with a related allowance for
loan losses of $4 thousand.
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 March 31, 1995, stockholders' equity was
reduced by $721 thousand for unrealized losses on mortgage-backed
securities and investments available for sale of $501 thousand and $220
thousand, respectively.
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 $378 thousand or $.12 per share for the three
months ended March 31, 1995 in comparison with net income of $45 thousand or
$.01 per share for the three months ended March 31, 1994 . Return on average
stockholders' equity was 11.42% and return on average assets was .44% for the
three months ended March 31, 1995 compared to 1.24% and .06%, respectively, for
the three months ended March 31, 1994.
Net interest income was $2.8 million and $2.2 million for the three months ended
March 31, 1995 and 1994, respectively. Operating results for the three months
ended March 31, 1995 and 1994 included $100 thousand and $50 thousand,
respectively, in provision for possible losses on loans. Other income for the
three months ended March 31, 1995 included losses of $1 thousand, $35 thousand
and $24 thousand from mortgage banking activities, sales of securities and
property sales compared with losses of $126 thousand, $70 thousand and $37
thousand, respectively, for the same period in 1994. Other expense totalled
$2.8 million for the three months ended March 31, 1995 in comparison with $2.5
million for the same period in 1994, primarily due to increased salaries and
employee benefits for the three months ended March 31, 1995 in comparison with
the same period in 1994.
In November 1994, the Company received final approval from the Office of Thrift
Supervision to open a retail branch office in Paoli, Pennsylvania. The Company
plans to open at this location in the summer of 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 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.
RESULTS OF OPERATIONS
Net Interest Income
For the three months ended March 31, 1995, net interest income amounted to $2.8
million in comparison with $2.2 million for the same period in 1994. Net
interest income for the three months ended March 31, 1995 was positively
impacted by a $23.6 million increase in average interest-earning assets, while
average interest-bearing liabilities increased $14.8 million. The interest rate
spread increased 37 basis points in 1995 compared to the same period in 1994,
primarily due to a 126 basis point increase in the average yield on
interest-earning assets which was partially offset by an 89 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.
Management believes that the simulation of net interest income in different
interest rate environments provides a meaningful measure of interest rate risk.
Simulation analysis incorporates the potential of all assets and liabilities to
mature or reprice as well as the probability that they will do so. Simulation
in net interest income over a two year period also incorporates the relative
interest rate sensitivities of these items, and projects their behavior over an
extended period of time. Finally, simulation analysis permits management to
assess the probable effects on the balance sheet not only of changes in interest
rates, but also of proposed strategies for responding to them.
The Bank's simulation model analyzes interest rate sensitivity by projecting net
interest income over the next twelve months in a flat ratio scenario. The flat
rate model projects growth in the Bank's loan portfolio. The flat rate model
also projects the mix of accounts within the loan portfolio. In addition to
projecting the mix of accounts within the loan portfolio, the Company must also
make certain assumptions regarding the movement of the rates on its assets and
liabilities, especially its deposit rates.
The Bank projects net interest income in a rising rate scenario of 200 basis
points over a twelve month period as well as a 200 basis point decrease in
declining rate scenario during this same period. The Bank then determines its
interest rate sensitivity by calculating the difference in net interest income
in the rising and declining rate scenarios versus the flat rate scenario. Based
on this analysis at March 31, 1995 net interest income would not be
significantly impacted over a one year period if rates rise 200 basis points or
decline 200 basis ponts in comparison to a flat rate scenario.
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 Three Months Ended March 31,
1995 1994
(Dollars in Thousands)
Average Yield/ Average Yield/
Balance Interest Rate(1) Balance Interest Rate (1)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Mortgage loans (2) $ 178,705 $ 3,812 8.65% $ 148,151 $ 2,914 7.98%
Mortgage-backed securities (2) 101,454 1,654 6.61 125,459 1,546 5.00
Other loans 31,710 736 9.41 24,806 519 8.49
Investments securities and other
interest-earning assets (3) 18,490 296 6.49 8,320 99 4.83
Total interest-earning assets 330,359 6,498 7.98 306,736 5,078 6.72
Non-interest-earning assets 17,201 24,931
Total assets $ 347,560 $ 331,667
Interest-bearing liabilities:
Interest-bearing deposits:
NOW and Super NOW $ 24,870 161 2.63 $ 19,723 110 2.26
Money market accounts 34,960 255 2.96 44,781 292 2.64
Passbook and statement savings 27,603 200 2.94 26,313 192 2.96
Time deposits 173,023 2,223 5.21 166,619 1,806 4.40
Total interest-bearing deposits 260,456 2,839 4.42 257,436 2,400 3.78
Advances from the Federal Home
Loan Bank 47,506 749 6.39 38,752 431 4.51
Subordinated debt 3,000 66 8.92 --- --- ---
Total interest-bearing
liabilities 310,962 3,654 4.77 296,188 2,831 3.88
Non-interest-bearing liabilities 23,177 20,765
Total liabilities 334,139 316,953
Stockholders' equity 13,421 14,714
Total liabilities and
stockholders' equity $ 347,560 $ 331,667
Net interest income; interest
rate spread (4) $ 2,844 3.21% $ 2,247 2.84%
Net interest margin (4) 3.49% 2.97%
Average interest-earning assets
to average interest-bearing
liabilities 106.24% 103.56%
</TABLE>
(1) As adjusted for fees treated as adjustments to loan yields.
(2) Includes mortgage loans held for sale and mortgage-backed securities
classified as available for sale.
(3) Includes investment securities classified as available for sale.
(4) Interest rate spread represents the difference between the weighted
average yield on interest-earnings asset and the weighted average cost
of interest-bearing liabilities, and net interest margin represents net
interest income divided by average interest-earning assets.
Total interest income amounted to $6.5 million for the three months ended March
31,1995, a $1.4 million or 28.0% increase when compared to the same period in
1994. Interest income on mortgage loans increased $898 thousand, as the average
balance outstanding increased $30.6 million and the average yield increased 67
basis points. Interest income on mortgage-backed securities increased $108
thousand, as the average yield increased 161 basis points, which offset a $24.0
million decrease in the average balance. Interest income on investments and
other interest-earning assets increased by $197 thousand, as the average balance
outstanding increased $10.2 million and the average yield increased by 166 basis
points. Interest income on other loans increased by $217 thousand as the
average balance and yield on other loans increased $6.9 million and 92 basis
points, respectively.
Total interest expense amounted to $3.7 million for the three months ended March
31, 1995, an $823 thousand or 29.1% increase in comparison to the same period in
1994. Interest expense on deposits increased $439 thousand, as the average rate
on deposits increased 64 basis points and the average balance increased $3.0
million. Interest expense on borrowings increased $384 thousand primarily due
to an increase of $11.8 million in the average balances. The increase in the
average balance of borrowings was due to higher levels of Federal Home Loan Bank
of Pittsburgh ("FHLB") advances which were utilized to meet loan demand and the
issuance of $3.0 million of subordinated debt, which was consumated on June 30,
1994.
Provision for Possible Loan Losses
The Bank's provision for possible loan losses represents the charge against
earnings that is required to fund the allowance for possible loan losses. The
level of the allowance for possible loan losses is determined by inherent risks
within the Bank'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 three months ended March 31, 1995, the Bank recorded a $100 thousand
provision compared with $50 thousand for the comparable period in 1994, and had
net recoveries of $9 thousand during the three months ended March 31, 1995 in
comparison with $33 thousand in net charge-offs during the comparable period in
1994. At March 31, 1995, the allowance for possible loan losses amounted to
$1.6 million or .76% of total loans and 37.4% of total non- performing loans.
See "Allowance for Possible Loan Losses."
The Company's allowance for possible loan losses declined by $519,000 or 24.4%
from $2.1 million at March 31, 1994 to $1.6 million at March 31, 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
three months ended March 31, 1995 as compared to the same period in 1994. In
addition, the allowance for possible loan losses to total non-performing loans
increased from 34.6% at March 31, 1994 to 37.4% at March 31, 1995.
Nevertheless, although management utilizes its best judgement in providing for
possible losses, there can be no assurance that the Bank will not have to
increase its provision for possible 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 Bank's results of operations. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the Bank's allowance for possible loan losses and the
carrying value of its other non-performing assets. Such agencies may require
the Bank to recognize additions to its allowance for possible 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.
Other Income
The following table details other income for the periods indicated.
<TABLE>
For The Three Months
Ended March 31,
1995 1994
(Dollars in Thousands)
(unaudited)
<S> <C> <C>
Other income:
Mortgage origination and servicing $ 207 $ 222
Service charges on deposits 231 192
Gain (loss) from mortgage banking activities (1) (126)
Gain (loss) from sales of securities (35) (70)
Income (loss) on properties sold (24) (37)
Other 24 193
Total other income $ 402 $ 374
</TABLE>
Total other income amounted to $402 thousand for the three months ended March
31, 1995, an increase of $28 thousand compared with the $374 thousand in other
income for the three months ended March 31, 1994. Other income for the three
months ended March 31, 1995 included $207 thousand in fees from mortgage
origination and servicing in comparison to $222 thousand for the comparable
period in 1994. The decrease in such fees was primarily due to lower mortgage
lending activity. Service charges on deposits increased $39 thousand for the
three months ended March 31, 1995 due to higher volumes of account transactions.
Losses from mortgage banking activities and from sales of securities were
$1 thousand and $35 thousand, respectively, for the three months ended March 31,
1995 in comparison with $126 thousand and $70 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 B and C paper.
Losses on properties sold was $24 thousand for the three months ended March 31,
1995, in comparison with $37 thousand in the comparable 1994 period, primarily
due to declining real estate owned activities. Other income for the three
months ended March 31, 1995 decreased $169 thousand from the months ended March
31, 1994 primarily due to lower fee income generated by the Company's
subsidiary, Progress Realty Advisors, L.P.
Other Expense
The following table details other expense for the periods indicated.
<TABLE>
For The Three Months
Ended March 31,
1995 1994
(Dollars in Thousands)
(unaudited)
<S> <C> <C>
Other expense:
Salaries and employee benefits $ 1,200 $ 1,047
Occupancy 325 333
Data processing 191 187
Furniture, fixtures and equipment 127 108
Insurance premiums 258 261
Provision for real estate owned 75 ---
Loan and real estate owned expense, net 43 110
Professional services 274 218
Other 275 262
Total other expense $ 2,768 $ 2,526
</TABLE>
Total other expense amounted to $2.8 million for the three months ended March
31, 1995, an increase of $242 thousand from the $2.5 million recognized during
the comparable 1994 period, primarily due to a $153 thousand increase in
salaries and employee benefits and a $75 thousand increase in the provision for
REO.
Salaries and employee benefits increased $153 thousand to $1.2 million for the
three months ended March 31, 1995 in comparison with 1.0 million for the three
months ended March 31, 1994 primarily due to staffing additions to support the
Bank's lending initiatives. Furniture, fixtures and equipment expense increased
$19 thousand to $127 thousand from $108 thousand for the comparable 1994 period,
primarily due to higher systems maintenance costs. The provision for REO
amounted to $75 thousand at March 31, 1995 as compared to no provision for the
comparable 1994 period, due to writedowns on two REO residential development
projects. Professional services expense, which consists primarily of legal,
accounting, tax and supervisory examination fees, increased $56 thousand from
$218 thousand for the three months ended March 31, 1994 to $274 thousand for the
three months ended March 31, 1995 primarily due to higher legal expenses. Loan
and REO expense, net decreased from $110 thousand for the three months ended
March 31, 1994 to $43 thousand for the three months ended March 31, 1995 due to
the lower level of non-performing assets. Other expense, which includes
marketing, telephone, printing, postage and stationery expenses, increased $13
thousand from $262 thousand for the three months ended March 31, 1994 to $275
thousand for the comparable 1995 period.
Income Tax Expense
The Company recorded no income tax expense for the three months ended March 31,
1995 and March 31, 1994.
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 March 31, 1995, the Company had a valuation allowance of $2.5
million against net deferred tax assets of $3.9 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.
FINANCIAL CONDITION
Liquidity and Funding
The Bank must maintain sufficient liquidity to meet its funding requirements for
loan commitments, scheduled debt repayments, operating expenses, and deposit
withdrawals. The Bank is the primary source of working capital for the Company.
As the Company's primary income source is the Bank, the Company's ability to pay
dividends to shareholders has been limited.
As a result of the prior limitations on the payment of dividends by the Bank to
the Company, in April 1992 the Company entered into an operating expense
agreement pursuant to which the Bank has agreed to pay for the operating
expenses of the Company, provided the Company engages in no other activities
other than owning all of the capital stock of the Bank. Such operating expenses
consist primarily of accounting, tax, legal, transfer agent and other
stockholder related expenses for the Company.
The Bank's need for liquidity is affected by loan demand and net changes in
retail deposit levels. The Bank can minimize the cash required during 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 Bank has limited control. The Bank
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 Bank's primary sources of funds have historically consisted of deposits,
amortization and prepayments of outstanding loans, borrowing from the FHLB and
sales of investment securities, loans and mortgage-backed securities. The
Company obtained additional funds through the sale of $3.0 million in
subordinated debentures in a private placement on June 30, 1994 of which $2.4
million was contributed to the Bank. During the three months ended March 31,
1995 the Bank used its capital resources primarily to meet its ongoing
commitments to fund maturing savings certificates and deposit withdrawals, fund
existing and continuing loan commitments, and maintain its liquidity.
For the three months ended March 31, 1995, cash was provided by operating
activities and used in investment and financing activities. Operating
activities provided $444 thousand of cash, primarily due to net income of $378
thousand. Investment activities used $664 thousand in cash as net originations
of loans and purchases of investment securities exceeded repayments of
mortgage-backed securities and sales of investment securities. In addition,
financing activities used $2.3 million in cash due to a decrease in deposits
which more than offset a higher level of borrowings.
At March 31, 1995, the Bank had $11.6 million in loan commitments and $17.9
million of undisbursed loan funds. At March 31, 1995, FHLB advances which were
scheduled to mature through March 31, 1996 totalled $29.8 million. The
subordinated debentures are due September 30, 2004 and are not redeemable prior
to July 1, 1996. At March 31, 1995, the total amount of time deposits which
were scheduled to mature through March 31, 1996 totalled $111.0 million.
Under OTS regulations, the Bank is required to maintain a minimum regulatory
liquidity ratio. This ratio, defined as the average daily balance of liquid
assets to the average balance of net withdrawable accounts plus short term
borrowings, is currently set at 5%, but may be changed from time to time. The
Bank's policy has been to maintain a liquidity ratio no less than the regulatory
minimum. The Bank's liquidity ratio of 5.68% at March 31, 1995 was in excess of
the current minimum requirements.
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 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 decreased $6.2 million during the three months ended March 31, 1995
from $284.0 million at December 31, 1994 to $277.8 million at March 31, 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.
<TABLE>
At or For the Three Months
Ended March 31,
1995 1994
(Dollars in thousands)
<S> <C> <C>
Average balance outstanding $ 47,506 $ 38,752
Maximum amount outstanding at
any month-end during the period $ 47,82 $ 44,958
Weighted average interest rate during the period 6.39% 4.51%
Weighted average interest rate at end of the period 6.41% 4.85%
</TABLE>
The Bank continued to utilize advances from the FHLB as a source of funds to
meet loan demand during the three months ended March 31, 1995. FHLB advances
increased $3.7 million to $47.8 million at March 31, 1995 from $44.1 million at
December 31, 1994.
At March 31, 1995, the Bank had commitments under standby letters of credit and
commercial and consumer unused lines of credit of approximately $657 thousand
and $10.0 million, respectively. These commitments can be funded, if required,
from the sources outlined above.
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 March 31, 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 March 31, 1995:
<TABLE>
Tangible Core Risk-Based
Capital % Capital % Capital %
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Adjusted GAAP Capital $ 16,416 $ 16,416 $ 16,416
General valuation allowance --- --- 1,611
Unrealized loss on securities
available for sale 721 721 721
Goodwill (178) (178) (178)
Investment in joint venture (8) (8) (8)
Non-qualifying deferred tax asset (520) (520) (520)
_______ _______ ________
Total 16,431 4.74% 16,431 4.74% 18,042 9.92%
Minimum capital requirement 5,203 1.50 10,405 3.00 14,551 8.00
Regulatory capital - excess $ 11,228 3.24% $6,026 1.74% $ 3,491 1.92%
</TABLE>
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 March 31, 1995, the Bank's leverage ratio was 4.74%, Tier 1 risk-based ratio
was 9.03 %, total risk-based ratio was 9.92%, and tangible equity ratio was
4.74%, based on leverage capital of $16,431,000, Tier 1 capital of 16,431,000,
total risk-based capital of $18,042,000 and tangible equity capital of
$16,431,000, respectively. As of March 31, 1995, the Bank was classified as
"adequately capitalized."
Cash and Due From Banks
Interest-bearing deposits in other banks totalled $185 thousand at March 31,
1995 in comparison with $311 thousand at December 31, 1994. At March 31, 1995,
the Bank also had $5.3 million in cash and non-interest bearing deposits in
other banks compared with $7.8 million at December 31, 1994.
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 March 31, 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.
<TABLE>
At March 31, 1995
Gross Estimated
Amortized Unrealized Fair Carrying
Cost (1) Losses Value Value
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Available for sale:
U.S. agency obligations $ 4,000 $ (220) $ 3,780 $ 3,780
Equity investments 30 --- 30 30
Total available for sale $ 4,030 $ (220) $ 3,810 $ 3,810
Held to maturity:
FHLB of Pittsburgh stock,
pledged $ 2,469 $ --- $ 2,469 $ 2,469
U.S. agency obligations 10,553 (543) 10,010 10,553
Total held to maturity $ 13,022 $ (543) $ 12,479 $ 13,022
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 of Pittsburgh 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 March 31,1995 are as follows:
Available for sale: Held to maturity
Amortized Estimated Amortized Estimated
Cost (1) Fair Value Cost (1) Fair Value
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Due after one year through five years $ 4,000 $ 3,780 $ 1,000 $ 938
Due after five years through ten years --- --- 7,553 7,135
Due after ten years --- --- 2,000 1,937
No stated maturity 30 30 2,469 2,469
Total investment securities $ 4,030 $ 3,810 $ 13,022 $12,479
</TABLE>
(1) Original cost of securities adjusted for repayments, amortization of
premiums and accretion of discounts.
Total realized losses on the sale of $1.0 million in investment securities
classified as available for sale was $35 thousand for the three months ended
March 31, 1995.
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 March 31, 1995
Gross Gross Estimated
Amortized Unrealized Unrealized Fair Carrying
Cost (1) Gains Losses Value Value
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Available for sale:
GNMA $ 210 $ --- $ (2) $ 208 $ 208
FNMA 1,081 --- (56) 1,025 1,025
FHLMC 3,356 --- (190) 3,166 3,166
Collateralized mortgage
obligations 4,999 --- (253) 4,746 4,746
Total available for sale $ 9,646 $ --- $ (501) $ 9,145 $ 9,145
Held to maturity:
GNMA $ 28,667 $ --- $ (1,424) $ 27,243 $ 28,667
FNMA 21,000 --- (997) 20,003 21,000
FHLMC 40,934 --- (1,466) 39,468 40,934
Total held to maturity $ 90,601 $ --- $ (3,887) $ 86,714 $ 90,601
At December 31, 1994
Gross Gross Estimated
Amortized Unrealized Unrealized Fair Carrying
Cost (1) Gains Losses Value Value
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Available for sale:
GNMA $ 227 $ --- $ (8) $ 219 $ 219
FNMA 1,098 --- (84) 1,014 1,014
FHLMC 3,429 --- (274) 3,155 3,155
Collateralized mortgage
obligations 4,998 --- (283) 4,715 4,715
Total available for sale $ 9,752 $ --- $ (649) $ 9,103 $ 9,103
Held to maturity:
GNMA $ 29,325 $ --- $ (2,246) $ 27,079 $ 29,325
FNMA 21,577 --- (1,645) 19,932 21,577
FHLMC 42,771 --- (2,677) 40,094 42,771
Total held to maturity $ 93,673 $ --- $ (6,568) $ 87,105 $ 93,673
</TABLE>
(1) Original cost of securities adjusted for repayments, amortization of
premiums and accretion of discounts.
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 March 31, 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 March 31, 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.
Loan Portfolio
The Bank's net loan portfolio, including loans held for sale, totalled $210.9
million at March 31, 1995 or 60.8% of its total assets, an increase of $4.8
million or 2.3% 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.
<TABLE>
March 31, 1995 December 31, 1994
Amount Percent Amount Percent
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Real estate loans:
Single family residential (1) $ 100,551 47.32% $ 99,917 48.12%
Commercial real estate (2) 75,393 35.48 71,273 34.33
Construction 4,866 2.29 5,379 2.59
Total real estate loans 180,810 85.09 176,569 85.04
Commercial business loans 12,183 5.73 12,005 5.78
Consumer loans:
Home equity and lines of credit 18,134 8.54 17,927 8.64
Other 1,358 .64 1,124 .54
Total consumer loans 19,492 9.18 19,051 9.18
Total loans 212,485 100.00% 207,625 100.00%
Allowance for possible loan losses (1,611) (1,502)
Net loans $ 210,874 $ 206,123
</TABLE>
(1) Includes $727 thousand and $351 thousand of loans held for sale at March 31,
1995 and December 31, 1994, respectively. (2) Includes $15.3 million and $18.6
million of multi-family residential loans at March 31, 1995 and December 31,
1994, respectively.
Loans Held For Sale
At March 31, 1995, the Bank had $727 thousand of fixed-rate residential loans
held for sale in comparison with $351 thousand at December 31, 1994.
NON-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 $8.8 million at March 31, 1995. The
Bank's future results of operations will be affected by its ability to continue
to reduce the $8.8 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 possible loan losses.
Real estate acquired in partial or full satisfaction of loans is recorded at the
lower of cost (recorded balance of loan at foreclosure plus foreclosure costs)
or fair value through a charge to the allowance for possible 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.
The following table details the Bank's non-performing assets at the dates
indicated:
<TABLE>
March 31, December 31, March 31,
1995 1994 1994
(Dollars in Thousands)
<S> <C> <C> <C>
Loans accounted for on a
non-accrual basis (1) $ 4,253 $ 4,369 $ 6,002
Accruing loans 90 or
more days past due 57 182 147
Total non-performing loans 4,310 4,551 6,149
REO, net of related reserves 4,454 4,534 7,373
Total non-performing assets $ 8,764 $ 9,085 $ 13,522
Non-performing loans as a
percentage of total loans 2.03 % 2.19 % 3.38 %
Non-performing assets as a
percentage of total assets 2.53 % 2.61 % 4.12 %
</TABLE>
(1) Includes $77 thousand, $326 thousand and $721 thousand of loans which were
considered troubled debt restructuring as of March 31, 1995, December 31, 1994
and March 31, 1994, respectively.
The $4.3 million of non-accrual loans at March 31, 1995 consists of $969
thousand of loans secured by single-family residential property, a $2.9 million
loan secured by commercial property, $94 thousand of commercial business loans
and $309 thousand of consumer loans. The $57 thousand of accruing loans 90 days
or more past due at March 31, 1995 consisted of three loans secured by
single-family residential property. The $4.5 million of REO at March 31, 1995
primarily consisted of a medical office building located in the Bronx, New York
with an aggregate carrying value of $3.4 million which is net of $10.1 million
in charge-offs. As of such date, $649 thousand of REO consisted of three
residential development projects, substantially all of which the Company is
actively engaged in building and/or marketing the properties. Furthermore, at
March 31, 1995, $370 thousand of REO consisted of four single-family residences.
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. At March
31, 1995, the medical office building was 68% leased and covering operating
expenses.
While the Bank has significantly reduced the level of non-performing assets
outstanding (from $50.6 million at March 31, 1992 to $8.8 million at March 31,
1995), the Bank's level of non-performing assets as a percentage of assets
continues to be above peer group averages. The return of the balance of such
assets to performing status is somewhat dependent on economic events in future
periods which cannot be predicted by management.
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:
<TABLE>
March 31, December 31, March 31,
1995 1994 1994
Amount Percent Amount Percent Amount Percent
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Delinquencies:
30 to 59 days $ 869 .4 % $ 719 .4 % $ 3,620 2.0 %
60 to 89 days 354 .2 % 282 .1 % 574 .3 %
90 or more days and
non-accrual loans (1) 4,310 2.0 % 4,551 2.2 % 6,149 3.4 %
Total $ 5,533 2.6 % $ 5,552 2.7 % $ 10,343 5.7 %
</TABLE>
(1)Includes $57 thousand, $182 thousand and $147 thousand of loans that are
accruing interest at March 31, 1995, December 31,1994 and March 31, 1994,
respectively.
Allowance for Possible Loan Losses
The following table details the Bank's allowance for possible loan losses for
the periods indicated:
<TABLE>
For the Three Months
Ended March 31,
1995 1994
(Dollars in thousands)
<S> <C> <C>
Average loans outstanding $ 210,415 $ 172,957
Balance beginning of period $ 1,502 $ 2,113
Charge-offs:
Consumer --- 18
Commercial --- 77
Total charge-offs --- 95
Recoveries:
Real estate construction --- 60
Consumer 6 2
Commercial 3 ---
Total recoveries 9 62
Net charge-offs (recoveries) (9) 33
Additions charged to operations 100 50
Balance at end of period $ 1,611 $ 2,130
Ratio of net charge-offs (recoveries) during the period
to average loans outstanding during the period --- .02 %
Ratio of allowance for possible loan losses to non-
performing loans at end of period 37.38 % 34.64 %
</TABLE>
An allowance for possible 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 possible 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
evaluations.
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
None
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
(signature)
May 15, 1995 /s/Eric J. Morgan
Date Eric J. Morgan, Vice President
of Credit Policy and
Administration
(signature)
May 15, 1995 /s/Peter J. Meier
Date Peter J. Meier, Vice President
and Corporate Controller
(Principal Accounting Officer)
