Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
[ X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarter ended September 30, 1997.
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from _________ to ___________________.
Commission File Number: 0-14815
Progress Financial Corporation
(Exact name of registrant as specified in its charter)
Delaware 23-2413363
----------- ------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
4 Sentry Parkway
Suite 230
Blue Bell, Pennsylvania 19422
(address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (610) 825-8800
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock ($1.00 par value) 3,978,906
------------------------------ ----------------------
Title of Each Class Number of Shares Outstanding
as of November 10, 1997
<PAGE>
Progress Financial Corporation
Table of Contents
PART I - Financial Information
<TABLE>
<CAPTION>
Page
Item 1. Financial Statements
<S> <C>
Consolidated Statements of Financial Condition as of September 30, 1997
(unaudited) and December 31, 1996...........................................................3
Consolidated Statements of Operations for the three and nine months ended
September 30, 1997 and 1996 (unaudited).....................................................4
Consolidated Statements of Cash Flows for the nine months ended
September 30, 1997 and 1996 (unaudited)....................................................5
Notes to Consolidated Financial Statements (unaudited)......................................7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (unaudited)...........................................................8
PART II - Other Information
Item 1. Legal Proceedings..........................................................................25
Item 2. Changes in Securities......................................................................25
Item 3. Defaults upon Senior Securities............................................................25
Item 4. Other Information..........................................................................25
Item 5. Exhibits and Reports on Form 8-K...........................................................25
Signatures.................................................................................26
</TABLE>
<PAGE>
PROGRESS FINANCIAL CORPORATION
- -------------------------------------------------------------------------------
PART I- FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
----------- ------------
(Dollars in thousands)
<S> <C> <C>
(unaudited)
Assets Cash and due from banks:
Interest bearing $ 231 $ 666
Non-interest bearing 9,218 9,967
Investment securities:
Available for sale at fair value (amortized cost: $4,430 in 1997 and $3,498 in 1996) 4,831 3,462
Held to maturity (fair value: $4,869 in 1997 and $1,937 in 1996) 4,871 1,937
Mortgage-backed securities:
Available for sale at fair value (amortized cost: $39,132 in 1997 and $42,939 in 1996) 39,332 42,738
Held to maturity at amortized cost (fair value: $52,308 in 1997 and $46,535 in 1996) 52,743 47,334
Loans and leases 299,302 251,562
Loans held for sale (fair value: $394 in 1997 and $600 in 1996) 382 599
Real estate owned, net 3,880 2,150
Premises and equipment 8,622 7,725
Accrued interest receivable 2,681 2,156
Deferred income taxes 936 3,064
Other assets 9,717 10,289
----------- ----------
Total assets $436,746 $383,649
======== ========
Liabilities and Stockholders' Equity
Liabilities:
Deposits $325,296 $306,248
Advances from the Federal Home Loan Bank 33,000 18,000
Other borrowings 30,588 32,270
Advance payments by borrowers 3,902 4,628
Accrued interest payable 1,926 984
Other liabilities 3,743 1,565
----------- -----------
Total liabilities 398,455 363,695
--------- ---------
Corporation-obligated mandatorily redeemable capital securities of subsidiary trust
holding solely junior subordinated debentures of the Corporation 15,000 ---
------------ ----------
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; 4,010,116 and
3,785,000 shares issued at September 30, 1997 and
December 31, 1996, respectively 4,010 3,785
Capital surplus 19,736 17,715
Unearned Employee Stock Ownership Plan shares (177) (214)
Retained earnings (deficit) (637) (1,134)
Unrealized gain (loss) on securities available for sale,
net of deferred income taxes 359 (198)
---------- ---------
Total stockholders' equity 23,291 19,954
---------- ----------
Total liabilities, Corporation-obligated mandatorily redeemable
capital securities of subsidiary trust holding solely junior subordinated
debentures of the Corporation and stockholders' equity $436,746 $383,649
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
PROGRESS FINANCIAL CORPORATION
- -------------------------------------------------------------------------------
Consolidated Statements of Operations
<TABLE>
<CAPTION>
For The Three Months For The Nine Months
Ended September 30, Ended September 30,
1997 1996 1997 1996
---- ---- ---- ----
(Dollars in Thousands) (Dollars in Thousands)
(unaudited) (unaudited)
Interest income:
<S> <C> <C> <C> <C>
Loans and leases, including fees $ 7,172 $ 5,068 $ 20,007 $ 15,008
Mortgage-backed securities 1,539 1,819 4,598 4,740
Investment securities 107 86 317 312
Other 56 20 150 169
---------- ---------- -------- --------
Total interest income 8,874 6,993 25,072 20,229
-------- -------- ------ ------
Interest expense:
Deposits 3,049 3,006 9,026 9,027
Advances from the Federal Home
Loan Bank 471 571 1,338 1,235
Subordinated debt and other borrowings 728 165 1,826 371
-------- -------- ------ -------
Total interest expense 4,248 3,742 12,190 10,633
------- ------ ------ -------
Net interest income 4,626 3,251 12,882 9,596
Provision for possible loan and lease losses 241 100 632 500
-------- -------- ------- -------
Net interest income after provision for loan and lease losses 4,385 3,151 12,250 9,096
------ ------ ------ ------
Other income:
Mortgage origination and servicing 149 184 512 519
Service charges on deposits 329 240 1,098 708
Gain from mortgage banking activities 8 21 35 89
Gain on sale of mortgage servicing rights --- --- 978 924
Gain (loss) from sales of securities (83) 12 (49) 145
Gain on sale of lease receivable 61 --- 61 ---
Loss on properties sold -- (2) (182) (10)
Loan brokerage and advisory fees 344 28 473 296
Lease financing fees 290 108 824 219
Fees and other 374 283 668 477
-------- ------ ------- ------
Total other income 1,472 874 4,418 3,367
------- ------ ------ -----
Other expense:
Salaries and employee benefits 2,029 1,590 5,824 4,631
Occupancy 291 272 898 1,003
Data processing 224 297 822 837
Furniture, fixtures, and equipment 207 144 588 423
Deposit insurance premiums 72 1,985 167 2,406
Loan and real estate owned expense, net 151 29 281 163
Professional services 231 150 645 540
Capital securities expense 398 -- 526 --
Other 791 476 2,301 1,586
-------- --------- -------- ------
Total other expense 4,394 4,943 12,052 11,589
------- -------- ------- ------
Income (loss) before income taxes 1,463 (918) 4,616 874
Income tax expense (benefit) 561 (299) 1,723 322
-------- --------- -------- ---------
Net income (loss) $ 902 $ (619) $ 2,893 $ 552
======= ======= ======= ========
Net Income (loss) per share $ .21 $ (.16) $ .68 $ .13
======== ========= ========= ========
Dividends per share $ .03 $ .02 $ .07 $ .02
======== ========= ========= ========
Average shares outstanding 4,373,690 3,916,500 4,281,244 4,010,349
========= ========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE>
PROGRESS FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For The Nine Months
Ended September 30,
1997 1996
---- ----
(Dollars in thousands)
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,893 $ 552
Add (deduct) items not affecting cash flows from operating activities:
Depreciation and amortization 636 501
Provision for possible loan and lease losses 632 500
Deferred income tax expense 2,128 322
Capitalized interest on real estate owned --- (57)
Gain from mortgage banking activities (988) (89)
(Gain) loss from sales of securities available for sale 49 (145)
Loss on properties sold 182 10
Amortization of deferred loan fees (715) (628)
Amortization of premiums/accretion
of discounts on securities 485 487
Originations and purchases of loans held for sale --- (11,210)
Sales of loans held for sale 105 13,096
(Increase) decrease in accrued interest receivable (525) 27
(Increase) decrease in other assets 717 (2,734)
Increase in other liabilities 2,177 3,370
Increase in accrued interest payable 942 530
----------- ----------
Net cash flows provided by operating activities 8,718 4,532
----------- ---------
</TABLE>
(continued)
See Notes to Consolidated Financial Statements.
5
<PAGE>
PROGRESS FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
For The Nine Months
Ended September 30,
1997 1996
---- ----
(Dollars in thousands)
(unaudited)
<S> <C> <C>
Cash flows from investing activities:
Capital expenditures $ (1,533) $ (2,450)
Purchases on mortgage-backed securities held to maturity --- (2,952)
Purchases of mortgage-backed securities available for sale (22,287) (49,848)
Purchase of investments held to maturity (1,164) (848)
Purchase of investment securities available for sale (6,720) (3,000)
Repayments on mortgage-backed securities held to maturity 5,520 6,514
Repayments on mortgage-backed securities available for sale 5,613 7,593
Sales of mortgage-backed securities available for sale 9,385 35,502
Sales of investments available for sale 3,450 5,145
Maturities of investments held to maturity 549 212
Proceeds from sales of real estate owned 1,897 447
Net increase in loans and leases (51,037) (18,798)
--------- -------------
Net cash flows used in investing activities (56,327) (22,483)
-------- ------------
Cash flows from financing activities:
Net (decrease) increase in demand, NOW and saving deposits 11 (584)
Net (decrease) increase in time deposits 19,037 (6,600)
Net increase in advances from the FHLB 15,000 7,925
Net decrease in advance payments by borrowers (726) (681)
Net (decrease) increase in other borrowings (1,682) 15,537
Net proceeds from issuance of common stock 26 2,238
Net proceeds from exercise of stock options 25 ---
Net proceeds from issuance of capital securities 15,000 ---
Dividends paid (266) (76)
------------ -----------
Net cash flows (used in) provided by financing activities 46,425 17,759
----------- -----------
Net decrease in cash and cash equivalents (1,184) (192)
Cash and cash equivalents:
Beginning of year 10,633 7,089
---------- -----------
End of period $ 9,449 $ 6,897
========= ==========
Supplemental disclosures:
Non-monetary transfers:
Net conversion of loans receivable to real estate owned $ 3,503 $ 1,967
========== ===========
Securitization of mortgage loans into mortgage-backed
securities $ --- $ 9,982
============ ==========
Transfer of property for Company use from other assets
to premises and equipment $ --- $ 3,150
============= ==========
Cash payments for:
Income taxes $ 15 $ 63
============ ============
Interest $ 11,775 $ 10,160
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
6
<PAGE>
PROGRESS FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1) In the opinion of management, the financial information, which is
unaudited, reflects all adjustments (consisting solely of normal recurring
adjustments) necessary for a fair presentation of the financial information
as of and for the three and nine months ended September 30, 1997 and 1996
in conformity with generally accepted accounting principles. These
financial statements should be read in conjunction with Progress Financial
Corporation's (the "Company") 1996 Annual Report and Form 10-K. Earnings
per share have been adjusted to reflect all stock dividends and prior
period amounts have been reclassified when necessary to conform with
current period classification. The Company's principal subsidiary is
Progress Bank ("the Bank").
The year end consolidated statement of financial condition was derived from
the Company's 1996 audited financial statements, but does not include all
disclosures required by generally accepted accounting principles.
(2) In June 1996, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities" ("SFAS 125") which is effective for the Company beginning
January 1, 1997. SFAS 125 provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishment of
liabilities. The statement applies prospectively to transactions entered
into in 1997, therefore, there is no cumulative effect at January 1, 1997,
when the statement was adopted. The statement did not have a significant
effect on the financial position or results of operations of the Company.
In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 128, "Earnings per Share" ("SFAS 128"). SFAS 128 specifies
the computation, presentation, and disclosure requirements for earnings per
share. The statement is effective for the Company for interim and annual
periods ending after December 15,1997. SFAS 128 requires restatement of all
prior-period per share data that is presented on a comparative basis.
Management expects basic earnings per share to increase due to the
implementation of this Statement.
(3) Sale of Mortgage Servicing Portfolio
In March 1997, the Company sold its FNMA/FHLMC mortgage servicing
portfolio of approximately $347.4 million. The transaction resulted in
a gain of $978,000. The impact on earnings of reduced servicing fee
income and interest earned on investable balances will be offset by
lower compensation and administrative costs and the earnings on the
cash received in the sale.
(4) During the quarter ended June, 30, 1997, the Company issued $15.0
million of 10.5% capital securities due June 1, 2027 (the "Capital
Securities"). The Capital Securities were issued by the Company's
recently formed subsidiary, Progress Capital Trust I, a statutory
business trust created under the laws of Delaware. The Company is the
owner of all of the common securities of the Trust (the "Common
Securities"). In June 1997, the Trust issued $15.0 million of 10.5%
Capital Securities (and together with the Common Securities, the "Trust
Securities"), the proceeds from which were used by the Trust, along
with the Company's $464,000 capital contribution for the Common
Securities, to acquire $15.0 million aggregate principal amount of the
Company's 10.5% Junior Subordinated Deferrable Interest Debentures due
June 1, 2027 (the "Debentures"), which constitute the sole assets of
the Trust. The Company has, through the Declaration of Trust
establishing the Trust, Common Securities and Capital Securities
Guarantee Agreements, the Debentures and a related Indenture, taken
together, fully irrevocably and unconditionally guaranteed all of the
Trust's obligations under the Trust Securities. The Company contributed
approximately $6.0 million of the net proceeds to Progress Bank, to
increase its regulatory capital ratios and support the growth of the
expanded lending operations. Net proceeds retained by the Company will
be used for general purposes, including investments in other
subsidiaries and potential future acquisitions.
7
<PAGE>
PROGRESS FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (unaudited)
The following discussion and analysis of financial condition and results of
operations should be read in conjunction with the Company's Consolidated
Financial Statements and accompanying notes. Certain reclassifications have been
made to prior period data throughout the following discussion and analysis for
comparability with 1996 data.
SUMMARY
The Company recorded net income of $902,000 or $.21 per share for the three
months ended September 30, 1997, in comparison with a net loss of $619,000 or
$.16 per share for the three months ended September 30, 1996. Return on average
stockholders' equity was 15.86% and return on average assets was .84% for the
three months ended September 30, 1997 compared to 11.60% and .62%, respectively
for the three months ended September 30, 1996.
For the nine months ended September 30, 1997 the Company had net income of $2.9
million or $.68 per share in comparison with net income of $552,000 or $.13 per
share for the nine months ended September 30, 1996. Return on average
stockholders' equity was 18.04% and return on average assets was .95% for the
nine months ended September 30, 1997 compared to 12.28% and .66%, respectively
for the nine months ended September 30, 1996.
Net interest income was $4.6 million and $3.3 million for the three months ended
September 30, 1997 and 1996, respectively. Operating results for the three
months ended September 30, 1997 and 1996 included $241,000 and $100,000
respectively, in provision for possible loan and lease losses. Other income for
the three months ended September 30, 1997 and September 30, 1996 included
service charges on deposits of $329,000 and $240,000. Other expenses totaled
$4.4 million for the three months ended September 30, 1997 in comparison with
$4.9 million for the same period in 1996. The decrease of $549,000 is primarily
due to the special one-time assessment of $1.8 million to capitalize the Savings
Association Insurance Fund ("SAIF"), which was recorded in 1996. Salaries and
employee benefits increased in comparison to 1996 due to additional employees of
companies acquired and a higher cost of benefits in 1997. Other increases were
capital securities expense of $398,000, loan and real estate owned expense of
$122,000, professional services of $81,000 and furniture, fixtures and equipment
of $63,000. Other expenses increased by $315,000 primarily relating to increases
in advertising and miscellaneous operating expenses.
For the nine months ended September 30, 1997, net interest income was $12.9
million in comparison with $9.6 million for the nine months ended September 30,
1996. Operating results for the nine months ended September 30, 1997 and 1996
included $632,000 and $500,000, respectively, in provision for possible loan and
losses. Other income for the nine months ended September 30, 1997 and 1996
included gains of $978,000 and $924,000 on the sales of $347.4 million and $85.0
million of mortgage servicing rights.
Other expenses amounted to $12.1 million for the nine months ended September 30,
1997, an increase of $463,000 from the $11.6 million recognized during the
comparable 1996 period. Included in 1996 was a special one-time assessment of
$1.8 million to capitalize the SAIF. Salaries and employee benefits increased in
comparison to 1996 due to additional employees of companies acquired and a
higher cost of benefits in 1997. Other increases were capital securities expense
of $526,000, loan and real estate owned expenses of $118,000, professional
services of $105,000 and furniture, fixtures and equipment of $165,000. Other
expenses increased by $715,000 primarily relating to increases in advertising
and miscellaneous operating expenses.
Total assets increased to $436.7 million at September 30, 1997 from $383.6
million at December 31, 1996. Loans and leases increased $47.7 million. The
increase in assets was funded by increases in deposits, borrowings and from the
issuance of $15.0 million of capital securities. The net interest margin
increased to 4.61% from 3.99% at December 31, 1996 and 3.81% at September 30,
1996.
The company's equity increased to $23.3 million from $20.0 million at December
31, 1996. The increase primarily relates to income which was partially offset by
two quarterly dividends of $.02 per share, and one quarterly dividend o $.03 per
share.
8
<PAGE>
PROGRESS FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
Net Interest Income
For the three months ended September 30,1997 net interest income amounted to
$4.6 million in comparison with $3.3 million for the same period in 1996. Net
interest income for the three months ended September 30, 1997 was positively
impacted by a $58.8 million increase in average interest-earning assets, while
average interest-bearing liabilities increased $33.5 million. The interest rate
spread increased 55 basis points in the third quarter of 1997 compared to the
same period in 1996, primarily due to a 65 basis point increase in the average
yield on interest-earning assets and a 10 basis point increase in the average
rate on interest-bearing liabilities.
For the nine months ended September 30, 1997, net interest income amounted to
$12.9 million in comparison with $9.6 million for the same period of 1996. Net
interest income for the nine months ended September 30, 1997 was positively
impacted by a $15.8 million improvement in the excess of average
interest-earning assets over average interest bearing liabilities at September
30, 1997 compared to September 30, 1996. Also, the interest rate spread improved
to 3.98% from 3.51%.
9
<PAGE>
PROGRESS FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
The following table sets forth, for the periods indicated, information regarding
(I) the total dollar amount of interest income on 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.
<TABLE>
<CAPTION>
For The Three Months Ended September 30,
1997 1996
---- -----
(Dollars in Thousands)
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
------- -------- ----- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Investment securities and other interest-earning assets $ 10,951 $ 163 5.91% $ 5,936 $ 106 7.10%
Mortgage-backed securities (1) 88,672 1,540 6.89 108,150 1,819 6.69
Single family residential loans (2) 59,795 1,188 7.88 73,114 1,414 7.69
Commercial real estate loans 93,123 2,178 9.28 84,184 1,981 9.36
Construction loans 30,219 833 10.94 19,399 562 11.53
Commercial business loans 55,682 1,395 9.94 23,896 569 9.47
Lease financing 34,101 1,040 12.10 1,508 50 13.19
Consumer loans 25,479 537 8.36 23,026 492 8.50
------- ---- ----- ------ ----- -----
Total interest-earning assets 398,022 8,874 8.85 339,213 6,993 8.20
------- ----- ----- ------- ----- -----
Non-interest-earning assets 29,345 22,847
------- --------
Total assets $427,367 $362,060
======== ========
Interest-bearing liabilities:
Interest-bearing deposits:
Interest-bearing demand $ 30,690 $ 170 2.20% $ 27,312 $ 150 2.18%
Money market accounts 37,303 290 3.08 34,751 291 3.33
Passbook and statement savings 29,950 205 2.72 28,594 196 2.73
Time deposits 173,548 2,383 5.45 176,311 2,369 5.35
-------- ------ ---- -------- ------ ----
Total interest-bearing deposits 271,491 3,048 4.45 266,968 3,006 4.48
Advances from the Federal Home Loan Bank 40,927 670 6.49 36,354 487 5.33
Other borrowings 33,361 530 6.30 8,981 249 11.03
-------------------- ---- -------------------- -----
Total interest-bearing liabilities 345,779 4,248 4.87% 312,303 3,742 4.77%
----- ---- ----- ----
Non-interest-bearing liabilities 59,012 30,394
--------- ----------
Total liabilities 404,791 342,697
Stockholders' equity 22,576 19,363
---------- ----------
Total liabilities and stockholders' equity $427,367 $362,060
======== ========
Net interest income: interest rate spread (3) $4,626 3.98% $3,251 3.43%
====== ==== ====== ====
Net interest margin (4) 4.61% 3.81%
==== ====
Average interest-earning assets to average interest-bearing liabilities 115.11% 108.62%
====== =======
</TABLE>
(1) Includes investment and mortgage-backed securities classified as available
for sale. Yield information does not give effect to changes in fair value
that are reflected in stockholders' equity.
(2) Includes mortgage loans held 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.
(4) Net interest margin represents net interest income divided by average
interest-earning assets.
10
<PAGE>
PROGRESS FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
The following table sets forth, for the periods indicated, information regarding
(I) the total dollar amount of interest income on 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.
<TABLE>
<CAPTION>
For The Nine Months Ended September 30,
1997 1996
---- ----
(Dollars in Thousands)
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
-------- -------- ----- ------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Investment securities and other interest-earning assets $ 10,497 $ 467 5.95% $9,855 $ 481 6.52%
Mortgage-backed securities (1) 88,446 4,599 6.95 96,055 4,740 6.59
Single family residential loans (2) 62,122 3,645 7.84 79,052 4,604 7.78
Commercial real estate loans 93,035 6,554 9.42 82,651 5,891 9.52
Construction loans 26,498 2,120 10.70 17,599 1,504 11.42
Commercial business loans 43,670 3,187 9.76 20,811 1,505 9.66
Lease financing 31,078 2,965 12.76 503 50 13.29
Consumer loans 24,470 1,535 8.39 22,478 1,454 8.64
------ ----- ------ ------ ----- ----
Total interest-earning assets 379,816 25,072 8.81 329,004 20,229 8.21
------- ----- ------ ------
Non-interest-earning assets 28,543 20,888
--------- ---------
Total assets $408,359 $349,892
======== ========
Interest-bearing liabilities:
Interest-bearing deposits:
Interest-bearing demand $ 31,283 $ 502 2.15% $ 27,153 $ 434 2.14%
Money market accounts 37,580 905 3.22 33,783 798 3.16
Passbook and statement savings 29,609 603 2.72 28,150 571 2.71
Time deposits 173,425 7,015 5.41 179,654 7,224 5.37
-------- ------ ---- -------- ------ ----
Total interest-bearing deposits 271,897 9,025 4.44 268,740 9,027 4.49
Advances from the Federal Home Loan Bank 31,400 1,537 6.54 27,036 1,141 5.64
Other borrowings 34,154 1,628 6.37 6,648 465 9.34
---------- ------ ---- --------- ------- ----
Total interest-bearing liabilities 337,451 12,190 4.83% 302,424 10,633 4.70%
------ ---- ------ ----
Non-interest-bearing liabilities 49,467 28,587
-------- ----------
Total liabilities 386,918 331,011
Stockholders' equity 21,441 18,881
---------- ----------
Total liabilities and stockholders' equity $408,359 $349,892
======== ========
Net interest income: interest rate spread (3) $12,882 3.98% $9,596 3.51%
======= ==== ====== ====
Net interest margin (4) 4.53% 3.90%
==== ====
Average interest-earning assets to average interest-bearing liabilities 112.55% 108.79%
====== =======
</TABLE>
(1) Includes investment and mortgage-backed securities classified as available
for sale. Yield information does not give effect to changes in fair value
that are reflected in stockholders' equity.
(2) Includes mortgage loans held 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.
(4) Net interest margin represents net interest income divided by average
interest-earning assets.
11
<PAGE>
PROGRESS FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
Total interest income amounted to $8.9 million for the three months ended
September 30,1997, a $1.9 million or 26.9% increase when compared to the same
period in 1996. This increase was due to a $58.8 million increase in earning
assets, which was primarily the result of growth in loans and the acquisition of
the Equipment Leasing Company (ELC) on October 1, 1996. ELC primarily leases
computer and telecommunications equipment. For the three months ended September
30, 1997 income from lease financing was $1.0 million. In addition, income on
commercial business loans and commercial real estate loans increased $826,000
and $197,000, respectively, due to commercial business loans and commercial real
estate loans increasing by $31.8 million and $8.9 million, respectively. These
increases were partially offset by a decrease of $13.3 million in single-family
residential loans which resulted in a $226,000 decrease in related income.
Total interest expense amounted to $4.2 million for the three months ended
September 30, 1997, a $776,000 or 22.4% increase in comparison to the same
period in 1996. Interest expense on deposits increased $42,000 as the average
balance on deposits increased $4.5 million which partially offset a 3 basis
point decline in the average rate on deposits. Interest expense on advances from
the Federal Home Loan Bank and other borrowings increased $464,000, mainly due
to $24.4 million increase in average other borrowings. This increase was due to
additional borrowings necessary to fund the increase in interest-earning assets.
Other borrowings primarily consist of securities sold under agreements to
repurchase and subordinated debt.
For the nine months ended September 30, 1997, total interest income amounted to
$25.1 million, a $4.8 million increase from the same period in 1996. This
increase was due to a $50.8 million increase in earning assets which was
primarily the result of growth in loans and the acquisition of ELC. For the nine
months ended September 30, 1997 income from lease financing was $3.0 million. In
addition, income on commercial business loans and commercial real estate loans
increased $1.7 million and $663,000, respectively, due to commercial business
loans and real estate loans increasing by $22.9 million and $10.4 million,
respectively. These increases were partially offset by a decrease of $16.9
million in single-family residential loans which resulted in a $959,000 decrease
in related income.
For the nine months ended September 30, 1997, total interest expense amounted to
$12.2 million, a $1.6 million increase when compared to the same period in 1996.
Interest expense on deposits decreased $2,000 as the average rate on deposits
decreased 5 basis points which was partially offset by a $3.2 million increase
in the average balance. Interest expense on advances from the Federal Home Loan
Bank and other borrowings increased $1.6 million, mainly due to $27.5 million
increase in average other borrowings. This increase was due to additional
borrowings necessary to fund the increase in interest-earning assets. Other
borrowings primarily consist of securities sold under agreements to repurchase
and subordinated debt.
12
<PAGE>
PROGRESS FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
Provision for Loan and Lease Losses
The Company's provision for loan and lease losses represents the charge against
earnings that is required to fund the allowance for loan and lease losses. The
level of the allowance for loan and lease losses is determined by inherent risks
within the Company's loan and lease portfolio. Management's periodic evaluation
is based upon an examination of the portfolio, past loss experience, current
economic conditions, the results of the most recent regulatory examinations and
other relevant factors. See "Non-Performing Assets."
During the nine months ended September 30, 1997, the Company recorded a $632,000
provision compared with $500,000 for the comparable period in 1996, and had net
charge-offs of $433,000 during the nine months ended September 30, 1997 in
comparison with $10,000 during the comparable period in 1996. At September 30,
1997, the allowance for loan and lease losses amounted to $3.4 million or 1.12%
of total loans and 65.19% of total non-performing loans. See "Non-Performing
Assets - Allowance for Loan and Lease Losses."
The Company's allowance for loan and lease losses increased by $1.1 million,
which included $850,000 relating to an allowance assumed through acquisition, or
51.4% at September 30, 1997 from September 30, 1996. The provision for possible
loan and lease losses of $632,000 for the nine months ended September 30, 1997
was considered necessary by management to maintain the allowance for possible
losses at an adequate level. The ratio of delinquent loans to the total loan
portfolio decreased to 2.5% at September 30, 1997 versus 3.1% at September 30,
1996.
Although management utilizes its best judgement in providing for possible
losses, there can be no assurance that the Company will not have to increase its
provision for possible loan losses in the future as a result of adverse market
conditions for loans in the Company's primary market area, future increases in
non-performing loans and leases or for other reasons. Any such increase could
adversely affect the Company's results of operations. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the Company's allowance for possible loan and lease losses
and the carrying value of its other non-performing assets. Such agencies may
require the Company to recognize additions to its allowance for possible losses
on loans and leases and allowance for possible losses on REO based on their
judgement about information available to them at the time of their examination.
13
<PAGE>
PROGRESS FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
Other Income
The following table details other income for the periods indicated.
<TABLE>
<CAPTION>
For The Three Months For The Nine Months
Ended September 30, Ended September 30
1997 1996 1997 1996
---- ---- ---- ----
(Dollars in Thousands) (Dollars in Thousands)
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Other income:
Mortgage origination and servicing $ 149 $ 184 $ 512 $ 519
Service charges on deposits 329 240 1,098 708
Gain from mortgage banking activities 8 21 35 89
Gain on sale of mortgage servicing rights --- --- 978 924
Gain (loss) from sales of securities (83) 12 (49) 145
Gain on sale of lease receivables 61 --- 61 ---
Loss on properties sold --- (2) (182) (10)
Loan brokerage and advisory fees 344 28 473 296
Lease financing fees 290 108 824 219
Fees and other 374 283 668 477
-------- ------- --- ---------
Total other income $ 1,472 $ 874 $ 4,418 $ 3,367
========= ===== ======= =======
</TABLE>
Total other income amounted to $1.5 million for the three months ended September
30, 1997, an increase of $598,000 compared with the $874,000 in other income for
the three months ended September 30, 1996. The increase in other income for the
three months ended September 30, 1997 compared to the same period in 1996
primarily relates to loan brokerage and advisory fees generated by the Company's
commercial mortgage banking subsidiary. Lease financing fees increased $182,000
which were attributable to the Company's leasing subsidiary acquired in the
fourth quarter of 1996. In addition, service charges on deposits increased
$89,000 over 1996. Partially offsetting these increases was a $83,000 loss on
the sale of securities.
Total other income amounted to $4.4 million for the nine months ended September
30, 1997 an increase of $1.1 million compared with the $3.4 million in other
income for the nine months ended September 30, 1996. The increase primarily
relates to income generated by the Company's leasing subsidiary. In addition
service charges on deposits increased $390,000 when compared to the same period
of 1996.
14
<PAGE>
PROGRESS FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
Other Expense
The following table details other expense for the periods indicated.
<TABLE>
<CAPTION>
For The Three Months For The Nine Months
Ended September 30, Ended September 30,
1997 1996 1997 1996
---- ---- ---- ----
(Dollars in Thousands) (Dollars in Thousands)
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Other expense:
Salaries and employee benefits $ 2,029 $ 1,590 $ 5,824 $ 4,631
Occupancy 291 272 898 1,003
Data processing 224 297 822 837
Furniture, fixtures and equipment 207 144 588 423
Deposit insurance premiums 72 1,985 167 2,406
Loan and real estate owned expense, net 151 29 281 163
Professional services 231 150 645 540
Capital securities expense 398 -- 526 --
Other 791 476 2,301 1,586
-------- ---------- --------- ---------
Total other expense $ 4,394 $ 4,943 $12,052 $ 11,589
======= ======= ======= ========
</TABLE>
Total other expenses amounted to $4.4 million for the three months ended
September 30, 1997, a decrease of $549,000 from the $4.9 million recognized
during the comparable 1996 period. Included in 1996 was a special one-time
assessment of $1.8 million to capitalize the Savings Association Insurance Fund
("SAIF"). Salaries and employee benefits increased in comparison to 1996 due to
additional employees of companies acquired and a higher cost of benefits in
1997. Other increases were capital securities expense of $398,000, loan and real
estate owned expense of $122,000, professional services of $81,000 and
furniture, fixtures and equipment of $63,000. Other expenses increased by
$315,000 primarily relating to increases in advertising and miscellaneous
operating expenses.
Total other expenses amounted to $12.1 million for the nine months ended
September 30, 1997, an increase of $463,000 from the $11.6 million recognized
during the comparable 1996 period. Included in 1996 was a special one-time
assessment of $1.8 million to capitalize the SAIF. Salaries and employee
benefits increased in comparison to 1996 due to additional employees of
companies acquired and a higher cost of benefits in 1997. Other increases were
capital securities expense of $526,000, loan and real estate owned expenses of
$118,000, professional services of $105,000 and furniture, fixtures and
equipment of $165,000. Other expenses increased by $715,000 primarily relating
to increases in advertising and miscellaneous operating expenses.
Income Tax Expense
The company recorded income tax expense of $561,000 for the three months ended
September 30, 1997. For the three months ended September 30, 1996 the Company
recorded an income tax benefit of $299,000. At September 30, 1997, the company
had a net operating loss carry forward for federal income tax purposes of
approximately $3.0 million which expires in 2010.
The Company recorded income tax expenses of $1.7 million and $322,000 for the
nine months ended September 30, 1997 and September 30, 1996, respectively.
15
<PAGE>
PROGRESS FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
FINANCIAL CONDITION
Liquidity and Funding
The Company must maintain sufficient liquidity to meet the funding needs of
current loan demand, savings deposit withdrawals and to pay operating expenses.
The Company generally has no significant source of income other than dividends
from the Bank and its other subsidiaries and any fees paid by the Bank and its
other subsidiaries to the Company. The Bank pays a monthly management fee to the
Company in order to compensate the Company for certain operating expenses.
The Bank is required under applicable federal regulations to maintain specified
levels of "liquid" investments in qualifying types of United States Treasury,
federal agency and other investments having maturities of five years or less.
Regulations currently in effect require the Bank to maintain liquid assets of
not less than 5% of its net withdrawable accounts plus short-term borrowings, of
which short-term liquid assets must consist of not less than 1%. These levels
are changed from time to time by the Office of Thrift Supervision ("OTS") to
reflect economic conditions. The Bank's average liquidity ratio for the three
months ended September 30, 1997 was 5.79%.
The Company monitors its liquidity in accordance with guidelines established by
the Company and applicable regulatory requirements. The Company's need for
liquidity is affected by loan demand and net changes in retail deposit levels.
The Company can minimize the cash required during the times of heavy loan demand
by modifying its credit policies or reducing its marketing efforts. Liquidity
demand caused by net reductions in retail deposits are usually caused by factors
over which the Company has limited control. The Company derives its liquidity
from both its assets and liabilities. Liquidity is derived from assets by
receipt of interest and principal payments and prepayments, by the ability to
sell assets at market prices and by utilizing unpledged assets as collateral for
borrowings. Liquidity is derived from liabilities by maintaining a variety of
funding sources, including retail deposits and advances from the Federal Home
Loan Bank ("FHLB") and other borrowings.
The Company's primary source of funds has historically consisted of deposits,
amortization and prepayments of outstanding loans, borrowings from the FHLB and
other sources and sales of investment securities, loans and mortgage-backed
securities. During the nine months ended September 30, 1997, the Company used
its resources primarily to meet its ongoing commitments to fund maturing savings
certificates and deposit withdrawals, fund existing and continuing loan
commitments and maintain its liquidity.
For the nine months ended September 30, 1997, cash was provided by operating and
financing activities and used in investing activities. Operating activities
provided $8.7 million of cash, primarily due to improved interest income and
lease financing fee income. Investing activities used $56.3 million in cash as
the loan and lease portfolio increased $51.0 million and purchases of
mortgage-backed securities exceeded repayments and sales of such securities by
$1.8 million. Proceeds from sale of real estate owned generated $1.9 million. In
addition, financing activities provided $46.4 million in cash primarily from a
net increase in deposits of $19.0 million, the issuance of $15.0 million of
capital securities and net increases in borrowings of $15.0 million from the
FHLB, partially offset by a decrease in other borrowings of $1.7 million.
At September 30, 1997, the Company had $101.1 million in loan commitments to
extend credit and $700,000 in letters of credit outstanding. At September 30,
1997 there were no FHLB advances scheduled to mature through June 30, 1998.
Other borrowings that are scheduled to mature within one year of September 30,
1997 totaled $9.4 million. Subordinated debentures of $3.0 million are due
June 30, 2004 and are redeemable after July 1, 1996. The capital securities are
due June 1, 2027. At September 30, 1997, the total amount of time deposits
that are scheduled to mature through September 30, 1998 totaled $130.3 million.
16
<PAGE>
PROGRESS FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
Management has focused considerable attention on the retention of the Company's
core deposit base, which has been impacted by increased competition for deposit
funds.
The Company's deposits are obtained primarily from residents near the Bank's
seven full service offices in Montgomery County, one office in Delaware County,
one office in Chester County and one office in the Andorra section of
Philadelphia. The Bank has drive-up banking facilities at three of its offices
and has automated teller machines at all of its offices and at three additional
locations.
The Company offers a wide variety of options to its customer base, including
consumer and commercial demand deposit accounts, negotiable order of withdrawal
accounts, money market accounts, passbook accounts, certificates of deposit and
retirement plans.
Deposits increased $19.1 million during the nine months ended September 30, 1997
from $306.2 million at December 31, 1996 to $325.3 million at September 30,
1997. $10.1 million of this increase was due to a short term escrow deposit for
a customer. The ability of the Company to attract and maintain deposits and the
Company's cost of funds on these deposit accounts have been, and will continue
to be, significantly affected by economic and competitive conditions.
As a member of the FHLB, the Bank is required to own capital stock in the FHLB
and is authorized to apply for advances on the security of such stock and
certain of its home mortgages and other assets (principally securities which are
obligations of, or guaranteed by, the United States), provided certain standards
related to creditworthiness have been met. Advances are made pursuant to several
different credit programs. Each credit program has its own interest rate and
range of maturities. Depending on the program, limitations on the amount of
advances are based either on a fixed percentage of a bank's assets or on the
FHLB's assessment of the bank's creditworthiness. The FHLB credit policies may
change from time to time at its discretion.
The following table presents certain information regarding FHLB advances and
other borrowings for the periods indicated.
<TABLE>
<CAPTION>
At or For the Nine Months
Ended September 30,
1997 1996
----- ----
(Dollars in thousands)
<S> <C> <C>
Average balance outstanding $ 65,554 $ 27,036
Maximum amount outstanding at
any month-end during the period $ 90,015 $ 56,675
Weighted average interest rate during the period 6.45% 5.64%
Weighted average interest rate at end of the period 6.25% 6.47%
</TABLE>
The Company continued to utilize advances from the FHLB as a source of funds to
meet loan demand during the nine months ended September 30, 1997. FHLB advances
increased $15.0 million to $33.0 million at September 30, 1997 from $18.0
million at December 31, 1996. Other borrowings consisting primarily of
securities sold under agreements to repurchase and subordinated debt were $30.6
million at September 30, 1997 and $32.3 million at December 31, 1996.
17
<PAGE>
PROGRESS FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
Capital Resources
The Bank is required pursuant to OTS regulations to have (I) tangible capital
equal to at least 1.5% of adjusted total assets, (ii) core capital equal to at
least 3.0% of adjusted total assets, and (iii) total risk-based capital equal to
at least 8.0% of risk-weighted assets.
At September 30, 1997, the Bank met all regulatory capital requirements. The
following is a reconciliation of the Bank's capital determined in accordance
with generally accepted accounting principles ("GAAP") to regulatory tangible,
core, and risk-based capital at September 30, 1997:
<TABLE>
<CAPTION>
Tangible Core Risk-Based
Capital % Capital % Capital %
------- ---- ------- ---- ----------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
GAAP Capital $ 31,341 $ 31,341 $ 31,341
General valuation allowance --- --- 3,373
Unrealized loss on securities available for sale (96) (96) (96)
Goodwill (2,518) (2,518) (2,518)
------- ------- -------
Total 28,727 6.70% 28,727 6.70% 32,100 10.58%
Minimum capital requirement 6,435 1.50 12,871 3.00 24,272 10.00
----- ----- -------- ----- --------- -----
Regulatory capital - excess $ 22,292 5.20% $ 15,856 3.70% $ 7,828 .58%
======== ===== ======== ===== ========= =======
</TABLE>
The prompt corrective action regulations under the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA") defined specific capital
categories based on an institution's capital ratios. The capital categories, in
declining order, are "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized," and "critically
undercapitalized." Institutions categorized as "undercapitalized" or worse are
subject to certain restrictions, including the requirement to file a capital
plan with their primary Federal regulator, prohibitions on the payment of
dividends and management fees, restrictions on executive compensation, and
increased supervisory monitoring, among other things. To be considered
"adequately capitalized," an institution must generally have a leverage ratio of
at least 4%, a Tier 1 risk-based capital ratio of at least 4%, and a total
risk-based capital ratio of at least 8%.
At September 30, 1997, the Bank's leverage ratio was 6.70%, Tier 1 risk-based
ratio was 9.47%, total risk-based ratio was 10.58%, and tangible equity ratio
was 6.70%, based on leverage capital of $28.7 million, Tier 1 capital of $28.7
million, total risk-based capital of $32.1 million and tangible equity capital
of $28.7 million, respectively. As of September 30, 1997, the Bank was
classified as "well capitalized."
Cash and Due From Banks
Interest-bearing deposits in other banks totaled $231,000 at September 30, 1997
in comparison with $666,000 at December 31, 1996. At September 30, 1997, the
Company also had $9.2 million in cash and non-interest bearing deposits in other
banks compared with $10.0 million at December 31, 1996.
18
<PAGE>
PROGRESS FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
Investment Securities
The Company is required under current OTS regulations to maintain defined levels
of liquidity and utilizes certain investments that qualify as liquid assets. The
Company utilizes deposits with the FHLB, including bankers' acceptances, loans
to financial institutions whose deposits are insured by the FDIC, Federal funds
and United States government and agency obligations. Investments held to
maturity are carried at amortized cost. Investments classified as available for
sale are carried at fair value in accordance with SFAS 115. The Company also
invests in equity investments from time to time and held $2.8 million of such
securities on its books at September 30, 1997.
The following table sets forth the amortized cost, gross unrealized losses,
estimated fair value and carrying value of the investment portfolio at the dates
indicated.
<TABLE>
<CAPTION>
At September 30, 1997
----------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair Carrying
Cost (1) Gain Losses Value Value
-------- ---- ------- ----- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Available for sale:
U.S. agency obligations $ 2,000 $ 3 $ ---- $ 2,003 $2,003
Equity investments 2,430 398 ---- 2,828 2,828
-------- ------- --------- --------- --------
Total available for sale $ 4,430 $ 401 $ --- $ 4,831 $ 4,831
======== ===== ========= ======= =======
Held to maturity:
U. S. Agency obligations $ 2,280 $ --- $ 2 $ 2,278 $ 2,280
FHLB stock, pledged 2,591 --- --- 2,591 2,591
------- -------- ---------- ------- -------
Total held maturity $ 4,871 $ --- $ 2 $ 4,869 $ 4,871
======= ======== ======== ======= =========
At December 31, 1996
---------------------
Available for sale:
U.S. agency obligations $ 3,468 $ -- $ 50 $ 3,418 $ 3,418
Equity investments 30 14 --- 44 44
-------- ---------- ----------- ---------- ---------
Total available for sale $ 3,498 $ 14 $ 50 $ 3,462 $ 3,462
======= ========= ========= ======= =======
Held to maturity:
FHLB stock, pledged $ 1,937 --- --- $ 1,937 $ 1,937
------- --------- ---------- ------- -------
Total held to maturity $ 1,937 $ --- $ --- $ 1,937 $ 1,937
======= ========== ========== ======= =======
</TABLE>
The amortized cost and estimated fair value of investment securities by
contractual maturity at September 30, 1997 are as follows:
<TABLE>
<CAPTION>
Available for sale Held to maturity
----------------- ------------------
Amortized Estimated Amortized Estimated
Cost (1) Fair Value Cost (1) Fair Value
-------- ---------- --------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Due after one year through five years $ 2,000 $ 2,003 $ -- $ --
Due after five years through ten years --- --- -- --
Due after ten years --- --- 2,282 2,280
No stated maturity 2,430 2,828 2,591 2,591
-------- -------- -------- --------
Total investment securities $ 4,430 $ 4,831 $ 4,873 $ 4,871
======= ======= ======= =======
</TABLE>
(1) Original cost of securities adjusted for repayments, amortization of
premiums and accretion of discounts.
19
<PAGE>
PROGRESS FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
Mortgage-Backed Securities
The following tables detail the cost, gross unrealized gains and losses,
estimated fair value and carrying value of mortgage-backed securities by
classification at the dates indicated.
<TABLE>
<CAPTION>
At September 30, 1997
----------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair Carrying
Cost Gains Losses Value Value
--------- --------- ---------- ---------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Held to maturity:
GNMA $ 20,611 $ --- $ 379 $ 20,233 $ 20,611
FNMA 17,146 30 55 17,121 17,146
FHLMC 14,986 73 105 14,954 14,986
---------- ---------- ---------- --------- ---------
Total held to maturity $ 52,743 $ 103 $ 539 $ 52,308 $ 52,743
========= ======== ========= ======== =========
Available for sale:
GNMA $ 28,709 $ 287 $ 10 $ 28,987 $ 28,987
FNMA 1,786 4 15 1,775 1,775
FHLMC 3,036 5 33 3,007 3,007
Collaterized mortgage obligations 3,000 --- 56 2,619 2,619
Non-agency pass through certificate 2,601 18 --- 2,944 2,944
- --------- ---------- ------- --------- -------
Total available for sale $ 39,132 $ 314 $ 114 $ 39,332 $ 39,332
======== =========== ======= ======== ==========
At December 31, 1996
--------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair Carrying
Cost Gains Losses Value Value
---------- -------- ---------- --------- ---------
(Dollars in thousands)
Held to maturity:
GNMA $ 22,759 $ --- $ 542 $ 22,217 $ 22,759
FNMA 7,321 --- 102 7,219 7,321
FHLMC 17,254 42 197 17,099 17,254
-------- --------- ---------- ---------- ------------
Total held to maturity $ 47,334 $ 42 $ 841 $ 46,535 $ 47,334
========== ======== ========= ========= ===========
Available for sale:
GNMA $ 21,770 $ 88 $ 19 $ 21,839 $ 21,839
FNMA 7,335 2 149 7,188 7,188
FHLMC 7,229 20 77 7,172 7,172
Collateralized mortgage obligations 3,000 --- 60 2,940 2,940
Non-agency pass through certificate 3,605 --- 6 3,599 3,599
---------- --------- ----------- -------- ---------
Total available for sale $ 42,939 $ 110 $ 311 $ 42,738 $ 42,738
========= ========= ========= ======== ==========
</TABLE>
20
<PAGE>
PROGRESS FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
Mortgage-backed securities increase the credit quality of the Company's assets
by virtue of the guarantees that back them, are more liquid than individual
mortgage loans and may be used to collateralize borrowings or other obligations
of the Company. The mortgage-backed securities portfolio contains no speculative
derivative securities at September 30, 1997. In addition, the Company has
classified a portion of its mortgage-backed securities portfolio as available
for sale and has sold certain securities from this portfolio in accordance with
the Company's asset/ liability strategy or in response to changes in interest
rates, changes in prepayment rates, the need to increase the Company's
regulatory capital or similar factors.
Mortgage-backed securities classified as held to maturity are carried at
amortized cost and are adjusted for amortization of premiums and accretion of
discounts over the life of the related security pursuant to the level yield
method. Mortgage-backed securities that are held for an indefinite period of
time are classified as available for sale and are carried at fair value pursuant
to SFAS 115. Mortgage-backed securities are classified as available for sale
primarily based on the yield and duration of specific investments. The fixed-
rate balloons and collateralized mortgage obligations held by the Company
approximate the duration of the type of loan the Company originates and
therefore, such securities may be sold to allow for additional loan growth
and/or other asset/liability management strategies.
Although the Company's mortgage-backed securities portfolio may have a shorter
average term to maturity and greater liquidity than the Company's single-family
residential real estate loans, the Company is subject to reinvestment risk with
respect to such portfolio. Specifically, as the Company's mortgage-backed
securities amortize or prepay, the Company may not be able to reinvest the
proceeds of such repayment and prepayments at a comparable favorable rate,
particularly if the mortgage-backed securities were acquired in a higher
interest rate environment. In addition, mortgage-backed securities classified as
available for sale are carried at fair value, which could result in fluctuations
in the Company's stockholders' equity, due to changes in the fair value of such
securities. Accordingly, the Company's portfolio of mortgage-backed securities
classified as available for sale may result in increased volatility in the
Company's liquidity, operations and capital. The Company attempts to address
such risks by actively managing its portfolio in relation to changes in interest
rates and the Company's liquidity needs.
Mortgage-backed securities pledged under agreements to repurchase in connection
with borrowings amounted to $64.6 million at September 30, 1997.
Loans and Leases
The Company's net loan and lease portfolio, excluding loans held for sale,
totaled $299.3 million at September 30, 1997 or 68.5% of its total assets, an
increase of $47.7 million or 19.0% from the $251.6 million outstanding at
December 31,1996. The following table depicts the composition of the Company's
loan and lease portfolio at the dates indicated.
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
------------------- -----------------
Amount Percent Amount Percent
------ ------- ------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Single family residential real estate $58,147 19.21% $ 63,660 24.99%
Commercial real estate 94,837 31.33 90,350 35.47
Construction (net of loans in process 29,236 9.66 20,692 8.12
of $24,059 and $23,641, respectively )
Consumer loans 24,921 8.23 22,898 8.99
Credit card receivables 922 .31 885 .35
Commercial business 60,821 20.09 30,384 11.93
Lease financing 33,794 11.17 25,870 10.15
------ ----- ------ -----
Total loans and leases 302,678 100.00% 254,739 100.00%
======= =======
Allowance for possible loan and lease losses (3,376) (3,177)
------- --------
Net loans and leases $299,302 $251,562
======== ========
</TABLE>
21
<PAGE>
PROGRESS FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
NON-PERFORMING ASSETS
General
Non-performing assets consist of non-accrual loans and REO. Total non-performing
assets amounted to $6.0 million at September 30, 1997, $3.5 million at December
31, 1996 and $3.6 million at September 30, 1996.
The accrual of interest on commercial and mortgage loans is generally
discontinued when loans become 90 days past due and when, in management's
judgement, it is determined that a reasonable doubt exists as to its
collectibility. The accrual of interest is also discontinued on residential and
consumer loans when such loans become 90 days past due, except for those loans
in the process of collection which are secured by real estate with a loan to
value less than 80% where the accrual of interest ceases at 180 days. Consumer
loans generally are charged-off when the loan becomes over 120 days delinquent,
unless secured by real estate and meeting the above-mentioned criteria. When a
loan is placed on non-accrual status, interest accruals cease and uncollected
accrued interest is reversed and charged against current income. Additional
interest income on such loans is recognized only when received. A loan remains
on non-accrual status until the factors which indicate doubtful collectibility
no longer exist, or the loan is liquidated, or when the loan is determined to be
uncollectible and is charged-off against the allowance for loan losses.
Real estate acquired in partial or full satisfaction of loans is recorded at the
lower of cost (recorded balance of the loan at foreclosure plus foreclosure
costs) or fair value through a charge to the allowance for loan losses and the
lower of this new cost basis or fair value less estimated costs to sell
thereafter. Valuations are periodically performed by management, and any
subsequent decline in fair value is charged to operations. Costs relating to the
development and improvement of property are capitalized, whereas costs relating
to the holding of property are only capitalized when carrying value does not
exceed fair value. The interest costs relating to the development of real estate
are capitalized. Gains on the sale of real estate are recognized upon
disposition of the property and losses are charged to operations as incurred.
22
<PAGE>
PROGRESS FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
The following table details the Company's non-performing assets at the dates
indicated:
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1997 1996 1996
------------ ----------- ------------
(Dollars in thousands)
<S> <C> <C> <C>
Loans and leases accounted for on a $2,105 $1,328 $1,361
non-accrual basis
REO, net of related reserves 3,880 2,150 2,247
------- ------- -------
Total non-performing assets $5,985 $3,478 $3,608
====== ====== ======
Non-performing loans and leases as a
percentage of total loans and leases 1.73% 2.15% 1.62%
===== ===== =====
Non-performing assets as a
percentage of total assets 1.37% 0.91% 0.98%
====== ===== =====
Accruing loans 90 or more days past due $3,075 $4,077 $2,351
======= ====== ======
</TABLE>
Non-performing assets increased $2.5 million to $6.0 million at September 30,
1997 from $3.5 million at December 31, 1996. This increase is mainly due to a
higher level of REO at June 30, 1997 as a result of the foreclosure on one
commercial mortgage property and the disposition of three commercial properties.
The $2.1 million of non-accrual loans at September 30, 1997 consists of $1.5
million of loans secured by single family residential property, $225,000 of
consumer loans, $25,000 of commercial mortgages, $140,000 of lease financing and
$85,000 of business loans. The $3.9 million of REO at September 30, 1997
consists of two commercial real estate properties, one single family property
and one undeveloped residential lot.
Delinquencies
All loans and leases are reviewed on a regular basis and are placed on
non-accrual status when, in the opinion of management, the collection of
additional interest is deemed unlikely to warrantfurther accrual. See
"Non- Performing Assets-General."
The following table sets forth information concerning the principal balances and
percent of the total loan and lease portfolio represented by delinquent loans
and leases at the dates indicated:
<TABLE>
<CAPTION>
September 30 December 31, September 30,
1997 1996 1996
---- ---- ----
Amount Percent Amount Percent Amount Percent
------- ------- ------ ------- ------ -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Delinquencies:
30 to 59 day $ 2,486 .83% $ 2,535 1.00% $ 4,042 1.76%
60 to 89 days 1,954 .65 392 .15 637 .28
90 or more days 3,075 1.03 4,077 1.62 2,351 1.02
--------- ---- -------- ---- --------- ----
Total $ 7,515 2.51% $ 7,004 2.77% $ 7,030 3.06%
======= ===== ======= ===== ======= =====
</TABLE>
23
<PAGE>
PROGRESS FINANCIAL CORPORATION--------------------------------------------------
Allowance for Possible Loan Losses
The following table details the Company's allowance for possible loan losses for
the periods indicated:
<TABLE>
<CAPTION>
At or At or
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1997 1996 1997 1996
--- ---- ----- -----
(Dollars in thousands) (Dollars in thousands)
<S> <C> <C> <C> <C>
Average loans outstanding $ 298,399 $ 225,127 $ 280,873 $ 223,094
========= ============ ======== =========
Balance beginning of period $ 3,142 $ 2,114 $ 3,177 $ 1,720
Charge-offs:
Residential real estate --- --- 3 24
Commercial real estate --- --- 358 ---
Consumer 3 --- 44 41
Commercial 50 --- 138 ---
--------- --------- -------- ---------
Total charge-offs 53 --- 543 65
--------- --------- -------- ---------
Recoveries:
Real estate construction --- --- --- ---
Residential real estate --- --- 4 2
Commercial real estate 24 --- 24 30
Consumer 6 7 9 18
Commercial 16 9 73 25
------- ----------- -------- --------
Total recoveries 46 16 110 75
------- ---------- ------- --------
Net charge-offs (recoveries) 7 (16) 433 (10)
Additions charged to operations 241 100 632 500
-------- ---------- --------- ---------
Balance at end of period $ 3,376 $ 2,230 $ 3,376 $ 2,230
========= ========= ======== =========
Ratio of net charge-offs (recoveries) during
the period to average loans outstanding
during the period --- (.01)% .15% ---
=== ===== === ===
Ratio of allowance for possible loan losses to
non-performing loans at end of period 65.19% 60.07% 65.19% 60.07%
====== ===== ===== =====
</TABLE>
An allowance for possible loan losses is maintained at a level that management
considers adequate to provide for potential losses based upon an evaluation of
known and inherent risks in the loan portfolio. The allowance for possible loan
losses is based on estimated net realizable value unless it is probable that
loans will be foreclosed, in which case the allowance for loan losses is based
on fair value. Management's periodic evaluation is based upon examination of the
portfolio, past loss experience, current economic conditions, the results of the
most recent regulatory examination, and other relevant factors. While management
uses the best information available to make such evaluations, future adjustments
to the allowance may be necessary if economic conditions differ substantially
from the assumptions used in making evaluations.
24
<PAGE>
PROGRESS FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in routine legal proceeding occurring in the ordinary
course of business which management, after reviewing the foregoing actions with
legal counsel, is of the opinion that the liability, if any, resulting from such
actions will not have a material effect on the financial condition or results of
operations of the Company.
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Other Information
None
Item 5. Exhibits and Reports on Form 8-K
None
Exhibit 11 - Statement re: Computation of per share earnings
25
<PAGE>
PROGRESS FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Progress Financial Corporation
November 13, 1997 /s/ W.Kirk Wycoff
- ----------------- -------------------------
Date W. Kirk Wycoff, Chairman,
President and Chief Executive
Officer
November 13, 1997 /s/ Frederick E. Schea
- ----------------- --------------------------
Date Frederick E. Schea,
Senior Vice President and
Chief Financial Officer
26
<PAGE>
PROGRESS FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
Exhibit (11)
Computation of Earnings Per Share
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1997 1996 (1) 1997 1996
---- ---- ----- -----
<S> <C> <C> <C> <C>
A. Net Income applicable to common stock $ 902,000 $ (619,000) $ 2,893,000 $ 552,000
Primary Earnings Per Share:
Average Shares outstanding 3,975,674 3,916,500 3,964,533 3,864,576
Dilative average shares outstanding under
options and warrants 671,415 - 671,415 613,725
Exercise prices $ .95 to $ .95 to $ .95 to $ .95 to
$10.83 $10.83 $10.83 $10.83
Assumed proceeds on exercise 3,441,820 - 3,441,820 2,781,915
Market value per share $ 12.59 - $ 10.10 $5.94
Less: Treasury stock purchased with the assumed
Proceeds from exercise of options and warrants 273,399 - 354,704 467,952
------- ------- ------- -------
B. Adjusted average shares - Primary 4,373,690 3,916,500 4,281,244 4,010,349
========= ========= ========= =========
Primary Earnings Per Share:
Net income (A/B) $0.21 $(0.16) $0.68 $0.13
===== ===== ===== =====
Full Diluted Earning Per Share:
Average shares outstanding 3,975,674 3,916,500 3,964,533 3,864,576
Dilative average shares outstanding under
options and warrants 671,415 - 671,415 613,725
Exercise prices $ .95 to $ .95 to $ .95 to $ .95 to
$10.83 $10.83 $10.83 $10.83
Assumed proceeds on exercise 3,441,820 - 3,441,820 2,781,915
Market value per share $14.69 $ - $14.69 $6.13
Less: Treasury stock purchases with the assumed
proceeds from exercise of options and warrants 234,337 - 324,946 453,819
------- ------- --------- -------
C. Adjusted average shares - Fully diluted 4,412,752 3,916,500 4,311,002 4,024,482
========= ========= ========= =========
Fully Diluted Earnings Per Share:
Net income (A/C) $0.20 $(0.16) $0.67 $0.13
===== ===== ===== =====
(1) Due to loss in quarter, no equivalents assumed.
</TABLE>
27
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000790183
<NAME> David Kiefer
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-Mos
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jul-01-1997
<PERIOD-END> Sep-30-1997
<CASH> 9,218
<INT-BEARING-DEPOSITS> 231
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 44,163
<INVESTMENTS-CARRYING> 43,562
<INVESTMENTS-MARKET> 57,614
<LOANS> 302,678
<ALLOWANCE> 3,376
<TOTAL-ASSETS> 436,746
<DEPOSITS> 325,296
<SHORT-TERM> 63,588
<LIABILITIES-OTHER> 9,571
<LONG-TERM> 0
0
0
<COMMON> 4,010
<OTHER-SE> 19,281
<TOTAL-LIABILITIES-AND-EQUITY> 436,746
<INTEREST-LOAN> 7,172
<INTEREST-INVEST> 1,646
<INTEREST-OTHER> 56
<INTEREST-TOTAL> 8,874
<INTEREST-DEPOSIT> 3,049
<INTEREST-EXPENSE> 4,248
<INTEREST-INCOME-NET> 4,626
<LOAN-LOSSES> 241
<SECURITIES-GAINS> (83)
<EXPENSE-OTHER> 4,394
<INCOME-PRETAX> 1,463
<INCOME-PRE-EXTRAORDINARY> 1,463
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 902
<EPS-PRIMARY> .22
<EPS-DILUTED> .21
<YIELD-ACTUAL> 8.85
<LOANS-NON> 2,105
<LOANS-PAST> 5,180
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,142
<CHARGE-OFFS> 53
<RECOVERIES> 46
<ALLOWANCE-CLOSE> 3,376
<ALLOWANCE-DOMESTIC> 3,376
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3,376
</TABLE>
