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 June 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) 3,785,813
------------------------------ -----------------------
Title of Each Class Number of Shares Outstanding
as of August 13, 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 June 30, 1997
(unaudited) and December 31, 1996...........................................3
Consolidated Statements of Operations for the three and six months ended
June 30, 1997 and 1996 (unaudited)..........................................4
Consolidated Statements of Cash Flows for the six months ended
June 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...........................................................28
Item 2. Changes in Securities.......................................................28
Item 3. Defaults upon Senior Securities.............................................28
Item 4. Submission of Matters to a Vote of Security Holders .......................28
Item 5. Other Information...........................................................28
Item 6. Exhibits and Reports on Form 8-K............................................28
Signatures..................................................................29
</TABLE>
<PAGE>
PROGRESS FINANCIAL CORPORATION
- ------------------------------------------------------------------------
PART I- FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
--------- -----------
(Dollars in thousands)
<S> <C> <C>
(unaudited)
Assets Cash and due from banks:
Interest bearing $ 262 $ 666
Non-interest bearing 8,276 9,967
Investment securities:
Available for sale at fair value (amortized cost: $3,545 in 1997 and $3,498 in 1996) 3,561 3,462
Held to maturity (fair value: $1,717 in 1997 and $1,937 in 1996) 1,717 1,937
Mortgage-backed securities:
Available for sale at fair value (amortized cost: $46,206 in 1997 and $42,939 in 1996) 46,160 42,738
Held to maturity at amortized cost (fair value: $42,857 in 1997 and $46,535 in 1996) 43,782 47,334
Loans and leases 289,902 251,562
Loans held for sale (fair value: $404 in 1997 and $600 in 1996) 393 599
Real estate owned, net 3,880 2,150
Premises and equipment 8,163 7,725
Accrued interest receivable 2,425 2,156
Deferred income taxes 1,603 3,064
Other assets 8,534 10,289
----------- ----------
Total assets $418,658 $383,649
======== ========
Liabilities and Stockholders' Equity
Liabilities:
Deposits $301,909 $306,248
Advances from the Federal Home Loan Bank 28,600 18,000
Other borrowings 35,932 32,270
Advance payments by borrowers 5,049 4,628
Accrued interest payable 1,335 984
Other liabilities 8,802 1,565
----------- -----------
Total liabilities 381,627 363,695
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; 3,814,180 and
3,785,000 shares issued at June 30, 1997 and December 31, 1996, respectively 3,814 3,785
Capital surplus 17,751 17,715
Unearned Employee Stock Ownership Plan (189) (214)
Retained earnings (deficit) 707 (1,134)
Unrealized loss on securities available for sale,
net of deferred income taxes (52) (198)
---- -----
Total stockholders' equity 22,031 19,954
---------- ----------
Total liabilities, minority interest in subsidiaries and stockholders' equity $418,658 $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 Six Months
Ended June 30, Ended June 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 $ 6,671 $ 4,881 $ 12,835 $ 9,940
Mortgage-backed securities 1,513 1,537 3,059 2,921
Investment securities 100 109 210 226
Other 69 74 94 149
---------- ---------- --------- --------
Total interest income 8,353 6,601 16,198 13,236
-------- -------- ------ ------
Interest expense:
Deposits 3,018 2,989 5,977 6,021
Advances from the Federal Home
Loan Bank 460 282 867 664
Subordinated debt and other borrowings 555 109 1,098 206
-------- -------- ------ -------
Total interest expense 4,033 3,380 7,942 6,891
------- ------- ------ ------
Net interest income 4,320 3,221 8,256 6,345
Provision for possible loan and lease losses 200 100 391 400
-------- -------- ------- -------
Net interest income after provision for loan losses 4,120 3,121 7,865 5,945
------ ------- ------ ------
Other income:
Mortgage origination and servicing 252 152 363 335
Service charges on deposits 409 233 769 468
Gain from mortgage banking activities 25 28 27 68
Gain on sale of mortgage servicing rights --- --- 978 924
Gain from sales of securities --- 24 34 133
Gain (loss) on properties sold 11 (2) (182) (8)
Loan brokerage and advisory fees 99 305 129 268
Lease financing fees 261 65 534 111
Fees and Other 189 142 294 194
------- ------- -------- ------
Total other income 1,246 947 2,946 2,493
------- ------ ------- -----
Other expense:
Salaries and employee benefits 1,952 1,534 3,795 3,041
Occupancy 310 367 607 731
Data processing 286 315 598 540
Furniture, fixtures, and equipment 198 118 381 279
Deposit insurance premiums 49 152 95 421
Loan and real estate owned expense, net 36 48 130 134
Professional services 187 168 414 390
Other 974 661 1,638 1,110
-------- --------- -------- ------
Total other expense 3,992 3,363 7,658 6,646
------- -------- -------- ------
Income before income taxes 1,374 705 3,153 1,792
Income tax expense 507 251 1,162 621
-------- -------- -------- ----------
Net income $ 867 $ 454 $ 1,991 $ 1,171
======= ======= ======= ========
Net Income per share $ .22 $ .12 $ .50 $ .31
======== ======== ========= ========
Dividends per share $ .02 $ --- $ .04 $ ---
======== ========= ========= =========
Average shares outstanding 4,024,420 3,903,666 4,015,172 3,843,277
========= ========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE>
PROGRESS FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For The Six Months
Ended June 30,
1997 1996
---- ----
(Dollars in thousands)
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,991 $1,171
Add (deduct) items not affecting cash flows from operating activities:
Depreciation and amortization 417 319
Provision for possible loan and lease losses 391 400
Deferred income tax expense 1,461 621
Capitalized interest on real estate owned --- (2)
Gain from mortgage banking activities (955) (68)
Gain from sales of securities available for sale (34) (133)
Loss on properties sold 182 8
Amortization of deferred loan fees (558) (423)
Amortization of premiums/accretion
of discounts on securities 335 312
Originations and purchases of loans held for sale --- (9,755)
Sales of loans held for sale 72 10,654
(Increase) decrease in accrued interest receivable (269) 21
(Increase) decrease in other assets 2,378 (878)
Increase in other liabilities 7,236 4,044
Increase in accrued interest payable 351 234
----------- ----------
Net cash flows provided by operating activities 12,998 6,525
----------- ---------
</TABLE>
(continued)
See Notes to Consolidated Financial Statements.
5
<PAGE>
PROGRESS FINANCIAL CORPORATION
- ------------------------------------------------------------------------------
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
For The Six Months
Ended June 30,
1997 1996
------ ------
(Dollars in thousands)
(unaudited)
<S> <C> <C>
Cash flows from investing activities:
Capital expenditures $ (855) $ (1,758)
Purchases on mortgage-backed securities held to maturity --- (3,000)
Purchases of mortgage-backed securities available for sale (10,043) (27,006)
Purchase of investment securities available for sale --- (3,000)
Repayments on mortgage-backed securities held to maturity 3,359 4,682
Repayments on mortgage-backed securities available for sale 3,610 5,532
Sales of mortgage-backed securities available for sale 3,039 17,509
Sales of investments available for sale --- 5,133
Maturities of investments held to maturity 220 212
Proceeds from sales of real estate owned 1,897 253
Net increase in loans (41,564) (2,579)
--------- -----------
Net cash flows used in investing activities (40,337) (4,022)
--------- -----------
Cash flows from financing activities:
Net (decrease) increase in demand, NOW and saving deposits (1,888) 1,702
Net decrease in time deposits (2,450) (3,959)
Net (decrease) increase in advances from the FHLB 10,600 (6,000)
Net increase in advance payments by borrowers 421 3,000
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 (152) ---
------------ -------------
Net cash flows (used in) provided by financing activities 25,244 (2,677)
Net decrease in cash and cash equivalents (2,095) (174)
Cash and cash equivalents:
Beginning of year 10,633 7,089
---------- -----------
End of period $ 8,538 $ 6,915
========== ==========
Supplemental disclosures:
Non-monetary transfers:
Net conversion of loans receivable to real estate owned $ 3,503 $ 139
========== ===========
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 $ 8 $ ---
============= =============
Interest $ 7,719 $ 6,714
========== ==========
</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 six months ended June
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. 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 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 $867,000 or $.22 per share for the three
months ended June 30, 1997, in comparison with net income of $454,000 or $.12
per share for the three months ended June 30, 1997. Return on average
stockholders' equity was 16.23% and return on average assets was .86% for the
three months ended June 30, 1997 compared to 9.50% and .53%, respectively for
the three months ended June 30, 1996.
For the six months ended June 30, 1997 the Company had net income of $2.0
million or $.50 per share in comparison with net income of $1.2 million or $.31
per share for the six months ended June 30, 1996. Return on average
stockholders' equity was 19.23% and return on average assets was 1.01%for the
six months ended June 30, 1997 compared to 12.60% and .68%, respectively for the
six months ended June 30, 1996.
Net interest income was $4.3 million and $3.2 million for the three months ended
June 30, 1997 and 1996, respectively. Operating results for the three months
ended June 30, 1997 and 1996 included $200,000 and $100,000 respectively, in
provision for possible loan and lease losses. Other income for the three months
ended June 30, 1997 and June 30, 1996 included service charges on deposits of
$409,000 and $233,000. Other expenses totaled $4.0 million for the three months
ended June 30, 1997 in comparison with $3.4 million for the same period in 1996.
The increase of $629,000 is primarily due to increased salaries and employee
benefits and increased other operating expenses. Other increases were furniture,
fixtures and equipment of $80,000 and professional services of $19,000. Other
expenses increased by $213,000 primarily relating to increases in advertising
and miscellaneous operating expenses. These increases were offset by decreases
of $103,000 in deposit insurance premiums and $57,000 of occupancy expenses.
For the six months ended June 30, 1997, net interest income was $8.3 million in
comparison with $6.3 million for the six months ended June 30, 1996. Operating
results for the six months ended June 30, 1997 and 1996 included $391,000 and
$400,000, respectively, in provision for possible loan losses. Other income for
the six months ended June 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 totaled $7.7 million for the six months ended June 30, 1997 in
comparison with $6.6 million for the same period in 1996. The increase of $1.1
million is primarily due to increased salaries and employee benefits relating to
additional employees of companies acquired, a higher cost of benefits in 1997
and increased other operating expenses. These increases were offset by decreases
of $326,000 in deposit insurance premiums and $124,000 of occupancy expenses.
Total assets increased to $418.7 million at June 30, 1997 from $383.6 million at
December 31, 1996. Loans and leases increased $38.3 million. The increase in
assets was funded by increases in borrowings and from the issuance of $15.0
million of capital securities. The net interest margin increased to 4.59% from
3.99% at December 31, 1996 and 3.99% at June 30, 1996.
The company's equity increased to $22.0 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.
8
<PAGE>
PROGRESS FINANCIAL CORPORATION
- -------------------------------------------------------------------------------
RESULTS OF OPERATIONS
Net Interest Income
For the three months ended June 30,1997 net interest income amounted to $4.3
million in comparison with $3.2 million for the same period in 1996. Net
interest income for the three months ended June 30, 1997 was positively impacted
by a $52.9 million increase in average interest-earning assets, while average
interest-bearing liabilities increased $44.8 million. The interest rate spread
increased 55 basis points in the second quarter of 1997 compared to the same
period in 1996, primarily due to a 70 basis point increase in the average yield
on interest-earning assets and a 15 basis point increase in the average rate on
interest-bearing liabilities.
For the six months ended June 30, 1997, net interest income amounted to $8.3
million in comparison with $6.3 million for the same period of 1996. Net
interest income for the six months ended June 30, 1997 was positively impacted
by a $8.2 million improvement in the excess of average interest-earning assets
over average interest bearing liabilities at June 30, 1997 compared to June 30,
1996. Also, the interest rate spread improved to 4.04% from 3.55%.
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 June 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 $ 11,334$ 169 5.98% $ 11,996 $ 183 6.14%
Mortgage-backed securities (1) 86,936 1,513 6.98 94,790 1,537 6.52
Single family residential loans (2) 62,252 1,213 7.82 75,376 1,519 8.11
Commercial real estate loans 92,427 2,158 9.36 81,602 1,883 9.28
Construction loans 27,609 774 11.24 17,637 498 11.36
Commercial business loans 41,056 997 9.74 20,867 504 9.71
Lease financing 31,623 1,015 12.87 --- --- ---
Consumer loans 24,243 514 8.50 22,266 477 8.62
------ --- ---- ------ --- ----
Total interest-earning assets 377,480 8,353 8.88 324,534 6,601 8.18
----- ---- ----- ---- ----
Non-interest-earning assets 27,776 20,310
---------- ---------
Total assets $405,256 $344,844
======== ========
Interest-bearing liabilities:
Interest-bearing deposits:
NOW and Super NOW $ 32,307 $ 171 2.12% $ 27,488 $ 147 2.15%
Money market accounts 37,198 298 3.21 32,387 246 3.05
Passbook and statement savings 29,508 200 2.72 28,224 189 2.69
Time deposits 174,789 2,349 5.39 180,893 2,407 5.35
--------- ------- ---- --------- ------- ----
Total interest-bearing deposits 273,802 3,018 4.42 268,992 2,989 4.47
Advances from the Federal Home Loan Bank 28,402 460 6.50 21,240 281 5.34
Other borrowings 34,027 555 6.54 6,000 110 7.37
------------ -------- ---- -------------------- ----
Total interest-bearing liabilities 336,231 4,033 4.81% 296,232 3,380 4.59%
----- ---- ----- ----
Non-interest-bearing liabilities 47,606 29,366
---------- ----------
Total liabilities 383,837 325,598
Stockholders' equity 21,419 19,246
---------- ----------
Total liabilities and stockholders' equity $405,256 $344,844
======== ========
Net interest income: interest rate spread (3) $4,320 4.07% $3,221 3.59%
====== ==== ====== ====
Net interest margin (4) 4.59% 3.99%
==== ====
Average interest-earning assets to average interest-bearing liabilities 112.27% 109.55%
====== =======
</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 Six Months Ended June 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 $ 10,266$ 304 5.97% $ 11,838 $ 375 6.32%
Mortgage-backed securities (1) 88,332 3,059 6.98 89,988 2,921 6.53
Single family residential loans (2) 63,305 2,457 7.83 82,017 3,190 7.82
Commercial real estate loans 92,990 4,376 9.49 81,898 3,910 9.60
Construction loans 24,606 1,287 10.55 16,699 942 11.34
Commercial business loans 37,560 1,792 9.62 19,278 936 9.77
Lease financing 29,546 1,925 13.14 --- --- ---
Consumer loans 23,957 998 8.40 22,206 962 8.71
------ --- ---- ------ --- ----
Total interest-earning assets 370,562 16,198 8.81 323,924 13,236 8.21
------ ---- ------ ----
Non-interest-earning assets 28,136 19,906
---------- ---------
Total assets $398,698 $343,830
======== ========
Interest-bearing liabilities:
Interest-bearing deposits:
NOW and Super NOW $ 31,585 $ 332 2.12% $ 27,071 $ 284 2.11%
Money market accounts 37,926 615 3.27 33,293 506 3.06
Passbook and statement savings 29,436 398 2.73 27,924 375 2.70
Time deposits 173,362 4,632 5.39 181,344 4,856 5.38
--------- ------ ---- --------- ------- ----
Total interest-bearing deposits 272,309 5,977 4.43 269,632 6,021 4.49
Advances from the Federal Home Loan Bank 26,579 867 6.58 22,396 654 5.87
Other borrowings 34,454 1,098 6.43 5,500 216 7.90
---------- ------ ---- ----------- -------- ----
Total interest-bearing liabilities 333,342 7,942 4.77% 297,528 6,891 4.66%
----- ---- ----- ----
Non-interest-bearing liabilities 44,480 27,606
-------- ----------
Total liabilities 377,822 325,134
Stockholders' equity 20,876 18,696
---------- ----------
Total liabilities and stockholders' equity $398,698 $343,830
======== ========
Net interest income: interest rate spread (3) $8,256 4.04% $6,345 3.55%
====== ==== ====== ====
Net interest margin (4) 4.49% 3.94%
==== ====
Average interest-earning assets to average interest-bearing liabilities 111.17% 108.87%
====== =======
</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 $8.4 million for the three months ended June
30,1997, a $1.8 million or 26.6% increase when compared to the same period in
1996. This increase was due to a $46.6 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
telecommunication equipment. For the three months ended June 30, 1997 income
from lease financing was $1.0 million. In addition, income on commercial
business loans and commercial real estate loans increased $493,000 and $275,000,
respectively, due to commercial business loans and commercial real estate loans
increasing by $20.2 million and $10.8 million, respectively. These increases
were partially offset by a decrease of $13.1 million in single-family
residential loans which resulted in a $306,000 decrease in related income.
Total interest expense amounted to $4.1 million for the three months ended June
30, 1997, a $653,000 or 19.3% increase in comparison to the same period in 1996.
Interest expense on deposits increased $29,000 as the average balance on
deposits increased $4.9 million which partially offset a 5 basis point decline
in the average rate on deposits. Interest expense on advances from the Federal
Home Loan Bank and other borrowings increased $624,000, mainly due to $40.0
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 six months ended June 30, 1997, total interest income amounted to $16.2
million a $3.0 million increase from the same period in 1996. This increase was
due to a $46.7 million increase in earning assets which was primarily the result
of growth in loans and the acquisition of ELC. For the six months ended June 30,
1997 income from lease financing was $1.9 million. In addition, income on
commercial business loans and commercial real estate loans increased $856,000
and $467,000, respectively, due to commercial real estate loans increasing by
$18.3 million and $11.1 million, respectively. These increases were partially
offset by a decrease of $18.7 million in single-family residential loans which
resulted in a $733,000 decrease in related income.
For the six months ended June 30, 1997, total interest expense amounted to $7.9
million, a $1.1 million increase when compared to the same period in 1996.
Interest expense on deposits decreased $44,000 as the average rate on deposits
decreased 6 basis points which partially offset a $2.7 million increase in the
average balance. Interest expense on advances rom the Federal Home Loan Bank and
other borrowings increased $1.1 million, mainly due to $31.3 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 six months ended June 30, 1997, the Company recorded a $391,000
provision compared with $400,000 for the comparable period in 1996, and had net
charge-offs of $426,000 during the six months ended June 30, 1997 in comparison
with $6,000 during the comparable period in 1996. At June 30, 1997, the
allowance for loan and lease losses amounted to $3.2 million or 1.08% of total
loans and 68.87% 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
49.8% at June 30, 1997 from June 30, 1996. The provision for possible loan and
lease losses of $391,000 for the six months ended June 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 2.9% at June 30, 1997 versus 5.7% at June 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 Six Months
Ended June 30, Ended June 30
1997 1996 1997 1996
---- ---- ---- ----
(Dollars in Thousands) (Dollars in Thousands)
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Other income:
Mortgage origination and servicing $ 252 $ 152 $363 $ 335
Service charges on deposits 409 233 769 468
Gain from mortgage banking activities 25 28 27 68
Gain on sale of mortgage servicing rights --- --- 978 924
Gain from sales of securities --- 24 34 133
Gain (loss) on properties sold 11 (2) (182) (8)
Loan brokerage and advisory fees 99 305 129 268
Lease financing fees 261 65 534 111
Fees and other 189 142 294 194
-------- -------- --------- ---------
Total other income $ 1,246 $ 947 $ 2,946 $ 2,493
========= ======= ======= =======
</TABLE>
Total other income amounted to $1.2 million for the three months ended June 30,
1997, an increase of $299,000 compared with the $947,000 in other income for the
three months ended June 30, 1996. The increase in other income for the three
months ended June 30, 1997 compared to the same period in 1996 primarily relates
to lease financing fees generated by the Company's leasing subsidiary acquired
in the fourth quarter of 1996. Service charges on deposits increased $176,000
over 1996. Also, property management, investment advisory and miscellaneous fees
increased in 1997 through subsidiary companies that were established during
1996. Mortgage origination and servicing fees increased $100,000 in comparison
to the same period in 1996. Partially offsetting these increases was a decrease
in loan brokerage fees of $206,000 in comparison to the same period of 1996.
Total other income amounted to $2.9 million for the six months ended June 30,
1997 an increase of $453,000 compared with the $2.5 million in other income for
the six months ended June 30, 1996. The increase primarily relates to income
generated by the Company's leasing subsidiary. In addition service charges on
deposits increased $301,000 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 Six Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
---- ---- ---- ----
(Dollars in Thousands) (Dollars in Thousands)
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Other expense:
Salaries and employee benefits $ 1,952 $ 1,534 $ 3,795 $ 3,041
Occupancy 310 367 607 731
Data processing 286 315 598 540
Furniture, fixtures and equipment 198 118 381 279
Deposit insurance premiums 49 214 95 421
Loan and real estate owned expense, net 36 48 130 134
Professional services 187 168 414 390
Other 974 599 1,638 1,110
---------- ---------- --------- ---------
Total other expense $ 3,992 $ 3,363 $ 7,658 $ 6,646
======== ======== ======= ========
</TABLE>
Total other expenses amounted to $4.0 million for the three months ended June
30, 1997, an increase of $629,000 from the $3.4 million recognized during the
comparable 1996 period, primarily due to increases in salaries and employee
benefits relating to additional employees of companies acquired and a higher
cost of benefits in 1997. Other increases were furniture, fixtures and equipment
expenses of $80,000 and professional expenses of $19,000. Other expenses
increased by $375,000 primarily relating to $128,000 of capital securities
expense and increases in advertising and miscellaneous operating expenses. These
increases were partially offset by decreases of $165,000 in deposit insurance
premiums and $57,000 of occupancy expenses.
Total other expense amounted to $7.7 million for the six months ended June 30,
1997 and increase of $1.0 million from the $6.6 million recognized during the
comparable 1996 period, primarily due to increases in salaries and employee
benefits relating to additional employees of companies acquired and a higher
cost of benefits in 1997. Other increases were furniture, fixtures and equipment
expense of $102,000 and data processing expense of $58,000. Other expenses
increased by $528,000 primarily relating to $128,000 of capital securities
expense and increases in advertising and miscellaneous operating expenses. These
increases were partially offset by decreases of $326,000 in deposit insurance
premiums and $124,000 of occupancy expenses.
15
<PAGE>
PROGRESS FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
Income Tax Expense
The company recorded income tax expenses of $507,000 and $251,000 for the three
months ended June 30, 1997 and June 30, 1996, respectively. At June 30, 1997,
the company had a net operating loss carry forward for federal income tax
purposes of approximately $ 3.6 million which expires in 2010.
The Company recorded income tax expenses of $1.2 million and $621,000 for the
six months ended June 30, 1997 and June 30, 1996, respectively.
16
<PAGE>
PROGRESS FINANCIAL CORPORATION
- -------------------------------------------------------------------------------
FINANCIAL CONDITION
Liquidity and Funding
The Company must maintain sufficient liquidity to meet the funding needs of
current loan demand, savings deposit withdrawals and to pay operating expenses.
The Company generally has no significant source of income other than dividends
from the Bank and its other subsidiaries and any fees paid by the Bank and its
other subsidiaries to the Company. The Bank 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 OTS to reflect economic conditions. The
Bank's average liquidity ratio for the three months ended June 30, 1997 was
6.54%.
The Company monitors its liquidity in accordance with guidelines established by
the Company and applicable regulatory requirements. The Company's need for
liquidity is affected by loan demand and net changes in retail deposit levels.
The Company can minimize the cash required during the times of heavy loan demand
by modifying its credit policies or reducing its marketing efforts. Liquidity
demand caused by net reductions in retail deposits are usually caused by factors
over which the Company has limited control. The Company derives its liquidity
from both its assets and liabilities. Liquidity is derived from assets by
receipt of interest and principal payments and prepayments, by the ability to
sell assets at market prices and by utilizing unpledged assets as collateral for
borrowings. Liquidity is derived from liabilities by maintaining a variety of
funding sources, including retail deposits and advances from the FHLB 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 six months ended June 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 six months ended June 30, 1997, cash was provided by operating and
financing activities and used in investing activities. Operating activities
provided $13.0 million of cash, primarily due to improved interest income and
lease financing fee income. Investing activities used $40.3 million in cash as
the loan and lease portfolio increased $41.6 million and repayments and sales of
mortgage-backed securities exceeded purchases of such securities by $1.3
million. Proceeds from sale of real estate owned generated $1.9 million. In
addition, financing activities provided $25.2 million in cash primarily from the
issuance of $15.0 million of capital securities, net increases in borrowings of
$10.6 million from the Federal Home Loan Bank, other borrowings of $3.7 million,
partially offset by a net decrease in deposits of $4.3 million.
At June 30, 1997, the Company had $80.3 million in loan commitments to extend
credit and $930,000 in letters of credit outstanding. At June 30, 1997, FHLB
advances that are scheduled to mature through June 30, 1998 totaled $5.0
million. Other borrowings that are scheduled to mature within one year of June
30, 1997 totaled $9.8 million. The subordinated debentures are due June 30, 2004
and are redeemable after July 1, 1996. The capital securities are due June 1,
2027. At June 30, 1997, the total amount of time deposits that are scheduled to
mature through June 30, 1998 totaled $124.6 million.
17
<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 generally does not advertise for deposits outside of its
market area. The Bank has drive-up banking facilities at three of its offices
and has automated teller machines ("ATM's") 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
("NOW") accounts, money market accounts, passbook accounts, certificates of
deposit and retirement plans.
Deposits decreased $4.3 million during the six months ended June 30, 1997 from
$306.2 million at December 31, 1996 to $301.9 million at June 30, 1997. 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 Six Months
Ended June 30,
1997 1996
----- ----
(Dollars in thousands)
<S> <C> <C>
Average balance outstanding $ 61,033 $ 22,396
Maximum amount outstanding at
any month-end during the period $ 64,532 $ 21,000
Weighted average interest rate during the period 6.50% 5.87%
Weighted average interest rate at end of the period 6.29% 6.70%
</TABLE>
The Company continued to utilize advances from the FHLB as a source of funds to
meet loan demand during the six months ended June 30, 1997. FHLB advances
increased $10.6 million to $28.6 million at June 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 $35.9 million at June
30, 1997 and $32.3 million at December 31, 1996.
18
<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 June 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 June 30, 1997:
<TABLE>
<CAPTION>
Tangible Core Risk-Based
Capital % Capital % Capital %
------- ----- -------- ----- ---------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
GAAP Capital $ 30,166 $ 30,166 $ 30,166
General valuation allowance --- --- 3,149
Unrealized loss on securities available for sale 72 72 72
Goodwill (2,571) (2,571) (2,571)
------- ------- -------
Total 27,667 6.68% 27,667 6.68% 30,816 10.56%
Minimum capital requirement 6,216 1.50 12,432 3.00 23,339 8.00
----- ----- -------- ----- --------- ----
Regulatory capital - excess $ 21,451 5.18% $ 15,235 3.68% $ 7,477 2.56%
======== ===== ======== ===== ========= =====
</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 June 30, 1997, the Bank's leverage ratio was 6.68%, Tier 1 risk-based ratio
was 9.48%, total risk-based ratio was 10.56%, and tangible equity ratio was
6.68%, based on leverage capital of $27.7 million, Tier 1 capital of $27.7
million, total risk-based capital of $30.8 million and tangible equity capital
of $27.7 million, respectively. As of June 30, 1997, the Bank was classified as
"well capitalized."
Cash and Due From Banks
Interest-bearing deposits in other banks totaled $262,000 at June 30, 1997 in
comparison with $666,000 at December 31, 1996. At June 30, 1997, the Company
also had $8.3 million in cash and non-interest bearing deposits in other banks
compared with $10.0 million at December 31, 1996.
19
<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 $60,000 of such
securities on its books at June 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 June 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 $ 3,453 $ --- $ 14 $ 3,439 $ 3,439
Equity investments 92 30 -- 122 122
------ ------- ---------- ------ -------
Total available for sale $ 3,545 $ 30 $ 14 $ 3,561 $ 3,561
======= ====== ======== ======== =======
Held to maturity:
FHLB stock, pledged $ 1,717 $ --- $ --- $ 1,717 $ 1,717
------- -------- ---------- ------- -------
Total held maturity $ 1,717 $ --- $ --- $ 1,717 $ 1,717
======= ======== ========== ======= =========
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 June 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 $ 1,000 $ 997 $ -- $ --
Due after five years through ten years 2,453 2,441 -- --
Due after ten years --- --- -- --
No stated maturity 30 60 1,717 1,717
---------- --------- -------- --------
Total investment securities $ 3,483 $ 3,498 $ 1,717 $ 1,717
======== ======== ======== ========
</TABLE>
(1) Original cost of securities adjusted for repayments, amortization of
premiums and accretion of discounts.
Total realized loss on the sale of a $1.0 million investment security classified
as available for sale was $12,000 for the six months ended June 30, 1997.
20
<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 June 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 $ 21,388 $ --- $ 579 $ 20,809 $ 21,388
FNMA 6,750 --- 135 6,614 6,750
FHLMC 15,644 41 252 15,434 15,644
----------- --------- ---------- -------- --------
Total held to maturity $ 43,782 $ 41 $ 966 $ 42,857 $ 43,782
========== ========= ========= ======== =========
Available for sale:
GNMA $ 30,246 $ 174 $ 23 $ 30,397 $ 30,397
FNMA 5,957 --- 126 5,831 5,831
FHLMC 4,294 27 44 4,278 4,278
Collaterized mortgage obligations 3,000 --- 60 2,940 2,940
Non-agency pass through certificate 2,709 6 --- 2,714 2,714
- ----------- ---------- ---------- ----------- ---------
Total available for sale $ 46,206 $ 207 $ 253 $ 46,160 $ 46,160
========= =========== ======== ======== ==========
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>
21
<PAGE>
PROGRESS FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
Mortgage-backed securities increase the credit quality of the Company's assets
by virtue of the guarantees that back them, are more liquid than individual
mortgage loans and may be used to collateralize borrowings or other obligations
of the Company. The mortgage-backed securities portfolio contains no speculative
derivative securities at June 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 $57.8 million at June 30, 1997.
22
<PAGE>
PROGRESS FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
Loans and Leases
The Company's net loan and lease portfolio, excluding loans held for sale,
totaled $289.9 million at June 30, 1997 or 69.2% of its total assets, an
increase of $38.3 million or 15.2% 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>
June 30, 1997 December 31, 1996
------------------ ---------------------
Amount Percent Amount Percent
------ -------- ------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Single family residential real estate $ 60,136 20.52%$ 63,660 24.99%
Commercial real estate 94,231 32.15 90,350 35.47
Construction (net of loans in process 31,059 10.60 20,692 8.12
of $23,610 and $23,641, respectively )
Consumer loans 23,976 8.18 22,898 8.99
Credit card receivables 857 .29 885 .35
Commercial business 49,723 16.97 30,384 11.93
Lease financing 33,087 11.29 25,870 10.15
------ ----- ------ -----
Total loans and leases 293,069 100.00% 254,739 100.00%
======= =======
Allowance for possible loan and lease losses (3,167) (3,177)
------- --------
Net loans and leases $ 289,902 $ 251,562
============ ===========
</TABLE>
23
<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 June 30, 1997, $3.5 million at December 31,
1996 and $5.2 million at June 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.
24
<PAGE>
PROGRESS FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
The following table details the Company's non-performing assets at the dates
indicated:
<TABLE>
<CAPTION>
June 30, December 31, June 30,
1997 1996 1996
---------- ----------- ---------
(Dollars in thousands)
<S> <C> <C> <C>
Loans and leases accounted for on a $ 2,087 $ 1,328 $ 4,546
non-accrual basis (1)
REO, net of related reserves 3,880 2,150 612
---------- ----------- ----------
Total non-performing assets 5,967 3,478 5,158
Non-performing loans and leases as a
percentage of total loans and leases 1.59% 0.54% 2.08%
===== ===== =====
Non-performing assets as a
percentage of total assets 1.43% 0.91% 1.48%
====== ===== =====
Accruing loans 90 or more days past due 2,512 4,077 7,430
</TABLE>
(1) Includes impaired loans of $2.9 million at June 30, 1996. There were no
impaired loans at June 30, 1997 or December 31, 1996. The Company recognized no
interest on impaired loans in 1997 or 1996.
Non-performing assets increased $2.5 million to $6.0 million at June 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 June 30, 1997 consists of $1.4 million
of loans secured by single family residential property, $208,000 of consumer
loans, $406,000 of commercial mortgages, $32,000 of lease financing and $89,000
of business loans. The $4.0 million of REO at June 30, 1997 consists of two
commercial real estate properties, one single family property and four
undeveloped residential lots.
25
<PAGE>
PROGRESS FINANCIAL CORPORATION
- -------------------------------------------------------------------------------
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 warrant further 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>
June 30, December 31, June 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 $ 5,493 1.89% $ 2,535 1.00% $ 4,743 2.17%
60 to 89 days 484 .17 392 .15 341 .16
90 or more days 2,512 .87 4,077 1.62 7,430 3.40
--------- --- -------- ---- ---------- ----
Total $ 8,489 2.92% $ 7,004 2.78% $ 12,514 5.73%
======== ===== ======= ===== ======== =====
</TABLE>
26
<PAGE>
PROGRESS FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
Allowance for Possible Loan Losses
The following table details the Company's allowance for possible loan losses for
the periods indicated:
<TABLE>
<CAPTION>
At or At or
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
---- ---- ---- ----
(Dollars in thousands) (Dollars in thousands)
<S> <C> <C> <C> <C>
Average loans outstanding $ 279,210 $ 217,748 $ 271,964 $ 222,098
========= =========== ========= ==========
Balance beginning of period $ 3,345 $ 2,050 $ 3,177 $ 1,720
Charge-offs:
Residential real estate --- 24 3 24
Commercial real estate 329 --- 358 ---
Consumer 35 43 41 43
Commercial 62 --- 88 ---
-------- --------- --------- ----------
Total charge-offs 426 67 490 67
-------- -------- -------- ----------
Recoveries:
Real estate construction --- --- --- ---
Residential real estate --- --- 4 3
Commercial real estate --- 30 --- 30
Consumer 3 1 3 10
Commercial 20 --- 57 18
------- ----------- -------- ----------
Total recoveries 23 31 64 61
------- ------------- -------- ----------
Net charge-offs 403 36 426 6
Additions charged to operations 200 100 391 400
-------- ---------- --------- ----------
Balance at end of period $ 3,142 $ 2,114 $ 3,142 $ 2,114
========= ========= ========= =========
Ratio of net charge-offs during the period to
average loans outstanding during the period .14% .02% .16% .00%
=== === === ===
Ratio of allowance for possible loan losses to
non-performing loans at end of period 150.55% 46.50% 150.55% 46.50%
======= ===== ======= =====
</TABLE>
An allowance for possible loan losses is maintained at a level that management
considers adequate to provide for potential losses based upon an evaluation of
known and inherent risks in the loan portfolio. The allowance for possible loan
losses is based on estimated net realizable value unless it is probable that
loans will be foreclosed, in which case the allowance for loan losses is based
on fair value. Management's periodic evaluation is based upon examination of the
portfolio, past loss experience, current economic conditions, the results of the
most recent regulatory examination, and other relevant factors. While management
uses the best information available to make such evaluations, future adjustments
to the allowance may be necessary if economic conditions differ substantially
from the assumptions used in making evaluations.
27
<PAGE>
PROGRESS FINANCIAL CORPORATION
- -------------------------------------------------------------------------------
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in routine legal proceeding occurring in the ordinary
course of business which management, after reviewing the foregoing actions with
legal counsel, is of the opinion that the liability, if any, resulting from such
actions will not have a material effect on the financial condition or results of
operations of the Company.
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
The Company's annual meeting of stockholders was held April 30, 1997 for the
following purposes:
1) To elect three directors for a term of three years (A. John May, III,
Charles J. Tornetta, W. Kirk Wycoff)
2) To adopt the Amended and Restated 1993 Stock Incentive Plan.
3) To adopt the Amended and Restated 1993 Director's Stock Option Plan.
4) To ratify the appointment of Coopers & Lybrand L.L.P. as the Company's
independent auditors for the year ended December 31, 1997.
All proposals were adopted by the Company's stockholders as follows:
<TABLE>
<CAPTION>
1) Election of Directors For Against Abstain/Not Voted
--- ------- -----------------
<S> <C> <C> <C>
A. John May, III 3,232,800 10,208 0
Charles J. Tornetta 3,233,290 9,718 0
W. Kirk Wycoff 3,231,297 11,711 0
2) Approve Amended & Restated 1993 2,032,648 82,736 25,208
Stock Incentive Plan.
3) Approve Amended and Restated 1993 2,151,120 103,389 17,234
Director's Stock Option Plan
4) Ratify appointment of Coopers and 3,225,370 12,136 5,502
Lybrand L.L.P.
</TABLE>
Item 5. Other Information
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.
Item 6. Exhibits and Reports on Form 8-K
Exhibit 11 - Statement re: Computation of per share earnings
28
<PAGE>
PROGRESS FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Progress Financial Corporation
August 13, 1997 /s/W. Kirk Wycoff
- -------------- ---------------------------
Date W. Kirk Wycoff, Chairman,
President and Chief Executive
Officer
August 13, 1997 /s/Frederick E. Schea
- -------------- ----------------------------
Date Frederick E. Schea,
Senior Vice President and
Chief Financial Officer
29
<PAGE>
PROGRESS FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
Exhibit (11)
Computation of Earnings Per Share
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
A. Net Income applicable to common stock $ 867,000 $ 454,000 $ 1,991,000 $1,171,000
Primary Earnings Per Share:
Average Shares outstanding 3,777,376 3,730,000 3,768,436 3,655,825
Dilative average shares outstanding under
options and warrants 586,443 584,500 586,443 584,500
Exercise prices $1.00 to $1.00 to $1.00 to $1.00 to
$11.38 $11.38 $11.38 $11.38
Assumed proceeds on exercise 3,003,007 2,778,635 3,003,007 2,778,635
Market value per share $8.83 $6.76 $8.85 $6.29
Less: Treasury stock purchased with the assumed
Proceeds from exercise of options and warrants 339,399 410,834 339,707 444,213
------- ------- ------- -------
B. Adjusted average shares - Primary 4,024,420 3,903,666 4,015,172 3,796,111
========= ========= ========= =========
Primary Earnings Per Share:
Net income (A/B) $0.22 $0.12 $0.50 $0.31
===== ===== ===== =====
Full Diluted Earning Per Share:
Average shares outstanding 3,777,376 3,730,000 3,768,436 3,655,824
Dilative average shares outstanding under
options and warrants 586,443 584,500 586,443 584,500
Exercise prices $1.00 to $1.00 to $1.00 to $1.00 to
$11.38 $11.38 $11.38 $11.38
Assumed proceeds on exercise 3,003,007 2,778,635 3,003,007 2,587,625
Market value per share $10.50 $6.50 $10.50 $6.50
Less: Treasury stock purchases with the assumed
proceeds from exercise of options and warrants 286,001 410,834 314,601 397,047
------- ------- ------- -------
C. Adjusted average shares - Fully diluted 4,077,818 3,903,666 4,040,278 3,843,277
========= ========= ========= =========
Fully Diluted Earnings Per Share:
Net income (A/C) $0.21 $0.12 $0.49 $0.30
===== ===== ===== =====
</TABLE>
30
<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> Apr-01-1997
<PERIOD-END> Jun-30-1997
<CASH> 8,276
<INT-BEARING-DEPOSITS> 262
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 49,721
<INVESTMENTS-CARRYING> 49,751
<INVESTMENTS-MARKET> 49,658
<LOANS> 293,069
<ALLOWANCE> 3,167
<TOTAL-ASSETS> 418,658
<DEPOSITS> 301,909
<SHORT-TERM> 64,532
<LIABILITIES-OTHER> 15,186
<LONG-TERM> 0
0
0
<COMMON> 3,814
<OTHER-SE> 18,217
<TOTAL-LIABILITIES-AND-EQUITY> 418,658
<INTEREST-LOAN> 6,671
<INTEREST-INVEST> 1,613
<INTEREST-OTHER> 69
<INTEREST-TOTAL> 8,353
<INTEREST-DEPOSIT> 3,018
<INTEREST-EXPENSE> 4,033
<INTEREST-INCOME-NET> 4,320
<LOAN-LOSSES> 200
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,992
<INCOME-PRETAX> 1,374
<INCOME-PRE-EXTRAORDINARY> 1,374
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 867
<EPS-PRIMARY> .22
<EPS-DILUTED> .22
<YIELD-ACTUAL> 8.88
<LOANS-NON> 2,087
<LOANS-PAST> 8,489
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,345
<CHARGE-OFFS> 426
<RECOVERIES> 23
<ALLOWANCE-CLOSE> 3,142
<ALLOWANCE-DOMESTIC> 3,142
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3,164
</TABLE>
