Securities and Exchange Commission
Washington, D.C. 20549
Form 10-K
Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 1995
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
Securities registered pursuant to Section 12(b) of the Act: Not applicable
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$1.00 par value
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |X|
The aggregate market value of the voting stock, held by non-affiliates of the
Registrant as a group, was $18,647,910 as of March 8, 1996.
As of March 8, 1996, there were 3,780,000 issued and outstanding shares of the
Registrant's Common Stock.
Documents Incorporated By Reference:
(1) Portions of the Annual Report to Stockholders for the year ended December
31, 1995 are incorporated into Part II, Items 5 through 8 of this Form 10-K
(2) Portions of the definitive proxy statement for the 1996 Annual Meeting of
Stockholders are incorporated into Part III, Items 10 through 13 of this
Form 10-K.
<PAGE>
PROGRESS FINANCIAL CORPORATION
Table of Contents
PART I Page
Item 1. Business.......................................................... 3
Item 2. Properties........................................................ 17
Item 3. Legal Proceedings................................................. 17
Item 4. Submission of Matters to a Vote of Security Holders............... 17
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters............................................. 17
Item 6. Selected Consolidated Financial Data.............................. 17
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................... 17
Item 8. Financial Statements and Supplementary Data....................... 17
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure............................................ 17
PART III
Item 10. Directors and Executive Officers of the Registrant................ 18
Item 11. Executive Compensation............................................ 18
Item 12. Security Ownership of Certain Beneficial Owners and Management.... 18
Item 13. Certain Relationships and Related Transactions.................... 18
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K... 19
Signatures........................................................ 20
<PAGE>
PART I
Item 1. Business
General
Progress Financial Corporation (the "Company") was incorporated under the laws
of the State of Delaware in February 1986 by authorization of the Board of
Directors of Progress Federal Savings Bank (the "Bank") for the purpose of
becoming a unitary thrift holding company owning all of the outstanding stock of
the Bank. On July 18, 1986, pursuant to a plan of reorganization approved by the
Bank's shareholders, all of the outstanding shares of capital stock of the Bank
were converted into shares of capital stock of the Company on a share-for-share
basis so that the shareholders of the Bank became the shareholders of the
Company, and the Company became the sole shareholder of the Bank. The business
activity of the Company as a unitary thrift holding company consists primarily
of the operation of the Bank as a wholly-owned savings bank subsidiary.
The Company is authorized as a Delaware corporation to engage in any activity
permitted by the Delaware General Corporation Law. The holding company structure
permits the Bank, through the Company, to expand the size and scope of the
financial services offered beyond those that the Bank is permitted to offer.
The Bank is a Federally chartered stock savings bank conducting community
banking business through six offices in Montgomery County, Pennsylvania, one
office in Delaware County, Pennsylvania, one office in Chester County,
Pennsylvania and one office in the Andorra community of Philadelphia,
Pennsylvania.
The principal business of the Bank consists of attracting deposits from the
general public through its offices and using such deposits to originate loans
secured by first mortgage liens on existing single-family residential real
estate and existing multi-family residential and commercial real estate,
construction loans, commercial business loans consisting primarily of loans to
small and medium-sized businesses, and various consumer loans. The Bank
originates single-family residential real estate loans for sale in the secondary
market and secured consumer loans, such as home equity loans and lines of
credit. The Bank also originates commercial business loans to small and medium
sized businesses in the communities its branches serve and commercial real
estate (including multi-family residential) and residential construction loans.
In addition, the Bank invests in mortgage-backed securities which are insured or
guaranteed by the U.S. Government and agencies thereof and other similar
investments permitted by applicable laws and regulations. The Bank is also
involved in real estate development and related activities, through its
subsidiaries, primarily to facilitate the completion and sale of certain
property held as real estate owned ("REO").
The Company also conducts commercial mortgage banking and brokerage services for
institutional real estate investors and lenders as well as real estate owners
and developers and provides equipment leasing for small and medium-sized
companies through its subsidiaries, Progress Realty Advisors, L.P. ("PRA") and
Quaker State Financial Corporation ("QSFC"). PRA was established in September
1993, while a 75% majority interest in QSFC was recently acquired in July 1995.
On January 31, 1996, the Company successfully completed the offering of 500,000
shares of common stock at a price of $5.25 per share.
3
<PAGE>
Competition
The Company faces strong competition both in attracting deposits and making
loans. As a provider of a wide range of financial services, the Company competes
with national and state banks, savings and loan associations, securities
dealers, brokers, mortgage bankers, finance and insurance companies, and other
financial service companies. The ability of the Company to attract and retain
deposits depends on its ability to generally provide a rate of return, liquidity
and risk comparable to that offered by competing investment opportunities. The
Company competes for loans principally through the interest rates and loan fees
it charges and the efficiency and quality of services it provides borrowers.
Subsidiaries
At December 31, 1995, in addition to the Bank, the Company had two other
subsidiaries, Progress Realty Advisors, L.P. ("PRA") and Quaker State Financial
Corporation ("QSFC"). PRA, which was formed in September 1993, provides loan
sale advisory, commercial mortgage banking, and commercial mortgage brokerage
services to both institutional real estate investors and lenders, as well as
real estate owners and developers. QSFC, which was acquired in July 1995, is
active in leasing a wide range of equipment and machinery generally to small and
medium sized businesses.
REGULATION AND SUPERVISION
General
The Company's non-banking subsidiaries are subject to the laws of the
Commonwealth of Pennsylvania. The Company, as a unitary thrift holding company
is subject to comprehensive examination, supervision and regulation by the
Office of Thrift Supervision ("OTS"). As a subsidiary of a unitary thrift
holding company, the Bank is subject to certain restrictions in its dealings
with the Company and affiliates thereof.
The Bank
Insurance of Deposits
The Bank's deposits are insured by the Savings Association Insurance Fund
("SAIF") to a maximum of $100,000 for each depositor. The Federal Deposit
Insurance Corporation ("FDIC") requires an annual audit by independent
accountants and may also examine Federal savings banks whose deposits are
insured.
The annual assessment for SAIF members for deposit insurance for the period from
January 1, 1995 through December 31, 1995 was between .23% and .31% of insured
deposits, which was payable on a semi-annual basis. The Bank's deposit insurance
during 1995 was assessed at a rate of .29%.
Federal law requires that the FDIC maintain the reserve level of each of the
SAIF and the Bank Insurance Fund ("BIF") at 1.25% of insured deposits. The BIF
reached this level during 1995. A one-time assessment on thrift institutions
sufficient to recapitalize the SAIF to a level which would at least approach
that of BIF is in current legislation. The current legislation, if enacted,
would result in a one-time assessment of approximately $2.4 million.
Qualified Thrift Lender Test
All savings associations are required to meet a qualified thrift lender ("QTL")
test set forth in Section 10(m) of the Home Owners' Loan Act("HOLA") and
regulations of the OTS thereunder to avoid certain restrictions on their
operations.
Currently, the QTL test requires that 65% of an institution's "portfolio assets"
(as defined) consist of certain housing and consumer related assets on a monthly
average basis in 9 out of every 12 months.
At December 31, 1995, approximately 75.8% of the Bank's assets were invested in
qualified thrift investments, which was in excess of the percentage required to
qualify under the QTL test. For all 12 months of 1995, the bank exceeded the QTL
requirement.
4
<PAGE>
Federal Home Loan Bank System
The Bank is a member of the FHLB which administers the home financing credit
function and serves as a source of liquidity for member savings associations and
commercial banks within its assigned region. It makes loans to members (i.e.,
advances) in accordance with policies and procedures establish by its Board of
Directors. As of December 31, 1995, the Bank's advances from the FHLB amounted
to $25.4 million.
As a member, the Bank is required to purchase and maintain stock in the FHLB of
Pittsburgh in amount equal to the greater of 1% of its mortgage related assets
or .3% of total assets. At December 31, 1995, the Bank had $2.1 million in FHLB
stock, which was in compliance with this requirement.
Federal Limitations on Transactions with Affiliates
Transactions between savings associations and any affiliate are governed by
Sections 23A and 23B of the Federal Reserve Act. In addition to the restrictions
imposed, no savings associations may (i) loan or otherwise extend credit to an
affiliate, except for any affiliate which engages only in activities which are
permissable for bank holding companies, or (ii) purchase or invest in any
stocks, bonds, debentures, notes, or similar obligations of any affiliate,
except for affiliates which are subsidiaries of the savings association.
In addition, Section 12 CRF-215 (Regulation O) of the Code of Federal
Regulations places restrictions on loans by savings associations to executive
officers, directors, and principal stockholders of the Company and the Bank. At
December 31, 1995, the Bank was in compliance with this regulation.
Employees
As of December 31, 1995, there were no employees of the Company. The Bank had 98
full-time and 22 part-time employees, while PRA and QSFC had 6 and 4 full-time
employees, respectively.
Statistical Information
Statistical information is furnished pursuant to the requirements of Guide 3
(Statistical Disclosure by Bank Holding Companies) promulgated under the
Securities Act of 1933. The information required herein is incorporated by
reference from pages 10 to 18 of the Company's Annual Report to Stockholders.
Additional disclosures required in Guide 3 and not incorporated by reference are
included below.
5
<PAGE>
Tabular information is provided in thousands of dollars except for share and per
share data.
Investment securities are comprised of the following at December 31, 1995, 1994
and 1993:
- --------------------------------------------------------------------------------
1995
----
Held to Maturity Available for Sale
---------------- ------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
- --------------------------------------------------------------------------------
FHLB of Pittsburgh stock, pledged $ 2,149 $ 2,149 $ -- $ --
U.S. agency obligations -- -- 5,497 5,474
Equity investments -- -- 30 30
- --------------------------------------------------------------------------------
Total investment securities $ 2,149 $ 2,149 $ 5,527 $ 5,504
================================================================================
- --------------------------------------------------------------------------------
1994
----
Held to Maturity Available for Sale
---------------- ------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
- --------------------------------------------------------------------------------
FHLB of Pittsburgh stock, pledged $ 2,303 $ 2,303 $ -- $ --
U.S. agency obligations 10,564 9,625 4,999 4,597
Equity investments -- -- 30 30
- --------------------------------------------------------------------------------
Total investment securities $12,867 $11,928 $ 5,029 $ 4,627
================================================================================
- --------------------------------------------------------------------------------
1993
----
Held to Maturity Available for Sale
---------------- ------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
- --------------------------------------------------------------------------------
FHLB of Pittsburgh stock, pledged $ 2,632 $ 2,632 $ -- $ --
U.S. agency obligations 2,000 1,977 -- --
- --------------------------------------------------------------------------------
Total investment securities $ 4,632 $ 4,609 $ -- $ --
================================================================================
The investment securities which are classified as held to maturity and available
for sale have a weighted average coupon rate of 6.75% and 6.63%, respectively,
at December 31, 1995.
6
<PAGE>
Mortgage-Backed Securities
The following table details the Bank's mortgage-backed securities by
classification at December 31, 1995, 1994 and 1993.
- --------------------------------------------------------------------------------
1995
----
Held to Maturity Available for Sale
---------------- ------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
- --------------------------------------------------------------------------------
GNMA $26,618 $26,113 $ 168 $ 168
FNMA 8,620 8,529 8,801 8,631
FHLMC 17,595 17,448 19,040 18,863
Collateralized mortgage
obligations -- -- 7,501 7,440
Non-agency pass through certificate -- -- 1,734 1,740
- --------------------------------------------------------------------------------
$52,833 $52,090 $37,244 $36,842
================================================================================
- --------------------------------------------------------------------------------
1994
----
Held to Maturity Available for Sale
---------------- ------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
- --------------------------------------------------------------------------------
GNMA $29,325 $27,080 $ 227 $ 219
FNMA 21,577 19,932 1,098 1,014
FHLMC 42,771 40,093 3,429 3,155
Collateralized mortgage
obligations -- -- 4,998 4,715
- --------------------------------------------------------------------------------
$93,673 $87,105 $ 9,752 $ 9,103
================================================================================
- --------------------------------------------------------------------------------
1993
----
Held to Maturity Available for Sale
---------------- ------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
- --------------------------------------------------------------------------------
GNMA $34,739 $34,457 $ 204 $ 204
FNMA 32,145 31,910 -- --
FHLMC 45,010 44,710 5,683 5,695
Collateralized mortgage
obligations 5,160 5,163 3,006 3,000
- --------------------------------------------------------------------------------
$117,054 $116,240 $ 8,893 $ 8,899
================================================================================
7
<PAGE>
The following table sets forth the activity in the Bank's mortgage-backed
securities portfolio during the periods indicated:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
For the years ended December 31, 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Mortgage-backed securities at beginning of period $ 102,776 $ 125,947 $ 86,011
Purchases (1) 11,577 26,555 125,332
Conversion of existing loans to mortgage-backed securities 241 24,979 64,530
Sales of loans converted to securities (241) (24,979) (64,530)
Sales from portfolio (11,182) (19,833) (35,739)
Repayments (13,096) (27,299) (46,912)
Premium amortization (553) (2,001) (2,806)
Other (94) 55 61
Change in unrealized loss on securities available for sale 247 (648) --
- ------------------------------------------------------------------------------------------------------------------------------------
Mortgage-backed securities at end of period (2) $ 89,675 $ 102,776 $ 125,947
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted average coupon at end of period 7.63% 7.38% 7.64%
====================================================================================================================================
<FN>
(1) Includes applicable premiums and discounts.
(2) Includes $36.8 million, $9.1 million and $8.9 million of mortgage-backed
securities classified as available for sale (at fair value in 1995 and
1994; at lower of aggregate cost or fair value in 1993) at December 31,
1995, 1994 and 1993, respectively.
</FN>
</TABLE>
8
<PAGE>
Loan Portfolio
The principal categories of loans in the Bank's portfolio are residential real
estate loans, which are secured by single-family (one-to-four units) residences;
commercial real estate loans, which are secured by multi-family (over five
units) residential and commercial real estate; loans for the construction of
single-family, multi-family and commercial properties, including land
acquisition and development loans; commercial business loans, consumer loans and
credit card receivables. Substantially all of the Bank's mortgage loan portfolio
consists of conventional mortgage loans, which are loans that are neither
insured by the Federal Housing Administration nor partially guaranteed by the
Department of Veterans Affairs.
The Bank's net loan portfolio, including loans held for sale, totalled $224.8
million at December 31, 1995 or 65.1% of its total assets, an increase of $18.7
million or 9.1% from the $206.1 million outstanding at December 31, 1994. The
following table depicts the composition of the Bank's loan portfolio at December
31 for the years indicated net of unearned discounts and fees.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate loans:
Single family
residential (1) $ 91,091 40.21% $ 99,917 48.12% $ 80,196 45.26% $ 54,560 34.27% $ 64,089 32.16%
Commercial
real estate 81,535 36.00 71,273 34.33 68,530 38.69 70,646 44.38 73,229 36.75
Construction 14,230 6.28 5,379 2.59 3,922 2.22 6,038 3.79 24,386 12.24
- ------------------------------------------------------------------------------------------------------------------------------------
Total real estate
loans 186,856 82.49 176,569 85.04 152,648 86.17 131,244 82.44 161,704 81.15
- ------------------------------------------------------------------------------------------------------------------------------------
Commercial business loans 17,244 7.61 12,005 5.78 9,250 5.22 12,025 7.56 21,309 10.69
- ------------------------------------------------------------------------------------------------------------------------------------
Consumer loans:
Consumer 21,666 9.57 19,027 9.17 15,257 8.61 15,928 10.00 16,259 8.16
Credit card receivables 757 .33 24 .01 -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total consumer loans 22,423 9.90 19,051 9.18 15,257 8.61 15,928 10.00 16,259 8.16
- ------------------------------------------------------------------------------------------------------------------------------------
Total loans 226,523 100.00% 207,625 100.00% 177,155 100.00% 159,197 100.00% 199,272 100.00%
- ------------------------------------------------------------------------------------------------------------------------------------
Allowance for possible
loan losses (1,720) (1,503) (2,113) (2,703) (5,483)
- ------------------------------------------------------------------------------------------------------------------------------------
Net loans $ 224,803 $ 206,123 $ 175,042 $ 156,494 $ 193,789
====================================================================================================================================
<FN>
(1) Includes $3.2 million, $351,000 and $16.8 million of loans classified as
held for sale at December 31, 1995, 1994 and 1993, respectively.
</FN>
</TABLE>
9
<PAGE>
The following table sets forth the scheduled contractual amortization of loans
in the Bank's total loan portfolio (including loans classified as held for sale)
at December 31, 1995. Loans having no stated schedule of repayments and no
stated maturity are reported as due in one year or less. The following table
also sets forth the dollar amount of loans which are scheduled to mature after
one year which have fixed or adjustable rates.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Real Estate Real Estate Commercial
Mortgage Construction Business Consumer Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Amounts due:
One year or less $ 12,390 $ 6,409 $ 7,552 $ 1,147 $ 27,498
After one year through
five years 50,818 7,821 6,115 7,625 72,379
Beyond five years 109,418 -- 3,577 13,651 126,646
- ------------------------------------------------------------------------------------------------------------------------------------
Total $172,626 $14,230 $17,244 $22,423 $226,523
====================================================================================================================================
Interest rate terms on
amounts due after one year:
Fixed $ 45,874 $ -- $ 1,593 $15,297 $ 62,764
- ------------------------------------------------------------------------------------------------------------------------------------
Adjustable $114,362 $ 7,821 $ 8,099 $ 5,979 $136,261
====================================================================================================================================
</TABLE>
Scheduled contractual principal repayments do not reflect the actual maturities
of loans. The average maturity of loans is less than their average contractual
terms because of prepayments and, in the case of conventional mortgage loans due
and payable in the event, among other things, that the borrower sells the real
property subject to the mortgage and the loan is not repaid. The average life of
mortgage loans tends to increase when current mortgage loan rates are higher
than rates on existing mortgage loans and, conversely, decrease when rates on
existing mortgages are lower than current mortgage loan rates (due to
refinancings of adjustable-rate and fixed rate loans at lower rates). Under the
latter circumstances, the weighted average yield on loans decreases as higher
yielding loans are paid or refinanced at lower rates.
The following table shows total loans originated, purchased, sold and repaid
during the periods ended December 31 for the years indicated.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Loan originations:
Single family residential $ 18,404 $ 56,210 $ 123,129
Commercial real estate 23,773 20,335 13,416
Construction 21,798 7,833 8,595
Commercial business 11,201 18,168 4,285
Consumer 9,398 8,943 6,294
- ------------------------------------------------------------------------------------------------------------------------------------
Total loans originated 84,574 111,489 155,719
Purchases 447 10,827 11,175
- ------------------------------------------------------------------------------------------------------------------------------------
Total loans originated and purchased 85,021 122,316 166,894
- ------------------------------------------------------------------------------------------------------------------------------------
Sales and loan principal reductions:
Loans sold (1) 16,230 34,026 81,917
Loan principal reductions 49,205 55,760 58,808
- ------------------------------------------------------------------------------------------------------------------------------------
Total loans sold and principal reductions 65,435 89,786 140,725
- ------------------------------------------------------------------------------------------------------------------------------------
Net change due to other items (688) (2,060) (8,211)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in loan portfolio, net of
unearned discounts and deferred fees $ 18,898 $ 30,470 $ 17,958
====================================================================================================================================
<FN>
(1) For the years ended December 31, 1995, 1994, and 1993, $241,000, $25.0
million, and $64.5 million of loans, respectively, were converted into
mortgage-backed securities and subsequently sold.
</FN>
</TABLE>
10
<PAGE>
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 collectibility.
The accrual of interest is also discontinued on residential and consumer loans
when such loans become 90 days past due, except for those loans in the process
of collection which are secured by real estate with a loan to value less than
80% where the accrual of interest ceases at 180 days. Consumer loans generally
are charged-off when the loan becomes over 120 days delinquent, unless secured
by real estate and meeting the above mentioned criteria. When a loan is placed
on non-accrual status, interest accruals cease and uncollected accrued interest
is reversed and charged against current income. Additional interest income on
such loans is recognized only when received. A loan remains on non-accrual
status until the factors which indicate doubtful collectibility no longer exist,
or the loan is liquidated, or when the loan is determined to be uncollectible
and is charged-off against the allowance for possible loan losses.
The following table details the Bank's non-performing assets at December 31:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loans accounted for on a
non-accrual basis $ 3,879 $ 4,369 $ 5,743 $ 6,539 $12,774
Accruing loans 90 or
more days past due -- 182 308 423 1,234
- ------------------------------------------------------------------------------------------------------------------------------------
Total non-performing loans 3,879 4,551 6,051 6,962 14,008
REO, net of related reserves (1) 728 4,534 11,577 27,867 36,419
- ------------------------------------------------------------------------------------------------------------------------------------
Total non-performing assets $ 4,607 $ 9,085 $ 17,628 $ 34,829 $50,427
- ------------------------------------------------------------------------------------------------------------------------------------
Non-performing loans as a
percentage of total loans 1.71% 2.19% 3.42% 4.37% 7.03%
====================================================================================================================================
Non-performing assets as a
percentage of total assets 1.33% 2.61% 5.29% 11.95% 16.13%
====================================================================================================================================
<FN>
(1) Includes real estate acquired by foreclosure and by deed in lieu of
foreclosure. Prior to 1993, also includes loans deemed in- substance
foreclosure.
</FN>
</TABLE>
Gross interest income that would have been recorded during 1995, 1994 and 1993
if the Company's non-performing loans at the end of such periods had been
performing in accordance with their terms during such periods was $242,000,
$430,000 and $287,000, respectively. The amount of interest income that was
actually recorded during 1995, 1994 and 1993 with respect to such non-performing
loans amounted to approximately $174,000, $23,000, and $20,000, respectively.
The $3.9 million of non-accrual loans at December 31, 1995 consists of $995,000
of loans secured by single-family residential property, $2.4 million of loans
secured by commercial property, $31,000 of commercial business loans, $17,000 of
construction loans and $400,000 of consumer loans. The $728,000 of REO at
December 31, 1995 consisted of three single-family residences and four
undeveloped residential lots.
11
<PAGE>
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.
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>
- ------------------------------------------------------------------------------------------------------------------------------------
As of December 31, 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Delinquencies:
30 to 59 days $ 2,973 1.31% $ 719 .35% $ 1,579 .89%
60 to 89 days 450 .20 282 .14 332 .19
90 or more days and non-accrual loans (1) 3,879 1.71 4,551 2.19 6,051 3.42
- ------------------------------------------------------------------------------------------------------------------------------------
Total $ 7,302 3.22% $ 5,552 2.68% $ 7,962 4.50%
====================================================================================================================================
<FN>
(1) Includes $0, $182,000, and $308,000 in loans that are accruing interest at
December 31, 1995, 1994 and 1993, respectively.
</FN>
</TABLE>
12
<PAGE>
Allocation of the Allowance for Possible Losses
The following table details the allocation of the allowances for possible loan
losses to the various loan categories at the dates indicated. The allocation is
not necessarily indicative of the categories in which future loan losses will
occur, and the entire allowance is available to absorb losses in any category of
loans.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
December 31, 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------------
Percent of Percent of Percent of Percent of Percent of
Loans to Loans to Loans to Loans to Loans to
Total Total Total Total Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential real estate $ 148 40.21% $ 268 48.12% $ 194 45.26% $ 168 34.27% $ 139 32.16%
Commercial real estate 1,045 36.00 917 34.33 1,403 38.69 1,908 44.38 2,920 36.75
Real estate construction 286 6.28 125 2.59 149 2.22 207 3.79 1,784 12.24
Commercial business 166 7.61 152 5.78 294 5.22 315 7.56 534 10.69
Consumer 75 9.90 41 9.18 73 8.61 105 10.00 106 8.16
- ------------------------------------------------------------------------------------------------------------------------------------
Total $1,720 100.00% $1,503 100.00% $2,113 100.00% $2,703 100.00% $5,483 100.00%
====================================================================================================================================
</TABLE>
13
<PAGE>
The following table details the Bank's allowance for possible loan losses for
the periods indicated:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
For the years ended December 31, 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Average loans outstanding $213,525 $189,053 $166,419 $180,695 $250,127
- ------------------------------------------------------------------------------------------------------------------------------------
Balance beginning of period $ 1,503 $ 2,113 $ 2,703 $ 5,483 $ 4,123
Charge-offs:
Residential real estate 20 -- 148 86 9
Commercial real estate -- 1,160 810 1,395 3,339
Real estate construction 100 50 5 626 2,565
Consumer 26 20 89 209 414
Commercial 281 88 283 814 2,588
- ------------------------------------------------------------------------------------------------------------------------------------
Total charge-offs 427 1,318 1,335 3,130 8,915
- ------------------------------------------------------------------------------------------------------------------------------------
Recoveries:
Residential real estate -- -- 42 5 --
Commercial real estate -- -- -- -- --
Real estate construction 1 137 72 4 --
Consumer 15 14 25 30 38
Commercial 3 36 137 36 93
- ------------------------------------------------------------------------------------------------------------------------------------
Total recoveries 19 187 276 75 131
- ------------------------------------------------------------------------------------------------------------------------------------
Net charge-offs 408 1,131 1,059 3,055 8,784
Additions charged
to operations 625 521 368 275 10,144
Additions acquired (1) -- -- 101 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total additions 625 521 469 275 10,144
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at end
of period $ 1,720 $ 1,503 $ 2,113 $ 2,703 $ 5,483
====================================================================================================================================
Ratio of net charge-
offs during the period
to average loans out-
standing during the
period .19% .60% .64% 1.69% 3.51%
====================================================================================================================================
Ratio of allowance for
possible loan losses to non-
performing loans at end of period 44.34% 33.03% 34.92% 38.83% 39.14%
====================================================================================================================================
<FN>
(1) In conjunction with the Rosemont branch purchase on July 1, 1993.
</FN>
</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. Management's periodic evaluation
of the adequacy of the allowance for possible loan losses is based upon
examination of the portfolio, past loss experience, adverse situations that may
affect the borrower's ability to repay, the estimated value of any underlying
collateral, current economic conditions, the results of the most recent
regulatory examinations, 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.
14
<PAGE>
<TABLE>
<CAPTION>
Average Balances of the Company's Deposits
- ------------------------------------------------------------------------------------------------------------------------------------
For the years ended December 31, 1995 1994 1993 1992
---- ---- ---- ----
Amount Rate Amount Rate Amount Rate Amount Rate
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-bearing deposits:
NOW and Super NOW $ 26,661 2.69% $ 21,932 2.43% $ 17,488 2.39% $ 15,677 3.39%
Money market accounts 33,577 3.10 41,428 2.75 42,128 2.82 41,440 3.69
Passbook and statement
savings 27,290 2.87 27,808 2.95 21,212 2.94 16,592 3.49
Time deposits 177,972 5.46 168,250 4.56 159,973 4.47 166,556 5.45
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 265,500 4.62% 259,418 3.92% 240,801 3.89% 240,265 4.88%
- ------------------------------------------------------------------------------------------------------------------------------------
Non-interest-bearing deposits 20,210 16,713 13,778 14,398
- ------------------------------------------------------------------------------------------------------------------------------------
Total deposits $285,710 $276,131 $254,579 $254,663
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The following table presents the interest rate and maturity information for the
Bank's time deposits at December 31, 1995.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Maturity Date
----------------------------------------------------------------------------------
One Year Over
or less 1-2 Years 2-3 Years 3 Years Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest Rate
2.00 -- 3.99% $ 1,972 $ 62 $ 121 $ 77 $ 2,232
4.00 -- 5.99% 97,637 34,739 4,880 4,105 141,361
6.00 -- 7.99% 16,179 12,032 2,801 8,772 39,784
8.00 -- 9.99% 100 28 50 43 221
10.00 -- 11.99% -- -- -- 13 13
- ------------------------------------------------------------------------------------------------------------------------------------
$ 115,888 $46,861 $ 7,852 $13,010 $183,611
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Bank's time deposits of $100,000 or more totalled $22.4 million at December
31, 1995, which mature as follows: $8.6 million within three months; $5.9
million between three and six months; $4.4 million between six and twelve
months; and $3.5 million after twelve months.
The ability of the Bank to attract and maintain deposits and the Bank's cost of
funds on these deposit accounts have been, and will continue to be,
significantly affected by economic and competitive conditions.
15
<PAGE>
FHLB Advances
The following table presents certain information regarding FHLB advances:
- --------------------------------------------------------------------------------
For the years ended December 31, 1995 1994 1993
- --------------------------------------------------------------------------------
Average balance outstanding $ 44,177 $ 44,007 $ 48,702
Maximum amount outstanding at
any month-end during the period 50,845 57,244 61,067
Weighted average interest rate
during the period 6.37% 5.00% 4.29%
Weighted average interest rate
at end of the period 6.53% 6.35% 4.45%
The Bank continued to utilize advances from the FHLB in 1995. Total advances
outstanding were $25.4 million at December 31, 1995, a decrease of $18.7 million
from year end 1994.
16
<PAGE>
Item 2. Properties
The Company's and the Bank's executive offices are located at the Plymouth
Meeting Executive Campus, Plymouth Meeting, Pennsylvania. The Bank conducts
business from nine branch offices in Bridgeport, Plymouth Meeting, Conshohocken,
King of Prussia, Norristown, Jeffersonville, the Andorra community of
Philadelphia, Rosemont and Paoli, Pennsylvania, one of which one is owned and
eight are leased.
Item 3. Legal Proceedings
The Company is involved in routine legal proceedings 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 4. Submissions of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The information required herein is incorporated by reference from page 39 of the
Company's 1995 Annual Report to Stockholders, which is included herein as
Exhibit 13 ("Annual Report")
Item 6. Selected Financial Data.
The information required herein is incorporated by reference from page 9 of the
Company's 1995 Annual Report to Stockholders.
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
The information required herein is incorporated by reference from pages 10 to 18
of the Company's 1995 Annual Report to Stockholders.
Item 8. Financial Statements and Supplementary Data.
The information required herein is incorporated by reference from pages 19 to 40
of the Company's 1995 Annual Report to Stockholders.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
17
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The information contained in the section titled "Election of Directors" in the
Company's definitive Proxy Statement for the 1996 Annual Meeting to be held
April 30, 1996 (the "Proxy Statement"), with respect to the Directors of the
Company is incorporated herein by reference.
Item 11. Executive Compensation
The information appearing in the caption "Executive Compensation and
Transactions" in the Proxy Statement is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information appearing in the captions "Security Ownership of Certain
Beneficial Owners" and "Election of Directors" (with respect to security
ownership by Directors) in the Proxy Statement is incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions
The information appearing in the caption "Indebtedness of Management" in the
Proxy Statement is incorporated herein by reference.
18
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
a. The financial statements listed on the index set forth in Item 8 of this
Annual Report on Form 10-K are filed as part of this Annual Report.
Financial Statement schedules are not required under the related
instructions of the Securities and Exchange Commission or are inapplicable
and, therefore, have been omitted.
b. The following exhibits are incorporated by reference herein or are filed as
part of this Annual Report:
No. Exhibits
--- --------
*3.1 Certificate of Incorporation (Exhibit 3.1 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1987)
*3.2 By-Laws (Exhibit 3.2 to the Company's Registration Statement
No. 33-3685 On Form S-4, filed with the Securities and Exchange
Commission on March 3, 1986 [the "1986 Form S-4"])
*10.1 Key Employee Stock Compensation Program (Exhibit 28 to the
Company's Registration Statement No. 33-10160 on Form S-8,
filed with the Securities and Exchange Commission on November
13, 1986)
*10.2 Amendment dated December 15, 1987 to Key Employee Stock
Compensation Program (Exhibit 4.2 to the Company's Registration
Statement, No. 33-19570)
*10.3 1993 Stock Incentive Plan (Exhibit 10.3 to the Company's Annual
Report in Form 10-K for the year ended December 31, 1994)
*10.4 1993 Directors' Stock Option Plan (Exhibit 10.4 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994)
*10.5 Employment Agreement between Progress Financial Corporation,
Progress Federal Savings Bank and W. Kirk Wycoff dated January
1, 1995 (Exhibit 10.6 to the Company's Registration Statement,
No. 33-60817 on Form S-1, filed with the Securities and
Exchange Commission on August 9, 1995)
13 1995 Annual Report to Stockholders
21 Subsidiaries of the Registrant
23 Consent of Independent Accountants
c. On November 6, 1995 the Registrant filed Form 8-K with the Securities and
Exchange Commission announcing the termination of the Agreement and Plan of
Reorganization between Progress Financial Corporation and FJF Financial,
M.H.C. pursuant to which Progress Federal Savings Bank was to merge with
Roxborough Manayunk Federal Savings Bank.
*Incorporated by reference.
19
<PAGE>
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto being duly authorized.
PROGRESS FINANCIAL CORPORATION
March 28, 1996 BY: /s/ W. Kirk Wycoff
---------------- ------------------------------------
Date W. Kirk Wycoff, Chairman, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates
indicated.
/s/ W. Kirk Wycoff March 28, 1996
- ----------------------------------- --------------
W. Kirk Wycoff, Chairman, President Date
and Chief Executive Officer
/s/ William O. Daggett, Jr. March 28, 1996
- ----------------------------------- --------------
William O. Daggett, Jr., Director Date
/s/ Joseph R. Klinger March 28, 1996
- ----------------------------------- --------------
Joseph R. Klinger, Director Date
/s/ John E. Flynn Corson March 28, 1996
- ----------------------------------- --------------
John E. Flynn Corson, Director Date
/s/ Donald F. U. Goebert March 28, 1996
- ----------------------------------- --------------
Donald F. U. Goebert, Director Date
/s/ Paul M. LaNoce March 28, 1996
- ----------------------------------- --------------
Paul M. LaNoce, Director Date
/s/ William L. Mueller March 28, 1996
- ----------------------------------- --------------
William L. Mueller, Director Date
/s/ Charles J. Tornetta March 28, 1996
- ----------------------------------- --------------
Charles J. Tornetta, Director Date
- ----------------------------------- --------------
A. John May, III, Director Date
/s/ Frederick E. Schea March 28, 1996
- ----------------------------------- --------------
Frederick E. Schea Date
Sr. Vice President and
Chief Financial Officer
20
PROGRESS FINANCIAL CORPORATION
[PICTURE]
[PICTURE]
Service to
Customers...
Commitment to
Shareholders
1995
1995 ANNUAL REPORT
<PAGE>
-----------------
ABOUT THE COMPANY
-----------------
Progress Financial Corporation is a unitary thrift holding
company headquartered in Plymouth Meeting, Pennsylvania. The
business of the Company consists primarily of the operation
of Progress Bank, a federally chartered stock savings bank
which conducts community banking business through
full-service offices in Bridgeport, Conshohocken,
Jeffersonville, King of Prussia, Norristown, Paoli, Plymouth
Meeting, Rosemont and the Andorra community of Philadelphia,
Pennsylvania. The Company also conducts commercial mortgage
banking and brokerage services for institutional real estate
investors and lenders as well as real estate owners and
developers and provides equipment leasing for small and
medium-sized companies through its subsidiaries, Progress
Realty Advisors, L.P. and Quaker State Financial
Corporation. The Company's stock is traded on the NASDAQ
Stock Market under the symbol "PFNC."
- -----------------
TABLE OF CONTENTS
- -----------------
Financial Highlights ........................... 1
Letter to Shareholders ......................... 2
Progress Bank .................................. 4
Progress Realty Advisors, L.P. ................. 6
Quaker State Financial Corporation ............. 7
Directors and Senior Management Teams .......... 8
Selected Consolidated Financial Data ........... 9
Management's Discussion and Analysis ........... 10
Financial Statements and Notes ................. 19
Independent Auditor's Report ................... 38
Market Information ............................. 39
Information for Shareholders ................... 40
<PAGE>
- --------------------
FINANCIAL HIGHLIGHTS
- --------------------
<TABLE>
<CAPTION>
Income 1995 1994 Change
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net interest income $ 11,234 $ 10,325 8.80%
Provision for possible loan losses 625 521 19.96
Other income 2,265 1,545 46.60
Other expense 12,071 12,065 .05
Net income (loss) 2,671 (716) --
Per share
- ----------------------------------------------------------------------------------------------------
Net income (loss) .79 (.22) --
Book value 5.00 3.98 25.63%
Stock price
High 6 5/8 6 1/4
Low 3 7/8 3 1/2
Average balances
- ----------------------------------------------------------------------------------------------------
Assets 351,540 340,114 3.36%
Earning assets 333,266 319,810 4.21
Net loans 213,525 189,052 12.95
Deposits 285,710 276,131 3.47
Stockholders' equity 14,347 13,653 5.08
Selected ratios
- ----------------------------------------------------------------------------------------------------
Return on average assets .76% (.21)%
Return on average stockholders' equity 18.62 (5.24)
Net interest margin 3.37 3.23
Average stockholders' equity to average assets 4.08 4.01
Non-performing assets as a percentage of total assets 1.33 2.61
</TABLE>
[The following tables are represented as a bar chart in the printed report]
LOANS
(In Thousands)
1993 ............................ $158,268
1994 ............................ $205,771
1995 ............................ $221,650
DEPOSITS
(In Thousands)
1993 ............................ $273,583
1994 ............................ $283,958
1995 ............................ $297,260
FEE INCOME
(In Thousands)
1993 ............................ $1,303
1994 ............................ $2,105
1995 ............................ $2,598
NET INTEREST INCOME
(In Thousands)
1993 ............................ $ 9,359
1994 ............................ $10,325
1995 ............................ $11,234
1
<PAGE>
[PICTURE]
W. Kirk Wycoff
Chairman, President and Chief Executive Officer
- --------------------------
LETTER TO SHAREHOLDERS
- --------------------------
1995 was a transitional year for Progress Financial Corporation and its
subsidiaries. Our existing business continued to improve and we took significant
steps to expand the Company. Our primary subsidiary, Progress Bank, opened a new
retail office in Paoli, Pennsylvania and management's focus on transforming
Progress to a full service commercial bank continued with the hiring of four new
lending officers. During 1996, we will officially change the name of the Bank to
Progress Bank from Progress Federal Savings Bank. This visual change evidences
the transition of Progress Bank to a full service community-based commercial
bank from a traditional savings and loan dependent only on residential mortgages
and certificates of deposit to generate earnings. Also, the addition of Quaker
State Financial Corporation to the Progress family and the ongoing growth of
Progress Realty Advisors, L.P. compliment the activities of Progress Bank.
As the Company continues on an expansion path, I would also like to take this
opportunity to welcome our new Chief Financial Officer, Frederick E. Schea and
two new members of our board, H. Wayne Griest and Janet E. Paroo. We are
fortunate to have them as part of the Progress team.
The past several years have evidenced a trend of mega bank mergers. This trend
presents us with a stunning opportunity to cultivate and bring on new customers
that appreciate the full array of products we offer while maintaining small bank
personal service and a quick response time. The merger trend with resultant
layoffs is the only way for the large banks to grow earnings, but at Progress,
lending and customer development remain our priorities.
Progress Bank
In 1995, our commercial business loans increased by 43%. Core commercial
business loan growth will continue to be developed in 1996 through marketing and
lending initiatives in communities where we have offices. This focus will
increase our franchise value and build on the balance sheet strength achieved in
1995. We will remain focused on cross-selling additional products and services
to our existing customers to enhance our profitability while lowering our cost
of funds.
A major accomplishment of 1995 was the sale of the Bank's largest non-performing
asset consisting of a commercial property located in the Bronx, New York. This
property consumed many dollars and hindered
2
<PAGE>
earning capacity in recent years. The sale of this property reduces the Bank's
non-performing assets to 1.33% of total assets, a ratio that we are pleased to
report compared with the 17% of assets that were non-performing at March 31,
1992.
Quaker State Financial Corporation
The acquisition of Quaker State Financial Corporation in the third quarter adds
a new dimension to the Company. We can now offer new and existing customers of
the Bank alternative financing options through leasing. We realize how important
diversification of our product base is to remain competitive in today's market
and the use of leasing is a fast growing segment of the business finance market.
Progress Realty Advisors, L.P.
Progress Realty Advisors, our commercial mortgage banking subsidiary, closed the
year with revenue of $795,000 and impressive earnings of $285,000. In 1995, this
company closed $103.8 million in real estate mortgages for their customers.
Looking Ahead
Looking into 1996 we will be making several technological improvements in our
Company to attract sophisticated customers. These improvements will include the
option for customers to use the pay by phone service for their household bills
and PC banking.
As a Company we offer many financial products that are competitive in our
marketplace. As an investor you can strengthen us as a Company by becoming a
customer and taking advantage of these excellent products and services we have
to offer. We need your continued support as shareholders and also as customers
to meet our targets for growth.
In conclusion, our course is set, the wind is in our sails and we are ready to
successfully chart the waters that lie ahead in the changing banking industry.
/s/ W. KIRK WYCOFF
W. Kirk Wycoff
Chairman, President and
Chief Executive Officer
- --------------------------------------------------------------------------------
Progress is committed
to increasing
franchise value,
bringing a greater
return to investors
and expanding
customer
satisfaction.
- --------------------------------------------------------------------------------
3
<PAGE>
- --------------------------------------------------------------------------------
Progress offers
a wide array of
loan and deposit
products to meet
the needs of
both business
and retail
customers.
- --------------------------------------------------------------------------------
- -----------------
PROGRESS BANK
- -----------------
Mission: We are a small, friendly bank committed to providing a superior return
to our shareholders, outstanding products and services to our customers and a
rewarding environment for our employees.
[PICTURE]
[PICTURE]
Commercial Banking
The Commercial Banking division of the Bank understands small business so well
because we are a small business ourselves. Our services are structured to fit
small business needs--and still allow for growth. The seasoned professionals in
the division are focused on cultivating strong, "interactive" relationships with
the lower middle market and small business companies in the surrounding five
county area of our main headquarters. First and foremost, a Progress Account
Executive will understand your business and be its advocate within the Bank.
Then we are able to customize our lending, depository and investment products to
suit the uniqueness of whatever business you may be in. Together, our small
friendly bank is working with your business to help you achieve all your
financial goals. Riley Sales of Norristown and Indian Rock Produce of Quakertown
are two of our business customers that have come to enjoy the full array of
commercial products we offer with the added personalized service of a community
bank.
[PICTURE]
4
<PAGE>
Retail / Consumer Banking
Our Retail Banking division has made a total commitment to offering our
customers excellent customer service--the kind of service you'd expect to find
at a small friendly bank. This concept, coupled with diversified financial
products, is the differentiation we are striving for to compete with the other
financial institutions in our market. And, as we expand our retail branch
network, we believe that it is this total commitment that will make Progress
Bank "the" place to bank for consumers in our market. In this age of ongoing
mergers and acquisitions the small community bank is becoming a fading memory to
many. We are attracting those people who remember just how beneficial it is to
deal with an independent financial institution that truly believes in "the
personal touch."
[PICTURE]
In September, Progress Bank opened its ninth office--its first in Chester
County. This office, located in the Paoli Shopping Center, gives us the ability
to reach into a new market as we focus on identifying new banking prospects. We
believe that continued expansion of our branch network on a limited basis is
necessary to enable us to attract new customers as well as offer our existing
customers other convenient locations to fulfill their banking and investment
needs.
Vickie Lucas, a customer of our new Paoli branch, discusses new account options
with our branch manager Fran Fusco.
[PICTURE]
Progress Bank
employees strive to
achieve a common
goal--to consistently
deliver superior
customer service
to each and
every customer.
5
<PAGE>
[PICTURE]
The subsidiaries of
Progress Financial
Corporation work
closely together to
service the needs
of customers in the
best way possible.
- ----------------------
OTHER SUBSIDIARIES
- ----------------------
Progress Realty Advisors, L.P.
Progress Realty Advisors, L.P. ("PRA"), established in September 1993, is a
full-service commercial mortgage banking subsidiary of Progress Financial
Corporation. PRA is active in underwriting, structuring and placing commercial
mortgage loans on income producing properties and owner-occupied real estate
throughout the Greater Delaware Valley. As part of this process, PRA also serves
as an origination and servicing correspondent for several life insurance
companies and other lenders as well as provides loan sale advisory, and asset
management services to institutions and private real estate investors.
During the year, PRA also announced the formation of its health care capital
group. The group was founded to assist health care firms in selecting,
structuring and negotiating competitive long and short term financing. In
addition to a variety of real estate oriented financing programs, the group also
provides financing for taxable and tax-exempt bonds, medical accounts receivable
financing, equipment, project and other financing resources to long-term care
and senior housing providers, hospitals, physician groups and other health care
entities.
[PICTURE]
In 1995, PRA closed loans in excess of $100 million. Among the projects financed
were the Lionville Corporate Center in Lionville, Pennsylvania and the Patterson
Schwartz Corporate Headquarters Building in Hockessin, Delaware.
6
<PAGE>
Quaker State Financial Corporation
Progress Financial Corporation acquired a majority interest in Quaker State
Financial Corporation ("QSFC") in July 1995. QSFC is active in leasing a wide
range of equipment and machinery generally to small and medium sized businesses
throughout the Greater Delaware Valley. QSFC is engaged in structuring,
originating, and underwriting leases through vendor relationships as well as
directly with customers.
[PICTURE]
The acquisition of QSFC represents Progress Financial Corporation's continuing
effort to provide a full range of corporate banking products to business
customers. Whether financing for equipment replacement or expansion, leasing has
become a very important financing alternative especially to companies conserving
cash. As an added benefit, some leases can also be structured to provide
off-balance sheet financing. Additionally, QSFC is able to offer low cost
municipal leasing. We believe the overall annual $140 billion leasing market
will continue to significantly grow in the years to come as 8 out of 10
companies are choosing to participate in some form of leasing.
[PICTURE]
QSFC leases various types of equipment including phone systems, computers,
furniture, and construction equipment. Companies like the Lavelle Company in
Philadelphia, Pennsylvania have chosen to lease their production equipment from
QSFC. Manufacturer and distributor sales are also supported through our vendor
leasing program as with Timberwolf Equipment, a Delaware Valley distributor of
wood chippers.
- --------------------------------------------------------------------------------
Progress Financial
Corporation is able
to offer expanded
financial services
through its
subsidiaries Progress
Realty Advisors,
L.P. and Quaker
State Financial
Corporation in
addition to
Progress Bank.
- --------------------------------------------------------------------------------
7
<PAGE>
Board of Directors
front from left:
Charles J. Tornetta
W. Kirk Wycoff
William L. Mueller, Esquire
middle from left:
Paul M. LaNoce
John E. F. Corson
Joseph R. Klinger
Donald F. U. Goebert
back from left:
William O. Daggett, Jr.
A. John May, III, Esquire
- ------------------------------
Progress Bank
Management Team
from left:
Robert J. Bifolco
Senior Vice President
Commercial Banking
Frederick E. Schea
Senior Vice President
Chief Financial Officer
Eric J. Morgan
Senior Vice President
Credit and Administration
W. Kirk Wycoff
Chairman, President and
Chief Executive Officer
- ------------------------------
Progress Realty
Advisors, L.P.
Management Team
from left:
H. Wayne Griest
Chairman and Chief
Executive Officer
Francis W. Ashmore
Senior Vice President
Robert A. Jacoby
President and Chief
Operating Officer
- ------------------------------
Quaker State Financial
Corporation
Management Team
from left:
H. Wayne Griest
Chairman and Chief
Executive Officer
Donald P. Kennedy
President
- ----------------------
BOARD OF DIRECTORS
- ----------------------
[PICTURE]
- --------------------
MANAGEMENT TEAMS
- --------------------
PROGRESS
BANK
[PICTURE]
PROGRESS
REALTY
ADVISORS, L.P.
[PICTURE]
QUAKER STATE
FINANCIAL
CORP.
[PICTURE]
8
<PAGE>
- ----------------------------------------
SELECTED CONSOLIDATED FINANCIAL DATA
- ----------------------------------------
Tabular information is presented in thousands of dollars except for share and
per share data.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
December 31, 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Financial Condition
Investment securities:
Available for sale $ 5,504 $ 4,627 $ -- $ -- $ --
Held to maturity 2,149 12,867 4,632 5,260 2,212
Mortgage-backed securities:
Available for sale 36,842 9,103 8,893 25,072 --
Held to maturity 52,833 93,673 117,054 60,939 47,875
Net loans 221,650 205,771 158,268 153,734 193,789
Loans held for sale 3,153 351 16,744 2,761 --
Real estate owned, net 728 4,534 11,577 27,867 36,418
Total assets 345,394 348,189 333,209 291,542 312,622
Deposits 297,260 283,958 273,583 245,015 265,197
Borrowings 28,400 47,052 40,536 36,071 38,585
Stockholders' equity 16,407 13,020 14,788 6,877 5,599
Results of Operations
Interest income $ 26,569 $ 22,830 $ 20,824 $ 21,979 $ 27,123
Interest expense 15,335 12,505 11,465 13,737 18,011
Net interest income 11,234 10,325 9,359 8,242 9,112
Provision for possible loan losses 625 521 368 275 10,144
Net interest income (expense) after
provision for possible loan losses 10,609 9,804 8,991 7,967 (1,032)
Other income 2,265 1,545 2,226 5,617 1,851
Other expense 12,071 12,065 11,568 12,232 12,887
Income (loss) before income taxes (benefit) 803 (716) (351) 1,352 (12,068)
Tax expense (benefit) (1,868) -- (1,034) 74 (1,823)
Net income (loss) 2,671 (716) 683 1,278 (10,245)
Per Share Data
Net income (loss) $ .79 $ (.22) $ .29 $ 1.27 $ (10.14)
Book value 5.00 3.98 4.52 6.81 5.54
Operating Data
Return on average assets .76% (.21)% .21% .42% (3.31)%
Return on average stockholders' equity 18.62 (5.24) 6.25 20.93 (101.81)
Average stockholders' equity to average assets 4.08 4.01 3.42 1.99 3.24
Allowance for possible loan losses to total loans .76 .72 1.19 1.70 2.75
Non-performing assets as a percentage of total assets 1.33 2.61 5.29 11.95 16.13
Interest rate spread 3.07 3.04 3.26 3.47 3.44
Net interest margin 3.37 3.23 3.25 3.13 3.31
Branch Data
Number of full service branches 9 8 8 7 8
</TABLE>
9
<PAGE>
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
This discussion and analysis should be read in conjunction with the Consolidated
Financial Statements and related notes.
Progress Financial Corporation (the "Company") is a unitary thrift holding
company which has three subsidiaries: Progress Bank (the "Bank"), Progress
Realty Advisors, L.P. ("PRA") and Quaker State Financial Corporation ("QSFC").
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 years' data throughout the following discussion and analysis for
comparability with 1995 data.
RESULTS OF OPERATIONS
The Company reported net income of $2.7 million for the year ended December
31, 1995 in comparison with a net loss of $716,000 and net income of $683,000
for the years ended 1994 and 1993, respectively. The earnings per common share
were $.79 for 1995 in comparison with a loss per common share of $.22 for 1994
and earnings per common share of $.29 for 1993. Return on average stockholders'
equity was 18.62% and return on average assets was .76% for the year ended
December 31, 1995 in comparison with a loss on average stockholders' equity of
5.24% and a loss on average assets of .21% for 1994 and a return on average
stockholders' equity of 6.25% and a return on average assets of .21% for 1993.
Results for 1995 reflected a higher net interest income before provision
for possible loan losses of $11.2 million in comparison with $10.3 million and
$9.4 million for 1994 and 1993, respectively. Results for 1995 also include
$625,000 in provision for possible loan losses in comparison with $521,000 and
$368,000 for 1994 and 1993, respectively. Other income amounted to $2.3 million
for 1995, a $720,000 increase over the $1.5 million earned in 1994 and a $39,000
increase over the $2.2 million reported in 1993. Other income increased in 1995
in comparison with 1994 primarily due to increased service charges on deposits
and fees earned from real estate advisory services provided by PRA.
Additionally, gains from mortgage banking activities and a lower level of losses
from sales of securities offset increased losses on real estate owned ("REO")
property sales in 1995. Other expense was flat at $12.1 million in 1995 in
comparison to 1994 and up from $11.6 million in 1993. Increased salaries and
benefits and general and administrative expenses in 1995 were offset by a lower
provision for REO. Results for 1995 include an income tax benefit of $1.9
million in comparison with no income tax expense or benefit in 1994 and a $1.0
million income tax benefit in 1993.
On July 17, 1995 the Company acquired a 75% majority interest in QSFC which
is engaged in the structuring, originating and underwriting of equipment leases
in the Greater Delaware Valley.
On January 31, 1996, the Company successfully completed the offering of
500,000 shares of common stock at a price of $5.25 per share.
Net Interest Income
Net interest income totalled $11.2 million, $10.3 million and $9.4 million
for the years ended December 31, 1995, 1994 and 1993, respectively. The $909,000
increase in net interest income in 1995 compared to 1994 was due to a $13.5
million increase in total average interest-earning assets, which was partially
offset by a $7.7 million increase in total average interest-bearing liabilities.
The increase in total average interest-earning assets was primarily due to a
$17.6 million and $6.8 million increase in average mortgage loans and average
other loans, respectively, which were partially offset by a $13.4 million
decrease in average mortgage-backed securities. The Company's interest rate
spread increased 3 basis points in 1995 compared to 1994 (with 100 basis points
equalling 1.0%) primarily due to a 78 basis point and 76 basis point increase in
yield on mortgage loans and mortgage-backed securities which was partially
offset by a 70 basis point and 137 basis point increase in the rate paid on
deposits and FHLB advances, respectively.
The $966,000 increase in net interest income in 1994 compared to 1993 was
due to a $31.4 million increase in total average interest-earning assets, which
was partially offset by a $15.4 million increase in total average
interest-bearing liabilities. The increase in total average interest-earning
assets was primarily due to a $20.4 million increase in average mortgage loans
and a $10.8 million increase in average investment securities and other
interest-earning assets. The Company's interest rate spread decreased 22 basis
points in 1994 compared to 1993 primarily due to a 58 basis point decline in
yield on mortgage loans which was partially offset by a 34 basis point increase
in yield on mortgage-backed securities while the average rate paid for advances
from the FHLB increased 71 basis points.
Net interest income is affected by the interest rate spread, which is the
difference between the yield on average interest-earning assets and the cost of
average interest-bearing liabilities, as well as by the relative amounts of its
interest-earning assets and interest-bearing liabilities. When interest-rate
sensitive liabilities exceed interest-rate sensitive assets (a negative gap),
the net interest margin (net interest income divided by average interest-earning
assets) will generally be negatively affected during periods of increasing
interest rates and will generally be positively affected during periods of
decreasing interest rates. Where interest-rate sensitive assets exceed
interest-rate sensitive liabilities (a positive gap), the net interest margin is
positively affected during periods of increasing interest rates and negatively
affected during periods of decreasing interest rates.
10
<PAGE>
The following table sets forth, for the periods indicated, information
regarding (i) total dollar amount of interest income on average interest-earning
assets and the resultant average yield; (ii) the total dollar amount of interest
expense on average 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.
Distribution of Average Assets, Liabilities and Stockholders' Equity
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
For the years ended December 31, 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Investment securities and other
interest-earning assets (1) $ 19,364 $ 1,235 6.38% $ 16,939 $ 1,029 6.07% $ 6,090 $ 358 5.88%
Mortgage-backed securities (2) 100,377 6,598 6.57 113,819 6,617 5.81 115,876 6,343 5.47
Mortgage loans (2) 178,979 15,489 8.65 161,339 12,692 7.87 140,984 11,914 8.45
Consumer loans 20,895 1,821 8.72 17,055 1,456 8.54 15,651 1,375 8.79
Commercial business 13,651 1,426 10.45 10,658 1,036 9.72 9,784 834 8.52
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets $333,266 $26,569 7.97% $319,810 $22,830 7.14% $288,385 $20,824 7.22%
- ------------------------------------------------------------------------------------------------------------------------------------
Non-interest-earning assets 18,274 20,304 30,889
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $351,540 $340,114 $319,274
- ------------------------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
Interest-bearing deposits:
Money market accounts $ 33,577 $ 1,042 3.10% $ 41,428 $ 1,138 2.75% $ 42,128 $ 1,187 2.82%
NOW and Super NOW 26,661 716 2.69 21,932 532 2.43 17,488 418 2.39
Passbook and statement savings 27,290 783 2.87 27,808 820 2.95 21,212 623 2.94
Time deposits 177,972 9,712 5.46 168,250 7,678 4.56 159,973 7,148 4.47
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 265,500 12,253 4.62 259,418 10,168 3.92 240,801 9,377 3.89
Advances from the FHLB 44,177 2,812 6.37 44,007 2,202 5.00 48,702 2,088 4.29
Subordinated debt 3,000 270 9.00 1,508 135 8.95 -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities $312,677 $15,335 4.90% $304,933 $12,505 4.10% $289,503 $11,465 3.96%
- ------------------------------------------------------------------------------------------------------------------------------------
Non-interest-bearing liabilities 24,516 21,528 18,841
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities $337,193 $326,461 $308,344
Stockholders' equity 14,347 13,653 10,930
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $ 351,540 $340,114 $319,274
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income:
Interest rate spread (3) $11,234 3.07% $10,325 3.04% $ 9,359 3.26%
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest margin (3) 3.37% 3.23% 3.25%
- ------------------------------------------------------------------------------------------------------------------------------------
Average interest-earning assets
to average interest-bearing
liabilities 106.58% 104.88% 99.61%
====================================================================================================================================
</TABLE>
(1) Includes investment securities classified as available for sale.
(2) Includes mortgage loans held for sale and mortgage-backed securities
classified as available for sale.
(3) 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.
11
<PAGE>
Rate/Volume Analysis
The following table presents the degree to which changes in the Company's
interest income, interest expense and net interest income are attributable to
changes in the average amount of interest-earning assets and interest-bearing
liabilities outstanding and/or to changes in rates earned or paid thereon. The
net change attributable to both volume and rate have been allocated
proportionately. Amounts in brackets represent a decrease in interest income or
expense.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
For the years ended December 31, 1995 vs.1994 1994 vs. 1993
- ------------------------------------------------------------------------------------------------------------------------------------
Volume Rate Total Volume Rate Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Investment securities and other
interest-earning assets $ 153 $ 53 $ 206 $ 659 $ 12 $ 671
Mortgage-backed securities (830) 811 (19) (114) 388 274
Mortgage loans 1,460 1,337 2,797 1,639 (861) 778
Consumer loans 334 31 365 121 (40) 81
Commercial business 308 82 390 79 123 202
- ------------------------------------------------------------------------------------------------------------------------------------
Total $1,425 $2,314 $3,739 $2,384 $(378) $2,006
- ------------------------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
Deposits $ 243 $1,842 $2,085 $ 729 $ 62 $ 791
Advances from the FHLB 9 601 610 (213) 327 114
Subordinated debt 134 1 135 135 -- 135
- ------------------------------------------------------------------------------------------------------------------------------------
Total $ 386 $2,444 $2,830 $ 651 $389 $1,040
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income $1,039 $ (130) $ 909 $1,733 $(767) $ 966
====================================================================================================================================
</TABLE>
Interest Income
Total interest income amounted to $26.6 million for 1995, an increase of
$3.7 million or 16.4% when compared to 1994. Interest income on mortgage loans
increased $2.8 million in 1995, as the average volume on mortgage loans
increased $17.6 million and average yield on mortgage loans increased 78 basis
points. Interest income on consumer and commercial business loans in the
aggregate increased $755,000 in 1995, as the average volume and yield increased
$6.8 million and 41 basis points, respectively. Interest income on investment
securities and other interest-earning assets increased $206,000 in 1995, as the
average volume and yield increased $2.4 million and 31 basis points,
respectively. Interest income on mortgage-backed securities decreased $19,000 in
1995, as the average volume of mortgage-backed securities declined $13.4
million, which more than offset a 76 basis point increase in average yield. The
increase in mortgage loans reflects an increase in commercial real estate
activity. The increase in average yield on mortgage loans reflects an increase
in market rates during 1995.
Total interest income amounted to $22.8 million for 1994, an increase of
$2.0 million or 9.6% when compared to 1993. Interest income on mortgage loans
increased $778,000 in 1994, as the average volume on mortgage loans increased
$20.4 million and average yield on mortgage loans declined 58 basis points.
Interest income on consumer and commercial business loans in the aggregate
increased $283,000 in 1994, as the average volume and yield increased $2.3
million and 31 basis points, respectively.
Interest income on investment securities and other interest-earning assets
increased $671,000 in 1994, as the average volume and yield increased $10.8
million and 19 basis points, respectively. Additionally, interest income on
mortgage-backed securities in 1994 increased $274,000, as the average yield on
mortgage-backed securities increased 34 basis points, which more than offset the
$2.1 million decline in average volume. The increase in mortgage loans reflects
refinancing activity and a decrease in mortgage-banking activities. The decrease
in average yield reflects the end of refinancing activity and a higher consumer
preference for adjustable-rate products as market rates of interest began to
increase during 1994.
Interest Expense
Total interest expense amounted to $15.3 million for 1995, an increase of
$2.8 million or 22.6% when compared to 1994. Interest expense on deposits
increased $2.1 million in 1995, as the average rate on interest-bearing deposits
increased 70 basis points and average volume increased $6.1 million. Interest
expense on advances from the FHLB of Pittsburgh increased by $610,000 in 1995,
as the average rate on advances increased 137 basis points and the average
balance increased $170,000. The increase in average yields on deposits and FHLB
advances reflect the increase in market rates during 1995. Interest expense on
subordinated debt, issued June 30, 1994, amounted to $270,000 for 1995 while
1994 results reflected $135,000 for the last half of the year.
12
<PAGE>
Total interest expense amounted to $12.5 million for 1994, an increase of
$1.0 million or 9.1% when compared to 1993. Interest expense on deposits
increased $791,000 in 1994, as the average rate on interest-bearing deposits
increased 3 basis points and average volume increased $18.6 million. Interest
expense on advances from the FHLB of Pittsburgh increased slightly by $114,000
in 1994, as the average rate on advances increased 71 basis points, but was
partially offset by a $4.7 million decline in the average balance. The increase
in average yields on deposits and FHLB advances reflect the increase in market
rates during 1994. Interest expense on subordinated debt, issued June 30, 1994,
amounted to $135,000 for the last half of 1994.
Provision for Possible Loan Losses
The provision for possible loan losses represents the charge against
earnings that is required to fund the allowance for possible loan losses. The
level of the allowance for possible loan losses is determined by inherent risks
within the Bank's loan portfolio. Management's periodic evaluation is based upon
an examination of the portfolio, past loss experience, current economic
conditions, the results of the most recent regulatory examinations and other
relevant factors.
For the years ended December 31, 1995, 1994, and 1993, the provision for
possible loan losses amounted to $625,000, $521,000, and $368,000, respectively.
The provision for possible loan losses during 1995, 1994, and 1993 was an amount
considered necessary by management to maintain the allowance for possible loan
losses at an adequate level after it was reduced by net charge-offs of $408,000,
$1.1 million, and $1.1 million, during such respective years. The ratio of the
allowance for possible loan losses to total non-performing loans was 44.3% at
December 31, 1995, 33.0% at December 31, 1994, and 34.9% at December 31, 1993.
Although management utilizes its best judgement in providing for possible
losses, there can be no assurance that the Bank will not have to increase its
provision for possible loan losses in the future as a result of adverse market
conditions for real estate in the Bank's primary market area, future 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 allowance for
possible losses on REO based on their judgements 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.
Other Income
- --------------------------------------------------------------------------------
For the years ended December 31, 1995 1994 1993
- --------------------------------------------------------------------------------
Other income:
Mortgage origination and servicing $ 741 $ 713 $ 488
Service charges on deposits 991 831 750
Gain (loss) from sales of
securities available for sale (143) (322) 215
Gain (loss) from mortgage
banking activities 60 (176) 606
Income (loss) on properties sold (250) (62) 102
Loan brokerage and advisory fees 740 493 --
Other 126 68 65
- --------------------------------------------------------------------------------
Total other income $ 2,265 $ 1,545 $ 2,226
================================================================================
Total other income amounted to $2.3 million in 1995, a $720,000 increase
from the $1.5 million earned in 1994. Mortgage origination and servicing income
increased $28,000 from $713,000 in 1994 to $741,000 in 1995, as total loans
serviced for others amounted to $297.1 million at December 31, 1995, an increase
of $56.3 million over the $240.8 million serviced for others at December 31,
1994. The increase in loans serviced reflects the Company's strategy since the
last half of 1991 to sell substantially all fixed-rate residential mortgage
loans originated by the Company which conform to Federal agency standards for
secondary market resale. In 1995, the Company sold $16.2 million of mortgage
loans and purchased the servicing rights on $67.2 million in mortgage loans for
$1.1 million. Service charges on deposits increased $160,000 in 1995 as compared
to 1994 primarily due to higher volumes of account transactions. Loan brokerage
and advisory fees increased $247,000 from $493,000 in 1994 to $740,000 in 1995,
substantially due to fees earned by the Company's subsidiary, PRA.
Losses from sales of securities amounted to $143,000 in 1995, a $179,000
decrease from the $322,000 of losses in 1994. The decrease was attributable to
improved market conditions in 1995 due to an increase in interest rates. 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 securities available for sale portfolio amounted to $42.3 million, net of
$425,000 in net unrealized losses as of December 31, 1995. Gains from mortgage
banking activities amounted to $60,000 in 1995, a $236,000 increase from the
$176,000 of losses in 1994. The ability to recognize gains from the sales of
investment and mortgage-backed securities and gains from mortgage banking
activities is dependent on market and economic conditions and, accordingly,
there can be no assurance that gains similar to those reported in prior periods
will be experienced in the future or that there will not be significant
inter-period variation in the results of such activities.
13
<PAGE>
Net losses on properties sold amounted to $250,000 in 1995 compared to
$62,000 in 1994. The $188,000 increase was due to net losses realized from the
Company's disposition of certain REO properties, including a $280,000 loss on
the sale of a medical office building in the Bronx, New York. Other income
increased $58,000 to $126,000 in 1995 from $68,000 in 1994 primarily due to a
$53,000 write-down on a property owned through a joint venture in 1994.
Total other income amounted to $1.5 million in 1994, a $681,000 decrease
over the $2.2 million earned in 1993. Mortgage origination and servicing income
increased $225,000 from $488,000 in 1993 to $713,000 in 1994, as total loans
serviced for others amounted to $240.8 million at December 31, 1994, an increase
of $55.2 million over the $185.6 million outstanding at December 31, 1993. In
1994, the Company sold $34.0 million of mortgage loans. Service charges on
deposits increased $81,000 in 1994 as compared to 1993 primarily due to higher
volumes of account transactions.
Losses on properties sold amounted to $62,000 in 1994 compared to income of
$102,000 in 1993. The $164,000 decrease was due to losses realized from the
Company's disposition of certain REO properties. Loan brokerage and advisory
fees increased $493,000 due to fees earned by the Company's subsidiary, PRA,
which commenced operations in September 1993. Other income increased slightly to
$68,000 in 1994 from $65,000 in 1993.
Other Expense
- --------------------------------------------------------------------------------
For the years ended December 31, 1995 1994 1993
- --------------------------------------------------------------------------------
Other expense:
Salaries and employee benefits $ 4,961 $ 4,363 $ 3,693
Occupancy 1,383 1,292 1,177
Data processing 849 816 796
Furniture, fixtures,
and equipment 575 498 426
Insurance premiums 1,035 1,054 1,005
Provision for real estate
owned, net 480 1,576 1,733
Loan and real estate
owned expenses, net 94 296 594
Professional services 918 809 888
Marketing 452 352 319
Other 1,324 1,009 937
- --------------------------------------------------------------------------------
Total other expense $12,071 $12,065 $11,568
================================================================================
Total other expense amounted to $12.1 million during 1995, an increase of
$6,000 from the $12.1 million recognized during 1994. Salaries and employee
benefits increased $598,000 primarily due to staffing additions to support the
Bank's lending initiatives. Occupancy expenses increased $91,000 to $1.4 million
in 1995 from $1.3 million in 1994 primarily due to the expenses associated with
the Paoli branch office which was opened in September 1995. Furniture, fixtures,
and equipment expense increased $77,000 to $575,000 in 1995 from $498,000 in
1994, primarily due to higher systems maintenance costs. Data processing expense
increased $33,000 during 1995 while insurance premiums decreased $19,000 during
1995.
Current legislation has been proposed which would fully capitalize the
Savings Association Insurance Fund ("SAIF") to the same level as the Bank
Insurance Fund ("BIF"). The current legislation, if enacted, would result in a
one time assessment of approximately $2.4 million. Subsequent to the one time
assessment, future deposit premiums would be reduced. Any assessment will depend
on enactment of final legislation.
The provision for REO amounted to $480,000 during 1995, a decrease of $1.1
million or 69.5% from the $1.6 million recognized during 1994. The provision for
REO in 1994 included a $1.1 million fair value write-down on a medical office
building in the Bronx, New York which was subsequently sold in November 1995.
Loan and REO expenses decreased $202,000 primarily due to the lower level of
non-performing assets and positive cash flow from the operation of certain REO
properties. Professional services expense, which consists primarily of legal,
accounting, tax and supervisory/examination fees, increased $109,000 primarily
due to legal expenses associated with an agreement to merge with another,
locally based, depository institution. This agreement was subsequently cancelled
in November 1995. Marketing expense increased $100,000 during 1995 primarily due
to increased deposit and loan promotions during 1995. Other expenses increased
$315,000 to $1.3 million from $1.0 million in 1994, primarily due to increased
postage and other general and administrative expenses.
Total other expense amounted to $12.1 million during 1994, an increase of
$497,000 or 4.3% from the $11.6 million recognized during 1993. Salaries and
employee benefits increased $670,000 primarily due to staffing additions to
support the Bank's lending initiatives. Occupancy expenses increased $115,000 to
$1.3 million in 1994 from $1.2 million in 1993 primarily due to the expenses
associated with the Rosemont branch office which was acquired in July 1993.
Furniture, fixtures, and equipment expense increased $72,000 of which $46,000
was an increase in maintenance and processing charges for the new loan
origination and servicing systems. Insurance premiums increased $49,000 during
1994 primarily due to increased SAIF deposit premium costs based on higher
deposit levels.
The provision for REO amounted to $1.6 million during 1994, a decrease of
$158,000 or 9.1% from the $1.7 million recognized during 1993. The provision for
REO in 1994 included a $1.1 million fair value write-down on the Company's
largest REO property, a medical office building in the Bronx, New York. Loan and
REO expenses decreased $298,000 primarily due to sales of $6.2 million of REO in
1994. Professional services expense decreased $79,000. The decrease was
primarily attributed to a reduction in legal expenses associated with workout
efforts as the level of non-performing assets declined. Marketing expense
increased $33,000 during 1994 primarily due to increased deposit and loan
promotions during 1994.
14
<PAGE>
Other expenses increased $73,000 primarily due to increased employee training
and education expenses and other general and administrative costs.
Income Tax Expense (Benefit)
The Company recorded an income tax benefit of $1.9 million in 1995 compared
to no income tax expense or benefit in 1994 and a benefit of $1.0 million in
1993. The deferred tax asset valuation allowance was eliminated in 1995 as a
result of management's determination of the outlook for future taxable income
and the reduction in non-performing assets while considering the potential for a
substantial one-time SAIF insurance assessment. Net operating loss carry
forwards available for use in future years approximate $7.9 million and expire
in the years 2006 to 2009.
Financial Condition
Asset Liability Management
The major objectives of the Bank's asset and liability management are to
manage exposure to changes in the interest rate environment, ensure adequate
liquidity and funding, preserve and build capital and to maximize net interest
income opportunities. The Bank manages these objectives through its Asset
Liability Committee, which meets bi-weekly to develop strategies that affect the
future level of net interest income, liquidity and capital. The Bank's Asset
Liability Committee utilizes cash flow forecasts, considers current economic
conditions and anticipates the direction of interest rates, while managing the
Bank's risk to such changes.
The matching of assets and liabilities may be analyzed by examining the
extent to which such assets and liabilities are "interest rate sensitive" and by
monitoring an institution's interest rate sensitivity "gap." An institution is
considered to be liability sensitive, or as having a negative gap, when the
amount of its interest-bearing liabilities maturing or repricing within a given
time period exceeds the amount of its interest-earning assets also maturing or
repricing within that time period. Conversely, an institution is considered to
be asset sensitive, or as having a positive gap, when the amount of its
interest-bearing liabilities maturing or repricing is less than the amount of
its interest-earning assets also maturing or repricing during the same period.
Generally, in a falling interest rate environment, a negative gap should result
in an increase in net interest income, and in a rising interest rate
environment, a negative gap should adversely affect net interest income. The
converse would be true for a positive gap.
However, shortcomings are inherent in a simplified gap analysis that may
result in an institution with a nominally negative gap having interest rate
behavior associated with an asset sensitive balance sheet. For example, although
certain assets and liabilities may have similar maturities or periods to
repricing, they may react in different degrees to changes in market interest
rates. Furthermore, repricing characteristics of certain assets and liabilities
may vary substantially within a given time period. In the event of a change in
interest rates, prepayment and early withdrawal levels could also deviate
significantly from those assumed in calculating gap.
Management believes that the simulation of net interest income in different
interest rate environments provides a more meaningful measure of interest rate
risk. Simulation analysis incorporates the potential of all assets and
liabilities to mature or reprice as well as the probability that they will do
so. Simulation in net interest income over a two year period also incorporates
the relative interest rate sensitivities of these items, and projects their
behavior over an extended period of time. Finally, simulation analysis permits
management to assess the probable effects on the balance sheet and statement of
operations not only of changes in interest rates, but also of proposed
strategies for responding to them.
The Bank's simulation model analyzes interest rate sensitivity by
projecting net interest income over the next twelve months in a flat rate
scenario. The flat rate model projects growth in the Bank's loan portfolio. The
flat rate model also projects the mix of accounts within the loan portfolio. In
addition to projecting the mix of accounts within the loan portfolio, the
Company must also make certain assumptions regarding the movement of the rates
on its assets and liabilities, especially its deposit rates.
The Bank projects net interest income in a rising rate scenario of 200
basis points over a twelve month period as well as a 200 basis point decrease in
a declining rate scenario during this same period. The Bank then determines its
interest rate sensitivity by calculating the difference in net interest income
in the rising and declining rate scenarios versus the flat rate scenario. Based
on this analysis at December 31, 1995 the Bank would experience an approximate
6.5% decrease in net interest income over a one year period if rates rise 200
basis points in comparison to a flat rate scenario and an approximate 7.3%
increase in net interest income if rates decline 200 basis points.
15
<PAGE>
Interest Rate Sensitivity
The following table presents the anticipated maturities or repricing of the
Company's interest-earning assets and interest-bearing liabilities for various
time periods based on the information and the assumptions set forth in the notes
below.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Less than Three months to One to Five to Over
December 31, 1995 three months one year five years ten years ten years
- ------------------------------------------------------------------------------------------------------------------------------------
Yield/ Yield/ Yield/ Yield/ Yield/
Amount Rate Amount Rate Amount Rate Amount Rate Amount Rate
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets (1)(2)(3):
Interest-earning deposits $ 4,780 .70% $ -- --% $ -- --% $ -- --% $ -- --%
Investment securities 7,653 6.66 -- -- -- -- -- -- -- --
Mortgage-backed securities 39,618 7.10 8,325 8.05 41,732 8.05 -- -- -- --
Mortgage loans 42,166 9.96 33,419 8.15 67,138 8.47 11,743 7.26 28,943 7.68
Consumer loans 7,293 9.93 111 8.86 5,239 7.90 5,475 8.27 3,905 8.43
Commercial business 13,101 9.98 168 8.59 3,930 9.11 14 8.75 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets $114,611 8.37% $ 42,023 8.13% $118,039 8.32% $17,232 7.58% $32,848 7.77%
- ------------------------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities (4):
Money market deposits $ 34,267 3.06% $-- --% $-- --% $ -- --% $ -- --%
NOW and Super NOW 27,226 2.16 -- -- -- -- -- -- -- --
Passbook and
statement savings 27,527 2.68 -- -- -- -- -- -- -- --
Time deposits 38,998 5.19 77,150 5.34 67,012 5.84 450 6.33 --
Advances from the FHLB 4,400 7.02 8,000 4.45 13,000 7.63 -- -- -- --
Subordinated debt (5) -- -- 3,000 8.25 -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities $132,418 3.55 $ 88,150 5.36% $ 80,012 6.13% $450 6.33% $ -- --%
====================================================================================================================================
Excess (deficiency) of interest-
earning assets over interest-
bearing liabilities $(17,807) $(46,127) $ 38,027 $16,782 $32,848
====================================================================================================================================
Cumulative excess (deficiency)
of interest-earning assets
over interest-bearing
liabilities $(17,807) $(63,934) $(25,907) $(9,125) $23,723
====================================================================================================================================
Cumulative excess (deficiency)
of interest-earning assets
over interest-bearing
liabilities as a percent of
total assets (5.16)% (18.51)% (7.50)% (2.64)% 6.87%
====================================================================================================================================
</TABLE>
(1) Adjustable and floating-rate assets are included in the period in which
interest rates are next scheduled to adjust rather than in the period in
which they are due, and fixed-rate loans are included in the periods in
which they are scheduled to be repaid.
(2) Balances have been reduced for non-accrual loans, which amounted to $3.9
million at December 31, 1995.
(3) Mortgage-backed securities and investment securities classified as
available for sale are classified as maturing or repricing within three
months.
(4) Money market deposits, savings accounts and NOW accounts are subject to
immediate withdrawal and, consequently, are presented as repricing within
the earliest period.
(5) Subordinated debt is callable at the option of the Company at any time
after July 1, 1996, and therefore, is presented as maturing in the three
month to one year period. If not called, the subordinated debt matures June
30, 2004.
16
<PAGE>
Liquidity and Funding
The Bank must maintain sufficient liquidity to meet its funding
requirements for loan commitments, scheduled debt repayments, operating
expenses, and deposit withdrawals. The Bank is the primary source of working
capital for the Company. At December 31, 1995, the Bank met all regulatory
capital requirements.
The Bank's need for liquidity is affected by loan demand and net changes in
retail deposit levels. The Bank can minimize the cash required during 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 Bank has limited control. The Bank
derives its liquidity from both its assets and liabilities. Liquidity is derived
from assets by receipt of interest and principal payments and prepayments, by
the ability to sell assets at market prices and by utilizing unpledged assets as
collateral for borrowings. Liquidity is derived from liabilities by maintaining
a variety of funding sources, including retail deposits and advances from the
FHLB of Pittsburgh.
The Bank's primary sources of funds have historically consisted of
deposits, amortization and prepayments of outstanding loans, borrowings from the
FHLB and sales of investment and mortgage-backed securities. During 1995, 1994,
and 1993, the Bank used its capital resources primarily to meet its ongoing
commitments to fund maturing savings certificates and deposit withdrawals, fund
existing and continuing loan commitments, and maintain its liquidity. For the
year ended December 31, 1995, cash was provided by operating activities as sales
of loans exceeded loan originations and purchases of loans held for sale. Cash
was used in the Bank's investment activities during 1995 as purchases of
mortgage-backed and investment securities, capital expenditures, and net
originations of loans classified as held for investment exceeded repayments on
mortgage-backed securities, maturities of investment securities, proceeds from
sales of mortgage-backed and investment securities and net proceeds from sales
of real estate owned. The Bank used cash in its financing activities in 1995 as
the repayment of FHLB advances exceeded the increase in deposits.
At December 31, 1995, the total of approved loan commitments amounted to
$30.1 million, and the Bank had $29.7 million of undisbursed loan funds. At
December 31, 1995, total FHLB borrowings which are scheduled to mature during
the 12 months ending December 31, 1996 total $12.4 million. At December 31,
1995, the total amount of time deposits which are scheduled to mature during the
12 months ending December 31, 1996 total $116.1 million, a substantial portion
of which management believes, on the basis of prior experience, will remain in
the Bank.
For the year ended December 31, 1994, cash was provided by operating
activities as sales of loans and securitizations exceeded loan originations and
purchases of loans held for sale. Cash was used in the Bank's investment
activities during 1994 as purchases of mortgage-backed securities, purchases of
investment securities, and net originations of loans classified as held for
investment exceeded repayments on mortgage-backed securities, maturities of
investment securities, proceeds from loan repayments and net proceeds from sales
of real estate owned. The Bank's financing activities in 1994 partially offset
the cash outflows from investment activities as cash was provided from the
issuance of subordinated debt, increased borrowings from the FHLB and increased
levels of deposits.
Under OTS regulations, the Bank is required to maintain a minimum
regulatory liquidity ratio. This ratio, defined as the average daily balance of
liquid assets to the average balance of net withdrawable accounts plus short
term borrowings, is currently set at 5%, but may be changed from time to time.
The Bank's policy has been to maintain a liquidity ratio no less than the
regulatory minimum. At December 31, 1995, the Bank's liquidity ratio of 6.4% was
in excess of the current minimum requirement.
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 due to the recently rising market interest rate environment. The
Bank's deposits are obtained primarily from residents near the Bank's six full
service offices in Montgomery County, one office in Rosemont, Delaware County,
one office in Paoli, Chester County, and one office in the Andorra section of
Philadelphia. The Bank does not use brokers to solicit deposits on its behalf.
The Bank has a drive-up banking facility at two of its offices and has installed
automated teller machines ("ATM's") at all of its offices.
The Bank offers a wide variety of options to its customer base, including
consumer and commercial demand deposit accounts, negotiable order of withdrawal
("NOW") accounts, money market accounts, passbook accounts, certificates of
deposit and retirement accounts.
As a member of the FHLB of Pittsburgh, the Bank is required to own capital
stock in the FHLB of Pittsburgh 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 of Pittsburgh's assessment
of the savings bank's creditworthiness. The FHLB credit policies may change from
time to time at its discretion. The Bank's maximum borrowing authority from the
FHLB on December 31, 1995 was approximately $86.5 million, or 25% of assets.
Capital Resources
The Bank is required pursuant to FIRREA and OTS regulations promulgated
thereunder to have (i) tangible capital equal to 1.5% of adjusted total assets,
(ii) core capital equal to 3.0% of adjusted total assets, and (iii) total
risk-based capital equal to 8.0% of risk-weighted assets.
17
<PAGE>
At December 31, 1995, the Bank met all regulatory capital requirements. The
following is a reconciliation of the Bank's capital determined in accordance
with generally accepted accounting principles ("GAAP") to regulatory tangible,
core, and risk-based capital at December 31, 1995:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Tangible Core Risk-Based
Capital % Capital % Capital %
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
GAAP Capital (Bank only) $ 18,904 $ 18,904 $ 18,904
General valuation allowance -- -- 1,720
Unrealized loss on securities available
for sale, net of deferred income taxes 341 341 341
Goodwill (137) (137) (137)
Non-qualifying deferred tax assets (2,232) (2,232) (2,232)
- ------------------------------------------------------------------------------------------------------------------------------------
Total 16,876 4.91% 16,876 4.91% 18,596 8.68%
====================================================================================================================================
Minimum capital requirement 5,153 1.50 10,305 3.00 17,142 8.00
- ------------------------------------------------------------------------------------------------------------------------------------
Regulatory capital - excess $ 11,723 3.41% $ 6,571 1.91% $ 1,454 0.68%
====================================================================================================================================
</TABLE>
The prompt corrective action regulations under 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 December 31, 1995, the Bank's leverage ratio was 4.91%, Tier 1
risk-based capital ratio was 7.88%, total risk-based ratio was 8.68%, and
tangible equity ratio was 4.91%, based on leverage capital of $16.9 million,
Tier 1 capital of $16.9 million, total risk-based capital of $18.6 million, and
tangible equity capital of $16.9 million, respectively. At December 31, 1995,
the Bank was classified as "adequately capitalized" under the OTS regulations.
On January 31, 1996, the Company successfully completed the offering of
500,000 shares of common stock at a price of $5.25 per share.
18
<PAGE>
Progress Financial Corporation
- --------------------------------------------------
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
- --------------------------------------------------
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
December 31, 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and due from banks:
Interest bearing $ 4,780 $ 311
Non-interest bearing 2,309 7,765
Investments:
Available for sale at fair value (amortized cost: $5,527 in 1995 and $5,029 in 1994) 5,504 4,627
Held to maturity at amortized cost (fair value: $2,149 in 1995 and $11,928 in 1994) 2,149 12,867
Mortgage-backed securities:
Available for sale at fair value (amortized cost: $37,244 in 1995 and $9,752 in 1994) 36,842 9,103
Held to maturity at amortized cost (fair value: $52,090 in 1995 and $87,105 in 1994) 52,833 93,673
Loans, net of unearned discounts and deferred fees 223,370 207,274
Less: allowance for possible loan losses (1,720) (1,503)
- ------------------------------------------------------------------------------------------------------------------------------------
Net loans 221,650 205,771
Loans held for sale (fair value: $3,160 in 1995 and $361 in 1994) 3,153 351
Real estate owned, net 728 4,534
Premises and equipment 2,182 1,909
Accrued interest receivable 2,280 2,210
Deferred income taxes 3,417 1,370
Other assets 7,567 3,698
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $ 345,394 $ 348,189
====================================================================================================================================
Liabilities and Stockholders' Equity
Liabilities:
Deposits $ 297,260 $ 283,958
Advances from the Federal Home Loan Bank 25,400 44,052
Subordinated debt 3,000 3,000
Advance payments by borrowers for taxes and insurance 2,312 2,352
Accrued interest payable 722 588
Other liabilities 293 1,219
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 328,987 335,169
- ------------------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (Note 13)
Stockholders' equity:
Serial preferred stock - 1,000,000 shares authorized but unissued -- --
Junior participating preferred stock - $.01 par value - 1,010 shares authorized but unissued -- --
Common stock - $1 par value; 6,000,000 shares
authorized; 3,280,000 and 3,275,000 shares
issued and outstanding at December 31, 1995 and December 31, 1994, respectively 3,280 3,275
Capital surplus 15,706 15,706
Retained earnings deficit (2,238) (4,909)
Unrealized loss on securities available for sale, net of deferred income taxes (341) (1,052)
- ------------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 16,407 13,020
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 345,394 $ 348,189
====================================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
19
<PAGE>
Progress Financial Corporation
- -----------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
- -----------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
For the years ended December 31, 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income:
Loans, including fees $18,737 $15,184 $14,123
Mortgage-backed securities 6,598 6,617 6,343
Investment securities 1,055 960 281
Other 179 69 77
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest income 26,569 22,830 20,824
- ------------------------------------------------------------------------------------------------------------------------------------
Interest expense:
Deposits 12,253 10,168 9,377
Advances from the Federal Home Loan Bank 2,812 2,202 2,088
Subordinated debt 270 135 --
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest expense 15,335 12,505 11,465
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income 11,234 10,325 9,359
Provision for possible loan losses 625 521 368
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for possible loan losses 10,609 9,804 8,991
- ------------------------------------------------------------------------------------------------------------------------------------
Other income:
Mortgage origination and servicing 741 713 488
Service charges on deposits 991 831 750
Gain (loss) from sales of securities (143) (322) 215
Gain (loss) from mortgage banking activities 60 (176) 606
Income (loss) on properties sold (250) (62) 102
Loan brokerage and advisory fees 740 493 --
Other 126 68 65
- ------------------------------------------------------------------------------------------------------------------------------------
Total other income 2,265 1,545 2,226
- ------------------------------------------------------------------------------------------------------------------------------------
Other expense:
Salaries and employee benefits 4,961 4,363 3,693
Occupancy 1,383 1,292 1,177
Data processing 849 816 796
Furniture, fixtures, and equipment 575 498 426
Insurance premiums 1,035 1,054 1,005
Provision for real estate owned, net 480 1,576 1,733
Loan and real estate owned expenses, net 94 296 594
Professional services 918 809 888
Marketing 452 352 319
Other 1,324 1,009 937
- ------------------------------------------------------------------------------------------------------------------------------------
Total other expense 12,071 12,065 11,568
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 803 (716) (351)
Income tax benefit (1,868) -- (1,034)
====================================================================================================================================
Net income (loss) $ 2,671 $ (716) $ 683
====================================================================================================================================
Net income (loss) per share $ .79 $ (.22) $ .29
====================================================================================================================================
Average shares outstanding 3,385,727 3,275,000 2,319,360
====================================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
20
<PAGE>
Progress Financial Corporation
- ---------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- ---------------------------------------------------
For the Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Retained Total
Common Capital earnings Unrealized stockholders'
stock surplus (deficit) loss equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1992 $1,010 $10,744 $(4,876) $ -- $ 6,878
Issuance of common stock 2,265 4,962 -- -- 7,227
Net income -- -- 683 -- 683
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1993 3,275 15,706 (4,193) -- 14,788
Cumulative effect of a change
in an accounting principle -- -- -- (61) (61)
Net loss -- -- (716) -- (716)
Change in unrealized loss on
securities available for sale -- -- -- (991) (991)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 3,275 15,706 (4,909) (1,052) 13,020
Issuance of common stock 5 -- -- -- 5
Net income -- -- 2,671 -- 2,671
Change in unrealized loss on
securities available for sale,
net of deferred income taxes -- -- -- 711 711
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 $3,280 $15,706 $(2,238) $ (341) $16,407
====================================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
21
<PAGE>
Progress Financial Corporation
- -----------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -----------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
For the years ended December 31, 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $ 2,671 $ (716) $ 683
Add (deduct) items not affecting cash flows from operating activities:
Depreciation and amortization 584 537 542
Provision for real estate owned 480 1,576 1,733
Provision for possible loan losses 625 521 368
Capitalized interest on real estate owned -- (11) (206)
Deferred income tax benefit (1,868) -- (1,034)
Write-off of investment in joint venture 8 -- --
(Gain) loss from mortgage banking activities (60) 176 (606)
Loss (gain) from sales of securities available for sale 143 322 (215)
Loss (income) on properties sold 250 62 (102)
Amortization of deferred loan fees (650) (553) (264)
Amortization of premiums/accretion of discounts on securities 594 2,027 2,806
Originations and purchases of loans held for sale (11,509) (17,603) (81,057)
Sales of loans held for sale 16,261 33,849 65,136
(Increase) decrease in accrued interest receivable (70) 305 (252)
(Increase) decrease in other assets (711) 2,105 (3,902)
Increase in other liabilities (927) (126) (129)
Increase (decrease) in accrued interest payable 134 153 (121)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash flows provided by (used in) operating activities 5,955 22,624 (16,620)
- -----------------------------------------------------------------------------------------------------------------------------------
Cash flows from investment activities:
Capital expenditures $ (4,023) $ (579) $ (782)
Purchases of mortgage-backed securities held to maturity -- (13,368) (101,436)
Purchases of mortgage-backed securities available for sale (11,577) (13,187) (23,896)
Purchase of investment securities held to maturity (831) (11,132) (3,080)
Purchase of investment securities available for sale (2,998) (9,023) --
Repayments on mortgage-backed securities held to maturity 11,216 23,347 30,971
Repayments on mortgage-backed securities available for sale 1,880 3,896 15,881
Sales of mortgage-backed securities available for sale 11,145 19,622 28,543
Sales of mortgage-backed securities held to maturity -- -- 7,409
Proceeds from sale of investments available for sale 6,918 4,889 --
Maturities of investments held to maturity 985 1,866 3,709
Maturities of investments available for sale 6,000 -- --
Proceeds from sales of real estate owned 1,654 7,256 24,884
Advances for construction of real estate owned (634) (1,097) (6,769)
Net (increase) decrease in total loans (21,292) (48,214) (5,374)
Net decrease in investments/advances to affiliates and joint ventures -- 251 33
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash flows used in investment activities (1,557) (35,473) (29,907)
- -----------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase in demand, NOW, and savings deposits 2,215 5,657 11,448
Net increase in time deposits 11,087 4,718 17,120
Net (decrease) increase of advances from the FHLB (18,652) 3,516 4,465
Net (decrease) increase in advance payments by borrowers for taxes and insurance (40) (170) 973
Proceeds from issuance of subordinated debt -- 3,000 --
Net proceeds from issuance of common stock 5 -- 7,227
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash flows (used in) provided by financing activities (5,385) 16,721 41,233
- -----------------------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (987) 3,872 (5,294)
Cash and cash equivalents:
Beginning of year 8,076 4,204 9,498
===================================================================================================================================
End of year $ 7,089 $ 8,076 $ 4,204
===================================================================================================================================
Supplemental disclosures:
Loan charge-offs $ 427 $ 1,318 $ 1,334
===================================================================================================================================
Loans to facilitate the sale of real estate owned $ 2,720 $-- $ --
===================================================================================================================================
Net conversion of loans receivable to real estate owned $ 664 $ 743 $ 3,317
===================================================================================================================================
Securitization of mortgage loans into mortgage-backed securities $ 241 $ 24,979 $ 64,530
===================================================================================================================================
Transfer of loans held in portfolio to held for sale $ 8,425 $ -- $ --
===================================================================================================================================
Transfer of mortgage-backed securities held to maturity to available for sale $ 32,740 $ 6,955 $ 5,044
===================================================================================================================================
Transfer of mortgage-backed securities available for sale to held to maturity $ 3,646 $ -- $ --
===================================================================================================================================
Transfer of note receivable on property from fixed assets to other assets $ 3,166 $ -- $ --
===================================================================================================================================
Cash payments during the year for:
Income taxes $ -- $ -- $ --
===================================================================================================================================
Interest $ 15,201 $ 12,363 $ 11,586
===================================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
22
<PAGE>
- ----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ----------------------------------------------
(1) Summary of Significant Accounting Policies
Progress Financial Corporation and its subsidiaries (the "Company") follow
accounting principles and reporting practices which are in accordance with
generally accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date of the balance sheet,
and affect revenues and expenses for the period. Actual results could differ
from such estimates.
The material estimates relate to the determination of the allowance for
possible loan losses, the deferred tax asset valuation allowance, and the
valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans. In connection with the determination of the allowance for
possible losses on loans and real estate owned, management obtains independent
appraisals for significant properties.
The more significant accounting policies are summarized below. Certain
prior period amounts have been reclassified when necessary to conform with
current year classifications. Tabular information is presented in thousands of
dollars.
Basis of Presentation
The consolidated financial statements include the accounts of Progress
Financial Corporation, its principal wholly-owned subsidiary Progress Bank (the
"Bank"), and its other majority owned subsidiaries, Progress Realty Advisors,
L.P. ("PRA") and Quaker State Financial Corporation ("QSFC"). All significant
intercompany transactions and balances have been eliminated.
Cash and Cash Equivalents
The Company's cash and due from banks, which have an original maturity of
three months or less, are classified as cash and cash equivalents.
Investment and Mortgage-Backed Securities
In May 1993, the FASB issued Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities"
("SFAS 115"). SFAS 115 requires debt and equity securities to be classified in
one of three categories, as applicable, and to be accounted for as follows: debt
securities which the Company has the positive intent and ability to hold to
maturity are classified as "securities held to maturity" and are reported at
amortized cost; debt and equity securities that are bought and held principally
for the purpose of selling them in the near term are classified as "trading
securities" and are reported at fair value with unrealized gains and losses
included in earnings; and debt and equity securities not classified as either
held to maturity or trading securities are classified as "securities available
for sale" and are reported at fair value with unrealized gains and losses
excluded from earnings, but reported as a separate component of stockholders'
equity, net of deferred income taxes. The Company adopted SFAS 115 in the first
quarter of 1994.
Investment and mortgage-backed securities classified as available for sale
include such items that management intends to use as part of its asset-liability
strategy or that may be sold in response to changes in interest rates, changes
in prepayment risks, the need to increase regulatory capital or similar factors.
When an investment or mortgage-backed security is sold, any gain or loss is
recognized utilizing the specific identification method.
Real Estate Owned
Real estate acquired in partial or full satisfaction of loans are
classified as real estate owned ("REO"). Prior to transferring a real estate
loan to REO, it is written down to the lower of cost or estimated fair value
less estimated selling costs through a charge to the allowance for possible loan
losses. Subsequently, REO is carried at the lower of estimated fair value less
estimated costs to sell. Valuations are periodically performed by management,
and any subsequent decline in estimated 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 estimated fair value. The interest costs relating
to the development of real estate is capitalized. If a sale of REO results in a
gain, such part of the gain that is not received in cash is deferred and
amortized to income in proportion to the reduction in the principal balance of
the sales contract. Losses on such sales are charged to operations as incurred.
Premises and Equipment
Premises and equipment are stated at cost, less accumulated depreciation.
Depreciation is computed based on the estimated useful lives of the assets,
ranging from 3 to 50 years, using the straight-line method. Gains and losses are
recognized upon disposal of the assets. Maintenance and repairs are recorded as
expenses.
Federal Income Taxes
The Company files a consolidated Federal income tax return with its
subsidiaries. Certain items of income and expense (primarily net operating
losses, loan origination fees and provision for possible loan and real estate
owned losses) are reported in different periods for tax purposes. Deferred taxes
are provided on such temporary differences existing between financial and income
tax reporting subject to the deferred tax asset realization criteria required
under Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" ("SFAS 109").
Loans Held for Sale
Mortgage loans originated and intended for sale in the secondary market are
carried at the lower of aggregate cost or market value. Net unrealized losses
are charged to income in the period.
Deferred Loan Fees
Loan origination fees and related direct loan origination costs are
deferred and recognized over the life of the loan as an adjustment to yield. The
unamortized balance of such net loan origination fees is reported on the
Company's consolidated statements of financial condition as part of loans.
Allowance for Possible Loan Losses
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. Management's
periodic evaluation of the adequacy of the allowance for possible loan losses is
based upon examination of the portfolio, past loss experience, adverse
situations that may affect the borrower's
23
<PAGE>
(1) Summary of Significant Accounting Policies (continued)
ability to repay, the estimated value of any underlying collateral, current
economic conditions, the results of the most recent regulatory examinations, 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 the
evaluations.
Earnings (Loss) Per Share
The per share results of operations were computed by dividing net income
(loss) by the weighted average number of shares outstanding during the period,
including the assumed exercise of dilutive stock options using the treasury
stock method. Such options would not have had a materially dilutive impact on
earnings per share for 1994 or 1993 had they been exercised. The options were
dilutive in 1995 and have been included in the weighted average number of shares
outstanding. On April 25, 1990, the Board of Directors of Progress Financial
Corporation declared a dividend distribution of one Right for each outstanding
share of Common Stock of the Company to stockholders of record at the close of
business on May 11, 1990. Each Right entitles the registered holder to purchase
from the Company a unit consisting of one one-hundredth of a share (a "Unit") of
Series A Junior Participating Preferred Stock, par value $.01 per share, at a
purchase price of $40.00 per Unit, subject to adjustment. The description and
terms of the Rights are set forth in a Rights Agreement, between the Company and
American Stock Transfer & Trust Company, as Rights Agent.
Loans
Loans are stated at the principal amount outstanding, net of unearned
discounts and unamortized net loan origination fees. Interest income is
recognized on the accrual basis. The accrual of interest on commercial loans is
discontinued when loans become 90 days past due and when, in management's
judgment, it is determined that a reasonable doubt exists as to its
collectibility. The accrual of interest is also discontinued on residential
mortgage and consumer loans when such loans become 90 days past due, except for
those loans less than 180 days past due and in the process of collection which
are secured by real estate with a loan to value ratio less than 80%. When a loan
is placed on non-accrual, 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.
Loan Servicing Rights
The cost of loan servicing rights purchased is amortized in proportion to,
and over the period of, estimated net servicing revenues utilizing prepayment
assumptions. When participating interests in loans sold have an average
contractual interest rate adjusted for normal servicing fees that differs from
the agreed upon yield to the purchaser, a gain or loss is recognized upon the
sale equal to the present value of the differential over the estimated remaining
life of such loans. Excess servicing fees receivable are amortized over the
estimated life of the related loans sold using a method that approximates the
level yield method. The carrying value of loan servicing rights purchased and
excess servicing fees receivable is periodically evaluated in relation to
estimated future net servicing revenues based on management's best estimate of
the remaining lives of the underlying loans being serviced.
New Accounting Pronouncements
In May 1995, the 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 will be required to be measured
at each reporting date to determine any potential impairment. The statement
applies prospectively to transactions entered into in 1996, therefore, there
will be no cumulative effect upon adoption of this statement. This statement is
not expected to have a significant effect on the financial position or results
of operation of the Company.
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 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 would be 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.
(2) Cash and Due From Banks
Progress Bank is required by the Federal Reserve Board to maintain reserves
based principally on deposits outstanding and are included in cash and due from
banks. At December 31, 1995 and 1994, required reserves were $1.5 million and
$1.1 million, respectively.
(3) 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 of Pittsburgh, bankers'
acceptances, loans to financial institutions whose deposits are insured by the
FDIC, Federal funds and United States government and agency obligations.
24
<PAGE>
(3) Investment Securities (continued)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
December 31, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair Carrying
Held to Maturity: Cost Gains Losses Value Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FHLB of Pittsburgh stock, pledged $ 2,149 $-- $ -- $ 2,149 $ 2,149
- ------------------------------------------------------------------------------------------------------------------------------------
$ 2,149 $-- $ -- $ 2,149 $ 2,149
====================================================================================================================================
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair Carrying
Available for Sale: Cost Gains Losses Value Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. agency obligations $ 5,497 $ 2 $ 25 $ 5,474 $ 5,474
Equity investments 30 -- -- 30 30
- ------------------------------------------------------------------------------------------------------------------------------------
$ 5,527 $ 2 $ 25 $ 5,504 $ 5,504
====================================================================================================================================
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
December 1994
- ------------------------------------------------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair Carrying
Held to Maturity: Cost Gains Losses Value Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FHLB of Pittsburgh stock, pledged $ 2,303 $-- $ -- $ 2,303 $ 2,303
U.S. agency obligations 10,564 -- 939 9,625 10,564
- ------------------------------------------------------------------------------------------------------------------------------------
$12,867 $-- $939 $11,928 $12,867
====================================================================================================================================
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair Carrying
Available for Sale: Cost Gains Losses Value Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. agency obligations $ 4,999 $-- $402 $ 4,597 $ 4,597
Equity investments 30 -- -- 30 30
- ------------------------------------------------------------------------------------------------------------------------------------
$ 5,029 $-- $402 $ 4,627 $ 4,627
====================================================================================================================================
</TABLE>
At December 31, 1995, the Bank was required to maintain $2,149,000 of FHLB
stock under current regulations.
The carrying value and estimated fair value of the Bank's investment
securities at December 31, 1995 by contractual maturity are shown below.
Expected maturities will differ from contractual maturities due to the right to
call or prepay such obligations with or without prepayment penalties.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Amortized Estimated Fair Weighted
Held to Maturity: Cost Value Average Yield
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
No stated maturity $2,149 $2,149 6.75%
====================================================================================================================================
<CAPTION>
Amortized Estimated Fair Weighted
Available for Sale: Cost Value Average Yield
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Due before one year $ -- $ -- --%
Due after one year through five years 2,000 1,994 5.91
Due five years through ten years 3,497 3,480 7.09
Due after ten years -- -- --
No stated maturity 30 30 --
- ------------------------------------------------------------------------------------------------------------------------------------
$5,527 $5,504 6.62%
====================================================================================================================================
</TABLE>
Total realized losses in 1995 and 1994 on the sale of $7.0 million and $5.0
million in investment securities classified as available for sale were $106,000
and $111,000, respectively. There were no sales of investment securities
classified as available for sale during 1993. Additionally, $6.0 million in
investment securities classified as available for sale were called during 1995.
Accrued interest receivable on investment securities amounted to $114,000 and
$259,000 at December 31, 1995 and 1994, respectively.
25
<PAGE>
(4) Mortgage-Backed Securities
The following tables detail the amortized cost, carrying value and
estimated fair value of the Company's mortgage-backed securities:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
December 31, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair Carrying
Held to Maturity: Cost Gains Losses Value Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
- ------------------------------------------------------------------------------------------------------------------------------------
$52,833 $10 $ 753 $52,090 $52,833
====================================================================================================================================
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair Carrying
Available for Sale: Cost Gains Losses Value Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
- ------------------------------------------------------------------------------------------------------------------------------------
$37,244 $65 $ 467 $36,842 $36,842
====================================================================================================================================
<CAPTION>
December 31, 1994
- ------------------------------------------------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair Carrying
Held to Maturity: Cost Gains Losses Value Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
GNMA $29,325 $-- $2,245 $27,080 $29,325
FNMA 21,577 -- 1,645 19,932 21,577
FHLMC 42,771 -- 2,678 40,093 42,771
- ------------------------------------------------------------------------------------------------------------------------------------
$93,673 $-- $6,568 $87,105 $93,673
====================================================================================================================================
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair Carrying
Available for Sale: Cost Gains Losses Value Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
GNMA $ 227 $-- $ 8 $ 219 $ 219
FNMA 1,098 -- 84 1,014 1,014
FHLMC 3,429 -- 274 3,155 3,155
Collateralized mortgage obligations 4,998 -- 283 4,715 4,715
- ------------------------------------------------------------------------------------------------------------------------------------
$ 9,752 $-- $ 649 $ 9,103 $ 9,103
====================================================================================================================================
</TABLE>
26
<PAGE>
(4) Mortgage-Backed Securities(continued)
The carrying value and estimated fair value of the Bank's mortgage-backed
securities at December 31, 1995 by contractual maturity are as follows:
- --------------------------------------------------------------------------------
Weighted
Amortized Estimated Average
Held to Maturity: Cost Fair Value Coupon Rate
- --------------------------------------------------------------------------------
Due before one year $ -- $ -- --%
Due one year
through five years 8,503 8,483 6.74
Due five years
through ten years -- -- --
Due after ten years 44,330 43,607 8.31
- --------------------------------------------------------------------------------
$52,833 $52,090 8.05%
================================================================================
Weighted
Amortized Estimated Average
Available for Sale: Cost Fair Value Coupon Rate
- --------------------------------------------------------------------------------
Due before one year $ 16 $ 16 8.75%
Due one year
through five years -- -- --
Due after five years
through ten years 2,333 2,264 8.10
Due after ten years 34,895 34,562 6.95
- --------------------------------------------------------------------------------
$37,244 $36,842 7.02%
================================================================================
Total realized gains in 1995, 1994 and 1993 on the sale of $3.5 million,
$16.2 million and $25.5 million in mortgage-backed securities classified as
available for sale were $91,000, $13,000 and $404,000, respectively. Total
realized losses in 1995, 1994 and 1993 on the sale of $7.7 million, $3.6 million
and $10.2 million in mortgage-backed securities classified as available for sale
were $128,000, $224,000 and $189,000, respectively.
Accrued interest receivable on mortgage-backed securities amounted to
$687,000 and $750,000 at December 31, 1995 and 1994, respectively.
The Bank pledged $45.3 million (market value $44.7 million) in
mortgage-backed securities as collateral for advances from the FHLB at December
31, 1995.
On December 6, 1995 the Company took a one-time opportunity to reevaluate
securities classification under SFAS 115 as permitted by the FASB and reclassed
securities with an amortized cost of $32.7 million from held to maturity to
available for sale. The unrealized loss at the time of transfer was $467,000.
Additionally, securities with an amortized cost of $3.7 million and an
unrealized loss of $94,000 were transferred from available for sale to held to
maturity.
(5) Loans, net
- -------------------------------------------------------------------------------
December 31, 1995 1994
- -------------------------------------------------------------------------------
Single-family residential real estate $ 87,886 $ 99,614
Commercial real estate 82,032 71,542
Real estate construction
(net of loans in process of
$19,923 and $7,162, respectively) 14,495 5,409
Consumer loans 21,491 18,883
Credit card receivables 757 24
Commercial business 17,329 12,115
Unearned discounts
and deferred loan fees (620) (313)
Allowance for possible loan losses (1,720) (1,503)
- -------------------------------------------------------------------------------
$ 221,650 $ 205,771
===============================================================================
The Company adopted Statements of Financial Accounting Standards Nos. 114
and 118 "Accounting by Creditors for Impairment of a Loan" ("SFAS 114 and 118")
during the first quarter of 1995. At December 31, 1995 the recorded investment
in loans for which impairment has been recognized in accordance with SFAS 114
and 118 totalled $2.3 million, of which none related to loans with a specific
valuation allowance. For the year ended December 31, 1995, the average recorded
investment in impaired loans was approximately $2.3 million. The Company
recognized no interest on impaired loans during 1995.
At December 31, 1995, 1994, and 1993, the principal amount of outstanding
loans on a non-accrual basis was $3.9 million, $4.4 million, and $5.7 million,
respectively. Additional gross interest income that would have been recorded
during 1995, 1994, and 1993 if the Company's non-performing loans at the end of
such periods had been performing in accordance with their terms during such
periods was $242,000, $430,000, and $287,000, respectively. The amount of
interest income that was actually recorded during 1995, 1994, and 1993 with
respect to such non-performing loans amounted to approximately $174,000,
$23,000, and $20,000, respectively.
Accrued interest receivable on loans, net amounted to $1.4 million and $1.2
million at December 31, 1995 and 1994, respectively.
At December 31, 1995, 1994, and 1993, the Bank was servicing loans,
including participations sold, in the amounts of $297.1 million, $240.8 million,
and $185.6 million, respectively, for the benefit of others.
The following is a summary of the activity in the allowance for possible
loan losses:
- -------------------------------------------------------------------------------
December 31, 1995 1994 1993
- -------------------------------------------------------------------------------
Balance at beginning of year $ 1,503 $ 2,113 $ 2,703
Provisions for possible loan losses 625 521 368
Additions acquired (1) -- -- 101
Losses charged against the allowance (427) (1,318) (1,334)
Recoveries on charged-off loans 19 187 275
- -------------------------------------------------------------------------------
Balance at end of year $ 1,720 $ 1,503 $ 2,113
===============================================================================
(1) In conjunction with the acquisition of the Rosemont branch office on July
1, 1993.
27
<PAGE>
(6) Loans Held for Sale
At December 31, 1995, the Bank held $3.0 million in 30 year fixed rate and
$128,000 in one year adjustable rate residential mortgages that were classified
as held for sale and carried at the lower of aggregate cost or market (fair)
value. All of these loans were under commitments of sale at December 31, 1995.
At December 31, 1994, the Bank held $351,000 in 30 year fixed rate residential
mortgages that were classified as held for sale.
The Bank had $1.8 million and $2.0 million in commitments to originate
agency conforming residential mortgage loans at December 31, 1995 and December
31, 1994, respectively, of which $1.7 million and $150,000 were agency
conforming fixed rate residential loans. Loans sold totalled $16.2 million,
$34.0 million and $64.5 million for the years ended December 31, 1995, 1994 and
1993, respectively.
(7) Real Estate Owned, net
- -------------------------------------------------------------------------------
December 31, 1995 1994
- -------------------------------------------------------------------------------
Balance at beginning of year $ 4,534 $ 11,576
Real estate acquired in settlement of loans 664 742
Capitalized interest -- 11
Dispositions/sales (1) (3,990) (6,220)
Write-downs (480) (1,575)
- -------------------------------------------------------------------------------
Balance at end of year $ 728 $ 4,534
===============================================================================
(1) Net of funds advanced for construction
The following table summarizes the activity in the allowance for possible
losses on real estate owned:
- -------------------------------------------------------------------------------
December 31, 1995 1994 1993
- -------------------------------------------------------------------------------
Balance at beginning of year $ -- $ -- $ 35
Provision charged to income 480 1,575 (35)
Charge-offs, net of recoveries (480) (1,575) --
- -------------------------------------------------------------------------------
Balance at end of year $ -- $ -- $ --
===============================================================================
(8) Premises and Equipment
Land, office buildings and equipment, at cost, are summarized by major
classification:
- -------------------------------------------------------------------------------
December 31, 1995 1994
- -------------------------------------------------------------------------------
Land $ 230 $ 231
Buildings and leasehold improvements 2,447 3,039
Furniture, fixtures and equipment 4,669 4,101
- -------------------------------------------------------------------------------
7,346 7,371
Accumulated depreciation (5,164) (5,462)
- -------------------------------------------------------------------------------
$ 2,182 $ 1,909
===============================================================================
Depreciation expense for the years ended December 31, 1995, 1994 and 1993
was $584,000, $537,000, and $542,000, respectively.
At December 31, 1995, the Company had leases on a number of its office
facilities and certain equipment. Minimum future non-cancelable rental
commitments under operating leases are as follows:
----------------------------
1996 $ 666
1997 472
1998 457
1999 381
2000 341
----------------------------
$2,317
============================
Rental expense for the years ended December 31, 1995, 1994 and 1993 was
$866,000, $751,000, and $676,000, respectively.
(9) Other Assets
The following items are included in other assets:
- --------------------------------------------------------------------------------
December 31, 1995 1994
- --------------------------------------------------------------------------------
Purchased mortgage servicing rights $2,115 $1,298
Excess servicing fees 547 738
Note receivable on property for
potential Company use 3,150 --
Accounts receivable 765 958
Other assets 990 704
- --------------------------------------------------------------------------------
$7,567 $3,698
================================================================================
28
<PAGE>
(10) Deposits
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
December 31, 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted Weighted
Average Average
Interest Rate Amount % of Total Interest Rate Amount % of Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Money market deposit accounts 3.06% $ 34,267 12% 2.82% $ 37,754 13%
NOW and Super NOW accounts 2.16 27,226 9 2.48 27,033 9
Savings accounts 2.68 27,527 9 2.92 27,900 10
Other time deposits 5.48 161,255 54 5.07 158,788 56
Time deposits of $100,000 or more 5.62 22,355 8 5.07 13,735 5
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest bearing deposits 4.57% 272,630 92 4.26% 265,210 93
====================================================================================================================================
Non-interest bearing deposits 24,630 8 18,748 7
- ------------------------------------------------------------------------------------------------------------------------------------
Total deposits $297,260 100% $283,958 100%
====================================================================================================================================
</TABLE>
Other time deposits of less than $100,000 by date of maturity are as
follows:
----------------------------------
1996 $ 97,273
1997 44,011
1998 7,517
1999 6,008
2000 5,995
2001 and thereafter 451
----------------------------------
$161,255
==================================
Other time deposits of $100,000 or more by date of maturity are as follows:
----------------------------------
1996 $18,859
1997 2,676
1998 309
1999 and thereafter 511
----------------------------------
$22,355
==================================
Total deposits of $100,000 or more amounted to $40.4 million and $37.5
million at December 31, 1995 and 1994, respectively. Accrued interest payable on
deposits amounted to $581,000 and $377,000 at December 31, 1995 and 1994,
respectively.
Interest expense on deposits:
- --------------------------------------------------------------------------------
December 31, 1995 1994 1993
- --------------------------------------------------------------------------------
NOW accounts $ 716 $ 532 $ 418
Savings accounts and money
market deposit accounts 1,825 1,958 1,810
Time deposits 9,712 7,678 7,149
- --------------------------------------------------------------------------------
$12,253 $10,168 $ 9,377
================================================================================
29
<PAGE>
(11) Borrowings
The following tables present certain information regarding FHLB advances:
- --------------------------------------------------------------------------------
December 31, 1995 1994
- --------------------------------------------------------------------------------
Weighted Weighted
Average Average
Maturity Period Rate Amount Rate Amount
- --------------------------------------------------------------------------------
Line of credit (A) $ 1,900 (A) $ 2,200
Community investment
program line of credit -- -- (B) 309
FHLB advances:
1 to 12 months 5.24% 10,500 6.00% 3,000
13 to 24 months 7.65 5,000 5.24 10,500
25 to 36 months -- -- 7.65 5,000
Greater than 36 months 7.63 8,000 8.30 5,000
FHLB reverse repurchase
advances:
1 to 30 days -- -- 5.98 8,454
31 to 60 days -- -- 6.25 9,589
- --------------------------------------------------------------------------------
Total 6.53% $25,400 6.35% $44,052
================================================================================
(A) Reprices on a daily basis. The rate was 6.05% and 6.61% at December 31,
1995 and 1994, respectively.
(B) Reprices on a daily basis. The rate was 6.34% at December 31, 1994.
Accrued interest payable on FHLB advances amounted to $133,000 and $210,000
at December 31, 1995 and 1994, respectively.
- -------------------------------------------------------------------------------
December 31, 1995 1994
- -------------------------------------------------------------------------------
Average balance outstanding $44,177 $44,007
Maximum amount outstanding at
any month-end during the period 50,845 57,244
Weighted average interest rate
during the period (1) 6.37% 5.00%
(1) Weighted average interest rate is calculated by dividing the actual
interest expense for the period by the average outstanding balances for the
period.
Under terms of its collateral agreement with the FHLB, the Bank maintains
otherwise unencumbered qualifying assets, in an amount of at least as much as
its advances from the FHLB. The advances from the FHLB are secured principally
by mortgage-backed securities and the Bank's investment in securities. As of
December 31, 1995 and 1994, the Bank had a $34.6 million line of credit
available from the FHLB. The unused balance on the line of credit was $32.7
million and $32.4 million at December 31, 1995 and 1994, respectively.
The Company completed the sale of $3.0 million in subordinated debentures
in a private placement on June 30, 1994. Twelve units were sold, with each unit
consisting of $250,000 in principal amount of 8.25% subordinated notes due June
30, 2004. Interest on the subordinated debentures is payable quarterly. The
subordinated debentures are redeemable at the Company's option at a price of
105% of par on or after July 1, 1996, declining annually thereafter to par on
and after July 1, 2003, together in each case with accrued interest.
(12) Income Taxes
The Company adopted SFAS 109 in the first quarter of 1993. The adoption of
SFAS 109 did not materially affect the Company's financial condition or results
of operations due to the establishment of an initial valuation allowance of $3.7
million.
Income tax expense (benefit) consisted of the following:
- -------------------------------------------------------------------------------
December 31, 1995 1994 1993
- -------------------------------------------------------------------------------
Current:
State $ -- $-- $ --
Federal -- -- --
Deferred--Federal (1,868) -- (1,034)
- -------------------------------------------------------------------------------
$(1,868) $-- $(1,034)
===============================================================================
The provision for income taxes differs from the statutory rate due to the
following:
- -------------------------------------------------------------------------------
December 31, 1995 1994 1993
- -------------------------------------------------------------------------------
Tax (benefit) at statutory rate $ 273 $ (243) $ (119)
State tax, net of Federal effect -- -- --
Tax free interest (11) (10) (12)
Change in valuation allowance (1) (2,156) 100 (1,034)
Other 26 153 131
- -------------------------------------------------------------------------------
$(1,868) $ -- $(1,034)
===============================================================================
(1) Excludes the change in the valuation allowance of $176 in 1995 and $0 in
1994 related to the unrealized loss on securities available for sale, which
was charged directly to stockholders' equity.
Deferred income taxes reflect the impact of differences between the
financial statement and tax basis of assets and liabilities and available tax
carry forwards. The tax effects of temporary differences that give rise to
significant portions of deferred tax assets and deferred tax liabilities at
December 31, 1995, 1994, and 1993 are presented below:
- -------------------------------------------------------------------------------
December 31, 1995 1994 1993
- -------------------------------------------------------------------------------
Deferred tax assets:
Net operating loss carryforwards $ 2,694 $ 2,474 $ 2,128
Write-downs on real estate owned 27 1,037 1,056
Unrealized loss on securities
available for sale 176 357 --
Provision for possible loan losses 531 154 535
Loan fees 138 54 156
Other 74 52 20
- -------------------------------------------------------------------------------
Total deferred tax assets 3,640 4,128 3,895
- -------------------------------------------------------------------------------
Deferred tax liabilities:
Excess servicing fees 95 130 312
Depreciation and amortization 128 115 158
- -------------------------------------------------------------------------------
Total deferred tax liabilities 223 245 470
- -------------------------------------------------------------------------------
Deferred tax assets in excess of
deferred tax liabilities
before valuation allowance 3,417 3,883 3,425
Valuation allowance -- (2,513) (2,055)
- -------------------------------------------------------------------------------
Net deferred tax assets $ 3,417 $ 1,370 $ 1,370
===============================================================================
30
<PAGE>
(12) Income Taxes (continued)
The deferred tax asset valuation allowance was eliminated in 1995 as a
result of a determination of the outlook for future taxable income and the
reduction in non-performing assets while considering the potential for a
substantial one-time SAIF insurance assessment.
Net operating loss carryforwards available for use in future years total
approximately $7.9 million. These loss carryforwards expire in 2006 ($1.1
million), 2007 ($4.5 million), 2008 ($654,000) and 2009 ($1.6 million).
(13) Commitments and Contingencies
Financial Instruments with Off Balance-Sheet Risk
The Company is a party to various financial instruments required in the
normal course of business to meet the financing needs of its customers, which
are not included in the Consolidated Statements of Financial Condition at
December 31, 1995. Management does not expect any material losses from these
transactions. The Company's involvement in such financial instruments is
summarized as follows:
- --------------------------------------------------------------------------------
December 31, 1995 1994
- --------------------------------------------------------------------------------
Contract or
Notional Amount
- --------------------------------------------------------------------------------
Amounts representing credit risk:
Commitments to extend credit
(including unused lines of credit) $59,318 $22,258
Standby letters of credit, financial
guarantees and other letters of credit $ 621 $ 657
The Bank uses the same credit policies in extending commitments and letters
of credit as it does for on-balance sheet instruments. The Bank controls its
exposure to loss from these agreements through credit approval processes and
monitoring procedures. Letters of credit and commitments to extend credit are
generally issued for one year or less and may require payment of a fee. The
total commitment amounts do not necessarily represent future cash disbursements,
as many of the commitments expire without being drawn upon. The Bank may require
collateral in extending commitments, which may include cash, accounts
receivable, securities, real or personal property, or other assets. For those
commitments which require collateral, the value of the collateral generally
equals or exceeds the amount of the commitment.
The majority of the Company's commitments to extend credit and letters of
credit carry current market interest rates if converted to loans. Because
commitments to extend credit and letters of credit are generally unassignable by
either the Company or the borrower, they only have value to the Company and the
borrower. The estimated fair value approximates the recorded deferred fee
amounts.
The Company's only derivative consisted of an interest rate cap with a
notional amount of $10.0 million, expiring January 30, 1997. The Company
purchased the cap to hedge against the repricing of certain deposit liabilities.
At December 31, 1995, the Company was party to a number of lawsuits. While
any litigation has an element of uncertainty, after reviewing these actions with
legal counsel, management is of the opinion that the liability, if any,
resulting from these actions will not have a material effect on the financial
condition or results of operations of the Company.
(14) Benefit Plans
Savings Plan
Effective July 1, 1992, the Company implemented a savings plan under
Section 401(K) of the Internal Revenue Code, covering all full-time employees of
the Company as of that date. All full-time employees hired subsequent to July 1,
1992, become eligible to participate in the plan following completion of one
year of continuous employment. The Company's contributions to this plan were
$55,000, $47,000, and $47,000 in 1995, 1994, and 1993, respectively. The
Company's matching becomes fully vested when the employee completes three
additional years of service. Effective January 1, 1993, the Company contributes
50% of the employee contribution up to 6% of compensation.
(15) Related Party Transactions
Prior to 1995, Charles J. Tornetta and John E. Flynn Corson, Directors of
the Company and Bank, were limited partners in a partnership which beneficially
owned a 49% interest in the building from which the Company conducts business in
Plymouth Meeting, Pennsylvania. The Company and the Bank paid approximately
$215,000, and $415,000, in rental fees during 1994 and 1993, respectively, to
the management company which handled the property on behalf of the limited
partnership in which Mr. Tornetta and Mr. Corson were partners. The lease was
negotiated and signed prior to either member being elected to the Board of
Directors. As of December 31, 1995 and 1994, Mr. Tornetta and Mr. Corson no
longer owned an interest in the building.
Charles J. Tornetta also serves as President and owns a 25% interest in
Commonwealth Insurance Agency, Inc. Total insurance premiums paid by the
Company, the Bank and the Bank's subsidiaries to Commonwealth Insurance Agency,
Inc. in 1995, 1994, and 1993 were $5,000, $21,000, and $10,000, respectively.
Joseph R. Klinger, a Director of the Company and the Bank, is a principal
of KMR Management, Inc., a management consulting company, which in the year
ended December 31, 1993 received approximately $64,000 in consulting fees for
professional services rendered to the Bank and its wholly owned subsidiaries. No
fees were paid to KMR Management, Inc. in 1994 or 1995.
Loans receivable from executive officers and directors, including loans to
related persons and entities, consisted of the following activity:
- -------------------------------------------------------------------------------
December 31, 1995 1994 1993
- -------------------------------------------------------------------------------
Balances at beginning of year $ 228 $ 364 $ 216
Additional loans granted 420 -- 312
Repayments (80) (136) (30)
Reclassification to
non-related persons (1) -- -- (134)
- -------------------------------------------------------------------------------
Balances at end of year $ 568 $ 228 $ 364
===============================================================================
(1) Former officers and directors
31
<PAGE>
(16) Stockholders' Equity
The Company completed the sale of $3.0 million in subordinated debentures
in a private placement on June 30, 1994. Twelve units were sold, with each unit
consisting of $250,000 in principal amount of 8.25% subordinated notes due in
2004 and warrants to purchase 25,000 shares of common stock. Each warrant
entitles the holder to purchase one share of the Company's common stock at an
exercise price of $6.00. The warrants are exercisable subsequent thereto, in
whole or in part, at any time prior to June 30, 1999. Interest on the
subordinated debentures is payable quarterly. The subordinated debentures are
due June 30, 2004 and are not redeemable prior to July 1, 1996.
In February 1993, the Board of Directors adopted a Stock Incentive Plan
which provides for the grant of incentive stock options, non-incentive or
compensatory stock options and stock appreciation rights to key employees. The
per share exercise price of an incentive stock option shall at least equal the
fair market value of a share of Common Stock on the date the option is granted,
and the per share exercise price of a compensatory stock option shall at least
equal the greater of par value or 85% of fair market value of a share of Common
Stock on the date the option is granted. Under this plan, 176,488 shares of
common stock were reserved for issuance of which 15,000 and 127,500 shares were
granted in 1995 and 1993. There were no options granted under this plan in 1994.
During 1995, options for 35,000 shares granted in 1993 were forfeited and
returned to the plan.
Under the Directors' Plan, which was also adopted in February 1993, each
non-employee Director of the Company at the time of the completion of the 1993
Common Stock Offering was granted compensatory options to purchase 5,000 shares
of Common Stock at the Subscription Price for a share of Common Stock in the
1993 Offering and thereafter at the end of each year commencing on December 31,
1993 for five years, until and including December 31, 1997, each non-employee
director of the Company will receive compensatory options to purchase 250 shares
(or such less number of shares as remain to be granted pursuant to the
Directors' Plan) with an exercise price equal to the fair market value of a
share of Common Stock on the date the option is granted. A total of 50,000
authorized but unissued shares of Common Stock have been reserved for issuance
pursuant to the Directors' Plan. In 1995, 1994 and 1993, 2,000, 2,000 and 37,000
shares, respectively, were granted under this plan.
Under the Company's Stock Option Plan which was adopted in April 1984 and
amended in April 1987, 95,955 shares of common stock were reserved for issuance
upon exercise of options or shares granted to officers and key employees. The
plan provides that the option price will be fixed by a committee of the Board of
Directors, but will not be less than 100% of the fair value of the stock at the
date of the grant. At December 31, 1993, no shares were available for future
grants. During 1995, 5,000 options were exercised at a price of $1.00 per share.
Options granted under each of the aforementioned plans are exercisable
during the period specified in each option agreement and expire no later than
the tenth anniversary of the date the option was granted.
Changes in total options outstanding during 1995, 1994 and 1993 are as
follows:
- --------------------------------------------------------------------------------
December 31, 1995
- --------------------------------------------------------------------------------
Shares Option
Under Price
Option Per Share
- --------------------------------------------------------------------------------
Outstanding at
beginning of year 253,000 $ 1.00 to $13.61
Granted during year 17,000 $ 4.25 to $ 5.63
Exercised during year (5,000) $ 1.00
Forfeited during year (35,000) $ 3.50
- --------------------------------------------------------------------------------
Outstanding at end of year 230,000 $ 1.00 to $13.61
================================================================================
Options exercisable
at end of year 199,250 $ 1.00 to $13.61
================================================================================
- --------------------------------------------------------------------------------
December 31, 1994
- --------------------------------------------------------------------------------
Shares Option
Under Price
Option Per Share
- --------------------------------------------------------------------------------
Outstanding at
beginning of year 251,000 $ 1.00 to $13.61
Granted during year 2,000 $ 4.25
- --------------------------------------------------------------------------------
Outstanding at end of year 253,000 $ 1.00 to $13.61
================================================================================
Options exercisable
at end of year 194,750 $ 1.00 to $13.61
================================================================================
- --------------------------------------------------------------------------------
December 31, 1993
- --------------------------------------------------------------------------------
Shares Option
Under Price
Option Per Share
- --------------------------------------------------------------------------------
Outstanding at
beginning of year 88,500 $ 1.00 to $13.61
Granted during year 164,500 $ 3.50 to $ 4.63
Forfeited during year (2,000) $10.83 to $13.61
- --------------------------------------------------------------------------------
Outstanding at end of year 251,000 $ 1.00 to $13.61
================================================================================
Options exercisable
at end of year 145,375 $ 1.00 to $13.61
================================================================================
32
<PAGE>
(17) Recent Regulations
Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA)
FDICIA was signed into law on December 19, 1991; regulations implementing
the prompt corrective action provisions of FDICIA became effective on December
19, 1992. In addition to the prompt corrective action requirements, FDICIA
includes significant changes to the legal and regulatory environment for insured
depository institutions, including reductions in insurance coverage for certain
kinds of deposits, increased supervision by the federal regulatory agencies,
increased reporting requirements for insured institutions, and new regulations
concerning internal controls, accounting, and operations.
The prompt corrective action regulations 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."
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%. An institution is
deemed to be "critically undercapitalized" if it has a tangible equity ratio of
2% or less.
At December 31, 1995 the Bank's leverage ratio was 4.91%, Tier 1 risk-based
ratio was 7.88%, total risk-based ratio was 8.68%, and tangible equity ratio was
4.91%, based on leverage capital of $16.9 million, Tier 1 capital of $16.9
million, total risk-based capital of $18.6 million and tangible equity capital
of $16.9 million, respectively. At December 31, 1995, the Bank is classified as
"adequately capitalized."
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 December 31, 1995:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Tangible Core Risk-Based
Capital % Capital % Capital %
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
GAAP Capital (Bank only) $18,904 $18,904 $18,904
General valuation allowance -- -- 1,720
Unrealized loss on securities available for sale,
net of deferred income taxes 341 341 341
Goodwill (137) (137) (137)
Non-qualifying deferred tax assets (2,232) (2,232) (2,232)
- ------------------------------------------------------------------------------------------------------------------------------------
Total 16,876 4.91% 16,876 4.91% 18,596 8.68%
- ------------------------------------------------------------------------------------------------------------------------------------
Minimum capital requirement 5,153 1.50 10,305 3.00 17,142 8.00
- ------------------------------------------------------------------------------------------------------------------------------------
Regulatory capital - excess $11,723 3.41% $ 6,571 1.91% $ 1,454 .68%
====================================================================================================================================
</TABLE>
Dividend Restrictions
The Bank's ability to pay dividends is restricted by certain regulations.
Under the current regulations, the Bank is not permitted to pay cash dividends
or repurchase any of its capital stock if such payment or repurchase would cause
its regulatory capital to be reduced below either the amount of the liquidation
account or the regulatory capital requirements applicable to it. An institution
that exceeds its fully phased in capital requirement could, after prior notice,
but without the approval of the OTS, make capital distributions during a
calendar year of up to 100% of its current net income plus the amount that would
reduce its "surplus capital ratio" (the excess capital over its fully phased-in
capital requirement) to less than one-half of its surplus capital ratio at the
beginning of the calendar year. Any additional capital distributions would
require prior regulatory approval. An institution that meets its regulatory
capital requirement, but not its fully phased-in capital requirement could make
capital distributions without prior OTS approval of between 25% and 75% of
current earnings. A savings institution that does not meet its minimum
regulatory capital requirements cannot make any capital distributions without
prior OTS approval. Because the Bank is the primary source of working capital
for the Company, the Company's ability to pay dividends is therefore limited.
The Company discontinued the payment of regular dividends after the second
quarter of 1990.
33
<PAGE>
(18) Financial Instruments
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments" ("SFAS 107") requires the estimation of so
called fair values of financial instruments as defined in SFAS 107.
Fair values for financial instruments were based on various assumptions and
estimates as of a specific point in time, represent liquidation values and may
vary significantly from amounts that will be realized in actual transactions. In
addition, certain financial instruments and all non-financial instruments were
excluded from the fair value disclosure requirements. Therefore, the fair values
presented below should not be construed as the underlying value of the Company.
The following methods and assumptions were used to estimate the fair value
of selected financial instruments at December 31, 1995 and 1994:
Cash and cash equivalents: Current carrying amounts reported in the statement of
financial condition for cash and short-term instruments approximate estimated
fair value.
Investment and mortgage-backed securities: Fair values for investment and
mortgage-backed securities were based on current quoted market prices.
Loans: For variable rate loans that reprice frequently and have no significant
credit risk, fair values are based on carrying values. The estimated fair values
for certain mortgage loans (i.e., one-to-four family residential) and other
consumer loans are based on quoted market prices of similar loans sold in
conjunction with securitization transactions, adjusted for differences in loan
characteristics. The fair value of non-accruing and restructured loans were
estimated using discounted cash flow analyses, with incremental discount rates
which consider credit risk and other relevant factors. The fair values for all
other loans were estimated using discounted cash flow analyses, using interest
rates currently being offered for loans with similar terms to borrowers of
similar credit quality. The carrying amount of accrued interest approximates its
fair value.
Interest Receivable: Current carrying amounts reported in the statement of
financial condition for interest receivable approximate estimated fair value.
Deposits: Fair values disclosed for deposits with no stated maturity (checking,
NOW, savings, and money market accounts) are, by definition, equal to the amount
payable on demand at December 31, 1995 and 1994 (i.e., current carrying
amounts). Fair values for deposits with stated maturities (time deposits) were
estimated using a discounted cash flow calculation that uses current interest
rates offered in the Company's market area for deposits with comparable terms
and maturities.
Advances from the FHLB:
Short-term: Current carrying amounts of borrowings under repurchase
agreements and other short-term borrowings approximate estimated fair
value.
Long-term: Fair value of long-term borrowings are estimated using a
discounted cash flow calculation that uses current borrowing rates for
advances with comparable terms and maturities.
Subordinated Debt: Fair value of subordinated debt was estimated using a
discounted cash flow calculation using a current interest rate for debt with
comparable term and maturity.
Other Liabilities: Includes interest payable and advance payments by borrowers
for taxes and insurance. Current carrying amounts of interest payable and
advance payments by borrowers for taxes and insurance approximate estimated fair
value.
Commitments to extend credit and letters of credit: The majority of the
Company's commitments to extend credit and letters of credit carry current
market interest rates if converted to loans. Because commitments to extend
credit and letters of credit are generally unassignable by either the Company or
the borrower, they only have value to the Company and the borrower. The
estimated fair value approximates the recorded deferred fee amounts.
The carrying amounts and fair values of the Company's financial instruments
were as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
December 31, 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
Estimated Estimated
Carrying Fair Carrying Fair
Value Value Value Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks and interest-bearing deposits $ 7,089 $ 7,089 $ 8,076 $ 8,076
Investment and mortgage-backed securities 97,328 96,585 120,269 112,762
Loans receivable, net of unearned discounts and deferred fees 226,523 224,084 207,625 199,070
Interest receivable 2,280 2,280 2,210 2,210
- ------------------------------------------------------------------------------------------------------------------------------------
$333,220 $330,038 $338,180 $322,118
====================================================================================================================================
Financial liabilities:
Deposits $297,260 $298,343 $283,958 $283,639
Advances from the FHLB 25,400 26,009 44,052 43,372
Subordinated debt 3,000 3,467 3,000 2,823
Other financial liabilities 3,034 3,034 2,940 2,940
- ------------------------------------------------------------------------------------------------------------------------------------
$328,694 $330,853 $333,950 $332,774
====================================================================================================================================
</TABLE>
34
<PAGE>
(19) Selected Quarterly Consolidated Financial Data (unaudited)
The following table represents quarterly financial data for the periods
indicated. In the opinion of management, this information reflects all
adjustments (consisting solely of normal recurring adjustments) necessary for a
fair presentation of the results of operations for the periods indicated.
Reclassifications have been made to certain previously reported amounts to
conform with the 1995 classifications.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Dec. 31, Sept. 30, Jun. 30, Mar. 31, Dec. 31, Sept. 30, Jun. 30, Mar. 31,
1995 1995 1995 1995 1994 1994 1994 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income:
Loans, including fees $ 4,832 $4,712 $4,645 $4,548 $4,260 $3,911 $ 3,580 $3,433
Mortgage-backed securities 1,573 1,675 1,696 1,654 1,744 1,716 1,611 1,546
Investment securities 205 312 271 267 285 343 254 78
Other 75 27 48 29 23 11 14 21
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest income 6,685 6,726 6,660 6,498 6,312 5,981 5,459 5,078
- ------------------------------------------------------------------------------------------------------------------------------------
Interest expense:
Deposits 3,176 3,171 3,067 2,839 2,771 2,558 2,439 2,400
Advances from the FHLB 598 695 770 749 641 648 482 431
Subordinated debt 68 69 67 66 68 67 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest expense 3,842 3,935 3,904 3,654 3,480 3,273 2,921 2,831
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income 2,843 2,791 2,756 2,844 2,832 2,708 2,538 2,247
- ------------------------------------------------------------------------------------------------------------------------------------
Provision for possible loan losses 275 100 150 100 115 56 300 50
- ------------------------------------------------------------------------------------------------------------------------------------
Gain (loss) from sales of
mortgage-backed securities (108) -- -- (35) (198) (55) 1 (70)
Gain (loss) from mortgage
banking activities 14 18 29 (1) (5) 1 (46) (126)
Income (loss) from properties sold (216) (16) 6 (24) (2) (42) 19 (37)
Other income 735 815 586 462 508 549 441 607
Other expense 3,324 3,054 2,925 2,768 2,672 2,763 4,104 2,526
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes (331) 454 302 378 348 342 (1,451) 45
Income tax benefit (1,868) -- -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 1,537 $ 454 $ 302 $ 378 $ 348 $ 342 $(1,451) $ 45
====================================================================================================================================
Earnings (loss) per share $ .45 $ .13 $ .09 $ .12 $ .11 $ .10 $ (.44) $ .01
====================================================================================================================================
</TABLE>
35
<PAGE>
(20) Condensed Financial Information of Progress Financial Corporation (Parent
Company Only)
Condensed Statements of Financial Condition
- -------------------------------------------------------------------------------
December 31, 1995 1994
- -------------------------------------------------------------------------------
Assets:
Cash on deposit with subsidiary $ 27 $ 96
Investments in subsidiaries 19,231 15,805
Equity investment 30 30
Deferred debt issuance costs 86 89
Accounts receivable from subsidiary 5 --
Goodwill 28 --
- -------------------------------------------------------------------------------
Total assets $ 19,407 $ 16,020
===============================================================================
Liabilities and stockholders' equity
Liabilities:
Subordinated debt $ 3,000 $ 3,000
- -------------------------------------------------------------------------------
Stockholders' equity:
Serial preferred stock -- --
Common stock 3,280 3,275
Capital surplus 15,706 15,706
Retained earnings (deficit) (2,238) (4,909)
Unrealized loss on securities
available for sale (341) (1,052)
- -------------------------------------------------------------------------------
Total stockholders' equity 16,407 13,020
- --------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 19,407 $ 16,020
===============================================================================
Condensed Statements of Operations
- --------------------------------------------------------------------------------
For the years ended December 31, 1995 1994 1993
- --------------------------------------------------------------------------------
Dividends from equity investment $ -- $ -- $ --
Management fees from subsidiary 225 -- --
Equity in undistributed income
(loss) of subsidiaries 2,724 (581) 683
- --------------------------------------------------------------------------------
Total income (loss) 2,949 (581) 683
- --------------------------------------------------------------------------------
Interest expense on
subordinated debt 270 135 --
- --------------------------------------------------------------------------------
Professional services 5 -- --
Amortization of goodwill 3 -- --
- --------------------------------------------------------------------------------
Total expense 278 135 --
- --------------------------------------------------------------------------------
Income (loss) before income taxes 2,671 (716) 683
Income tax expense -- -- --
- --------------------------------------------------------------------------------
Net income (loss) $2,671 $ (716) $ 683
================================================================================
Under a tax-sharing arrangement between the Company and the Bank, income
tax expense (benefit) is recorded on the books of the Bank.
Condensed Statements of Cash Flows
- -------------------------------------------------------------------------------
For the years ended December 31, 1995 1994 1993
- -------------------------------------------------------------------------------
Cash flows from operating activities:
Net income (loss) $ 2,671 $ (716) $ 683
Add (deduct) items not
affecting cash flow from
operating activities:
Equity in (earnings) losses
of subsidiaries (2,724) 581 (683)
Amortization of deferred
debt issuance cost 4 10 --
Amortization of goodwill 3 -- --
Net increase in accounts receivable (5) -- --
- -------------------------------------------------------------------------------
Net cash flows used in
operating activities (51) (125) --
- -------------------------------------------------------------------------------
Cash flows from investment activities:
Capital contributions and
additional investment
in subsidiaries (23) (2,650) (7,227)
Purchase of equity investment -- (30) --
- -------------------------------------------------------------------------------
Net cash flows used in
investment activities (23) (2,680) (7,227)
- -------------------------------------------------------------------------------
Cash flows from financing activities:
Net proceeds from issuance
of subordinated debt -- 2,901 --
Net proceeds from issuance
of common stock 5 -- 7,227
- -------------------------------------------------------------------------------
Net cash flows provided by
financing activities 5 2,901 7,227
- -------------------------------------------------------------------------------
Net (decrease) increase in cash
and cash equivalents (69) 96 --
Cash and cash equivalents:
Beginning of year 96 -- --
- -------------------------------------------------------------------------------
End of year $ 27 $ 96 $ --
===============================================================================
These statements should be read in conjunction with the other notes to the
consolidated financial statements.
36
<PAGE>
(21) Significant Risks and Uncertainties
The earnings of the Company depend primarily upon the level of net interest
income, which is the difference between interest earned on its interest-earning
assets, such as loans and investments, and the interest paid on its
interest-bearing liabilities, such as deposits and borrowings. Accordingly, the
operations of the Company are subject to broad risks and uncertainties
surrounding its exposure to changes in the interest rate environment.
The financial statements of the Company are prepared in conformity with
generally accepted accounting principles that require management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from these estimates.
Significant estimates are made by management in determining the allowance
for possible loan losses and carrying values of real estate owned and real
estate held for development. Consideration is given to a variety of factors in
establishing these estimates including current economic conditions,
diversification of the loan portfolio, delinquency statistics, results of
internal loan reviews, borrowers' perceived financial and managerial strengths,
the adequacy of underlying collateral, if collateral dependent, or present value
of future cash flows and other relevant factors. Since the allowance for
possible loan losses and carrying value of real estate assets and real estate
held for development is dependent, to a great extent, on general and other
conditions that may be beyond the Company's control, it is at least reasonably
possible that the Company's estimates of the allowance for possible loan losses
and the carrying values of the real estate assets could differ materially in the
near term.
Concentrations of Credit Risk
The Bank extends credit in the normal course of business to its customers,
substantially all of whom operate or reside within the Montgomery County,
Pennsylvania and surrounding business areas including southern New Jersey. The
ability of its customers to meet contractual obligations is, to some extent,
dependent upon the conditions of this regional economy.
In addition, certain groups of Bank loan customers share characteristics
which, given current economic conditions may affect their ability to meet
contractual obligations. These customers and their credit extensions at December
31, 1995, include: retail consumers that account for 50% of all credit
extensions; commercial mortgages and commercial real estate that account for
36%; residential construction and land that account for 6%; and commercial
business that account for 8%.
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 recapitalized the SAIF to a level which would at least approach
that of the BIF is in current legislation. The current legislation, if enacted,
would result in a one-time assessment of approximately $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 Bank's results of operations and financial
position.
(22) Subsequent Events
On January 31, 1996 the Company successfully completed the offering of
500,000 shares of common stock at a price of $5.25 per share.
37
<PAGE>
- --------------------------------
INDEPENDENT AUDITOR'S REPORT
- --------------------------------
Coopers & Lybrand L.L.P.
Coopers
& Lybrand
a professional services firm
To the Stockholders and Board of Directors of
Progress Financial Corporation:
We have audited the accompanying consolidated statements of financial
condition of Progress Financial Corporation as of December 31, 1995 and 1994 and
the related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1995. These
consolidated financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Progress Financial Corporation as of December 31, 1995 and 1994 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the
Company changed its method of accounting for investments in 1994 and, as
discussed in Note 12, changed its method of accounting for income taxes in 1993.
/s/ COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
January 23,1996
38
<PAGE>
- ----------------------
MARKET INFORMATION
- ----------------------
Progress Financial Corporation's common stock is traded on the National
Association Securities Dealers Automated Quotation Stock Market under the symbol
"PFNC." At December 31, 1995 the Company had approximately 1,600 holders of
record.
Payment of cash dividends is subject to regulatory restrictions as
described in Note 17 of Notes to Consolidated Financial Statements. The Company
has discontinued the payment of dividends since the second quarter of 1990.
The following table sets forth the high and low closing prices and trading
volumes for the periods described:
- --------------------------------------------------------------------------------
1995
- --------------------------------------------------------------------------------
Low High Volume
- --------------------------------------------------------------------------------
First Quarter $3 7/8 $5 364,000
Second Quarter 4 1/4 6 1/4 562,000
Third Quarter 5 6 5/8 484,000
Fourth Quarter 5 6 1/8 551,000
- --------------------------------------------------------------------------------
1994
- --------------------------------------------------------------------------------
Low High Volume
- --------------------------------------------------------------------------------
First Quarter $4 1/2 $6 1/4 760,000
Second Quarter 4 1/4 5 5/8 551,000
Third Quarter 4 1/4 5 1/2 315,000
Fourth Quarter 3 1/2 5 1/2 285,000
39
<PAGE>
Progress Financial Corporation
- --------------------------------
INFORMATION FOR SHAREHOLDERS
- --------------------------------
Directors
John E. F. Corson
Consultant and President
Corson Investments
William O. Daggett, Jr.
Managing Partner
Kistler-Tiffany Companies
Donald F. U. Goebert
Chairman of the Board
Adage Inc.
H. Wayne Griest***
Progress Realty Advisors, L.P.
Quaker State Financial Corporation
Joseph R. Klinger
Principal
KMR Management, Inc.
Paul M. LaNoce
Vice President
DAR Industrial Products, Inc.
A. John May, III, Esquire*
Attorney
Pepper, Hamilton & Scheetz
William L. Mueller, Esquire
Attorney
Clark, Ladner, Fortenbaugh & Young
Janet E. Paroo***
Vice President-Finance and Administration
Global Health Group, Inc.
Charles J. Tornetta
President
Tornetta Realty
W. Kirk Wycoff
Chairman, President and Chief
Executive Officer
Principal Officers
W. Kirk Wycoff
Chairman, President and
Chief Executive Officer
Robert J. Bifolco**
Senior Vice President
Commercial Banking
Eric J. Morgan
Senior Vice President
Credit and Administration
Frederick E. Schea
Senior Vice President and
Chief Financial Officer
*Director of Company only
**Officer of Bank only
***New Directors in 1996
Progress Realty Advisors, L.P.
Principal Officers
H. Wayne Griest
Chairman and Chief Executive Officer
Robert A. Jacoby
President and Chief Operating Officer
Francis W. Ashmore
Senior Vice President
Quaker State Financial Corporation
Principal Officers
H. Wayne Griest
Chairman and Chief Executive Officer
Donald P. Kennedy
President
Progress Bank Branch Offices
207 West 4th Street
Bridgeport, Pennsylvania 19405
(610) 272-5559
405 Fayette Street
Conshohocken, Pennsylvania 19428
(610) 828-4710
Genuardi Shopping Center
Jeffersonville, Pennsylvania 19403
(610) 631-0717
Valley Forge Shopping Center
King of Prussia, Pennsylvania 19406
(610) 265-0196
Sandy Hill Shopping Center
Norristown, Pennsylvania 19401
(610) 272-7461
Andorra Shopping Center
Philadelphia, Pennsylvania 19128
(215) 483-0450
Plymouth Meeting Executive Campus
Plymouth Meeting, Pennsylvania 19462
(610) 825-3320
1084 Lancaster Avenue
Rosemont, Pennsylvania 19010
(610) 527-2600
Paoli Shopping Center
Paoli, Pennsylvania 19301
(610) 648-9422
Headquarters
Progress Financial Corporation,
Progress Bank,
Progress Realty Advisors, L.P., &
Quaker State Financial Corporation
Plymouth Meeting Executive Campus
600 West Germantown Pike
Plymouth Meeting, Pennsylvania 19462
Annual Meeting of Shareholders
The Annual Meeting of shareholders
will be held at 9:00 a.m., April 30, 1996,
at Plymouth Country Club, Belvoir and
Plymouth Roads, Norristown, Pennsylvania.
Contacts
Analysts, investors, news media
representatives and others seeking
financial and general information
should contact: Patricia Ellick--Director
of Investor Relations or Renee Ebersole--
Director of Marketing at (610) 825-8800.
Form 10-K
A copy of Progress Financial Corporation's
Form 10-K will be provided upon
written request to:
Progress Financial Corporation
600 West Germantown Pike
Plymouth Meeting, Pennsylvania 19462
Attention: Investor Relations
Stock Listing
Shares of Progress Financial Corporation
are traded on the NASDAQ Stock Market
under the symbol of "PFNC."
Transfer Agent/Registrar
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
Toll-free: 1-800-937-5449
40
<PAGE>
Designed by Curran & Connors, Inc.
<PAGE>
Progress Financial Corporation
600 W. Germantown Pike
Plymouth Meeting, PA 19462
EXHIBIT 21
Subsidiaries of the Registrant
Jurisdiction of
Name Organization
Progress Federal Savings Bank..................................United States
Eagle Service Corporation.......................................Pennsylvania
Pilot Financial Corporation.....................................Pennsylvania
Dolphin Service Corporation.....................................Pennsylvania
PFSB, Inc.........................................................New Jersey
Pelham Bay Professional Center, Inc.............................Pennsylvania
RabPub, Inc.......................................................New Jersey
Diversified Investment Services Corporation.....................Pennsylvania
Fox Acquiring, Inc..............................................Pennsylvania
Progress Realty Advisors........................................Pennsylvania
Progress Realty Advisors, L.P...................................Pennsylvania
Quaker State Financial Corporation..............................Pennsylvania
[Letterhead of Coopers & Lybrand]
Consent of Independent Accountants
We consent to the incorporation by reference in the registration statement of
Progress Financial Corporation on Forms S-2 (File Nos. 33-58377 and 33-64991)
and Forms S-8 (File Nos. 33-19570 and 33-58781) of our report dated January 23,
1996 which includes an explanatory paragraph regarding the Company's change in
its methods of accounting for investments and income taxes, on our audits of the
consolidated financial statements as of December 31, 1995 and 1994, and for the
years ended December 31, 1995, 1994, and 1993, which report is incorporated by
reference in this Annual Report on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Philadelphia, Pennsylvania
March 26, 1996
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000790183
<NAME> Progress Financial Corporation
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> Dec-31-1995
<PERIOD-START> Jan-01-1995
<PERIOD-END> Dec-31-1995
<CASH> 2,309
<INT-BEARING-DEPOSITS> 4,780
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
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<INVESTMENTS-CARRYING> 54,982
<INVESTMENTS-MARKET> 54,239
<LOANS> 226,523
<ALLOWANCE> 1,720
<TOTAL-ASSETS> 345,394
<DEPOSITS> 297,260
<SHORT-TERM> 12,400
<LIABILITIES-OTHER> 3,327
<LONG-TERM> 16,000
3,280
0
<COMMON> 0
<OTHER-SE> 13,127
<TOTAL-LIABILITIES-AND-EQUITY> 345,394
<INTEREST-LOAN> 18,737
<INTEREST-INVEST> 7,832
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 26,569
<INTEREST-DEPOSIT> 12,253
<INTEREST-EXPENSE> 15,335
<INTEREST-INCOME-NET> 11,234
<LOAN-LOSSES> 625
<SECURITIES-GAINS> (143)
<EXPENSE-OTHER> 12,071
<INCOME-PRETAX> 803
<INCOME-PRE-EXTRAORDINARY> 803
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,671
<EPS-PRIMARY> 0.79
<EPS-DILUTED> 0.79
<YIELD-ACTUAL> 7.97
<LOANS-NON> 3,879
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,503
<CHARGE-OFFS> 427
<RECOVERIES> 19
<ALLOWANCE-CLOSE> 1,720
<ALLOWANCE-DOMESTIC> 1,720
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
