<PAGE>
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, 1996.
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) 3,730,000
------------------------------ ----------------------------
Title of Each Class Number of Shares Outstanding
as of May 13, 1996
<PAGE>
PROGRESS FINANCIAL CORPORATION
Table of Contents
PART I - FINANCIAL INFORMATION
Page
Item 1. Financial Statements
Consolidated Statements of Financial Condition as of
March 31, 1996 (unaudited) and December 31, 1995................. 3
Consolidated Statements of Operations for the three months
ended March 31, 1996 and 1995 (unaudited)........................ 4
Consolidated Statements of Cash Flows for the three months
ended March 31, 1996 and 1995 (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
<PAGE>
PROGRESS FINANCIAL CORPORATION
- - -------------------------------------------------------------------------------
PART I- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
--------- -----------
(Dollars in thousands)
(unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks:
Interest bearing $ 8,691 $ 4,780
Non-interest bearing 6,979 2,309
Investment securities:
Available for sale at fair value (amortized cost:
$5,520 in 1996 and $5,527 in 1995) 5,456 5,504
Held to maturity (fair value: $1,937 in 1996 and $2,149
in 1995) 1,937 2,149
Mortgage-backed securities:
Available for sale at fair value (amortized cost: $39,800
in 1996 and $37,244 in 1995) 39,225 36,842
Held to maturity at amortized cost (fair value: $49,376
in 1996 and $52,090 in 1995) 50,587 52,833
Loans, net of unearned discounts and deferred fees 214,980 223,370
Less: allowance for loan losses (2,050) (1,720)
-------- --------
Net loans 212,930 221,650
Loans held for sale (fair value: $3,351 in 1996 and $3,160 in 1995) 3,329 3,153
Real estate owned, net 760 728
Premises and equipment 6,351 2,182
Accrued interest receivable 2,264 2,280
Deferred Income Taxes 3,117 3,417
Other assets 6,365 7,567
-------- --------
TOTAL ASSETS $347,991 $345,394
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $298,100 $297,260
Advances from the Federal Home Loan Bank 21,000 25,400
Subordinated debt and other borrowings 6,000 3,000
Advance payments by borrowers for taxes and insurance 1,705 2,312
Accrued interest payable 899 722
Other liabilities 1,063 293
-------- --------
TOTAL LIABILITIES 328,767 328,987
-------- --------
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;
3,780,000 and 3,280,000 shares issued at March 31, 1996 and
December 31, 1995, respectively 3,780 3,280
Capital surplus 17,706 15,706
Unearned Employee Stock Ownership Plan (263) ---
Retained earnings (deficit) (1,521) (2,238)
Unrealized loss on securities available for sale, net of deferred
income taxes (478) (341)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 19,224 16,407
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $347,991 $345,394
======== ========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
PROGRESS FINANCIAL CORPORATION
- - -------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For The Three Months
Ended March 31,
1996 1995
--------- ---------
(Dollars in thousands)
(unaudited)
<S> <C> <C>
INTEREST INCOME:
Loans, including fees $5,059 $4,548
Mortgage-backed securities 1,384 1,654
Investment securities 117 267
Other 75 29
--------- ---------
Total interest income 6,635 6,498
INTEREST EXPENSE:
Deposits 3,032 2,839
Advances from the Federal Home
Loan Bank 407 749
Subordinated debt and other borrowings 72 66
--------- ---------
Total interest expense 3,511 3,654
--------- ---------
Net interest income 3,124 2,844
Provision for loan losses 300 100
--------- ---------
Net interest income after provision for
loan losses 2,824 2,744
--------- ---------
OTHER INCOME:
Mortgage origination and servicing 183 207
Service charges on deposits 235 231
Gain (loss) from mortgage banking activities 40 (1)
Gain on sale of mortgage servicing rights 924 ---
Gain ( loss) from sales of securities 109 (35)
Loss on properties sold (6) (24)
Other 61 24
--------- ---------
Total other income 1,546 402
--------- ---------
OTHER EXPENSE:
Salaries and employee benefits 1,507 1,200
Occupancy 364 325
Data processing 225 191
Furniture, fixtures, and equipment 161 127
Insurance premiums 269 258
Provision for real estate owned --- 75
Loan and real estate owned expense, net 86 43
Professional services 222 274
Other 449 275
--------- ---------
Total other expense 3,283 2,768
--------- ---------
Income before income taxes 1,087 378
Income tax expense 370 ---
--------- ---------
Net income $ 717 $ 378
========= =========
Net income per share $ .19 $ .12
========= =========
Average shares outstanding 3,695,771 3,275,000
========= =========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
PROGRESS FINANCIAL CORPORATION
- - -------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For The Three Months
Ended March 31,
1996 1995
------- -------
(Dollars in thousands)
(unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 717 $ 378
Add (deduct) items not affecting cash flows
from operating activities:
Depreciation and amortization 166 132
Provision for real estate owned --- 75
Provision for loan losses 300 100
Deferred income tax expense 370 ---
(Gain) loss from mortgage banking activities (40) 1
(Gain) loss from sales of securities available for sale (109) 35
Loss on properties sold 6 24
Amortization of deferred loan fees (208) (129)
Amortization of premiums/accretion
of discounts on securities 159 145
Originations and purchases of loans held for sale (5,274) (1,009)
Sales of loans 5,139 631
Decrease in accrued interest receivable 16 51
Increase in other assets (1,591) (388)
Increase in other liabilities 770 161
Increase in accrued interest payable 177 237
------- -------
Net cash flows provided by operating activities 598 444
------- -------
</TABLE>
(CONTINUED)
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE>
PROGRESS FINANCIAL CORPORATION
- - -------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
For The Three Months
Ended March 31,
1996 1995
------- -------
(Dollars in thousands)
(unaudited)
<S> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures $(1,185) $ (141)
Repayments on mortgage-backed securities held to maturity 2,144 2,939
Repayments on mortgage-backed securities available for sale 2,614 103
Purchases of mortgage-backed securities available for sale (9,794) ---
Sales of mortgage-backed securities available for sale 14,556 ---
Net increase in loans (1,742) (4,345)
Purchases of investments held to maturity --- (395)
Proceeds from sales of investments available for sale --- 965
Maturities of investments held to maturity 212 229
Proceeds from sales of real estate owned 107 297
Advances for construction of real estate owned --- (316)
------- -------
Net cash flows provided by (used in) investing activities 6,912 (664)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in demand, NOW and saving deposits 1,771 (7,485)
Net (decrease) increase in time deposits (931) 1,376
Net increase (decrease) in advances from
the Federal Home Loan Bank (4,400) 3,769
Net increase (decrease) in advance payments by borrowers
for taxes and insurance (607) 3
Net increase in other borrowings 3,000 ---
Net proceeds from issuance of common stock 2,238 ---
------- -------
Net cash flows provided by (used in) financing activities 1,071 (2,337)
Net increase (decrease) in cash and cash equivalents 8,581 (2,557)
Cash and cash equivalents:
Beginning of year 7,089 8,075
------- -------
End of period $15,670 $ 5,518
======= =======
Supplemental disclosures:
Non-monetary transfers:
Net conversion of loans receivable to real estate owned $ 139 $ ---
======= =======
Securitization of mortgage loans into mortgage-backed
securities $ 9,982 $ ---
======= =======
Transfer of balance on property for Company use from
other assets to premises and equipment $ 3,150 $ ---
======= =======
Cash payments for:
Income taxes $ --- $ ---
======= =======
Interest $ 3,333 $ 3,416
======= =======
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
6
<PAGE>
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 months ended March 31, 1996 and 1995 in conformity
with generally accepted accounting principles. These financial statements
should be read in conjunction with Progress Financial Corporation's (the
"Company") 1995 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 Bank
(the "Bank").
The year end consolidated statement of financial condition was derived
from the Company's 1995 audited financial statements, but does not include
all disclosures required by generally accepted accounting principles.
(2) In May 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 122, "Accounting for
Mortgage Servicing Rights" ("SFAS 122") which is effective for the
Company beginning January 1, 1996. SFAS 122 requires the
recognition of separate assets relating to the rights to service
mortgage loans based on their fair value if it is practicable to
estimate the value. Additionally, the fair value of servicing assets
is measured at each reporting date to determine any potential
impairment. The statement applies prospectively to transactions
entered into in 1996, therefore, there is no cumulative effect at
January 1, 1996, when the statement was adopted. The statement did
not have a significant effect on the financial position or results of
operation of the Company.
(3) DEPOSIT INSURANCE PREMIUMS
Currently, the Bank pays an insurance premium to the Federal Deposit
Insurance Corporation ("FDIC") equal to .29% of its total deposits.
Federal law requires that the FDIC maintain the reserve level of each
of the SAIF and the BIF at 1.25% of insured deposits. Reserves are
funded through payments by insured institutions of insurance premiums.
The BIF reached this level during 1995. The FDIC reduced the insurance
premiums to a range between 0% and .27% for members of BIF while
maintaining the current range of between .23% and .31% of deposits for
members of SAIF. A one time assessment on thrift institutions sufficient
to recapitalize the SAIF to a level which would at least approach that of
the BIF is being considered by Congress in the 1997 budget. This
assessment could approximate $2.4 million. While there can be no assurance
that this or any other idea for addressing the premium disparity will in
fact materialize, an assessment of this kind could have a material adverse
impact on the Company's results of operations and financial position.
(4) In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS"),
which is effective for the Company beginning January 1, 1996. SFAS
123 provides an alternative method of accounting for stock-based
compensation arrangements, based on fair value of the stock-based
compensation determined by an option pricing model utilizing various
assumptions regarding the underlying attributes of the options and the
Company's stock, rather than the existing method of accounting for
stock-based compensation which is provided in Accounting Principles
Bulletin Opinion No. 25 "Accounting for Stock Issued to Employees"
("APB 25"). The FASB encourages entities to adopt the fair value
based method, but does not require the adoption of this method. For
those entities that continue to apply APB 25, pro forma disclosure of
the effects, if adopted, of SFAS 123 on net income and earning per
share are required in the 1996 financial statements. The Company will
continue to apply APB 25 and therefore, there will be no impact on the
financial position and results of operations.
7
<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 1996 data.
SUMMARY
The Company recorded net income of $717 thousand or $.19 per share for the
three months ended March 31, 1996 in comparison with net income of $378
thousand or $.12 per share for the three months ended March 31, 1995 .
Return on average stockholders' equity was 15.78% and return on average
assets was .84% for the three months ended March 31, 1996 compared to 11.42%
and .44%, respectively, for the three months ended March 31, 1995.
Net interest income was $3.1 million and $2.8 million for the three months
ended March 31, 1996 and 1995, respectively. Operating results for the three
months ended March 31, 1996 and 1995 included $300 thousand and $100
thousand, respectively, in provision for losses on loans. Other income for
the three months ended March 31, 1996 included a gain of $924 thousand on the
sale of $85.0 million of mortgage servicing rights and a $109 thousand gain
on the sale of securities. Other expense totalled $3.3 million for the three
months ended March 31, 1996 in comparison with $2.8 million for the same
period in 1995. The increase of $515 thousand is primarily due to increased
salaries and employee benefits and increased other operating expenses.
Increases in other operating expenses include printing of $37 thousand and
$75 thousand relating to subsidiary operating expenses. No provision was
required for real estate owned for the three months ended March 31, 1996.
As a result of a determination of the outlook for future taxable income, the
deferred tax valuation allowance was eliminated in the latter part of 1995.
A tax provision of $370 thousand was provided for the three months ended
March 31, 1996. No income tax was provided for the three months ended March
31, 1995.
In January, 1996, the Company completed a successful offering of 500,000
shares of its common stock. At the time of the offering, 50,000 shares were
reserved for the Company's Employee Stock Ownership Plan. Net proceeds of
the offering were $2.2 million. $1.8 million of the proceeds were
contributed to the Bank for 12% non cumulative preferred stock.
Loans decreased $8.4 million during the three months ended March 31, 1996
through repayments, sales and securitizations. The increase in premises and
equipment during the three months ended March 31, 1996 is attributable to the
transfer from other assets of an office building that will be used as the
Company's new corporate headquarters.
RESULTS OF OPERATIONS
NET INTEREST INCOME
For the three months ended March 31, 1996, net interest income amounted to
$3.1 million in comparison with $2.8 million for the same period in 1995.
Net interest income for the three months ended March 31, 1996 was impacted
by a $7.0 million decrease in average interest-earning assets, while average
interest-bearing liabilities decreased $12.2 million. The interest rate
spread increased 32 basis points in 1996 compared to the same period in 1995,
primarily due to a 27 basis point increase in the average yield on
interest-earning assets and a 4 basis point decrease in the average rate on
interest-bearing liabilities.
8
<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 March 31,
1996 1995
-----------------------------------
(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) $186,641 $4,142 8.93% $178,705 $3,812 8.65%
Mortgage-backed securities (2) 85,152 1,384 6.54 101,454 1,654 6.61
Other loans 39,823 917 9.26 31,710 736 9.41
Investment securities and other
interest-earning assets (3) 11,700 192 6.60 18,490 296 6.49
-------- -------- ------- -------- -------- ------
Total interest-earning assets 323,316 $6,635 8.25% 330,359 $6,498 7.98%
-------- ------- -------- ------
Non-interest-earning assets 19,495 17,201
-------- --------
Total assets $342,811 $347,560
======== ========
Interest-bearing liabilities:
Interest-bearing deposits:
NOW and Super NOW $ 26,632 $ 137 2.07% $ 24,870 $ 161 2.63%
Money market accounts 34,196 260 3.06 34,960 225 2.96
Passbook and statement savings 27,624 186 2.71 27,603 200 2.94
Time deposits 181,783 2,450 5.42 173,023 2,223 5.21
-------- -------- ------- -------- -------- ------
Total interest-bearing deposits 270,235 3,033 4.51 260,456 2,839 4.42
Advances from the Federal Home Loan Bank 22,988 372 6.51 47,506 749 6.39
Subordinated debt and other borrowing 5,580 106 7.64 3,000 66 8.92
-------- -------- ------- -------- -------- ------
Total interest-bearing liabilities 298,803 $3,511 4.73% 310,962 $3,654 4.77%
-------- ------- -------- ------
Non-interest-bearing liabilities 25,730 23,177
-------- --------
Total liabilities 324,533 334,139
Stockholders' equity 18,278 13,421
-------- --------
Total liabilities and stockholders'
equity $342,811 $347,560
======== ========
Net interest income; interest rate spread (4) $3,124 3.53% $2,844 3.21%
======== ======= ======== =======
Net interest margin (4) 3.89% 3.49%
======= =======
Average interest-earning assets to average
interest-bearing liabilities 108.20% 106.24%
======= =======
</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 assets and the weighted average cost
of interest-bearing liabilities, and net interest margin represents net
interest income divided by average interest-earning assets.
9
<PAGE>
PROGRESS FINANCIAL CORPORATION
- - -------------------------------------------------------------------------------
Total interest income amounted to $6.6 million for the three months ended
March 31,1996, a $138 thousand or 2.1% increase when compared to the same
period in 1995. Interest income on mortgage loans increased $330 thousand,
as the average balance outstanding increased $7.9 million and the average
yield increased 28 basis points. Interest income on mortgage-backed
securities decreased $270 thousand, as the average balance decreased $16.3
million, while the average yield decreased 7 basis points. Interest income
on other loans increased $181 thousand, as the average balance outstanding
increased $8.1 million and the average yield decreased 15 basis points.
Interest income on investment securities and other interest-earning assets
decreased $104 thousand, as the average balance decreased $6.8 million, which
offset an 11 basis point increase in the average yield.
Total interest expense amounted to $3.5 million for the three months ended
March 31, 1996, a $143 thousand or 3.9% decrease in comparison to the same
period in 1995. Interest expense on deposits decreased $3 thousand, as the
average rate on deposits decreased 69 basis points and the average balance
decreased $1.0 million. Interest expense on Federal Home Loan Bank of
Pittsburgh ("FHLB") advances decreased $377 thousand, as the average rate
increased 12 basis points, which offset a $24.5 million decrease in the
average balance. These increases reflect the general overall trend in
interest rates over the past year. Interest expense on subordinated debt
and other borrowings amounted to $106 thousand for the three months ended
March 31, 1996 as compared to $66 thousand for the three months ended March
31, 1995.
10
<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 three months ended March 31, 1996, the Company recorded a $300
thousand provision compared with $100 thousand for the comparable period in
1995, and had net recoveries of $30 thousand during the three months ended
March 31, 1996 in comparison with $9 thousand in net recoveries during the
comparable period in 1995. At March 31, 1996, the allowance for loan losses
amounted to $2.1 million or .95% of total loans and 53.05% of total
non-performing loans. See "Non-Performing Assets - Allowance for Loan Losses."
The Company's allowance for loan losses increased by $439 thousand or 27.2%
from March 31, 1995 to March 31, 1996. The provision for possible loan
losses of $300 thousand for the three months ended March 31, 1995 was
considered necessary by management to maintain the allowance for possible
loan losses at an adequate level. The ratio of delinquent loans to the total
loan portfolio increased to 4.24% at March 31, 1996 versus 2.6% at March 31,
1995.
Although management utilizes its best judgement in providing for possible
losses, there can be no assurance that the Company will not have to increase
its provision for possible loan losses in the future as a result of adverse
market conditions for loans in the Company's primary market area, future
increases in non-performing loans or for other reasons. Any such increase
could adversely affect the Company's results of operations. In addition,
various regulatory agencies, as an integral part of their examination
process, periodically review the Company's allowance for possible 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 possible
losses on loans and allowance for possible losses on REO based on their
judgement about information available to them at the time of their
examination. The Company and the Bank were most recently examined by the
Office of Thrift Supervision as of September 30, 1995.
11
<PAGE>
PROGRESS FINANCIAL CORPORATION
- - -------------------------------------------------------------------------------
OTHER INCOME
The following table details other income for the periods indicated.
<TABLE>
<CAPTION>
For The Three Months
Ended March 31,
1996 1995
------- ------
(Dollars in thousands)
(unaudited)
<S> <C> <C>
Other income:
Mortgage origination and servicing $ 183 $ 207
Service charges on deposits 235 231
Gain (loss) from mortgage banking activities 40 (1)
Gain on sale of mortgage servicing rights 924 ---
Gain (loss) from sales of securities 109 (35)
Loss on properties sold (6) (24)
Other 61 24
------- ------
Total other income $ 1,546 $ 402
======= ======
</TABLE>
Total other income amounted to $1.5 million for the three months ended March
31, 1996, an increase of $1.1 million compared with the $402 thousand in
other income for the three months ended March 31, 1995. The increase in
other income for the three months ended March 31, 1996 compared to March 31,
1995 primarily relates to the $924 thousand gain on the sale of mortgage
servicing rights and the $109 thousand gain on the sale of securities. The
Company's portfolio of loans serviced for others amounted to $329 million and
$272 million at March 31, 1996 and 1995.
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 change 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 1996, the Company intends to sell
substantially all residential mortgage loan originations in the secondary
market or to private investors. The Company's lending activities include the
origination of nonconforming residential mortgage loans.
12
<PAGE>
PROGRESS FINANCIAL CORPORATION
- - -------------------------------------------------------------------------------
OTHER EXPENSE
The following table details other expense for the periods indicated.
<TABLE>
<CAPTION>
For The Three Months
Ended March 31,
1996 1995
------- -------
(Dollars in thousands)
(unaudited)
<S> <C> <C>
Other expense:
Salaries and employee benefits $1,507 $1,200
Occupancy 364 325
Data processing 225 191
Furniture, fixtures and equipment 161 127
Insurance premiums 269 258
Provision for real estate owned --- 75
Loan and real estate owned expense, net 86 43
Professional services 222 274
Other 449 275
------ ------
Total other expense $3,283 $2,768
====== ======
</TABLE>
Total other expense amounted to $3.3 million for the three months ended March
31, 1996, an increase of $515 thousand from the $2.8 million recognized during
the comparable 1995 period, primarily due to increases in salaries and
employee benefits related to the hiring of additional loan officers to expand
lending activities and additional personnel in the three months ended March
31, 1996 for subsidiaries acquired subsequent to March 31, 1995. Other
miscellaneous expenses increased $174 thousand due primarily to costs related
to the subsidiaries acquired in 1995.
13
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PROGRESS FINANCIAL CORPORATION
- - -------------------------------------------------------------------------------
INCOME TAX EXPENSE
The Company recorded income tax expense of $370 thousand for the three months
ended March 31, 1996. At March 31, 1996, the Company had a net operating
loss carryforward for federal income tax purposes of approximately $6.8
million which expires in 2007 through 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. Income tax expense consists of $370 thousand of
deferred federal income tax and no current tax due to the net operating loss
carryforward. Tax expense during the period ended March 31, 1995 was offset
by the partial recognition of a net operating loss carryforward.
14
<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 and interest on subordinated debt.
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 March 31, 1996 was 6.39%.
The Company monitors its liquidity in accordance with guidelines established
by the Company 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 the three months ended March 31, 1996, the Company used its capital
resources primarily to meet its ongoing commitments to fund maturing savings
certificates and deposit withdrawals, fund existing and continuing loan
commitments and maintain its liquidity.
For the three months ended March 31, 1996, cash was provided by operating and
financing activities and used in investing activities. Operating activities
provided $598 thousand of cash, primarily due to sales of loans totalling
$5.1 million. Investing activities provided $6.9 million in cash as sales and
repayments of mortgage-backed securities exceeded purchases of such
securities and capital expenditures. In addition, financing activities
provided $1.1 million in cash primarily from a common stock offering that
generated $2.2 million which was partially offset by a reduction in other
debt. Net deposits increased $840 thousand during the three months ended
March 31, 1996.
At March 31, 1996, the Company had $57.8 million in loan commitments to
extend credit and $621 thousand in letters of credit outstanding. At March
31, 1996, FHLB advances which were scheduled to mature through March 31, 1997
totalled $8.0 million. The subordinated debentures are due June 30, 2004 and
are not redeemable prior to July 1, 1996. At March 31, 1996, the total
amount of time deposits which were scheduled to mature through March 31, 1997
totalled $130.2 million.
15
<PAGE>
PROGRESS FINANCIAL CORPORATION
- - -------------------------------------------------------------------------------
Management has focused considerable attention on the retention of the
Company's core deposit base, which has been impacted by increased competition
for deposit funds.
The Company'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 Company 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 $840 thousand during the three months ended March 31, 1996
from $297.3 million at December 31, 1995 to $298.1 million at March 31, 1996.
The ability of the Company to attract and maintain deposits and the Company's
cost of funds on these deposit accounts have been, and will continue to be,
significantly affected by economic and competitive conditions.
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 bank's assets or on the FHLB's assessment of the 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 and
other borrowings for the periods indicated.
<TABLE>
<CAPTION>
At or For the Three Months
Ended March 31,
1996 1995
--------- ---------
(Dollars in thousands)
<S> <C> <C>
Average balance outstanding $22,988 $47,506
Maximum amount outstanding at
any month-end during the period $23,500 $47,821
Weighted average interest rate
during the period 6.51% 6.39%
Weighted average interest rate at end
of the period 6.28% 6.41%
</TABLE>
The Company continued to utilize advances from the FHLB as a source of funds
to meet loan demand during the three months ended March 31, 1996. FHLB
advances decreased $4.4 million to $21.0 million at March 31, 1996 from $25.4
million at December 31, 1995.
16
<PAGE>
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 March 31, 1996, 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, 1996:
<TABLE>
<CAPTION>
Tangible Core Risk-Based
Capital % Capital % Capital %
-------- ----- -------- ----- --------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
GAAP Capital $ 21,363 $ 21,363 $ 21,363
General valuation allowance --- --- 2,050
Unrealized loss on securities available for sale 478 478 478
Goodwill (123) (123) (123)
Non-qualifying deferred tax asset (1,921) (1,921) (1,921)
-------- -------- ---------
Total 19,797 5.72% 19,797 5.72% 21,847 10.03%
-------- ----- -------- ----- --------- ------
Minimum capital requirement 5,190 1.50 10,380 3.00 17,429 8.00
-------- ----- -------- ----- --------- ------
Regulatory capital - excess $ 14,607 4.22% $ 9,417 2.72% $ 4,418 2.03%
======== ===== ======== ===== ======== ======
</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, 1996, the Bank's leverage ratio was 5.72%, Tier 1 risk-based
ratio was 9.09%, total risk-based ratio was 10.03%, and tangible equity ratio
was 5.72%, based on leverage capital of $19,797,000, Tier 1 capital of
$19,797,000, total risk-based capital of $21,847,000 and tangible equity
capital of $19,797,000, respectively. As of March 31, 1996, the Bank was
classified as "adequately capitalized."
CASH AND DUE FROM BANKS
Interest-bearing deposits in other banks totalled $8.7 million at March 31,
1996 in comparison with $4.8 million at December 31, 1995. At March 31,
1996, the Company also had $6.9 million in cash and non-interest bearing
deposits in other banks compared with $2.3 million at December 31, 1995.
17
<PAGE>
PROGRESS FINANCIAL CORPORATION
- - -------------------------------------------------------------------------------
INVESTMENT SECURITIES
The Company is required under current OTS regulations to maintain defined
levels of liquidity and utilizes certain investments that qualify as liquid
assets. The Company 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, 1996.
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>
<CAPTION>
At March 31, 1996
-----------------
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:
U.S. agency obligations $ 5,490 $ --- $ (64) $ 5,426 $ 5,426
Equity investments 30 --- 30 30
------- ------ ----- ------- -------
Total available for sale $ 5,520 $ --- $ (64) $ 5,456 $ 5,456
======= ====== ===== ======= =======
HELD TO MATURITY:
FHLB stock, pledged $ 1,937 $ --- $ --- $ 1,937 $ 1,937
------- ------ ----- ------- -------
Total held maturity $ 1,937 $ --- $ --- $ 1,937 $ 1,937
======= ====== ===== ======= =======
<CAPTION>
At December 31, 1995
--------------------
<S> <C> <C> <C> <C> <C>
AVAILABLE FOR SALE:
U.S. agency obligations $ 5,497 $ 2 $ 25 $ 5,474 $ 5,474
Equity investments 30 --- --- 30 30
------- ------ ----- ------- -------
Total available for sale $ 5,527 $ 2 $ 25 $ 5,504 $ 5,504
======= ====== ===== ======= =======
HELD TO MATURITY:
FHLB stock, pledged $ 2,149 --- --- $ 2,149 $ 2,149
-------- ------ ----- ------- -------
Total held to maturity $ 2,149 $ --- $--- $ 2,149 $ 2,149
======= ====== ===== ======= =======
</TABLE>
The amortized cost and estimated fair value of investment securities by
contractual maturity at March 31, 1996 are as follows:
<TABLE>
<CAPTION>
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 $ 2,000 $ 1,983 $ -- $ --
Due after five years through ten years 3,490 3,443 -- --
Due after ten years --- --- -- --
No stated maturity 30 30 1,937 1,937
-------- -------- ------- -------
Total investment securities $ 5,520 $ 5,456 $ 1,937 $ 1,937
======== ======== ======= =======
</TABLE>
(1) Original cost of securities adjusted for repayments, amortization of
premiums and accretion of discounts.
There were no sales of investment securities available for sale during the
three months ended March 31, 1996.
18
<PAGE>
PROGRESS FINANCIAL CORPORATION
- - -------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES
Since July 1991, the Company 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 Company
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>
<CAPTION>
At March 31, 1996
-----------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair Carrying
Cost (1) Gains Losses Value Value
---------- ----------- ---------- ---------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
HELD TO MATURITY:
GNMA $ 25,465 $ --- $ 720 $ 24,745 $ 25,465
FNMA 8,275 --- 155 8,120 8,275
FHLMC 16,847 --- 336 16,511 16,847
---------- ----------- ---------- ---------- --------
Total held to maturity $ 50,587 $ --- $ 1,211 $ 49,376 $ 50,587
========== =========== ========== ========== ========
AVAILABLE FOR SALE:
GNMA $ 156 $ --- $ --- $ 156 $ 156
FNMA 8,428 --- 227 8,201 8,201
FHLMC 25,205 34 397 24,842 24,842
Non-Agency 6,011 15 --- 6,026 6,026
---------- ----------- ---------- ---------- --------
Total available for sale $ 39,800 $ 49 $ 624 $ 39,225 $ 39,225
========== =========== ========== ========== ========
<CAPTION>
At December 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>
HELD TO MATURITY:
GNMA $ 26,618 $ --- $ 505 $ 26,113 $ 26,618
FNMA 8,620 2 93 8,529 8,620
FHLMC 17,595 8 155 17,448 17,595
---------- ----------- ---------- ---------- --------
Total held to maturity $ 52,833 $ 10 $ 753 $ 52,090 $ 52,833
========== ========== ========== ========== ========
AVAILABLE FOR SALE:
GNMA $ 168 $ --- $ --- $ 168 $ 168
FNMA 8,801 9 179 8,631 8,631
FHLMC 19,040 34 211 18,863 18,863
Collateralized mortgage obligations 7,501 16 77 7,440 7,440
Non-Agency pass through certificate 1,734 6 --- 1,740 1,740
---------- ----------- ---------- ---------- --------
Total available for sale $ 37,244 $ 65 $ 467 $ 36,842 $ 36,842
========== =========== ========== ========== ========
</TABLE>
19
<PAGE>
PROGRESS FINANCIAL CORPORATION
- - -------------------------------------------------------------------------------
Mortgage-backed securities increase the credit quality of the Company's
assets by virtue of the guarantees that back them, are more liquid than
individual mortgage loans and may be used to collateralize borrowings or
other obligations of the Company. The mortgage-backed securities portfolio
contains no speculative derivative securities at March 31, 1996. In addition,
since August 1992, the Company has classified a portion of its
mortgage-backed securities portfolio as available for sale and has sold
certain securities from this portfolio in accordance with the Company's
asset/ liability strategy or in response to changes in interest rates,
changes in prepayment rates, the need to increase the Company'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. 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
Company approximate the duration of the type of loan the Company originates
and therefore, such securities may be sold to allow for additional loan
growth and/or other asset/liability management strategies.
Although the Company's mortgage-backed securities portfolio may have a
shorter average term to maturity and greater liquidity than the Company's
single-family residential real estate loans, the Company is subject to
reinvestment risk with respect to such portfolio. Specifically, as the
Company's mortgage-backed securities amortize or prepay, the Company may not
be able to reinvest the proceeds of such 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 Company's portfolio of mortgage-backed securities classified as available
for sale may result in increased volatility in the Company's liquidity,
operations and capital. The Company attempts to address such risks by
actively managing its portfolio in relation to changes in interest rates and
the Company's liquidity needs.
20
<PAGE>
PROGRESS FINANCIAL CORPORATION
- - -------------------------------------------------------------------------------
LOAN PORTFOLIO
The Company's net loan portfolio, including loans held for sale, totalled
$216.3 million at March 31, 1996 or 62.1% of its total assets, an decrease of
$8.5 million or 3.8% from the $224.8 million outstanding at December 31,
1995. The following table depicts the composition of the Company's loan
portfolio at the dates indicated.
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
------------------------ ------------------------
Amount Percent Amount Percent
--------- -------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Real estate loans:
Single family residential (1) $ 77,209 35.37% $ 91,091 40.21%
Commercial real estate (2) 83,545 38.27 81,535 36.00
Construction 16,498 7.56 14,230 6.28
--------- ------ --------- ------
Total real estate loans 177,252 81.20 188,856 82.49
--------- ------ --------- ------
Commercial business loans 19,127 8.76 17,244 7.61
--------- ------ --------- ------
Consumer loans:
Consumer 21,183 9.70 21,666 9.57
Credit Card Receivables 747 .34 757 .33
--------- ------ --------- ------
Total consumer loans 21,930 10.04 22,423 9.90
--------- ------ --------- ------
Total Loans 218,309 100.00% 226,523 100.00%
====== ======
Allowance for possible loan losses (2,050) (1,720)
-------- ---------
Net loans $216,259 $224,803
======== =========
</TABLE>
(1) Includes $3.3 million and $3.2 million of loans held for sale at March 31,
1996 and December 31, 1995, respectively.
(2) Includes $19.8 million and $18.9 million of multi-family residential loans
at March 31, 1996 and December 31, 1995, respectively.
21
<PAGE>
PROGRESS FINANCIAL CORPORATION
- - -------------------------------------------------------------------------------
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 Company's
loans. As a result of certain steps taken by the Company, total
non-performing assets have been substantially reduced, and amounted to $4.6
million at March 31, 1996.
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.
22
<PAGE>
PROGRESS FINANCIAL CORPORATION
- - -------------------------------------------------------------------------------
The following table details the Company's non-performing assets at the dates
indicated:
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1996 1995 1995
---------- ------------ ----------
(Dollars in thousands)
<S> <C> <C> <C>
Loans accounted for on a $ 3,864 $ 3,879 $ 4,253
non-accrual basis (1)
Accruing loans 90 or
more days past due --- --- 57
------- ------- -------
Total non-performing loans 3,864 3,879 4,310
REO, net of related reserves 760 728 4,454
------- ------- -------
Total non-performing assets $ 4,624 $ 4,607 $ 8,764
======= ======= =======
Non-performing loans as a
percentage of total loans 1.77% 1.71% 2.03%
======= ======= =======
Non-performing assets as a
percentage of total assets 1.33% 1.33% 2.53%
======= ======= =======
</TABLE>
(1) Includes impaired loans of $2.3 million at March 31, 1996 and December 31,
1995. At March 31, 1996, there was a specific valuation allowance of $279
thousand for an impaired loan. The Company recognized no interest on
impaired loans in 1996 or 1995.
Non-performing assets remained constant at $4.6 million at March 31, 1996 as
compared to December 31, 1995.
The $3.9 million of non-accrual loans at March 31, 1996 consists of $932
thousand of loans secured by single-family residential property, $2.4 million
of loans secured by commercial property, $137 thousand of commercial
business loans and $370 thousand of consumer loans. The $760 thousand of
REO at March 31, 1996 consists of five single family properties and four
undeveloped residential lots.
23
<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 unlikely 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>
<CAPTION>
March 31, December 31, March 31,
1996 1995 1995
---------------- ---------------- ----------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Delinquencies:
30 to 59 day $ 4,201 1.92% $ 2,973 1.31% $ 869 .4%
60 to 89 days 1,201 .55 450 .20 354 .2
90 or more days and
non-accrual loans (1) 3,864 1.77 3,879 1.71 4,310 2.0
------- ----- ------- ----- -------- ----
Total $ 9,266 4.24% $ 7,302 3.22% $ 5,333 2.6%
======= ===== ======= ===== ======== ====
</TABLE>
(1) March 31, 1995 includes $57 thousand of loans that were accruing interest.
24
<PAGE>
PROGRESS FINANCIAL CORPORATION
- - -------------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES
The following table details the Company's allowance for loan losses for the
periods indicated:
<TABLE>
<CAPTION>
At or
For the Three Months
Ended March 31,
1996 1995
-------- ------
(Dollars in thousands)
<S> <C> <C>
Average loans outstanding $226,464 $210,415
======== ========
Balance beginning of period $ 1,720 $ 1,502
Charge-offs:
Residential real estate --- ---
Real estate construction --- ---
Consumer --- ---
Commercial --- ---
-------- --------
Total charge-offs --- ---
-------- --------
Recoveries:
Residential real estate 3 ---
Real estate construction --- ---
Consumer 9 6
Commercial 18 3
-------- --------
Total recoveries 30 9
-------- --------
Net charge-offs (recoveries) (30) (9)
Additions charged to operations 300 100
-------- --------
Balance at end of period $ 2,050 $ 1,611
======== ========
Ratio of net charge-offs (recoveries)
during the period to average loans
outstanding during the period 0.1% ---
======== ========
Ratio of allowance for loan losses to non-
performing loans at end of period 53.05% 37.38%
======== ========
</TABLE>
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.
25
<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
Form S-2 filed January 5, 1996 for public offering of 500,000 shares of
common stock.
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
26
<PAGE>
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
May 13, 1996 /s/ W. Kirk Wycoff
- - --------------- ----------------------------------
Date W. Kirk Wycoff, Chairman,
President and Chief Executive
Officer
May 13, 1996 /s/ Frederick E. Schea
- - --------------- ----------------------------------
Date Frederick E. Schea,
Senior Vice President and
Chief Financial Officer
27
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION AT MARCH 31, 1996 AND
DECEMBER 31, 1995; CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE
MONTHS ENDED MARCH 31, 1996 AND 1995 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 6979
<INT-BEARING-DEPOSITS> 8691
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 44681
<INVESTMENTS-CARRYING> 52524
<INVESTMENTS-MARKET> 51313
<LOANS> 214980
<ALLOWANCE> 2050
<TOTAL-ASSETS> 347991
<DEPOSITS> 298100
<SHORT-TERM> 21000
<LIABILITIES-OTHER> 3667
<LONG-TERM> 6000
0
0
<COMMON> 3780
<OTHER-SE> 15444
<TOTAL-LIABILITIES-AND-EQUITY> 347991
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</TABLE>
