<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 September 30, 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)
Suite 200
Four Sentry Parkway
Blue Bell, Pennsylvania 19422-2311
- ----------------------- ----------
(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 November 6, 1996
<PAGE>
PROGRESS FINANCIAL CORPORATION
Table of Contents
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Item 1. Financial Statements
Consolidated Statements of Financial Condition as of September 30, 1996
(unaudited) and December 31, 1995....................................................... 3
Consolidated Statements of Operations for the three and nine months ended
September 30, 1996 and 1995 (unaudited)................................................. 4
Consolidated Statements of Cash Flows for the nine months ended
September 30, 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................................................................... 8
PART II - OTHER INFORMATION
Item 1. Legal Proceedings....................................................................... 28
Item 2. Changes in Securities................................................................... 28
Item 3. Defaults upon Senior Securities......................................................... 28
Item 4. Submission of Matters to a Vote of Security Holders..................................... 28
Item 5. Other Information....................................................................... 28
Item 6. Exhibits and Reports on Form 8-K........................................................ 28
Signatures.............................................................................. 29
</TABLE>
<PAGE>
PROGRESS FINANCIAL CORPORATION
- -------------------------------------------------------------------------------
PART I- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
---- ----
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and due from banks:
Interest bearing $-- $4,780
Non-interest bearing 6,897 2,309
Investment securities:
Available for sale at fair value(amortized
cost: $3,505 in 1996 and $5,527 in 1995) 3,422 5,504
Held to maturity (fair value: $2,785 in
1996 and $2,149 in 1995) 2,785 2,149
Mortgage-backed securities:
Available for sale at fair value (amortized
cost: $53,846 in 1996 and $37,244 in 1995) 52,828 36,842
Held to maturity (fair value: $47,640 in 1996
and $52,090 in 1995) 48,939 52,833
Loans, net of unearned discounts and deferred fees 231,572 223,370
Less: allowance for possible loan losses (2,230) (1,720)
------- -------
Net Loans 229,342 221,650
Loans held for sale (fair value: $638 in 1996
and $3,160 in 1995) 637 3,153
Real estate owned, net 2,247 728
Premises and equipment 7,282 2,182
Accrued interest receivable 2,253 2,280
Deferred income tax 3,389 3,417
Other Assets 7,150 7,567
------- ------
TOTAL ASSETS $367,171 $345,394
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $290,076 $297,260
Advances from the Federal Home Loan Bank 33,325 25,400
Subordinated debt and other borrowings 18,537 3,000
Advanced payments by borrowers for taxes
and insurance 1,631 2,312
Accrued interest payable 1,252 722
Accrued deposit insurance premium 1,794 --
Other liabilities 1,869 293
-------- --------
TOTAL LIABILITIES 348,484 328,987
-------- --------
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 and outstanding at September 30,
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) (1,763) (2,238)
Unrealized loss on securities available
for sale, net of deferred income taxes (773) (341)
-------- --------
Total stockholders' equity 18,687 16,407
-------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $367,171 $345,394
======== ========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
PROGRESS FINANCIAL CORPORATION
_______________________________________________________________________________
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
-------------------- -------------------
1996 1995 1996 1995
----- ----- ----- ----
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans, including fees $5,068 $4,712 $15,008 $13,905
Mortgage-backed securities 1,819 1,675 4,740 5,025
Investment securities 86 312 312 850
Other 20 27 169 104
--------- --------- --------- ---------
Total interest income 6,993 6,726 20,229 19,884
--------- --------- --------- ---------
INTEREST EXPENSE:
Deposits 3,006 3,171 9,027 9,077
Advances from the Federal Home
Loan Bank 554 695 1,208 2,214
Subordinated debt and other borrowings 182 69 398 202
--------- --------- --------- ---------
Total interest expense 3,742 3,935 10,633 11,493
--------- --------- --------- ---------
Net interest income 3,251 2,791 9,596 8,391
Provision for possible loan losses 100 100 500 350
--------- --------- --------- ---------
Net interest income after provision for loan losses 3,151 2,691 9,096 8,041
--------- --------- --------- ---------
OTHER INCOME:
Mortgage origination and servicing 184 183 519 585
Service charges on deposits 240 253 708 737
Gain from mortgage banking activities 21 18 89 46
Gain on sale of mortgage servicing rights -- -- 924 --
Gain (loss) from sales of securities 12 -- 145 (35)
Loss on properties sold (2) (16) (10) (34)
Fees and other 419 379 992 541
--------- --------- --------- ---------
Total other income 874 817 3,367 1,840
--------- --------- --------- ---------
OTHER EXPENSE:
Salaries and employee benefits 1,590 1,241 4,631 3,695
Occupancy 272 346 1,003 1,037
Data processing 297 216 837 612
Furniture, fixtures, and equipment 144 145 423 418
Deposit insurance premiums 1,985 200 2,406 603
Provision for real estate owned -- 49 -- 455
Loan and real estate owned expense, net 29 84 163 35
Professional services 150 162 540 456
Other 476 611 1,586 1,436
--------- --------- --------- ---------
Total other expense 4,943 3,054 11,589 8,747
--------- --------- --------- ---------
Income (loss) before income taxes (918) 454 874 1,134
Income tax expense (benefit) (299) -- 322 --
--------- --------- --------- ---------
Net income (loss) $ (619) $ 454 $ 552 $ 1,134
--------- --------- --------- ---------
--------- --------- --------- ---------
Earnings (loss) per share $ ( .17) $ .13 $ .14 $ .33
--------- --------- --------- ---------
--------- --------- --------- ---------
Dividends per share $ .02 $ -- $ .02 $ --
--------- --------- --------- ---------
--------- --------- --------- ---------
Average shares outstanding 3,730,000 3,401,357 3,856,474 3,388,689
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
-4-
<PAGE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
PROGRESS FINANCIAL CORPORATION
- -------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
-------------------
1996 1995
---- ----
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 552 $ 1,134
Add (deduct) items not affecting cash flows from operating activities:
Depreciation and amortization 501 425
Provision for real estate owned --- 455
Provision for possible loan losses 500 350
Deferred income tax expense 322 ---
Capitalized interest on real estate owned (57) ---
(Gain) from mortgage banking activities (89) (46)
(Gain) from loan sales and securitizations --- (18)
(Gain) loss from sales of securities available for sale (145) 35
Loss on properties sold 10 34
Amortization of deferred loan fees (628) (414)
Amortization of premiums/accretion
of discounts on securities 487 429
Originations and purchases of loans held for sale (11,210) (7,391)
Sales of loans 13,096 13,694
(Increase) decrease in accrued interest receivable 27 (250)
(Increase) in other assets (2,734) (1,530)
Increase in other liabilities 3,370 1,153
Increase in accrued interest payable 530 650
------ ------
Net cash flows provided by operating activities 4,532 8,710
------ ------
</TABLE>
(CONTINUED)
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE>
PROGRESS FINANCIAL CORPORATION
- ------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
SEPTEMBER 30,
---------------------
1996 1995
---- ----
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures $ (2,450) $ (3,791)
Repayments on mortgage-backed securities held to maturity 6,514 8,795
Repayments on mortgage-backed securities available for sale 7,593 1,053
Purchases of mortgage-backed securities available for sale (49,848) (7,072)
Purchases of mortgage-backed securities held to maturity (2,952) --
Sales of mortgage-backed securities available for sale 35,502 --
Net increase in loans (18,798) (13,037)
Purchases of investments held to maturity (848) (831)
Purchases of investments available for sale (3,000) (2,998)
Proceeds from sales of investments available for sale 5,145 965
Maturities of investments held to maturity 212 747
Proceeds from sales of real estate owned 447 1,437
Advances for construction of real estate owned -- (634)
------- -------
Net cash flows used in investing activities (22,483) (15,366)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) in demand, NOW and saving deposits (584) (2,402)
Net increase (decrease) in time deposits (6,600) 7,327
Net increase in advances from
the Federal Home Loan Bank 7,925 898
Net (decrease) in advance payments by borrowers
for taxes and insurance (681) (952)
Net increase in other borrowings 15,537 --
Dividends paid (76) --
Net proceeds from issuance of common stock 2,238 5
------- -------
Net cash flows provided by financing activities 17,759 4,876
------- -------
Net (decrease) in cash and cash equivalents (192) (1,780)
Cash and cash equivalents:
Beginning of year 7,089 8,075
------- -------
End of period $ 6,897 $ 6,295
------- -------
Supplemental disclosures:
Non-monetary transfers:
Net conversion of loans receivable to real estate owned $ 1,967 $ 237
------- -------
------- -------
Securitization of mortgage loans into mortgage-backed
securities $ 9,982 $ 241
------- -------
------- -------
Transfer of balance on property for Company use from
other assets to premises and equipment $ 3,150 $ --
------- -------
------- -------
Cash payments for:
Income taxes $ 63 $ --
------- -------
------- -------
Interest $10,160 $10,843
------- -------
------- -------
</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 and nine months ended September 30, 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 classification. 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 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
On September 30, 1996, the Bank was assessed a special one-time
premium of $1.8 million to capitalize the Savings Association Insurance
Fund ("SAIF"). This assessment will be offset by lower insurance costs
in 1997.
(4) In October 1995, the FASB issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation"
(SFAS 123), which is effective for the Company 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 Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25). The FASB
encourages entities to adopt the fair value based method, but does not
require the adoption of this method. For those entities that continue to
apply APB 25, pro forma disclosure of the effects, if adopted, of SFAS
123 on net income and earnings per share are required in the 1996
financial statements. The Company will continue to apply APB 25 but will
provide the required pro forma disclosures in the December 31, 1996
financial statements.
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 a net loss of $619 thousand or $.17 per share for the
three months ended September 30, 1996 in comparison with net income of $454
thousand or $.13 per share for the three months ended September 1995. The
loss includes a special one-time assessment of $1.2 million, net of tax, to
capitalize the Savings Association Insurance Fund ("SAIF"). The assessment
resulted from recently enacted legislation to strengthen and recapitalize
SAIF. Before the SAIF assessment, return on average stockholders' equity was
11.60% and return on average assets was .62% for the three months ended
September 30, 1996 compared to 12.35% and .51%, respectively, for the three
months ended September 1995.
For the nine months ended September 30, 1996, the Company had net income of
$552 thousand or $.14 per share in comparison with net income of $1.1 million
or $.33 per share for the nine months ended September 30, 1995. Excluding
the SAIF assessment, return on average stockholders' equity was 12.28% and
return on average assets was .66% for the nine months ended September 30,
1996 compared to 10.80% and .43%, respectively for the nine months ended
September 30, 1995.
Net interest income was $3.3 million and $2.8 million for the three months
ended September 30, 1996 and 1995, respectively. Operating results for the
three months ended September 30, 1996 and 1995 included $100 thousand each
in provision for possible loan losses. Other income for the three months
ended September 30, 1996 includes $40 thousand of fee income generated by
subsidiaries acquired subsequent to June 30, 1995. Excluding the before tax
SAIF assessment of $1.8 million, other expense for the three months ended
September 30, 1996 remained flat at $3.1 million in comparison to the three
months ended September 30, 1995. Increases in salaries and data processing
expenses were offset by decreases in occupancy, provision for real estate
owned, loan and other expenses.
For the nine months ended September 30, 1996, net interest income was $9.1
million in comparison with $8.0 million for the nine months ended September
30, 1995. Operating results for the nine months ended September 30, 1996 and
1995 included $500 thousand and $350 thousand, respectively, in provision for
possible loan losses. Other income for the nine months ended September 30,
1996 includes a gain of $924 thousand on the sale of $85.0 million of
mortgage servicing rights and a $145 thousand gain on the sale of
securities. For the comparable period last year, these items were $0 and a
loss of $35 thousand. Other expenses totalled $9.8 million, excluding the
SAIF assessment, for the nine months ended September 30, 1996 in comparison
with $8.7 million for the same period in 1995. The increase primarily
relates to increases in salaries and employee benefits ($936 thousand), data
processing ($225 thousand), loan and real estate owned expense ($128
thousand) and other ($150 thousand) offset by a $455 thousand decrease in the
provision for real estate owned. Salary increases are principally due to the
addition of experienced business lenders, a cash management specialist and
the formation of a technology lending area in 1996. The data processing
expense increase relates to the outsourcing of certain functions during 1995.
The increase in other expenses is primarily attributable to the subsidiaries
acquired in 1995.
As a result of a determination of the outlook for future taxable income,
the deferred tax valuation allowance was eliminated in the fourth quarter of
1995. A tax benefit of $299 thousand and expense of $322 thousand were
recorded for the three and nine month periods ended September 30, 1996. No
expense was recorded for the comparable periods in 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 thousand shares
were reserved for the Company's Employee Stock ownership Plan. Net proceeds
of the offering were $2.2 million.
On October 18, 1996, the Company declared a $.02 per share cash dividend,
payable November 15, 1996 to shareholders of record on October 31, 1996. On
August 15, 1996, the Company paid a dividend of $.02 per share.
8
<PAGE>
PROGRESS FINANCIAL CORPORATION
________________________________________________________________________________
RESULTS OF OPERATIONS
NET INTEREST INCOME
For the three months ended September 30, 1996, net interest income
amounted to $3.3 million in comparison with $2.8 million for the same period
in 1995. Net interest income for the three months ended September 30, 1996
was positively impacted by a $7.9 improvement in the excess of average
interest bearing assets over average interest-bearing liabilities at
September 30, 1996 compared to September 30, 1995. Also, the interest rate
spread improved to 3.43% from 3.04%. The improvement in the interest rate
spread results from the increase in the yield on interest-earning assets
from 8.01% to 8.20% and the decrease in interest expense on interest-bearing
liabilities to 4.77% from 4.97%.
For the nine months ended September 30, 1996, net interest income amounted
to $9.6 million in comparison with $8.4 million for the same period in 1995.
Net interest income for the nine months ended September 30, 1996 was
positively impacted by a $6.8 million improvement in the excess of average
interest-earning assets over average interest-bearing liabilities at
September 30, 1996 compared to September 30, 1995. Commercial business
loans increased to $21.3 million at September 30, 1996 from $13.0 million at
September 30, 1995. Income on commercial loans increased $576 thousand to
$1.6 million at September 30, 1996 from $979 thousand for the comparable
period last year. The increase in commercial and consumer loans reflects the
Company's effort to diversify the loan portfolio. Also, interest-bearing
deposits increased to $268.7 million from $263.6 million at September 30,
1995. The combination of these lower cost funds with the higher yielding
loans increased the interest rate spread to 3.51% from 3.08%.
9
<PAGE>
PROGRESS FINANCIAL CORPORATION
________________________________________________________________________________
The following table sets forth, for the periods indicated, information
regarding (i) the total dollar amount of interest income on interest-earning
assets and the resultant average yield; (ii) the total dollar amount of
interest expense on interest-bearing liabilities and the resultant average
cost; (iii) net interest income; (iv) interest rate spread; and (v) net
interest margin. Information is based on average daily balances during the
indicated periods. For the purposes of this table, non-accrual loans have
been included in the appropriate average balance category, but accrued
interest on non-accrual loans has not been included for purposes of
determining interest income.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
-------------------------------------------------------------------------------------------
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:
Investment securities and other
interest-earning assets(4) $ 5,936 $ 106 7.10% $ 20,371 $ 339 6.60%
Mortgage-backed securities(2) 108,150 1,819 6.69 102,346 1,674 6.49
Single family residential loans(3) 73,113 1,414 7.69 90,769 1,717 7.50
Commercial real estate loans 84,184 2,074 9.80 75,967 1,957 10.22
Construction loans 19,400 469 9.62 8,545 217 10.08
Commercial business loans 25,404 619 9.69 13,729 343 9.91
Consumer loans 23,026 492 8.50 21,494 479 8.84
--------- ------ ----- -------- ------ -----
Total interest-earning assets 339,213 6,993 8.20 333,221 6,726 8.01
------ ----- ------ -----
Non-interest-earning assets 22,847 20,679
-------- --------
Total assets $ 362,060 $353,900
--------- --------
--------- --------
Interest-bearing liabilities:
Interest-bearing deposits:
NOW and Super NOW $ 27,312 $ 150 2.18% $ 28,004 $ 198 2.81%
Money market accounts 34,751 291 3.33 32,691 255 3.09
Passbook and statement savings 28,594 196 2.73 27,392 199 2.88
Time deposits 176,311 2,369 5.35 179,519 2,519 5.57
-------- ------ ------ -------- ------ ------
Total interest-bearing
deposits 266,968 3,006 4.48 267,606 3,171 4.70
Advances from the Federal
Home Loan Bank 36,354 487 5.33 43,587 695 6.33
Subordinated debt and
other borrowings 8,981 249 11.03 3,000 69 9.13
-------- ------ ------ -------- ------ ------
Total interest-bearing
liabilities 312,303 3,742 4.77 314,193 3,935 4.97
------ ------ ------ ------
Non-interest-bearing liabilities 30,394 25,125
-------- --------
Total liabilities 342,697 339,318
Stockholders' equity 19,363 14,582
-------- --------
Total liabilities and
stockholders' equity $362,060 $353,900
-------- --------
-------- --------
Net interest income;
interest rate spread(5) $3,251 3.43% $2,791 3.04%
------ ------ ------ ------
------ ------ ------ ------
Net interest margin(6) 3.81% 3.32%
------ ------
------ ------
Average interest-earning assets
to average interest-bearing
liabilities 108.62% 106.06%
------- -------
------- -------
</TABLE>
(1) As adjusted for fees treated as adjustments to loan yields.
(2) Includes mortgage-backed securities classified as available for sale.
(3) Includes mortgage loans held for sale.
(4) Includes investment securities classified as available for sale.
(5) Interest rate spread represents the difference between the weighted
average yield on interest-earnings assets and the weighted average
cost of interest-bearing liabilities.
(6) Net interest margin represents net interest income divided by average
interest-earning assets.
10
<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 NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------------------------------
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:
Investment securities and other interest-earning assets (4)$ 9,855 $ 481 6.52% $ 19,577 $ 954 6.52%
Mortgage-backed securities (2) 96,055 4,740 6.59 101,793 5,025 6.60
Single family residential loans(3) 79,029 4,605 7.78 96,956 5,364 7.40
Commercial real estate loans 82,657 6,115 9.88 74,424 5,704 10.25
Construction loans 17,604 1,279 9.70 6,748 502 9.95
Commercial business loans 21,323 1,555 9.74 13,015 979 10.06
Consumer loans 22,481 1,454 8.64 20,237 1,356 8.96
-------- ------- ----- -------- ------- -----
Total interest-earning assets 329,004 20,229 8.21 332,750 19,884 7.99
------- ----- ------- -----
------- ----- ------- -----
Non-interest-earning assets 20,888 18,474
-------- ---------
Total assets $349,892 $ 351,224
-------- ---------
-------- ---------
Interest-bearing liabilities:
Interest-bearing deposits:
NOW and Super NOW $ 27,153 $ 434 2.14% $ 26,558 $ 549 2.76%
Money market accounts 33,783 798 3.16 33,522 778 3.10
Passbook and statement savings 28,150 571 2.71 27,396 599 2.92
Time deposits 179,654 7,224 5.37 176,074 7,151 5.43
--------- ------- ---- --------- ------- ----
Total interest-bearing deposits 268,740 9,027 4.49 263,550 9,077 4.60
Advances from the Federal Home Loan Bank 27,036 1,141 5.64 46,382 2,214 6.38
Subordinated debt and other borrowings 6,648 465 9.34 3,000 202 9.00
--------- ------- ---- --------- ------- ----
Total interest-bearing liabilities 302,424 10,633 4.70 312,932 11,493 4.91
------- ----- ------- -----
------- ----- ------- -----
Non-interest-bearing liabilities 28,587 24,255
--------- ---------
Total liabilities 331,011 337,187
Stockholders' equity 18,881 14,037
--------- ---------
Total liabilities and stockholders' equity $ 349,892 $ 351,224
--------- ---------
--------- ---------
Net interest income; interest rate spread (5) $ 9,596 3.51% $ 8,391 3.08%
------- ----- ------- ----
------- ----- ------- ----
Net interest margin (6) 3.90% 3.37%
----- -------
----- -------
Average interest-earning assets to average interest-bearing liabilities 108.79% 106.33%
------ ------
------ ------
</TABLE>
(1) As adjusted for fees treated as adjustments to loan yields.
(2) Includes mortgage-backed securities classified as available for sale.
(3) Includes mortgage loans held for sale.
(4) Includes investment securities classified as available for sale.
(5) Interest rate spread represents the difference between the weighted average
yield on interest-earnings assets and the weighted average cost
of interest-bearing liabilities.
(6) Net interest margin represents net interest income divided by average
interest-earning assets.
11
<PAGE>
PROGRESS FINANCIAL CORPORATION
_______________________________________________________________________________
Total interest income amounted to $7.0 million for the three months ended
September 30,1996, a $267 thousand increase when compared to the same period
in 1995. Interest income on mortgage-backed securities increased $145
thousand, as the average yield increased 20 basis points, reflecting a $5.8
million increase in the average balance. Interest income on investments and
other interest-earning assets decreased $233 thousand, as the average balance
outstanding decreased $14.4 million and the average yield increased 50 basis
points. Interest income on commercial business loans increased $276
thousand as the average balance increased $11.7 million.
Total interest expense amounted to $3.7 million for the three months ended
September 30, 1996, a $193 thousand decrease in comparison to the same
period in 1995. Interest expense on deposits decreased $165 thousand, as the
average rate on deposits decreased 22 basis points and the average balance
decreased $638 thousand. Interest expense on Federal Home Loan Bank of
Pittsburgh ("FHLB") advances decreased $208 thousand, as the average balance
and average rate decreased $7.2 million and 100 basis points, respectively.
Interest expense on subordinated debt and other borrowings amounted to $249
thousand for the three months ended September 30, 1996 due to the increase
in borrowings and the increase in the average rate of 190 basis points.
For the nine months ended September 30, 1996, total interest income amounted
to $20.2 million, an increase of $345 thousand from the comparable period in
1995. Interest income on mortgage-backed securities decreased $285 thousand,
as the average yield decreased 1 basis point and the average balance
decreased $5.7 million. Interest income on single family residential loans
decreased $759 thousand as the average yield increased 38 basis points.
Interest income on commercial business loans increased $576 thousand as the
average principal balance increased to $21.3 million and the yield decreased
32 basis points to 9.74%. Interest income on consumer loans increased $98
thousand as the average balance increased $2.2 million and the yield
decreased 32 basis points from the comparable period last year. Interest
income on investments and other interest-earning assets decreased $473
thousand, as the average balance outstanding decreased $9.7 million and the
average yield remained unchanged.
For the nine months ended September 30, 1996, total interest expense
amounted to $10.6 million, an $860 thousand or 7.5% decrease when compared to
the same period in 1995. Interest expense on deposits decreased $50
thousand, as the average balance of deposits increased $5.2 million and the
average rate on deposits decreased 11 basis points. Interest expense on FHLB
advances decreased $1.1 million, as the average balance and average rate
decreased $19.3 million and 74 basis points, respectively. Interest
expense on subordinated debt and other borrowings amounted to $465 thousand
for the nine months ended September 30 1996 due to the increase in the
average balance of the liability to $6.6 million from $3.0 million during the
comparable period in 1995.
12
<PAGE>
PROGRESS FINANCIAL CORPORATION
_______________________________________________________________________________
PROVISION FOR POSSIBLE LOAN LOSSES
The Company'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 loan losses is determined by inherent risks within
the Company's loan portfolio. Management's periodic evaluation is based upon an
examination of the portfolio, past loss experience, current economic conditions,
the results of the most recent regulatory examinations and other relevant
factors. See "Non-Performing Assets."
During the nine months ended September 30, 1996, the Company recorded a $500
thousand provision compared with $350 thousand for the comparable period in
1995, and had net recoveries of $10 thousand during the nine months ended
September 30, 1996 in comparison with $296 thousand of net charge-offs during
the comparable period in 1995. At September 30, 1996, the allowance for
possible loan losses amounted to $2.2 million or 0.96% of total loans and
162.89% of total non-performing loans. See "Allowance for Possible Loan
Losses."
The Company's allowance for possible loan losses increased by $674 thousand or
43.3% from $1.6 million at September 30, 1995 to $2.2 million at September 30,
1996. The increase in the allowance reflects the change to a net recovery of
$10 thousand for the period ended September 30, 1996 versus a net charge-off of
$296 thousand and the increase in the provision for possible loan losses of $150
thousand during the nine months ended September 30, 1996 as compared to
September 30, 1995. Loan delinquencies decreased to $4.8 million from $7.3
million at December 31, 1995. The ratio of the allowance for possible loan
losses to total non-performing loans increased from 111.62% at September 30,
1995 to 162.89% at September 30, 1996. Although management utilizes its best
judgement in providing for 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.
13
<PAGE>
PROGRESS FINANCIAL CORPORATION
_______________________________________________________________________________
OTHER INCOME
The following table details other income for the periods indicated.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30
-------------------- -------------------
1996 1995 1996 1995
---- ---- ---- ----
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Other income:
Mortgage origination and servicing $184 $183 $ 519 $ 585
Service charges on deposits 240 253 708 737
Gain from mortgage banking activities 21 18 89 46
Gain on sale of mortgage servicing rights --- --- 924 ---
Gain (loss) from sales of securities 12 --- 145 (35)
Loss on properties sold (2) (16) (10) (34)
Fees and other 419 379 992 541
---- ---- ------ -------
Total other income $874 $817 $3,367 $ 1,840
---- ---- ------ -------
---- ---- ------ -------
</TABLE>
Total other income amounted to $874 thousand for the three months ended
September 30, 1996, an increase of $57 thousand compared with the $817 thousand
in other income for the three months ended September 30, 1995. Other income for
the three months ended September 30, 1996 included $419 thousand in fees and
other income in comparison to $379 thousand for the same period in 1995. The
increase in fees primarily relates to increased activity in the Company's
leasing and commercial real estate subsidiaries. Service charges on deposits
decreased $13 thousand for the three months ended September 30, 1996 due
primarily to decreases in business checking fees. Loss on properties sold
decreased $14 thousand from the similar period last year.
The Company had gains from sales of securities of $12 thousand for the three
months ended September 30, 1996. There were no gains or losses on securities in
the similar period last year. 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 1996, the Company intends to sell substantially all
residential mortgage loan originations in the secondary market or to private
investors.
Total other income amounted to $3.4 million for the nine months ended September
30, 1996, an increase of $1.5 million from the $1.8 million recognized for
the comparable 1995 period. The increase primarily relates to the $924
thousand gain on the sale of mortgage servicing rights, the $145 thousand gain
on the sale of securities versus a loss of $35 thousand in the comparable
period last year and increased fees and other income generated by the Company's
leasing and commercial real estate subsidiaries.
14
<PAGE>
PROGRESS FINANCIAL CORPORATION
_______________________________________________________________________________
OTHER EXPENSE
The following table details other expense for the periods indicated.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
-------------------- --------------------
1996 1995 1996 1995
---- ---- ---- ----
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Other expense:
Salaries and employee benefits $1,590 $1,241 $ 4,631 $3,695
Occupancy 272 346 1,003 1,037
Data processing 297 216 837 612
Furniture, fixtures and equipment 144 145 423 418
Deposit insurance premiums 1,985 200 2,406 603
Provision for real estate owned --- 49 --- 455
Loan and real estate owned expense, net 29 84 163 35
Professional services 150 162 540 456
Other 476 611 1,586 1,436
------ ------ ------- ------
Total other expense $4,943 $3,054 $11,589 $8,747
------ ------ ------- ------
------ ------ ------- ------
</TABLE>
Total other expense amounted to $4.9 million for the three months ended
September 30, 1996, an increase of $1.9 million from the $3.1 million
recognized during the comparable 1995 period. Excluding the SAIF assessment
of $1.8 million, other expense for the three months ended September 30, 1996
remained flat at $3.1 million in comparison to the three months ended
September 30, 1995. Increases in salaries and data processing expenses were
offset by decreases in occupancy, provision for real estate owned, loan and
other expenses.
Total other expenses amounted to $11.6 million for the nine months ended
September 30, 1996, an increase of $2.8 million from $8.7 million for the
comparable 1995 period. $1.8 million of the increase relates to the SAIF
assessment at September 30, 1996. Salaries and employee benefits increased
$936 thousand for the nine months ended September 30, 1996 to $4.6 million
in comparison with $3.7 million for the nine months ended September 30, 1995
primarily due to staffing additions to support the Bank's lending
initiatives. Loan and real estate owned expense, net increased from $35
thousand for the nine months ended September 30, 1995 to $163 thousand of
expense for the nine months ended September 30, 1996 due primarily to
negative cash flow from the operation of certain REO properties and expenses
of maintaining properties. A provision for loss on real estate owned was
not required during the nine months ended September 30, 1996 while $455
thousand was provided in the similar period of 1995. The Company outsourced
the processing of customer checking accounts in the fourth quarter of 1995.
Consequently, data processing expenses increased $225 thousand to $837
thousand for the nine months ended September 30, 1996. Other miscellaneous
expenses increased $150 thousand primarily due to costs related to the
subsidiaries acquired in 1995.
15
<PAGE>
PROGRESS FINANCIAL CORPORATION
_______________________________________________________________________________
INCOME TAX EXPENSE
The Company recorded an income tax benefit of $299 thousand and a tax expense
of $322 thousand for the three and nine months ended September 30, 1996. Tax
expense for the three and nine months ended September 30, 1995 was offset by
the partial recognition of a net operating loss carryforward. At September
30, 1996, the Company had a net operating loss carryforward for federal
income tax purposes of approximately $8.0 million, that 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. At September 30, 1996, the Company had a $3.4
million net deferred tax asset. At September 30, 1995, the Company had a
valuation allowance of $2.0 million against net deferred tax assets of $3.4
million. The amount of the valuation allowance was determined based on
management's estimate of deferred tax assets that will be realized using the
"more likely than not" realization criteria contained in SFAS 109 in
consideration of management's projections of future taxable income. A
valuation allowance was not required at September 30, 1996.
16
<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.
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 Office of Thrift Supervision ("OTS")to
reflect economic conditions. The Bank's average liquidity ratio for the three
months ended September 30, 1996 was approximately 7.61%.
The Company monitors its liquidity in accordance with guidelines established by
the Bank and applicable regulatory requirements. The Company's need for
liquidity is affected by loan demand and net changes in retail deposit levels.
The Company can minimize the cash required during the times of heavy loan demand
by modifying its credit policies or reducing its marketing efforts. Liquidity
demand caused by net reductions in retail deposits are usually caused by factors
over which the Company has limited control. The Company derives its liquidity
from both its assets and liabilities. Liquidity is derived from assets by
receipt of interest and principal payments and prepayments, by the ability to
sell assets at market prices and by utilizing unpledged assets as collateral for
borrowings. Liquidity is derived from liabilities by maintaining a variety of
funding sources, including retail deposits and advances from the Federal Home
Loan Bank ("FHLB").
The Company's primary source of funds have 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 nine months ended September 30, 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 nine months ended September 30, 1996, cash was provided by operating and
financing activities and used in investing activities. Operating activities
provided $4.5 million of cash, primarily due to sales of loans totalling $13.1
million. Investing activities used $22.5 million in cash as net originations of
loans, purchases of mortgage-backed securities and investments, and capital
expenditures exceeded repayments of mortgage-backed securities and sales of
investment securities and mortgage-backed securities available for sale. In
addition, financing activities provided $17.8 million in cash due to increases
in FHLB and other borrowings, a common stock offering of $2.2 million offset by
a $7.2 million decrease in deposits.
At September 30, 1996, the Company had $93.2 million in loan commitments to
extend credit and $661 thousand in letters of credit outstanding. At September
30, 1996, FHLB advances which were scheduled to mature through September 30,
1997 totalled $27.9 million. Subordinated debentures of $3.0 million are due
September 30, 2004 and are redeemable beginning July 1, 1996. At September
30, 1996, the total amount of time deposits which were scheduled to mature
through June 30, 1997 totalled $164.4 million.
17
<PAGE>
PROGRESS FINANCIAL CORPORATION
_______________________________________________________________________________
Management has focused considerable attention on the retention of the Bank's
core deposit base, which has been impacted by increased competition for deposit
funds.
The Company's deposits are obtained primarily from residents near the Bank's
seven 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 drive-up banking facilities at two of its offices and has
automated teller machines ("ATM's") at all of its offices and two remote
ATM's. 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 decreased $7.2 million during the nine months ended September 30,
1996 from $297.3 million at December 31, 1995 to $290.1 million at September
30, 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 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>
<CAPTION>
AT OR FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
-------------------------
1996 1995
---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Average balance outstanding $27,036 $46,382
Maximum amount outstanding at
any month-end during the period $56,675 $50,845
Weighted average interest rate during the period 5.64% 6.38%
Weighted average interest rate at end of the period 6.47% 6.18%
</TABLE>
The Company utilizes advances from the FHLB as a source of funds to meet loan
demand. FHLB advances increased $7.9 million to $33.3 million at September 30,
1996 from $25.4 million at December 31, 1995.
18
<PAGE>
PROGRESS FINANCIAL CORPORATION
_______________________________________________________________________________
CAPITAL RESOURCES
The Bank is required pursuant to OTS regulations to have (i) a leverage ratio
equal to at least 1.5% of adjusted total assets, (ii) tier 1 risk-based capital
equal to at least 3.0% of adjusted total assets, and (iii) total risk-based
capital equal to at least 8.0% of risk-weighted assets.
At September 30,1996, 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 leverage,
tier 1 risk-based, and total risk-based capital at September 30, 1996:
<TABLE>
<CAPTION>
TIER 1 TOTAL
LEVERAGE RISK-BASED RISK-BASED
RATIO % CAPITAL % CAPITAL %
-------- --- ---------- --- ---------- ---
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Adjusted GAAP Capital $20,690 $20,690 $20,690
General valuation allowance -- -- 2,214
Unrealized loss on securities available for sale 773 773 773
Goodwill (95) (95) (95)
Non-qualifying deferred tax asset (1,910) (1,910) (1,910)
------ ------- ------
Total 19,458 5.34% 19,458 8.43% 21,672 9.39%
Minimum capital requirement 5,468 1.50 10,935 3.00 18,461 8.00
------ ---- ------- ---- ------ ----
Regulatory capital - excess $13,990 3.84% $ 8,523 5.43% $ 3,211 1.39%
------ ---- ------- ---- ------ ----
------ ---- ------- ---- ------ ----
</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
"well-capitalized," an institution must generally have a leverage ratio of at
least 5%, a Tier 1 risk-based capital ratio of at least 6%, and a total
risk-based capital ratio of at least 10%.
At September 30, 1996, the Bank's leverage ratio was 5.34%, tier 1 risk-based
ratio was 8.43 %, total risk-based ratio was 9.39%, and tangible equity ratio
was 5.34%, based on leverage capital of $19.5 million, Tier 1 capital of 19.5
million, total risk-based capital of $21.7 million and tangible equity capital
of $19.5 million, respectively. As of September 30, 1996, the Bank met the
criteria to be "adequately capitalized." Prior to the SAIF assessment on
September 30, 1996, the Bank met the criteria to be well capitalized.
CASH AND DUE FROM BANKS
The Company had no interest bearing deposits in other banks at September 30,
1996 in comparison with $4.8 million at December 31, 1995. At September 30,
1996, the Bank also had $6.8 million in cash and non-interest bearing deposits
in other banks compared with $2.3 million at December 31, 1995.
19
<PAGE>
PROGRESS FINANCIAL CORPORATION
_______________________________________________________________________________
INVESTMENT SECURITIES
The Bank is required under current OTS regulations to maintain defined levels of
liquidity and utilizes certain investments that qualify as liquid assets. The
Bank utilizes deposits with the FHLB, including bankers' acceptances, loans to
financial institutions whose deposits are insured by the FDIC, Federal funds and
United States government and agency obligations. Investments held to maturity
are carried at amortized cost. Investments classified as available for sale are
carried at fair value in accordance with SFAS 115. The Company also invests in
equity investments from time to time and held $30 thousand of such securities on
its books at September 30, 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 SEPTEMBER 30, 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 $3,475 $ -- $ 83 $3,392 $3,392
Equity investments 30 -- -- 30 30
------ ----- ----- ------ ------
Total available for sale $3,505 $ -- $ 83 $3,422 $3,422
------ ----- ----- ------ ------
------ ----- ----- ------ ------
HELD TO MATURITY:
FHLB stock, pledged $2,785 $ -- $ -- $2,785 $2,785
------ ----- ----- ------ ------
Total held to maturity $2,785 $ -- $ -- $2,785 $2,785
------ ----- ----- ------ ------
------ ----- ----- ------ ------
<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 September 30, 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 $1,000 $ 979 $ -- $ --
Due after five years through ten years 2,475 2,413 -- --
Due after ten years -- -- -- --
No stated maturity 30 30 2,785 2,785
------ ------ ------ ------
Total investment securities $3,505 $3,422 $2,785 $2,785
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
- ----------
(1) Original cost of securities adjusted for repayments, amortization of
premiums and accretion of discounts.
20
<PAGE>
PROGRESS FINANCIAL CORPORATION
________________________________________________________________________________
MORTGAGE-BACKED SECURITIES
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 SEPTEMBER 30, 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:
GNMA pass-through certificates $ 22,328 $ --- $ 209 $ 22,119 $ 22,119
FNMA pass-through certificates 7,737 --- 265 7,472 7,472
FHLMC pass-through certificates 17,075 --- 436 16,639 16,639
Non-agency pass-through
certificates 3,706 --- 11 3,695 3,695
FHLMC collateralized
mortgage obligations 3,000 --- 97 2,903 2,903
---------- ------- --------- --------- ---------
Total available for sale $ 53,846 $ --- $ 1,018 $ 52,828 $ 52,828
---------- ------- --------- --------- ---------
---------- ------- --------- --------- ---------
HELD TO MATURITY:
GNMA pass-through certificates $ 23,265 $ --- $ 812 $ 22,453 $ 23,265
FNMA pass-through certificates 7,577 --- 172 7,405 7,577
FHLMC pass-through certificates 18,097 7 322 17,782 18,097
---------- ------- --------- --------- ---------
Total held to maturity $ 48,939 $ 7 $ 1,306 $ 47,640 $ 48,939
---------- ------- --------- --------- ---------
---------- ------- --------- --------- ---------
<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 pass-through certificates $ 26,618 $ --- $ 505 $ 26,113 $ 26,618
FNMA pass-through certificates 8,620 2 93 8,529 8,620
FHLMC pass-through certificates 17,595 8 155 17,448 17,595
---------- ------- --------- --------- ---------
Total held to maturity $ 52,833 $ 10 $ 753 $ 52,090 $ 52,833
---------- ------- --------- --------- ---------
---------- ------- --------- --------- ---------
AVAILABLE FOR SALE:
GNMA pass-through certificates $ 168 $ --- $ --- $ 168 $ 168
FNMA pass-through certificates 8,801 9 179 8,631 8,631
FHLMC pass-through certificates 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>
(1) Original cost of securities adjusted for repayments, amortization of
premiums and accretion of discounts.
21
<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 Bank. The mortgage-backed securities portfolio contains no speculative
derivative securities at September 30, 1996 and 1995. 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. The Company sold $35.6
million of mortgage-backed securities available for sale during the six months
ended September 30, 1996. There were no sales of mortgage-backed securities
classified as available for sale during the three months ended September 30,
1995.
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.
22
<PAGE>
PROGRESS FINANCIAL CORPORATION
_______________________________________________________________________________
LOAN PORTFOLIO
The Company's net loan portfolio, including loans held for sale, totalled $230.0
million at September 30, 1996 or 62.6% of its total assets, an increase of $5.2
million or 2.3% 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>
SEPTEMBER 30, 1996 DECEMBER 31, 1995
------------------ -----------------
AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Real estate loans:
Single family residential (1) $ 72,759 31.33% $ 91,091 40.21%
Commercial real estate (2) 86,000 37.04 81,535 36.00
Construction 20,283 8.73 14,230 6.28
-------- ----- ------- -----
Total real estate loans 179,042 77.10 186,856 82.49
-------- ----- ------- -----
Commercial business loans 30,049 12.94 17,244 7.61
-------- ----- ------- -----
Consumer loans:
Consumer 22,298 9.60 21,666 9.57
Credit card receivables 820 .36 757 .33
-------- ----- ------- -----
Total consumer loans 23,118 9.96 22,423 9.90
-------- ----- ------- -----
Total loans 232,209 100.00% 226,523 100.00%
------ ------
------ ------
Allowance for possible loan losses (2,230) (1,720)
-------- -------
Net loans $ 229,979 $224,803
-------- -------
-------- -------
</TABLE>
(1) Includes $637 thousand and $3.2 million of loans held for sale at September
30, 1996 and December 31, 1995, respectively.
(2) Includes $22.7 million and $18.9 million of multi-family residential loans
at September 30, 1996 and December 31, 1995, respectively.
23
<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 $3.6 million at September 30, 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 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.
24
<PAGE>
PROGRESS FINANCIAL CORPORATION
_______________________________________________________________________________
The following table details the Bank's non-performing assets at the dates
indicated:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
1996 1995 1995
------------- ------------ -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Loans accounted for on a
non-accrual basis (1) $1,361 $3,879 $1,394
Accruing loans 90 or
more days past due 8 -- --
------ ------ ------
Total non-performing loans 1,369 3,879 1,394
REO, net of related reserves 2,247 728 3,479
------ ------ ------
Total non-performing assets $3,616 $4,607 $4,873
------ ------ ------
------ ------ ------
Non-performing loans as a
percentage of total loans 0.59% 1.74% 0.66%
------ ------ ------
------ ------ ------
Non-performing assets as a
percentage of total assets 0.98% 1.33% 1.37%
------ ------ ------
------ ------ ------
</TABLE>
(1) Includes impaired loans of $0, $2.3 million and $0 at September 30, 1996,
December 31, 1995 and September 30, 1995, respectively.
Non-performing assets decreased $991 thousand to $3.6 million at September 30,
1996 from $4.6 million at December 31, 1995. This decrease primarily results
from a reduction in non-accrual loans of $2.5 million, of which, $1.7 was a
transfer of a commercial property located in New Jersey to real estate owned.
The $1.4 million of non-accrual loans at September 30, 1996 consists of $127
thousand of commercial real estate mortgages, $847 thousand of loans secured by
single-family residential properties, $29 thousand of commercial business loans
and $356 thousand of consumer loans. The $2.2 million of REO at September 30,
1996 consists of two commercial properties, two residential properties and four
undeveloped residential lots.
25
<PAGE>
PROGRESS FINANCIAL CORPORATION
_______________________________________________________________________________
DELINQUENCIES
All loans are reviewed on a regular basis and are placed on non-accrual status
when, in the opinion of management, the collection of additional interest is
deemed insufficient to warrant further accrual. See "Non-Performing
Assets-General."
The following table sets forth information concerning the principal balances and
percent of the total loan portfolio represented by delinquent loans at the dates
indicated:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
1996 1995 1995
------------- ------------ -------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ ------- ------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Delinquencies:
30 to 59 days $2,922 1.25% $2,973 1.31% $2,027 .9%
60 to 89 days 479 .21 450 .20 1,137 .5
90 or more days and
non-accrual loans 1,369 .59 3,879 1.71 1,394 .7
------ ---- ----- ---- ------ ---
$4,770 2.05% $7,302 3.22% $4,558 2.1%
------ ---- ----- ---- ------ ---
------ ---- ----- ---- ------ ---
</TABLE>
26
<PAGE>
PROGRESS FINANCIAL CORPORATION
________________________________________________________________________________
ALLOWANCE FOR POSSIBLE LOAN LOSSES
The following table details the Company's allowance for possible loan losses for
the periods indicated:
<TABLE>
<CAPTION>
AT OR AT OR
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
-------------------------------------------------------
1996 1995 1996 1995
---- ---- ---- ----
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Average loans outstanding $ 225,127 $ 210,504 $ 223,094 $ 211,380
========= ========= ========= =========
Balance beginning of period $ 2,114 $ 1,459 $ 1,720 $ 1,502
Charge-offs:
Residential real estate --- --- 24 9
Consumer --- 4 41 21
Commercial --- --- --- 281
------- ------- ------- -------
Total charge-offs --- 4 65 311
------- ------- ------- -------
Recoveries:
Real estate construction --- --- --- 1
Residential real estate --- --- 2 ---
Commercial real estate --- --- 30 ---
Consumer 7 1 18 11
Commercial 9 --- 25 3
------- ------- ------- -------
Total recoveries 16 1 75 15
------- ------- ------- -------
Net charge-offs (recoveries) (16) 3 (10) 296
Additions charged to operations 100 100 500 350
------- ------- ------- -------
Balance at end of period $ 2,230 $ 1,556 $ 2,230 $ 1,556
======== ========= ======== =======
Ratio of net charge-offs
(recoveries) during the
period to average loans
outstanding during the
period (.01)% --- --- .14%
===== === === ===
Ratio of allowance for possible
loan losses to non-
performing loans at end of
period 162.89% 111.62% 162.89% 111.62%
====== ====== ====== ======
</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 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.
27
<PAGE>
PROGRESS FINANCIAL CORPORATION
_______________________________________________________________________________
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in routine legal proceeding occurring in the ordinary
course of business which management, after reviewing the foregoing actions
with legal counsel, is of the opinion that the liability, if any, resulting
from such actions will not have a material effect on the financial condition
or results of operations of the Company.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
On October 15, 1996, the Company filed a Current Report on Form 8-K with The
Securities and Exchange Commission reporting under Item 5 that it had reached
an agreement to purchase The Equipment Leasing Company, Timonium, Maryland.
Under the terms of the purchase agreement, The Equipment Leasing Company will
become a wholly owned subsidiary of Progress Bank, a subsidiary of the
Company.
On October 23, 1996, the Company filed a Current Report on Form 8-K with The
Securities and Exchange Commission reporting under Item 2 that it had
completed its previously announced acquisition of The Equipment Leasing
Company, Timonium, Maryland for a cash price of $6.6 million. The Company
reported under Item 7 that financial statements and pro forma financial
information of The Equipment Leasing Company are not available as of the date
of the report but will be filed by amendment as soon as practicable, but in
no event later than 60 days after October 23, 1996.
28
<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
NOVEMBER 6, 1996 /S/ W. KIRK WYCOFF
---------------- ---------------------------------------
Date W. Kirk Wycoff, Chairman,
President and Chief Executive
Officer
NOVEMBER 6, 1996 /S/ FREDERICK E. SCHEA
---------------- ---------------------------------------
Date Frederick E. Schea
Senior Vice President and
Chief Financial Officer
29
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10Q FOR
THE QUARTER ENDED SEPT. 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 6,897
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 56,250
<INVESTMENTS-CARRYING> 51,724
<INVESTMENTS-MARKET> 50,425
<LOANS> 232,209
<ALLOWANCE> 2,230
<TOTAL-ASSETS> 367,171
<DEPOSITS> 290,076
<SHORT-TERM> 27,862
<LIABILITIES-OTHER> 6,546
<LONG-TERM> 24,000
0
0
<COMMON> 3,780
<OTHER-SE> 14,907
<TOTAL-LIABILITIES-AND-EQUITY> 367,171
<INTEREST-LOAN> 15,008
<INTEREST-INVEST> 5,052
<INTEREST-OTHER> 169
<INTEREST-TOTAL> 20,229
<INTEREST-DEPOSIT> 9,027
<INTEREST-EXPENSE> 10,633
<INTEREST-INCOME-NET> 9,596
<LOAN-LOSSES> 500
<SECURITIES-GAINS> 145
<EXPENSE-OTHER> 11,589
<INCOME-PRETAX> 874
<INCOME-PRE-EXTRAORDINARY> 874
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 552
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.14
<YIELD-ACTUAL> 8.21
<LOANS-NON> 1,361
<LOANS-PAST> 8
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,720
<CHARGE-OFFS> 65
<RECOVERIES> 75
<ALLOWANCE-CLOSE> 2,230
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,230
<FN>
<F38>INCLUDES SAIF ASSESSMENT OF $1,794
</FN>
</TABLE>
