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Securities and Exchange Commission
Washington, D.C. 20549
Form 10-K
Annual Report pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 1996
Commission File Number: 0-14815
PROGRESS FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 23-2413363
- ---------------------------------- -------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
4 Sentry Parkway - Suite 230
P.O. Box 3036
Blue Bell, Pennsylvania 19422-2311
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (610) 825-8800
Securities registered pursuant to Section 12(b) of
the Act: Not applicable
Securities registered pursuant to Section 12(g) of Common Stock,
the Act: $1.00 par value
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K. X
The aggregate market value of the voting stock, held by non-affiliates of the
Registrant as a group, was $29,203,401 as of March 7, 1997.
As of March 7, 1997, there were 3,775,748 issued and outstanding shares of the
Registrant's Common Stock.
Documents Incorporated By Reference:
(1) Portions of the Annual Report to Stockholders for the year ended December
31, 1996 are incorporated into Part II, items 5 through 8 of this Form 10-K.
(2) Portions of the definitive proxy statement for the 1997 Annual Meeting of
Stockholders are incorporated into Part III, Items 10 through 13 of this Form
10-K.
PROGRESS FINANCIAL CORPORATION
Table of Contents
PART 1 Page
Item 1. Business............................................. 3
Item 2. Properties........................................... 16
Item 3. Legal Proceedings.................................... 16
Item 4. Submission of Matters to a Vote of
Security Holders.................................... 16
PART II
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters..................... 16
Item 6. Selected Consolidated Financial Data................. 16
Item 7. Management's Discusion and Analysis of Financial
Condition and Results of Operations................ 16
Item 8. Financial Statements and Supplementary Data.......... 16
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.............. 16
PART III
Item 10. Directors and Executive Officers
of the Registrant................................... 17
Item 11. Executive Compensation............................... 17
Item 12. Security Ownership of Certain Beneficial
Owners and Management............................... 17
Item 13. Certain Relationships and Related Transactions....... 17
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K............................. 18
Signatures........................................... 20
PART I
Item 1. Business
General
Progress Financial Corporation (the "Company") was incorporated under the laws
of the State of Delaware in February 1986 by authorization of the Board of
Directors of Progress Federal Savings Bank (the "Bank") for the purpose of
becoming a unitary thrift holding company owning all of the outstanding stock of
the Bank. On July 18, 1986, pursuant to a plan of reorganization approved by the
Bank's shareholders, all of the outstanding shares of capital stock of the Bank
were converted into shares of capital stock of the Company on a share-for-share
basis so that the shareholders of the Bank became the shareholders of the
Company, and the Company became the sole shareholder of the Bank. The business
activity of the Company as a unitary thrift holding company consists primarily
of the operation of the Bank as a wholly-owned savings bank subsidiary.
The Company is authorized as a Delaware corporation to engage in any activity
permitted by the Delaware General Corporation Law. The holding company structure
permits the Bank, through the Company, to expand the size and scope of the
financial services offered beyond those that the Bank is permitted to offer.
The Bank is a Federally chartered stock savings bank conducting community
banking business through seven offices in Montgomery County, Pennsylvania, one
office in Delaware County, Pennsylvania, one office in Chester County,
Pennsylvania and one office in the Andorra community of Philadelphia,
Pennsylvania.
The principal business of the Bank consists of attracting deposits from the
general public through its offices and using such deposits to originate loans
secured by first mortgage liens on existing single-family residential real
estate and existing multi-family residential and commercial real estate,
construction loans, commercial business loans consisting primarily of loans to
small and medium-sized businesses, and various consumer loans. The Bank
originates single-family residential real estate loans for sale in the secondary
market and secured consumer loans, such as home equity loans and lines of
credit. The Bank also originates commercial business loans to small and
medium sized businesses in the communities its branches serve and commercial
real estate (including multi-family residential) and residential construction
loans. In addition, the Bank invests in mortgage-backed securities which are
insured or guaranteed by the U.S. Government and agencies thereof and other
similar investments permitted by applicable laws and regulations. The Bank is
also involved in real estate development and related activities, through its
subsidiaries, primarily to facilitate the completion and sale of certain
property held as real estate owned ("REO").
The Company also conducts commercial mortgage banking and brokerage services for
institutional real estate investors and lenders as well as real estate owners
and developers and provides asset management services through its subsidiaries,
Progress Realty Advisors, L.P. ("PRA"), Progress Capital Inc., ("PCI) and
Progress Asset Management Company ("PAM"). PRA was established in September
1993, while PCI and PAM were both established during 1996.
On January 31, 1996, the Company successfully completed the offering of 500,000
shares of common stock at a price of $5.25 per share.
On October 1, 1996 the Company acquired all of the outstanding stock of The
Equipment Leasing Company ("ELC"). ELC primarily leases computer and
telecommunication equipment. ELC became a wholly-owned subsidiary of Progress
Bank. Quaker State Financial Corporation ("QSFC") was merged into ELC and
continues to operate as Quaker State Leasing Company.
Competition
The Company faces strong competition both in attracting deposits and making
loans. As a provider of a wide range of financial services, the Company competes
with national and state banks, savings and loan associations, securities
dealers, brokers, mortgage bankers, finance and insurance companies, and other
financial service companies. The ability of the Company to attract and retain
deposits depends on its ability to generally provide a rate of return, liquidity
and risk comparable to that offered by competing investment opportunities. The
Company competes for loans principally through the interest rates and loan fees
it charges and the efficiency and quality of services it provides borrowers.
Subsidiaries
At December 31, 1996, in addition to the Bank, the Company had three other
subsidiaries, Progress Realty Advisors, L.P. ("PRA"), Progress Capital, Inc.,
("PCI") and Progress Asset Management Company ("PAM"). PRA, which was formed in
September 1993, provides loan sale advisory, commercial mortgage banking, and
commercial mortgage brokerage services to both institutional real estate
investors and lenders, as well as real estate owners and developers. PCI and PAM
were both formed in 1996. PCI is the corporate general partner of a venture
fund, co-sponsored by the Ben Franklin Technology Center of Southeastern PA. The
venture fund will target early-stage Pennsylvania companies with proven,
innovative products. PAM is a Registered Investment Advisor that provides short
term cash investment services.
3
REGULATION AND SUPERVISION
General
Two of the Company's non-banking subsidiaries (PRA and PAM) are subject to the
laws of the Commonwealth of Pennsylvania. PCI is a Delaware corporation. The
Company, as a unitary thrift holding company is subject to comprehensive
examination, supervision and regulation by the Office of Thrift Supervision
("OTS"). As a subsidiary of a unitary thrift holding company, the Bank is
subject to certain restrictions in its dealings with the Company and affiliates
thereof.
The Bank
Insurance of Deposits
The Bank's deposits are insured by the Savings Association Insurance Fund
("SAIF") to a maximum of $100,000 for each depositor. The Federal Deposit
Insurance Corporation ("FDIC") requires an annual audit by independent
accountants and may also examine Federal savings banks whose deposits are
insured.
Federal law requires that the FDIC maintain the reserve level of each of the
SAIF and the Bank Insurance Fund ("BIF") at 1.25% of insured deposits. The BIF
reached this level during 1995. A one-time assessment on thrift institutions
sufficient to recapitalize the SAIF was enacted in September 1996. On September
30 1996, the Bank paid a special one-time premium of $1.8 million to capitalize
SAIF. Deposit insurance premiums in 1997 will be 6.48 cents per $100 of
deposits, compared to an average 27.49 cents per $100 of deposits in 1996.
Deposit insurance is payable on a quarterly basis.
Qualified Thrift Lender Test
All savings associations are required to meet a qualified thrift lender ("QTL")
test set forth in Section 10(m) of the Home Owners' Loan Act ("HOLA") and
regulations of the OTS thereunder to avoid certain restrictions on their
operations.
Currently, the QTL test requires that 65% of an institution's "portfolio assets"
(as defined) consist of certain housing and consumer related assets on a monthly
average basis in 9 out of every 12 months.
At December 31, 1996, approximately 71.3% of the Bank's assets were invested in
qualified thrift investments, which was in excess of the percentage required to
qualify under the QTL test. For all 12 months of 1996, the bank exceeded the QTL
requirement.
Federal Home Loan Bank System
The Bank is a member of the FHLB which administers the home financing credit
function and serves as a source of liquidity for member savings associations and
commercial banks within its assigned region. It makes loans to members (i.e.,
advances) in accordance with policies and procedures establish by its Board of
Directors. As of December 31, 1996, the Bank's advances from the FHLB amounted
to $18.0 million.
As a member, the Bank is required to purchase and maintain stock in the FHLB of
Pittsburgh in an amount equal to the greater of 1% of its mortgage related
assets or .3% of total assets. At December 31, 1996, the Bank had $1.9 million
in FHLB stock, which was in compliance with this requirement.
Federal Limitations on Transactions with Affiliates
Transactions between savings associations and any affiliate are governed by
Sections 23A and 23B of the Federal Reserve Act. In addition to the restrictions
imposed, no savings associations may (i) loan or otherwise extend credit to an
affiliate which engages only in activities which are permissible for bank
holding companies, or (ii) purchase or invest in any stocks, bonds, debentures,
notes, or similar obligations of any affiliate, except for affiliates which are
subsidiaries of the savings association.
In addition, Section 12 CRF-215 (Regulation O) of the Code of Federal
Regulations places restrictions on loans by savings associations to executive
officers, directors, and principal stockholders of the Company and the Bank. At
December 31, 1996, the Bank was in compliance with this regulation.
4
Employees
As of December 31, 1996, the Company and PCI had no employees. The Bank had 143
full-time and 22 part-time employees, while PRA had 11 full-time and 4 part-time
employees. PAM had 2 full-time and no part-time employees.
Statistical Information
Statistical information is furnished pursuant to the requirements of Guide 3
(Statistical Disclosure by Bank Holding Companies) promulgated under the
Securities Act of 1933. The information required herein is incorporated by
reference from pages 10 to 18 of the Company's Annual Report to Stockholders.
Additional disclosures required in Guide 3 and not incorporated by reference are
included below.
Tabular information is provided in thousands of dollars except for share and per
share data.
5
Investment Securities
Investment securities are comprised of the following at December 31, 1996, 1995
and 1994:
1996
----
Held to Maturity Available for Sale
---------------- ------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
- --------------------------------------------------------------------------------------------------
FHLB of Pittsburgh stock, pledged $ 1,937 $ 1,937 $ -- $ --
U.S. agency obligations --- --- 3,468 3,418
Equity investments --- --- 30 44
- --------------------------------------------------------------------------------------------------
Total investment securities $ 1,937 $ 1,937 $ 3,498 $ 3,462
==================================================================================================
1995
----
Held to Maturity Available for Sale
---------------- ------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
- --------------------------------------------------------------------------------------------------
FHLB of Pittsburgh stock, pledged $ 2,149 $ 2,149 $ -- $ --
U.S. agency obligations --- --- 5,497 5,474
Equity investments --- --- 30 30
- --------------------------------------------------------------------------------------------------
Total investment securities $ 2,149 $ 2,149 $ 5,527 $ 5,504
==================================================================================================
1994
----
Held to Maturity Available for Sale
---------------- ------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
- --------------------------------------------------------------------------------------------------
FHLB of Pittsburgh stock, pledged $ 2,303 $ 2,303 $ -- $ --
U.S. agency obligations 10,564 9,625 4,999 4,597
Equity investments --- --- 30 30
- --------------------------------------------------------------------------------------------------
Total investment securities $ 12,867 $ 11,928 $ 5,029 $ 4,627
==================================================================================================
The investment securities which are classified as held to maturity and available
for sale have a weighted average coupon rate of 6.25% and 6.52%, respectively,
at December 31, 1996.
6
Mortgage-Backed Securities
The following table details the Bank's mortgage-backed securities by
classification at December 31, 1996, 1995 and 1994.
1996
----
Held to Maturity Available for Sale
---------------- ------------------
Amortized Estimated Fair Amortized Estimated Fair
Cost Value Cost Value
- --------------------------------------------------------------------------------------------------
GNMA $ 22,759 $ 22,217 $ 21,770 $ 21,839
FNMA 7,321 7,219 7,335 7,188
FHLMC 17,254 17,099 7,229 7,172
Collateralized mortgage
obligations -- -- 3,000 2,940
Non-agency pass through certificate -- -- 3,605 3,599
- --------------------------------------------------------------------------------------------------
$ 47,334 $ 46,535 $ 42,939 $ 42,738
==================================================================================================
1995
----
Held to Maturity Available for Sale
---------------- ------------------
Amortized Estimated Fair Amortized Estimated Fair
Cost Value Cost Value
- --------------------------------------------------------------------------------------------------
GNMA $ 26,618 $ 26,113 $ 168 $ 168
FNMA 8,620 8,529 8,801 8,631
FHLMC 17,595 17,448 19,040 18,863
Collateralized mortgage
obligations -- -- 7,501 7,440
Non-agency pass through certificate -- -- 1,734 1,740
- --------------------------------------------------------------------------------------------------
$ 52,833 $ 52,090 $ 37,244 $ 36,842
==================================================================================================
1994
----
Held to Maturity Available for Sale
---------------- ------------------
Amortized Estimated Fair Amortized Estimated Fair
Cost Value Cost Value
- --------------------------------------------------------------------------------------------------
GNMA $ 29,325 $ 27,080 $ 227 $ 219
FNMA 21,577 19,932 1,098 1,014
FHLMC 42,771 40,093 3,429 3,155
Collateralized mortgage
obligations -- -- 4,998 4,715
- --------------------------------------------------------------------------------------------------
$ 93,673 $ 87,105 $ 9,752 $ 9,103
==================================================================================================
7
Mortgage-Backed Securities (continued)
The following table sets forth the activity in the Bank's mortgage-backed
securities portfolio during the periods indicated:
- ------------------------------------------------------------------------------------------------------------------
For the years ended December 31, 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------
Mortgage-backed securities at beginning of period $ 89,675 $ 102,776 $ 125,947
Purchases (1) 52,800 11,577 26,555
Conversion of existing loans to mortgage-backed securities 9,982 241 24,979
Sales of loans converted to securities (9,982) (241) (24,979)
Sales from portfolio (34,924) (11,182) (19,833)
Repayments (17,082) (13,096) (27,299)
Premium amortization (598) (553) (2,001)
Other -- (94) 55
Change in unrealized loss on securities available for sale 201 247 (648)
- ------------------------------------------------------------------------------------------------------------------
Mortgage-backed securities at end of period (2) $ 90,072 $ 89,675 $ 102,776
- ------------------------------------------------------------------------------------------------------------------
Weighted average coupon at end of period 7.88% 7.63% 7.38%
==================================================================================================================
(1) Includes applicable premiums and discounts.
(2) Includes $42.7 million, $36.8 million and $9.1 million of mortgage-backed
securities classified as available for sale at estimated fair value at
December 31, 1996, 1995 and 1994, respectively.
Loan and Lease Portfolio
The principal categories in the Bank's loan and lease portfolio are residential
real estate loans, which are secured by single-family (one-to-four units)
residences; commercial real estate loans, which are secured by multi-family
(over five units) residential and commercial real estate; loans for the
construction of single-family, multi-family and commercial properties, including
land acquisition and development loans; commercial business loans, lease
financing, consumer loans and credit card receivables. Substantially all of the
Bank's mortgage loan portfolio consists of conventional mortgage loans, which
are loans that are neither insured by the Federal Housing Administration nor
partially guaranteed by the Department of Veterans Affairs.
The Bank's net loan and lease portfolio, including loans held for sale, totalled
$252.2 million at December 31, 1996 or 65.7% of its total assets, an increase of
$27.4 million or 12.2% from the $224.8 million outstanding at December 31, 1995.
The following table depicts the composition of the Bank's portfolio at December
31 of the years indicated net of unearned income.
- ------------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
- ------------------------------------------------------------------------------------------------------------------------------------
Real estate loans:
Single family
residential (1) $ 64,259 25.17% $ 91,091 40.21% $ 99,917 48.12% $ 80,196 45.26% $ 54,560 34.27%
Commercial
real estate 90,350 35.38 81,535 36.00 71,273 34.33 68,530 38.69 70,646 44.38
Construction 20,692 8.10 14,230 6.28 5,379 2.59 3,922 2.22 6,038 3.79
- ------------------------------------------------------------------------------------------------------------------------------------
Total real estate
loans 175,301 68.65 186,856 82.49 176,569 85.04 152,648 86.17 131,244 82.44
- ------------------------------------------------------------------------------------------------------------------------------------
Commercial business 30,384 11.90 17,244 7.61 12,005 5.78 9,250 5.22 12,025 7.56
- ------------------------------------------------------------------------------------------------------------------------------------
Lease financing 25,870 10.13 --- --- --- --- --- --- --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
Consumer loans:
Consumer 22,898 8.97 21,666 9.57 19,027 9.17 15,257 8.61 15,928 10.00
Credit card receivables 885 .35 757 .33 24 .01 --- --- --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
Total consumer loans 23,783 9.32 22,423 9.90 19,051 9.18 15,257 8.61 15,928 10.00
- ------------------------------------------------------------------------------------------------------------------------------------
Total loans and leases 255,338 100.00% 226,523 100.00% 207,625 100.00% 177,155 100.00% 159,197 100.00%
Allowance for possible
loan and lease losses (3,177) (1,720) (1,503) (2,113) (2,703)
- ------------------------------------------------------------------------------------------------------------------------------------
Net loans and leases $252,161 $224,803 $206,122 $175,042 $156,494
====================================================================================================================================
(1) Includes $599,000, $3.2 million and $351,000 of loans classified as held for
sale at December 31, 1996, 1995 and 1994, respectively.
8
Loan and Lease Portfolio (continued)
The following table sets forth the scheduled contractual amortization of loans
and leases in the Bank's total loan and lease portfolio (including loans
classified as held for sale) at December 31, 1996. Loans and leases having no
stated schedule of repayments and no stated maturity are reported as due in one
year or less. The following table also sets forth the dollar amount of loans and
leases which are scheduled to mature after one year which have fixed or
adjustable rates.
- -------------------------------------------------------------------------------------------------------------------
Real Estate Real Estate Lease Commercial
Mortgage Construction Financing Business Consumer Total
- -------------------------------------------------------------------------------------------------------------------
Amounts due
One year or less $ 9,199 $ 12,921 $11,345 $14,810 $ 1,255 $ 49,530
After one year through
five years 27,724 7,771 14,468 11,514 8,083 69,560
Beyond five years 117,686 -- 57 4,060 14,445 136,248
- -------------------------------------------------------------------------------------------------------------------
Total $154,609 $ 20,692 $25,870 $30,384 $23,783 $255,338
===================================================================================================================
Interest rate terms on
amounts due after one
year:
Fixed $ 54,343 $ -- $14,525 $ 6,789 $16,560 $ 92,217
- -------------------------------------------------------------------------------------------------------------------
Adjustable $ 91,067 $ 7,771 $ -- $ 8,785 $ 5,968 $113,591
- -------------------------------------------------------------------------------------------------------------------
Scheduled contractual principal repayments do not reflect the actual maturities
of loans and leases. The average maturity of loans and leases is less than their
average contractual terms because of prepayments and, in the case of
conventional mortgage loans due and payable in the event, among other things,
that the borrower sells the real property subject to the mortgage and the loan
is not repaid. The average life of mortgage loans tends to increase when current
mortgage loan rates are higher than rates on existing mortgage loans and,
conversely, decrease when rates on existing mortgages are lower than current
mortgage loan rates (due to refinancing of adjustable-rate and fixed rate loans
at lower rates). Under the latter circumstances, the weighted average yield on
loans decreases as higher yielding loans are paid or refinanced at lower rates.
The following table shows total loans and leases originated, purchased, sold and
repaid during the periods ended December 31 for the years indicated.
- -------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
Loan originations:
Single family residential $ 17,018 $ 18,404 $ 56,210
Commercial real estate 25,503 23,773 20,335
Construction 25,711 21,798 7,833
Lease financing 9,059 -- --
Commercial business 33,024 11,201 18,168
Consumer 11,643 9,398 8,943
- -------------------------------------------------------------------------------------------------------------------
Total loans originated 121,958 84,574 111,489
Leases acquired through the purchase of
The Equipment Leasing Company 20,025 -- --
Purchases -- 447 10,827
- -------------------------------------------------------------------------------------------------------------------
Total loans originated and purchased 141,983 85,021 122,316
- -------------------------------------------------------------------------------------------------------------------
Sales and loan principal reductions:
Loans sold (1) 30,787 16,230 34,026
Loan principal reductions 80,640 49,205 55,760
- -------------------------------------------------------------------------------------------------------------------
Total loans sold and principal reductions 111,427 65,435 89,786
- -------------------------------------------------------------------------------------------------------------------
Net change due to other items (1,741) (688) (2,060)
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in loan and leases,
net of unearned income $ 28,815 $ 18,898 $ 30,470
===================================================================================================================
(1) For the years ended December 31, 1996, 1995, and 1994, $10.0 million,
$241,000, and $25.0 million of loans, respectively, were converted into
mortgage-backed securities and subsequently sold.
9
Loan and Lease Portfolio (continued)
The accrual of interest on commercial and mortgage loans is generally
discontinued when loans become 90 days past due and when, in management's
judgement, it is determined that a reasonable doubt exists as to collectibility.
The accrual of interest is also discontinued on residential and consumer loans
when such loans become 90 days past due, except for those loans in the process
of collection which are secured by real estate with a loan to value less than
80% where the accrual of interest ceases at 180 days. Consumer loans generally
are charged-off when the loan becomes over 120 days delinquent, unless secured
by real estate and meeting the above mentioned criteria. When a loan is placed
on non-accrual status, interest accruals cease and uncollected accrued interest
is reversed and charged against current income. Additional interest income on
such loans is recognized only when received. A loan remains on non-accrual
status until the factors which indicate doubtful collectibility no longer exist,
or the loan is liquidated, or when the loan is determined to be uncollectable
and is charged-off against the allowance for possible loan losses.
The following table details the Bank's non-performing assets at December 31:
- ---------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------------
Loans and leases accounted for on a
non-accrual basis $ 1,371 $ 3,879 $ 4,369 $ 5,743 $ 6,539
Accruing loans 90 or
more days past due -- -- 182 308 423
- ---------------------------------------------------------------------------------------------------------------------------------
Total non-performing loans
and leases 1,371 3,879 4,551 6,051 6,962
REO, net of related reserves (1) 2,150 728 4,534 11,577 27,867
- ---------------------------------------------------------------------------------------------------------------------------------
Total non-performing assets $ 3,521 $ 4,607 $ 9,085 $ 17,628 $ 34,829
- ---------------------------------------------------------------------------------------------------------------------------------
Non-performing loans and leases as a
percentage of total loans and leases 0.54% 1.74% 2.19% 3.42% 4.37%
=================================================================================================================================
Non-performing assets as a
percentage of total assets 0.91% 1.33% 2.61% 5.29% 11.95%
=================================================================================================================================
(1) Includes real estate acquired by foreclosure and by deed in lieu of
foreclosure. Prior to 1993, also includes loans deemed insubstance
foreclosure.
Gross interest income that would have been recorded during 1996, 1995, and 1994
if the Company's non-performing loans and leases at the end of such periods had
been performing in accordance with their terms during such periods was $193,000,
$242,000 and $430,000, respectively. The amount of interest income that was
actually recorded during 1996, 1995 and 1994 with respect to such non-performing
loans and leases amounted to approximately $114,000, $174,000, and $23,000,
respectively.
The $1.4 million of non-accrual loans and leases at December 31, 1996 consists
of $723,000 of loans secured by single-family residential property, $127,000 of
loans secured by commercial property, $28,000 of commercial business loans,
$287,000 of consumer loans and $207,000 of lease financing. The $2.2 million of
real estate owned at December 31, 1996 consists of two commercial properties,
two residential properties and four undeveloped residential lots.
10
Delinquenies
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 insufficient to warrant further accrual.
The following table sets forth information concerning the principal balances and
percent of the total loan portfolio represented by delinquent loans at the dates
indicated:
- ------------------------------------------------------------------------------------------------------------------------
As of December 31, 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
Delinquencies
30 to 59 days $2,535 1.00% $ 2,973 1.33% $ 719 .35%
60 to 89 days 392 .15 450 .20 282 .14
90 or more days and non-accrual loans and leases (1) 1,371 .54 3,879 1.74 4,551 2.19
- ------------------------------------------------------------------------------------------------------------------------
Total $4,298 1.69% $ 7,302 3.27% $ 5,552 2.68%
========================================================================================================================
(1) December 31, 1994 includes $182,000 of loans that are accruing interest.
11
Allowance for Possible Loan and Lease Losses
The following table details the allocation of the allowance for possible loan
and lease losses to the various categories at the dates indicated. The
allocation is not necessarily indicative of the categories in which future
losses will occur, and the entire allowance is available to absorb losses in any
category of loans or leases.
- ------------------------------------------------------------------------------------------------------------------------------------
December 31, 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
Percent of Percent of Percent of Percent of Percent of
Loans to Total Loans to Total Loans to Total Loans to Total Loans to total
Loans and Loans and Loans and Loans and Loans and
Amount Leases Amount Leases Amount Leases Amount Leases Amount Leases
- ------------------------------------------------------------------------------------------------------------------------------------
Residential real estate $ 129 25.17% $ 148 40.21% $ 268 48.12% $ 194 45.26% $ 168 34.27%
Commercial real estate 1,620 35.38 1,045 36.00 917 34.33 1,403 38.69 1,908 44.38
Real estate construction 257 8.10 286 6.28 125 2.59 149 2.22 207 3.79
Commercial business 387 11.90 166 7.61 152 5.78 294 5.22 315 7.56
Lease financing 630 10.13 -- -- -- -- -- -- -- --
Consumer 154 9.32 75 9.90 41 9.18 73 8.61 105 10.00
- ------------------------------------------------------------------------------------------------------------------------------------
Total $3,177 100.00% $1,720 100.00% $1,503 100.00% $2,113 100.00% $2,703 100.00%
====================================================================================================================================
12
Allowances for Possible Loan and Lease Losses (continued)
The following table details the Bank's allowance for possible loan and lease
losses for the periods indicated:
- ------------------------------------------------------------------------------------------------------------------------
For the years ended December 31, 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------
Average loans outstanding $ 231,153 $ 213,525 $ 189,053 $ 166,419 $ 180,695
- ------------------------------------------------------------------------------------------------------------------------
Balance beginning of period $ 1,720 $ 1,503 $ 2,113 $ 2,703 $ 5,483
Charge-offs:
Residential real estate 25 20 -- 148 86
Commercial real estate -- -- 1,160 810 1,395
Real estate construction -- 100 50 5 626
Commercial business 7 281 88 283 814
Lease financing 65 -- -- -- --
Consumer 80 26 20 89 209
- ------------------------------------------------------------------------------------------------------------------------
Total charge-offs 177 427 1,318 1,335 3,130
- ------------------------------------------------------------------------------------------------------------------------
Recoveries:
Residential real estate 2 -- -- 42 5
Commercial real estate 30 -- -- -- --
Real estate construction -- 1 137 72 4
Commercial business 26 3 36 137 36
Lease financing 20 -- -- -- --
Consumer 19 15 14 25 30
- ------------------------------------------------------------------------------------------------------------------------
Total recoveries 97 19 187 276 75
- ------------------------------------------------------------------------------------------------------------------------
Net charge-offs 80 408 1,131 1,059 3,055
Provision for possible
loan and lease losses 687 625 521 368 275
Allowance assumed
through acquisitions (1) 850 -- -- 101 --
- ------------------------------------------------------------------------------------------------------------------------
Total additions 1,537 625 521 469 275
- ------------------------------------------------------------------------------------------------------------------------
Balance at end
of period $ 3,177 $ 1,720 $ 1,503 $ 2,113 $ 2,703
========================================================================================================================
Ratio of net charge-offs during
the period to average loans
and leases outstanding
during the period .03% .19% .60% .64% 1.69%
========================================================================================================================
Ratio of allowance for possible
loan and lease losses to non-
performing loans and leases
at end of period 239.05% 44.34% 33.03% 34.92% 38.83%
========================================================================================================================
(1) Allowance assumed through acquisitions represents The Equipment Leasing
Company in 1996 and the Rosemont, Pennsylvania branch of Progress Bank in 1993.
An allowance for possible loan and lease 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 portfolio. Management's periodic
evaluation of the adequacy of the allowance is based upon examination of the
portfolio, past loss experience, adverse situations that may affect the
borrower's ability to repay, the estimated value of any underlying collateral,
current economic conditions, the results of the most recent regulatory
examinations, and other relevant factors. While management uses the best
information available to make such evaluations, future adjustments to the
allowance may be necessary if economic conditions differ substantially from the
assumptions used in making such evaluations.
13
Average Balances of the Company's Deposits
- --------------------------------------------------------------------------------------------------------------------------------
For the years ended December 31, 1996 1995 1994 1993
---- ---- ---- ----
Amount Rate Amount Rate Amount Rate Amount Rate
- --------------------------------------------------------------------------------------------------------------------------------
Interest-bearing deposits:
NOW and Super NOW $ 27,977 2.12% $ 26,661 2.69% $ 21,932 2.43% $ 17,488 2.39%
Money market accounts 33,781 3.03 35,577 3.10 41,428 2.75 42,128 2.82
Passbook and statement
savings 28,258 2.85 27,290 2.87 27,808 2.95 21,212 2.94
Time deposits 178,677 5.37 177,972 5.46 168,250 4.56 159,973 4.47
- --------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 268,693 4.47% 265,500 4.62% 259,418 3.92% 240,801 3.89%
- --------------------------------------------------------------------------------------------------------------------------------
Non-interest-bearing deposits 25,521 20,210 16,713 13,778
- --------------------------------------------------------------------------------------------------------------------------------
Total deposits $294,214 $285,710 $276,131 $254,579
- --------------------------------------------------------------------------------------------------------------------------------
The following table presents the interest rate and maturity information for the
Bank's time deposits at December 31, 1996.
- --------------------------------------------------------------------------------------------------------------------------------
Maturity Date
- --------------------------------------------------------------------------------------------------------------------------------
One Year Over
or less 1-2 Years 2-3 Years 3 Years Total
- --------------------------------------------------------------------------------------------------------------------------------
Interest Rate
- -------------
2.00 - 3.99% $ 95 $ 121 $ 62 $ 47 $ 325
4.00 - 5.99% 119,332 19,045 4,690 4,160 147,227
6.00 - 7.99% 13,017 5,402 3,546 5,656 27,621
8.00 - 9.99% -- 52 36 10 98
10.00 - 11.99% -- -- -- 14 14
- --------------------------------------------------------------------------------------------------------------------------------
$132,444 $24,620 $ 8,334 $9,887 $175,285
- --------------------------------------------------------------------------------------------------------------------------------
The Bank's time deposits of $100,000 or more totalled $23.0 million at December
31, 1996, which mature as follows:
$9.8 million within three months; $7.3 million between three and six months;
$3.8 million between six and twelve months; and $2.1 million after twelve
months.
The ability of the Bank to attract and maintain deposits and the Bank's cost of
funds on these deposit accounts have been, and will continue to be,
significantly affected by economic and competitive conditions.
14
Borrowings
The following table presents certain information regarding borrowings:
- --------------------------------------------------------------------------------
For the years ended December 31, 1996 1995 1994
- --------------------------------------------------------------------------------
Average balance outstanding $ 41,092 $ 47,177 $ 45,515
Maximum amount outstanding at
any month-end during the period 67,905 53,845 60,244
Weighted average interest rate
during the period 6.47% 6.54% 5.14%
Weighted average interest rate
at end of the period 6.72% 6.70% 6.55%
Included in borrowings at December 31, 1996 were securities sold under
agreements to repurchase of $29.0 million, FHLB advances of $18.0 million,
subordinated debt of $3.0 million and an Employee Stock Option Plan note payable
of $220,000. Borrowings increased $21.9 million from year end 1995.
Recent Accounting Pronouncement
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 basis earnings
per share to increase due to the implementation of this Statement.
15
Item 2. Properties
The Company's and the Bank's executive offices are located at 4 Sentry Parkway,
Suite 230, Blue Bell, Pennsylvania. The Bank conducts business from ten branch
offices in Bridgeport, Plymouth Meeting, Conshohocken, King of Prussia,
Lansdale, Norristown, Jeffersonville, Paoli, and Rosemont, Pennsylvania and the
Andorra community of Philadelphia, one of which one is owned and nine are
leased.
Item 3. Legal Proceedings
The Company is involved in routine legal proceedings occurring in the ordinary
course of business which management, after reviewing the foregoing actions with
legal counsel, is of the opinion that the liability, if any, resulting from
such actions will not have a material effect on the financial condition or
results of operations of the Company.
Item 4. Submissions of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
The information required herein is incorporated by reference from page 39 of the
Company's 1996 Annual Report to Stockholders, which is included herein as
Exhibit 13 ("Annual Report")
Item 6. Selected Financial Data.
The information required herein is incorporated by reference from page 9 of the
Company's 1996 Annual Report to Stockholders.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The information required herein is incorporated by reference from pages 10 to 18
of the Company's 1996 Annual Report to Stockholders.
Item 8. Financial Statements and Supplementary Data.
The information required herein is incorporated by reference from pages 19 to 40
of the Company's 1996 Annual Report to Stockholders.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
16
PART III
Item 10. Directors and Executive Officers of the Registrant
The information contained in the section titled "Election of Directors" in the
Company's definitive Proxy Statement for the 1996 Annual Meeting to be held May
13, 1997 (the "Proxy Statement"), with respect to the Directors of the Company
is incorporated herein by reference.
Item 11. Executive Compensation
The information appearing in the caption "Executive Compensation and
Transactions" in the Proxy Statement is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information appearing in the captions "Security Ownership of Certain
Beneficial Owners" and "Election of Directors" (with respect to security
ownership by Directors) in the Proxy Statement is incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions
The information appearing in the caption "Indebtedness of Management" in the
Proxy Statement is incorporated herein by reference.
17
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
a. The financial statements listed on the index set forth in Item 8 of this
Annual Report on Form 10-K are filed as part of this Annual Report.
Financial Statement schedules are not required under the related
instructions of the Securities and Exchange Commission or are inapplicable
and, therefore, have been omitted.
b. The following exhibits are incorporated by reference herein or are filed
as part of this Annual Report:
No. Exhibits
--- --------
*3.1 Certificate of Incorporation (Exhibit 3.1 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1987)
*3.2 By-Laws(Exhibit 3.2 to the Company's Registration Statement
No. 33-3685 On Form S-4, filed with the Securities and Exchange
Commission on March 3, 1986[the "1986 Form S-4"])
*10.1 Key Employee Stock Compensation Program (Exhibit 28 to the
Company's Registration Statement No. 33-10160 on Form S-8, filed
with the Securities and Exchange Commission on November 13, 1986)
*10.2 Amendment dated December 15, 1987 to Key Employee Stock
Compensation Program (Exhibit 4.2 to the Company's Registration
Statement, No. 33-19570)
*10.3 1993 Stock Incentive Plan (Exhibit 10.3 to the Company's Annual
Report in Form 10-K for the year ended December 31, 1994)
*10.4 1993 Directors' Stock Option Plan (Exhibit 10.4 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1994)
*10.5 Employment Agreement between Progress Financial Corporation,
Progress Federal Savings Bank and W. Kirk Wycoff dated January 1,
1995 (Exhibit 10.6 to the Company's Registration Statement,
No. 33-60817 on Form S-1, filed with the Securities and Exchange
Commission on August 9, 1995)
13 1996 Annual Report to Stockholders
21 Subsidiaries of the Registrant
23 Consent of Independent Accountants
18
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(continued)
c. On October 15, 1996, the Company filed a Current Report on Form 8-K with
the Securities and Exchange Commission reporting under Item 5 that it had
reached an agreement to purchase The Equipment Leasing Company, Timonium,
Maryland. Under the terms of the purchase agreement, The Equipment Leasing
Company will become a wholly owned subsidiary of Progress Bank, a
subsidiary of the Company.
On October 23, 1996, the Company filed a Current Report on Form 8-K with
the Securities and Exchange Commission reporting under Item 2 that it had
completed its previously announced acquisition of The Equipment Leasing
Company, Timonium, Maryland for a cash price of $6.6 million. The Company
reported under Item 7 that financial statements and pro forma financial
information of The Equipment Leasing Company are not available as of the
date of the report but will be filed by amendment as soon as practicable,
but in no event later than 60 days after October 23, 1996.
On December 23, 1996, the Company filed a Current Report on Form 8-K with
the Securities and Exchange Commission. The Current Report included under
Item 7, financial statements, pro forma financial information and exhibits
of The Equipment Leasing Company.
* Incorporated by reference.
19
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto being duly authorized.
PROGRESS FINANCIAL CORPORATION
March 28, 1997 BY:
- -------------------- --------------------------------------
Date W. Kirk Wycoff, Chairman, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates
indicated.
March 28, 1997
- ----------------------------------------- -------------------------
W. Kirk Wycoff, Chairman, President Date
and Chief Executive Officer
March 28, 1997
- ----------------------------------------- -------------------------
William O. Daggett, Jr., Director Date
March 28, 1997
- ----------------------------------------- -------------------------
Joseph R. Klinger, Director Date
March 28, 1997
- ----------------------------------------- -------------------------
John E. Flynn Corson, Director Date
March 28, 1997
- ----------------------------------------- -------------------------
Donald F.U. Goebert, Director Date
March 28, 1997
- ----------------------------------------- -------------------------
Paul M. LaNoce, Director Date
March 28, 1997
- ----------------------------------------- -------------------------
William L. Mueller, Director Date
March 28, 1997
- ----------------------------------------- -------------------------
Charles J. Tornetta, Director Date
March 28, 1997
- ----------------------------------------- -------------------------
Janet E. Paroo, Director Date
March 28, 1997
- ----------------------------------------- -------------------------
H. Wayne Griest, Director Date
March 28, 1997
- ----------------------------------------- -------------------------
A. John May, III, Director Date
March 28, 1997
- ----------------------------------------- -------------------------
Frederick E. Schea, Date
Sr. Vice President and
Chief Financial Officer
20