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, 2002.
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 200
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) 6,816,156
------------------------------ --------------------------------------
Title of Each Class Number of Shares Outstanding as of
July 31, 2002
Progress Financial Corporation
Table of Contents
PART I - Interim Financial Information
Page
Item 1. Interim Financial Statements (Unaudited)
Consolidated Interim Statements of Financial Condition as of
June 30, 2002 and December 31, 2001.................................3
Consolidated Interim Statements of Operations for the
three and six months ended June 30, 2002 and 2001...................4
Consolidated Interim Statements of Changes in Shareholders'
Equity and Comprehensive Income for the six months
ended June 30, 2002 and 2001........................................5
Consolidated Interim Statements of Cash Flows for the
six months ended June 30, 2002 and 2001.............................6
Notes to Consolidated Interim Financial Statements..................7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations..............................................13
Item 3. Quantitative and Qualitative Disclosures About Market Risk.........17
PART II - Other Information
Item 1. Legal Proceedings..................................................17
Item 2. Changes in Securities..............................................17
Item 3. Defaults upon Senior Securities....................................17
Item 4. Submission of Matters to a Vote of Security Holders................17
Item 5. Other Information..................................................18
Item 6. Exhibits and Reports on Form 8-K...................................18
Signatures.........................................................19
PART I- INTERIM FINANCIAL INFORMATION
Item 1. Interim Financial Statements
Consolidated Interim Statements of Financial Condition (Unaudited)
(Dollars in thousands) June 30, December 31,
2002 2001
---------- -------------
Assets
Cash and due from banks:
Non-interest-earning $ 17,030 $ 21,250
Interest-earning 5,603 11,276
Investment and mortgage-backed securities [Note 6]:
Available for sale at fair value (amortized cost: $268,468 and $212,793) 271,018 211,828
Held to maturity at amortized cost (fair value: $89,794 and $38,020) 88,782 38,173
Loans and leases, net [Note 7] (net of reserves[Note 8]: $8,024 and $9,917) 473,435 495,025
Loans held for sale [Note 9] -- 25,587
Investments in unconsolidated entities 1,226 1,985
Premises and equipment, net 28,567 26,038
Other assets 18,341 20,218
-------- --------
Total assets $904,002 $851,380
======== ========
Liabilities, Capital Securities and Shareholders' Equity
Liabilities:
Deposits [Note 9]:
Non-interest-bearing $ 83,538 $ 84,783
Interest-bearing 548,084 544,740
Short-term borrowings:
Securities sold under agreement to repurchase 50,037 --
Other short-term borrowings 661 200
Other liabilities 13,178 10,430
Long-term debt:
Federal Home Loan Bank advances 120,500 117,000
Other debt 1,314 20,368
Subordinated debt 3,000 3,000
-------- --------
Total liabilities 820,312 780,521
-------- --------
Corporation-obligated mandatorily redeemable capital securities of subsidiary trust
holding solely junior subordinated debentures of the Corporation [Note 9] 20,274 20,260
Commitments and contingencies [Note 11]
Shareholders' equity [Note 5]:
Serial preferred stock - $.01 par value;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; 12,000,000 shares authorized: 7,043,000 and
5,818,000 shares issued and outstanding; including treasury shares
of 64,000 and 84,000 and unallocated shares held by the Employee
Stock Ownership Plan of
179,000 and 182,000 7,043 5,818
Other common shareholders' equity, net 54,730 45,466
Net accumulated other comprehensive income (loss) 1,643 (685)
-------- --------
Total shareholders' equity 63,416 50,599
-------- --------
Total liabilities, capital securities and shareholders' equity $904,002 $851,380
======== ========
See Notes to Consolidated Interim Financial Statements.
Consolidated Interim Statements of Operations (Unaudited)
(Dollars in thousands, except per share data)
For the Three Month Ended For the Six Month Ended
June 30, June 30,
2002 2001 2002 2001
------ ------ ------ ------
Interest income:
Loans and leases, including fees $ 8,525 $12,208 $17,475 $24,883
Mortgage-backed securities 4,285 3,835 7,655 7,112
Investment securities 628 639 1,234 1,629
Other 36 224 122 580
------- ------- ------- -------
Total interest income 13,474 16,906 26,486 34,204
------- ------- ------- -------
Interest expense:
Deposits 3,840 6,134 7,861 12,800
Short-term borrowings 308 696 411 1,343
Long-term and subordinated debt 1,860 2,082 3,808 3,948
------- ------- ------- -------
Total interest expense 6,008 8,912 12,080 18,091
------- ------- ------- -------
Net interest income 7,466 7,994 14,406 16,113
Provision for loan and lease losses 1,000 3,554 2,439 4,601
------- ------- ------- -------
Net interest income after provision for loan and lease losses 6,466 4,440 11,967 11,512
------- ------- ------- -------
Non-interest income:
Service charges on deposits 978 623 1,832 1,208
Lease financing fees 63 242 126 519
Mutual fund, annuity and insurance commissions 678 981 1,618 1,781
Loan brokerage and advisory fees 302 365 575 588
Private equity fund management fees 65 615 117 1,229
Gain (loss) on sale of securities 352 (21) 352 1,237
Gain (loss) on sale of loans and lease receivables 215 (4) 347 298
Gain on sale of investments in unconsolidated entities -- -- 11 --
Client warrant income (loss) 35 1 1,461 (1,958)
Equity (loss) in unconsolidated entities 6 (551) 101 (578)
Fees and other 522 1,034 1,220 2,019
------- ------- ------- -------
Total non-interest income 3,216 3,285 7,760 6,343
------- ------- ------- -------
Non-interest expense:
Salaries and employee benefits 3,904 4,983 8,305 9,973
Occupancy 661 633 1,247 1,246
Data processing 230 276 487 491
Furniture, fixtures and equipment 509 572 1,055 1,118
Professional services 641 915 1,219 1,730
Capital securities expense 573 572 1,145 1,133
Other 1,822 1,874 3,810 3,654
------- ------- ------- -------
Total non-interest expense 8,340 9,825 17,268 19,345
------- ------- ------- -------
Income (loss) before income taxes 1,342 (2,100) 2,459 (1,490)
Income tax expense (benefit) 435 (731) 802 (546)
------- ------- ------- -------
Net income (loss) $ 907 $(1,369) $ 1,657 $ (944)
======= ======= ======= ========
Basic earnings (loss) per common share $ .13 $ (.24) $ .25 $ (.17)
======= ======= ======= ========
Diluted earnings (loss) per common share $ .13 $ (.24) $ .25 $ (.17)
======= ======= ======= ========
Dividends per common share $ -- $ .06 $ -- $ .12
======= ======= ======= ========
Basic average common shares outstanding 6,795,122 5,584,582 6,502,277 5,634,483
========= ========= ========= =========
Diluted average common shares outstanding 6,962,428 5,715,918 6,656,226 5,773,018
========= ========= ========= =========
See Notes to Consolidated Interim Financial Statements.
Consolidated Interim Statements of Changes in Shareholders' Equity and Comprehensive Income (Unaudited)
(Dollars in thousands)
Net
Unearned Accumulated
Unearned Compensation Other Total
Common Treasury ESOP Restricted Capital Retained Comprehensive Comprehensive Shareholders'
Stock Stock Shares Stock Surplus Earnings Income(Loss) Income (Loss) Equity
-----------------------------------------------------------------------------------------------
For the six months ended June 30, 2002:
- --------------------------------------
Balance at December 31, 2001 $5,818 $(628) $(1,448) $(107) $44,029 $3,620 $ (685) $50,599
Issuance of stock under employee
benefit plans (73,156 common shares; 73 -- 26 30 296 -- -- 425
3,328 ESOP shares)
Retirement of restricted stock awards
(782 common shares) (1) -- -- 9 (8) -- -- --
Net income -- -- -- -- -- 1,657 -- $1,657 1,657
Other comprehensive income,
net of tax (a) -- -- -- -- -- -- 2,328 2,328 2,328
------
Net comprehensive income $3,985
======
Sale of treasury stock
(19,813 treasury shares) -- 145 -- -- 38 -- -- 183
Issuance of stock under private
placement (1,153,330 common shares) 1,153 -- -- -- 7,071 -- -- 8,224
------ ----- ------- ----- ------- ------ ------ -------
Balance at June 30, 2002 $7,043 $(483) $(1,422) $ (68) $51,426 $5,277 $1,643 $63,416
====== ===== ======= ===== ======= ====== ====== =======
For the six months ended June 30, 2001:
- ---------------------------------------
Balance at December 31, 2000 $5,814 $(1,245) $ -- $(858) $44,400 $3,848 $(1,799) $50,160
Issuance of stock under employee
benefit plans (23,326 common shares) 23 -- -- 196 131 -- -- 350
Retirement of restricted stock awards
(1,042 common shares) (1) -- -- 12 (11) -- -- --
Net loss -- -- -- -- -- (944) -- $ (944) (944)
Other comprehensive income,
net of tax (a) -- -- -- -- -- -- 1,847 1,847 1,847
------
Net comprehensive income $ 903
======
Purchase of treasury stock
(147,500 treasury shares) -- (1,105) -- -- -- -- -- (1,105)
Shares acquired for ESOP (188,700 -- 1,722 (1,500) -- -- (222) --
shares)
Cash dividend declared -- -- -- -- -- (677) -- (677)
------ ------ ------- ------ ------- ------ ---- ------
Balance at June 30, 2001 $5,836 $ (628) $(1,500) $(650) $44,520 $2,005 $ 48 $49,631
====== ====== ======= ===== ======= ====== ===== =======
(a) For six months ended June 30, 2002 2001
---- ----
Calculation of other comprehensive income, net of tax:
Unrealized holding gains arising during the period, net of tax $2,561 $2,663
Less: Reclassification for gains included in net income, net of tax 233 816
------ -----
Other comprehensive income, net of tax $2,328 $1,847
====== ======
See Notes to Consolidated Interim Financial Statements.
Consolidated Interim Statements of Cash Flows (Unaudited)
(Dollars in thousands)
For the six months ended June 30, 2002 2001
- ---------------------------------- ------ ------
Cash flows from operating activities:
Net income (loss) $ 1,657 $ (944)
Add (deduct) items not affecting cash flows from operating activities:
Depreciation, amortization, writedowns and impairment losses 1,505 1,322
Provision for loan and lease losses 2,439 4,601
Client warrant (income) loss (1,461) 1,958
Gain on sale of securities available for sale (352) (1,237)
Gain on sale of loans and leases (347) (298)
Gain on sale of investments in unconsolidated entities (11) --
Accretion of deferred loan and lease fees and expenses (686) (1,250)
Amortization of premiums/accretion of discounts and writedowns on securities 850 441
(Equity) loss in unconsolidated entities (101) 578
Other, net 108 257
(Increase) decrease in other assets 3,993 (4,035)
Increase (decrease) in other liabilities 2,196 (20,138)
--------- ---------
Net cash flows provided by (used in) operating activities 9,790 (18,745)
--------- --------
Cash flows from investing activities:
Capital expenditures (3,774) (2,786)
Purchases of investment and mortgage-backed securities available for sale (115,087) (110,262)
Purchases of investment and mortgage-backed securities held to maturity (52,394) (714)
Repayments on mortgage-backed securities available for sale 37,697 38,072
Repayments on mortgage-backed securities held to maturity 631 --
Proceeds from sales, maturity and calls of investment and mortgage-backed securities
available for sale 22,694 32,474
Proceeds from redemption and call of investment securities held to maturity 1,150 5,099
Proceeds from sale of investment in NewSeasons Assisted Living Communities
Series B and C preferred stock -- 1,792
Proceeds from sale of investments in unconsolidated entities 39 --
Proceeds from sale of loans and leases 11,489 13,591
Net cash paid in sale of TechBanc (21,399) --
Proceeds from sale of AMIC division of Progress Reality Advisors, Inc. -- 500
Investment in real estate owned (257) (762)
Proceeds from sale of real estate owned -- 1,279
Net (increase) decrease in loans and leases 6,631 (34,680)
Net (investments in) distributions from unconsolidated entities 832 (627)
Other, net 26 (106)
--------- ---------
Net cash flows used in investing activities (111,722) (57,130)
--------- ---------
Cash flows from financing activities:
Net increase (decrease) in demand, NOW and savings deposits 41,139 (3,102)
Net increase in time deposits 7,204 18,409
Net increase (decrease) in short-term borrowings 31,444 (30,311)
Proceeds from issuance of long-term debt 3,500 45,500
Repayment of long-term debt -- (10,000)
Dividends paid -- (677)
Purchase of treasury shares -- (1,105)
Proceeds from sale of treasury shares 183 --
Net proceeds from issuance of common stock under employee benefit plans 345 137
Net proceeds from issuance of common stock in private placement 8,224 --
--------- ---------
Net cash flows provided by financing activities 92,039 18,851
--------- ---------
Net decrease in cash and cash equivalents (9,893) (57,024)
Cash and cash equivalents:
Beginning of year 32,526 84,997
--------- ---------
End of period $ 22,633 $ 27,973
========= =========
Supplemental disclosures:
Non-monetary transfers:
Net conversion of loans receivable to real estate owned $ 2,705 $ --
========= ========
Notes received in sale of investment in NewSeasons Assisted Living Communities
Series B and C preferred stock $ -- $ 4,180
========= ========
See Notes to Consolidated Interim Financial Statements.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(1) Basis of Presentation
In the opinion of management, the financial information reflects all
adjustments necessary for a fair presentation of the financial information
as of June 30, 2002 and December 31, 2001 and for the three and six months
ended June 30, 2002 and 2001 in conformity with accounting principles
generally accepted in the United States of America. These interim financial
statements should be read in conjunction with Progress Financial
Corporation's (the "Company") Annual Report on Form 10-K for the year ended
December 31, 2001. Operating results for the three and six months ended
June 30, 2002 are not necessarily indicative of the results that may be
expected for any other interim period or the entire year ending December
31, 2002. The Company's principal subsidiaries are Progress Bank (the
"Bank"), Progress Capital, Inc., Progress Capital Management, Inc.,
Progress Financial Resources, Inc. and KMR Management, Inc. All significant
intercompany transactions have been eliminated.
(2) Recent Accounting Pronouncements
In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets" ("FAS 142"). FAS 142 addresses the financial accounting and
requires new reporting disclosures for acquired goodwill and other
intangible assets, but not those acquired in a business combination, and
for goodwill and other intangible assets after they have been initially
recognized in the financial statements. Goodwill will not be amortized; it
will be annually tested for impairment using specific guidance under FAS
142. Other intangible assets that have indefinite useful lives will not be
amortized; they will also be annually tested for impairment using specific
guidance under FAS 142. Intangible assets that have finite useful lives
will continue to be amortized over their useful lives, or the best estimate
of their useful lives. FAS 142 is required to be applied starting with
fiscal years beginning after December 15, 2001; however, goodwill and other
intangible assets acquired after June 30, 2001 will be subject immediately
to the nonamortization and amortization provisions.
The Company adopted FAS 142 on January 1, 2002 at which time management
reviewed the Company's existing goodwill of approximately $2.0 million,
reclassified eligible intangible assets and ceased amortizing its goodwill.
An existing customer-related intangible asset of $655,000 at the Equipment
Leasing segment was reclassified out of goodwill. The remaining goodwill at
the Banking and Other business segments was tested and no impairment loss
was recognized. Goodwill amortization at the Banking and Other business
segments of approximately $150,000, or $99,000 after tax, will not be
recognized in 2002 due to the adoption of FAS 142. However, during the
first quarter of 2002, there was a reduction in key personnel in the
Company's Other segment resulting in an interim impairment loss of $27,000,
or $18,000 after tax, based on the expected present value of future cash
flows. Management reassessed the useful life of the Equipment Leasing
segment customer-related intangible asset and adjusted its future
amortization from a remaining twelve-year straight-line schedule to an
accelerated schedule based on the remaining expected future cashflows. This
schedule results in an amortization of 79% of the asset by the end of 2003.
The difference between the schedules will result in additional amortization
expense of approximately $124,000, or $82,000 after tax, during 2002.
In April 2002, the FASB issued SFAS No. 145 ("FAS 145"), "Rescission of
FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and
Technical Corrections." FAS 145 rescinds FASB No. 4 "Reporting Gains and
Losses from Extinguishment of Debt" which required all gains and losses
from extinguishment of debt to be aggregated and, if material, classified
as an extraordinary item, net of related income tax effect. As a result of
FAS 145, gains and losses from extinguishments of debt should be classified
as extraordinary items only if they meet the criteria of Accounting
Principles Board Opinion No. 30 "Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions"("APB 30"). The Board noted that the
application of the criteria in ABP 30 requiring the transactions to be both
unusual in nature and infrequent in occurrence would seldom, if ever,
require that gains and losses from extinguishment of debt be classified as
extraordinary items. The provisions of FAS 145 related to the rescission of
FAS 4 are required to be applied in fiscal years beginning after May 15,
2002, with early application encouraged. Any gain or loss on extinguishment
of debt that was classified as an extraordinary item in prior periods that
does not meet the criteria in APB 30 is required to be reclassified. FAS
145 also rescinds an amendment to FAS 4, "Extinguishments of Debt Made to
Satisfy Sinking-Fund Requirements" ("FAS 64") and rescinds "Accounting for
Intangible Assets of Motor Carriers" ("FAS 44"). FAS 145 makes technical
corrections to existing pronouncements which are not substantive in nature.
FAS 145 amends "Accounting for Leases" ("FAS 13") to require that certain
lease modifications that have economic effects similar to sale-leaseback
transactions be accounted for in the same manner as sale-leaseback
transactions. The provisions of FAS 145 related to FAS 13 are effective for
transactions occurring after May 15, 2002, with early application
encouraged and all other provisions of FAS 145 are effective for financial
statements issued on or after May 15, 2002, with early application
encouraged.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED) (Continued)
The Company is adopting FAS 145 as of June 30, 2002 and does not anticipate
any material changes to its financial representation. In accordance with
the rescission of FAS 4, the Company has reclassified an extraordinary loss
on the extinguishment of debt previously reported in the results of
operations for 2001. During December 2001, the Company used current cash on
hand to prepay $10.0 million in long-term FHLB Advances scheduled to mature
in 2003. The transaction was reported as a net extraordinary loss of
$199,000 (loss of $301,000 gross of a tax benefit of $102,000) or $.03 loss
per share. The transaction was part the Company's risk management strategy
and does not meet the criteria for classification as an extraordinary item
in APB 30. Therefore, for the restated results of operations for 2001, the
loss of $301,000 on the extinguishment of debt has been reclassified to
non-interest income and the $102,000 tax benefit has been reclassified to
income tax expense.
(3) Office of Thrift Supervision Directive
During July 2001, the Company's Board of Directors approved a resolution to
comply with the terms of a directive issued by the Office of Thrift
Supervision ("OTS") that requires the Bank to (i) reduce its lending to
early stage technology companies; (ii) increase its leverage capital ratio
to no less than 8.0% and its total risk-basked capital ratio to no less
than 14.0% by April 1, 2002 through gradual compliance; and (iii) increase
its valuation allowance and implement improved credit review and monitoring
programs. In addition, the Company will not pay cash dividends on its
capital stock until the Bank achieves the required capital levels and has
implemented an acceptable capital plan. As such, the Company has suspended
the quarterly cash dividend on its common stock and its stock repurchase
program and has undertaken measures to achieve capital compliance as
promptly as possible. The increased capital levels reflect the Bank's level
of business lending, particularly in the technology sector, and continued
economic concerns.
On February 7, 2002 the OTS approved the Company's revised Capital
Enhancement Plan and on June 25, 2002 the OTS agreed to extend the dates
that the Bank must comply with the targeted ratio of classified assets to
capital. As revised, the Bank's classified assets to capital ratio must not
exceed 25% on September 30, 2002 and must not exceed 20% on March 31, 2003.
At June 30, 2002, the Bank's classified assets to capital ratio was
approximately 31.5%. The Bank is working aggressively to reduce the ratio
and comply with the terms of the directive, however, there can be no
assurance that the Bank will be in compliance with these requirements on
such dates. Failure to comply with such ratios could result in the OTS
taking further regulatory action. As of June 30, 2002 the Bank was in
compliance with the revised terms of the OTS directive.
The Company has achieved the required capital levels at the Bank and both
the Company and the Bank are in full compliance with the OTS approved
capital plan.
(4) Subsequent Event
On July 30, 2002, the Company reinstated its quarterly cash dividend on its
common stock. The cash dividend of $.05 per share will be paid on August
23, 2002 to shareholders of record on August 9, 2002.
(5) Shareholders' Equity
Common Stock Offering and Repurchase Program
--------------------------------------------
On February 11, 2002, the Company closed a private placement offering of
common stock to accredited investors of 1,153,330 common shares priced at
$7.50 a share, totaling $8.6 million, resulting in net proceeds of
approximately $8.3 million.
Under the Company's 2000 stock repurchase program to repurchase up to
285,000 shares, or five percent, of its outstanding common stock, 149,800
shares were repurchased as of May 31, 2001. As discussed above, repurchases
have been suspended since June 30, 2001. Future repurchases cannot take
place without the approval of the OTS.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED) (Continued)
Earnings per Share
------------------
The following table presents a summary of per share data and amounts for
the included periods.
For the three months ended June 30,
(Dollars in thousands, except per share data)
2002 2001
-------------------------------- -----------------------------------
Per Share Income Per Share
Income Shares Amount (Loss) Shares Amount
-------- -------- --------- ------- -------- -----------
Basic Earnings Per Share:
Income (loss) available to common shareholders $ 907 6,795,122 $ .13 $(1,369) 5,584,582 $(.24)
===== =====
Effect of Dilutive Securities:
Options -- 167,306 -- -- 131,336 --
------ --------- ----- ------- ---------
Diluted Earnings Per Share:
Income (loss) available to common shareholders
and assumed conversions $ 907 6,962,428 $ .13 $(1,369) 5,715,918 $(.24)
====== ========= ===== ======= ========= =====
For the six months ended June 30,
(Dollars in thousands, except per share data)
2002 2001
-------------------------------- -----------------------------------
Per Share Income Per Share
Income Shares Amount (Loss) Shares Amount
-------- -------- --------- ------- -------- -----------
Basic Earnings Per Share:
Income (loss) available to common shareholders $1,657 6,502,277 $ .25 $ (944) 5,634,483 $(.17)
===== =====
Effect of Dilutive Securities:
Options -- 153,949 -- -- 138,535 --
------ --------- ------- ---------
Diluted Earnings Per Share:
Income (loss) available to common shareholders
and assumed conversions $1,657 6,656,226 $ .25 $ (944) 5,773,018 $(.17)
====== ========= ===== ======= ========= =====
Capital Resources
-----------------
Under the Federal Deposit Insurance Corporation Improvement Act of 1991
specific capital categories were defined based on an institution's capital
ratios. To be considered "well capitalized," an institution must generally
have a tangible equity ratio of at least 2%, a Tier 1 leverage ratio of at
least 5%, a Tier 1 risk-based capital ratio of at least 6% and a total
risk-based capital ratio of at least 10%. Under the OTS directive discussed
above, the Bank was required to increase its leverage capital ratio to no
less than 8.0% and its total risk-basked capital ratio to no less than
14.0% by April 1, 2002 through gradual compliance.
At June 30, 2002, the Bank's tangible equity ratio was 8.21%, Tier 1
leverage ratio was 8.23%, Tier 1 risk-based capital ratio was 13.97%, and
total risk-based capital ratio was 15.22%. As of June 30, 2002, the Bank
was classified as "well capitalized" and met the leverage capital and total
risk-based capital ratios under the OTS directive.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED) (Continued)
(6) Investment and Mortgage-Backed Securities
The following table sets forth the amortized cost, gross unrealized gains
and losses, estimated fair value and carrying value of investment and
mortgage-backed securities at the dates indicated:
Gross Gross
(Dollars in thousands) Amortized Unrealized Unrealized Estimated Carrying
At June 30, 2002 Cost Gains Losses Fair Value Value
----------------- ----------- ------------ ------------ ------------ -----------
Available for Sale:
Equity investments $ 2,048 $ -- $ 2 $ 2,046 $ 2,046
U.S. Government Agencies 1,996 29 -- 2,025 2,025
Bank deposits 441 -- -- 441 441
Corporate bonds 1,923 -- 473 1,450 1,450
Mortgage-backed securities 262,060 3,155 159 265,056 265,056
-------- ------ ---- -------- --------
Total available for sale $268,468 $3,184 $634 $271,018 $271,018
======== ====== ==== ======== ========
Held to Maturity:
Federal Home Loan Bank Stock $ 6,050 $ -- $ -- $ 6,050 $ 6,050
U.S. Government Agencies 17,414 186 3 17,597 17,414
Municipal bonds 20,448 489 52 20,885 20,448
Mortgage-backed securities 44,870 392 -- 45,262 44,870
-------- ------ ---- --------- --------
Total held to maturity $ 88,782 $1,067 $ 55 $ 89,794 $ 88,782
======== ====== ==== ======== ========
Gross Gross
(Dollars in thousands) Amortized Unrealized Unrealized Estimated Carrying
At December 31, 2001 Cost Gains Losses Fair Value Value
-------------------- ----------- ------------ ---------- ------------ ----------
Available for Sale:
Equity investments $ 1,923 $ -- $ -- $ 1,923 $ 1,923
U.S. Government Agencies 2,770 4 -- 2,774 2,774
Bank deposits 440 -- -- 440 440
Corporate bonds 1,919 -- 374 1,545 1,545
Mortgage-backed securities 205,741 806 1,401 205,146 205,146
-------- ----- ------ -------- --------
Total available for sale $212,793 $ 810 $1,775 $211,828 $211,828
======== ===== ====== ======== ========
Held to Maturity:
Federal Home Loan Bank Stock $ 6,500 $ -- $ -- $ 6,500 $ 6,500
U.S. Government Agencies 16,808 81 170 16,719 16,808
Municipal bonds 14,865 240 304 14,801 14,865
-------- ----- ------ -------- --------
Total held to maturity $ 38,173 $ 321 $ 474 $ 38,020 $ 38,173
======== ===== ====== ======== ========
(7) Loans and Leases, Net
The following table depicts the composition of the Company's loan and lease
portfolio at the dates indicated:
(Dollars in thousands) June 30, 2002 December 31, 2001
------------- -----------------
Amount Percent Amount Percent
------ ------- ------ -------
Commercial business $ 91,675 19.04% $123,546 24.47%
Commercial real estate 196,688 40.85 195,105 38.64
Construction, net of loans in process 90,126 18.72 77,380 15.32
Single family residential real estate 29,215 6.07 26,518 5.25
Consumer loans 46,997 9.76 44,821 8.88
Lease financing 30,564 6.35 43,342 8.58
Unearned income ( 3,806) (.79) (5,770) (1.14)
-------- ------ -------- -------
Total loans and leases 481,459 100.00% 504,942 100.00%
======= =======
Allowance for loan and lease losses (8,024) (9,917)
-------- --------
Net loans and leases $473,435 $495,025
======== ========
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED) (Continued)
(8) Allowance for Loan and Lease Losses
The following table details changes in the Company's allowance for loan and
lease losses for the periods indicated:
(Dollars in thousands) For the Three Months For the Six Months
Ended June 30, Ended June 30,
2002 2001 2002 2001
------ ------ ------ ------
Balance beginning of period $8,775 $7,708 $9,917 $7,407
Charge-offs:
Commercial business 1,565 311 2,866 537
Commercial real estate -- 2 696 31
Single family residential real estate -- -- -- 10
Consumer loans -- 21 -- 21
Lease financing 252 715 976 1,232
------ ------ ------ ------
Total charge-offs 1,817 1,049 4,538 1,831
------ ------ ------ ------
Recoveries:
Commercial business 23 3 88 3
Consumer loans 1 -- 2 1
Lease financing 42 93 116 128
------ ------ ------ ------
Total recoveries 66 96 206 132
------ ------ ------ ------
Net charge-offs 1,751 953 4,332 1,699
Additions charged to operations 1,000 3,554 2,439 4,601
------ ------- ------ -------
Balance at end of period $8,024 $10,309 $8,024 $10,309
====== ======= ====== =======
Specific Valuation Allowance on Impaired Loans $ 96 $ 33 $ 96 $ 33
====== ======= ========= =======
(9) TechBanc Sale
During January 2002, the Company completed the sale of TechBanc to Comerica
Bank - California, a subsidiary of Comerica Incorporated. Included in the
sale were loans, deposits and warrants of certain TechBanc's
technology-based companies. The aggregate fair value of loans sold
(including accrued interest receivable) was $25.0 million and deposits sold
(including accrued interest payable) totaled $46.4 million with net cash
paid of $21.4 million. At December 31, 2001, the loans were classified as
held for sale and carried at the lower of aggregate cost or market value
consisting of $23.3 million in commercial business loans and $2.3 million
in commercial real estate loans.
(10) Capital Securities
During 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 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"). 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 $15.5 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, irrevocably and unconditionally guaranteed all of the Trust's
obligations under the Trust Securities.
In July 2000, the Company issued 6,000 shares, or $6.0 million, of 11.445%
trust preferred securities, $1,000 liquidation amount per security, due
July 19, 2030 (the "Trust Preferred Securities"), in a private offering
managed by First Union Securities, Inc. The Trust Preferred Securities
represent undivided beneficial interests in Progress Capital Trust II (the
"Trust II"), a statutory business trust created under the laws of Delaware,
which was established by the Company for the purpose of issuing the Trust
Preferred Securities. The Company has fully, irrevocably and
unconditionally guaranteed all of the Trust II's obligations under the
Trust Preferred Securities.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED) (Continued)
(11) Commitments and Contingencies
At June 30, 2002, the Company had $123.4 million in loan commitments to
extend credit, including unused lines of credit, and $8.9 million in
letters of credit outstanding.
(12) Segments
The following table sets forth selected financial information by business
segment for the periods indicated:
Private Insurance/
Equipment Equity Fund Wealth Other
Banking Leasing(a) Management(b) Management(c) Segments Corporate Total
(Dollars in thousands) ------- ---------- ------------- ------------- -------- --------- -----
Total Assets at:
June 30, 2002 $870,805 $27,051 $ 41 $ 503 $1,012 $4,590 $904,002
December 31, 2001 803,588 37,351 10 678 1,175 8,578 851,380
Revenues for:
the three months ended
June 30, 2002 9,277 583 65 672 258 (173) 10,682
June 30, 2001 8,718 986 615 973 569 (582) 11,279
the six months ended
June 30, 2002 18,961 1,166 117 1,606 458 (142) 22,166
June 30, 2001 18,086 2,189 1,229 1,763 1,155 (1,966) 22,456
Income (loss) for:
the three months ended
June 30, 2002 1,519 9 27 (51) (1) (596) 907
June 30, 2001 (683) 159 53 13 7 (918) (1,369)
the six months ended
June 30, 2002 2,971 (163) 2 (18) (77) (1,058) 1,657
June 30, 2001 953 328 115 (43) 68 (2,365) (944)
(a) During the first quarter of 2002, management decided to stop originating
leases due to a change in business climate and subsequently significantly
reduced the staffing levels in the Equipment Leasing segment.
(b) At December 31, 2001, the Private Equity Fund Management segment exited the
venture fund management business.
(c) Beginning the second quarter of 2002, new business generated through the
Insurance/Wealth Management segment has been through an agency arrangement
where the sales personnel are no longer employees of the Company.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
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 and with the Company's Annual Report
on Form 10-K for the year ended December 31, 2001. Certain reclassifications
have been made to prior period data throughout the following discussion and
analysis for comparability with 2002 data.
When used in filings by the Company with the Securities and Exchange Commission,
in the Company's press releases or other public or shareholder communications,
or in oral statements made with the approval of an authorized executive officer,
the words or phrases "will likely result," "are expected to," "will continue,"
"is anticipated," "estimate," "project," or similar expressions are intended to
identify "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such statements are subject to certain
risks and uncertainties including changes in economic conditions in the
Company's market area, changes in policies by regulatory agencies, fluctuations
in interest rates, demand for loans in the Company's market area and competition
that could cause actual results to differ materially from historical earnings
and those presently anticipated or projected. The Company wishes to caution
readers not to place undue reliance on any such forward-looking statements,
which speak only as of the date made. The Company wishes to advise readers that
the factors listed above could affect the Company's financial performance and
could cause the Company's actual results for future periods to differ materially
from any opinions or statements expressed with respect to future periods in any
current statements.
CRITICAL ACCOUNTING POLICIES
Accounting policies involving significant judgments and assumptions by
management, which have, or could have, a material impact on the carrying value
of certain assets and impact comprehensive income, are considered critical
accounting policies. The Company recognizes the following as critical accounting
policies: Allowance for Loan and Lease Losses, Goodwill and Other Intangible
Asset Impairment, and Unrealized Gains and Losses on Debt Securities Held for
Sale.
Allowance for Loan and Lease Losses: The Company maintains an allowance for loan
and lease losses at a level management believes is sufficient to provide for
known and inherent losses in the loan and lease portfolios at the Banking and
Equipment Leasing segments. Risks within the loan and lease portfolio are
analyzed on a continuous basis by the Company's officers, external independent
loan and lease review consultants, and on a monthly basis by the Company's Board
of Directors. Significant estimates are made by management in determining the
allowance for loan and lease losses. Consideration is given to a variety of
factors in establishing these estimates including current and anticipated
economic conditions, diversification of the loan portfolio, delinquency
statistics, results of internal loan reviews, borrowers' perceived financial and
managerial strengths, the adequacy of underlying collateral, the dependence on
collateral, or the strength of the present value of future cash flows and other
relevant factors. Since the allowance for loan and lease losses is dependent, to
a great extent, on general and other conditions that may be beyond the Company's
control, it is at least reasonably possible that the Company's estimates of the
allowance for loan and lease losses could differ materially in the near term.
Although management utilizes its best judgment in providing for loan and lease
losses, there can be no assurance that the Company will not have to increase its
provision for loan and lease losses in the future as a result of adverse market
conditions, 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 allowance for 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 losses based
on their judgments of information available to them at the time of their
examination.
Goodwill and Other Intangible Asset Impairment: Quoted market prices are not
typically available in evaluating the Company's goodwill and other intangible
assets; therefore, the Company estimates the fair value of its goodwill and
other intangible assets using the present value of estimated future cash flows.
The Company's best estimate of the present value of cash flows may not
necessarily equate to the market value of the underlying asset. Goodwill and
other intangible assets are carried by the Banking, Equipment Leasing and Other
segments.
Unrealized Gains and Losses on Debt Securities Held for Sale: The Company
receives estimated fair values of debt securities from an independent valuation
service and brokers. In developing these fair values, the valuation service and
brokers use estimates of cash flows based on historical performance of similar
instruments in similar rate environments. Based on experience, management is
aware that estimated fair values of debt securities tend to vary among brokers
and other valuation services. Debt securities held for sale are carried at the
Banking segment and are mostly comprised of mortgage-backed securities.
RESULTS OF OPERATIONS
The Company recognized net income of $907,000, or diluted earnings per share of
$.13, for the three months ended June 30, 2002 compared to a net loss of $1.4
million, or a $.24 loss per diluted share, for the second quarter of 2001.
Return on average shareholders' equity was 5.90% and return on average assets
was .41% for the three months ended June 30, 2002 compared to losses of 10.57%
and .61%, respectively, for the three months ended June 30, 2001.
Net income for the six months ended June 30, 2002 was $1.7 million, or diluted
earnings per share of $.25 compared to a $944,000 loss, or a $.17 loss per
diluted share, for the six months ended June 30, 2001. Return on average
shareholders' equity was 5.63% and return on average assets was .38% for the six
months ended June 30, 2002 compared to losses of 3.66% and .21%, respectively,
for the six months ended June 30, 2001.
Net Interest Income
Tax-equivalent net interest income for the quarter ended June 30, 2002 increased
$543,000, or 8% as compared to the first quarter of 2002 and decreased $518,000,
or 6%, as compared to the second quarter of 2001. The net interest margin for
the second quarter of 2002 was 3.62% compared to 3.53% for the first quarter of
2002 and 3.79% for the second quarter of 2001. Tax-equivalent net interest
income for the six months ended June 30, 2002 decreased $1.7 million, or 10%, as
compared to the same period in 2001. The net interest margin for the six months
ended June 30, 2002 was 3.58% compared to 3.90% for the same period in 2001.
Average earning assets for the second quarter of 2002 were $841.9 million
compared to $858.9 million for the second quarter of 2001 and $825.8 million for
the six months ended June 30, 2002 compared to $844.3 million for the same
period in 2001. The decline in earning assets during the three and six months
ended June 30, 2002 from the comparable periods in 2001 was primarily due to
lower commercial business loan volume as a result of the TechBanc sale which was
partially offset with higher levels of investments in mortgage-backed
securities. Tax-equivalent interest income for the second quarter of 2002
decreased $3.4 million, or 20%, over the same period in 2001 while interest
expense decreased $2.9 million, or 33%, for the same period. Tax-equivalent
interest income for the six months ended June 30, 2002 decreased $7.7 million,
or 22%, over the same period in 2001 while interest expense decreased $6.0
million, or 33%, for the same period.
Provision for Loan and Lease Losses
The provision for loan and lease losses was $1.0 million for the quarter ended
June 30, 2002, compared to $3.6 million for the same period in 2001. The
provision for loan and lease losses was $2.4 million for the six months ended
June 30, 2002, compared to $4.6 million for the same period in 2001. The higher
provision during 2001 reflected the reserve additions to address credit and
economic concerns which have been reduced as a result of the sale of TechBanc
loans to Comerica in January 2002.
At June 30, 2002, the allowance for loan and lease losses amounted to $8.0
million or 1.67% of total loans and leases and 91.83% of total non-performing
loans and leases. At December 31, 2001, the allowance for loan and lease losses
amounted to $9.9 million or 1.87% of total loans and leases and 106.28% of total
non-performing loans and leases.
Non-interest Income
Non-interest income for the quarter ended June 30, 2002 was $3.2 million as
compared to $3.3 million for the same period in 2001. The quarter ended June 30,
2002 included a gain on sale of securities of $352,000 compared to a loss on
sale of securities of $21,000 for the same quarter in 2001. Fee income for the
quarter decreased $1.1 million primarily due to the decline in private equity
fund management fees from the Company's subsidiary, Progress Capital Management,
Inc. ("PCM") as the Company exited the venture fund management business at
December 31, 2001, a reduction in consulting fees from the Company's subsidiary,
KMR Management, Inc. ("KMR") and a decrease in mutual fund, annuity and
insurance commissions from the Company's subsidiary, Progress Financial
Resources, Inc. ("PFR"). Service charges on deposits amounted to $978,000 during
the second quarter of 2002 compared to $623,000 for the comparable quarter in
2001. This 57% growth is primarily attributable to the new deposit products
implemented during the first quarter of 2002. During the second quarter of 2001,
loss in unconsolidated entities was $551,000, primarily relating to a loss on
its investment in a venture capital fund, compared to equity of $6,000 during
the second quarter of 2002.
Non-interest income for the six months ended June 30, 2002 was $7.8 million as
compared to $6.3 million for the same period in 2001. The six months ended June
30, 2002 included income of $1.5 million from the sale of client warrants as
compared to losses of $2.0 million from client warrants for the comparable
period in 2001, due to the permanent impairment of equity securities received
from warrants. Gain on sale of securities for the six months ended June 30, 2002
was $352,000 as compared to gain on sale of securities of $1.2 million for same
period in 2001. Fee income for the six months ended June 30, 2002 decreased $1.8
million
primarily due to the decline in private equity fund management fees from PCM as
the Company exited the venture fund management business at December 31, 2001 and
a reduction in consulting fees from KMR. Service charges on deposits for the six
months ended June 30, 2002 increased $624,000 which was primarily attributable
to the new deposit products implemented during the first quarter of 2002.
Non-interest Expense
Total non-interest expense was $8.3 million for the quarter ended June 30, 2002
compared to $9.8 million for the second quarter of 2001. Total non-interest
expense was $17.3 million for the six months ended June 30, 2002 compared to
$19.3 million for same period in 2001. Salaries and employee benefits decreased
by $1.1 million and $1.7 million for the three and six months ended June 30,
2002 from the comparable periods in 2001, respectively, mainly due to the
Company exiting the fund management business, lower staffing levels at Progress
Leasing Company and lower commission expense for PFR. Professional services
expenses decreased during the three and six months ended June 30, 2002 from the
comparable periods in 2001 primarily due to a reduction in the business
activities of KMR in 2002 and legal expenses related to loans to pre-profit
companies during 2001.
FINANCIAL CONDITION
Total assets increased to $904.0 million at June 30, 2002 from $851.4 million at
December 31, 2001. Loans and leases outstanding, including loans held for sale,
totaled $481.5 million at June 30, 2002 compared to $530.5 million at December
31, 2001. This decrease was primarily due to the sale of TechBanc loans to
Comerica totaling $25.6 million during January 2002, which were primarily
commercial business loans, as well the Asset-Based Lending sale and payoffs of
commercial business loans during the first quarter of 2002. Net increases in
mortgage-backed securities were $104.8 million since year-end primarily due to
$158.3 million in purchases partially offset by repayments of $38.3 million and
sales of $17.9 million. Total deposits increased to $631.6 million at June 30,
2002 from $629.5 million at December 31, 2001 as a result of $48.3 million in
deposit growth during the six months of 2002 partially offset by the sale of
$46.2 million in deposits to Comerica in January 2002.
Liquidity and Funding
The Company must maintain sufficient liquidity to meet its funding requirements
for loan and lease commitments, scheduled debt repayments, operating expenses,
and deposit withdrawals. The Bank is the primary source of working capital for
the Company.
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, FHLB borrowings and securities sold under agreement to repurchase.
The Company's primary sources of funds have historically consisted of deposits,
amortization and prepayments of outstanding loans, FHLB borrowings and
securities sold under agreement to repurchase and sales of investment and
mortgage-backed securities. During the six months ended June 30, 2002, the
Company reinvested its working capital primarily by purchasing mortgage-backed
securities to maintain its liquidity. For the six months ended June 30, 2002,
cash was provided by operating activities primarily due to net increases in
other liabilities related to trade-date accounting for purchases of
mortgage-backed securities and net decreases in other assets. Cash was used in
investing activities primarily due to the purchases of mortgage-backed
securities partially offset by repayments on mortgage-backed securities. Cash
was provided by financing activities primarily due to increases in deposits and
short-term borrowings.
Non-Performing and Underperforming Assets
The following table details the Company's non-performing and underperforming
assets at the dates indicated:
June 30, December 31, June 30,
(Dollars in thousands) 2002 2001 2001
---- ---- ----
Loans and leases accounted for on a non-accrual basis $ 8,738 $ 9,331 $ 5,073
Other real estate owned, net of related reserves 4,495 1,533 3,340
------- ------- -------
Total non-performing assets 13,233 10,864 8,413
Accruing loans 90 or more days past due 1,766 1,125 2,473
------- ------- -------
Total underperforming assets $14,999 $11,989 $10,886
======= ======= =======
Non-performing assets as a percentage of net loans and leases
and other real estate owned 2.77% 2.08% 1.50%
======= ======= =======
Non-performing assets as a percentage of total assets 1.46% 1.28% .92%
======= ======= =======
Underperforming assets as a percentage of net loans and leases
and other real estate owned 3.14% 2.30% 1.95%
======= ======= =======
Underperforming assets as a percentage of total assets 1.66% 1.41% 1.19%
======= ======= =======
Allowance for loan and lease losses $ 8,024 $ 9,917 $10,309
======= ======= =======
Ratio of allowance for loan and lease losses to
non-performing loans and leases at end of period 91.83% 106.28% 203.21%
======= ======= =======
Ratio of allowance for loan and lease losses to underperforming
loans and leases at end of period 76.39% 94.85% 136.62%
======= ======= =======
Non-performing assets increased to $13.2 million at June 30, 2002 from $10.9
million at December 31, 2001 and from $8.4 million at June 30, 2001. The net
increase in non-performing assets since December 31, 2001 was primarily due to a
$2.7 million commercial property classified as other real estate owned. The $8.7
million of non-accrual loans at June 30, 2002 consisted of: $6.2 million of
commercial business loans, of which $1.3 million are to pre-profit companies;
$794,000 of lease financing; $840,000 of commercial mortgages; $421,000 of
consumer loans; and $532,000 of single family residential mortgages.
Accruing loans 90 or more days past due increased from $1.1 million at December
31, 2001 to $1.8 million at June 30, 2002 primarily due to net increased
delinquencies of commercial business loans partially offset by the payoff of a
commercial mortgage loan. The $1.8 million of accruing loans 90 or more days
past due at June 30, 2002 consisted of $1.8 million of commercial business
loans, of which $1.7 million are to pre-profit companies, $7,000 of commercial
mortgages, and $2,000 of consumer loans.
Delinquencies
The following table sets forth information concerning the principal balances and
percent of the total loan and lease portfolio represented by delinquent accruing
loans and leases at the dates indicated:
June 30, 2002 December 31, 2001 June 30, 2001
-------------- ----------------- -------------
(Dollars in thousands) Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
Delinquencies:
30 to 59 days $2,396 .50% $ 4,214 .80% $5,035 .89%
60 to 89 days 1,571 .32 5,962 1.12 275 .05
90 or more days 1,766 .37 1,125 .21 2,473 .43
------ ---- ------- ---- ------ ----
Total $5,733 1.19% $11,301 2.13% $7,783 1.37%
====== ===== ======= ==== ====== ====
Item 3. Quantitative and Qualitative Disclosures About Market Risk
For information regarding market risk, see the Company's Annual Report on Form
10-K for the year ended December 31, 2001, Item 7A, filed with the Securities
and Exchange Commission on March 22, 2002. The market risk of the Company has
not experienced any significant changes as of June 30, 2002 from the Annual
Report on Form 10-K.
PART II - OTHER INFORMATION
Item 1. 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.
On August 29, 2001, a shareholder's derivative action was filed against the
Company and its directors in the Delaware Chancery Court alleging failure to
comply with the Home Owners' Loan Act, insider trading, and breach of their
fiduciary duty. The plaintiff demands judgement against the Company and its
directors for the amount of damages sustained by the Company as result of the
directors' breaches of fiduciary duty, awarding the plaintiff the costs and
disbursements of the actions, including expenses of the lawsuit and granting
such other and further relief as the Court may deem just and proper. The Company
believes that this action is without merit and will defend the action
vigorously. On December 7, 2001, the Company filed an Opening Brief and Motion
to Dismiss the Complaint, which the plaintiff filed an opposition to on January
25, 2002. On March 8, 2002, the Company filed a Reply Brief in support of its
motion to dismiss. Oral argument was held on April 24, 2002. The Company is
anticipating a ruling on its motion during the third quarter of 2002.
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 shareholders was held on Tuesday, April 23, 2002
for the following purposes:
1) To elect four directors for a three-year term and until their successors are
elected and qualified;
2) To amend the 1996 Employee Stock Purchase Plan to authorize the issuance of
an additional 200,000 shares of Common Stock pursuant to the plan;
3) To ratify the appointment by the Board of Directors of
PricewaterhouseCoopers LLP as the Company's independent accountants for the
year ending December 31, 2002; and
4) To transact such other business as may properly come before the meeting or
any adjournment thereof.
The first three proposals were adopted by the Company's shareholders and no
other business was brought before the meeting under the fourth proposal. The
following are the results of the shareholders' votes:
Abstained/ Broker
Authority Non-
For Against Withheld Votes
---------- ------- ---------- -------
1) Election of directors:
G. Daniel Jones 4,858,429 -- 202,699 --
Paul M. LaNoce 4,970,052 -- 91,076 --
Kevin J. Silverang 4,849,152 -- 211,976 --
Stephen T. Zarrilli 4,856,270 -- 204,858 --
2) Amend the 1996 Employee Stock Purchase Plan
to authorize the issuance of an additional
200,000 shares of Common Stock 4,685,251 374,243 1,633 1,696,917
3) Proposal to ratify the appointment of
PricewaterhouseCoopers L.L.P. 5,051,457 6,603 3,069 1,696,915
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) List of Exhibits
10. Employment Agreement between Progress Financial Corporation,
Progress Bank and W. Kirk Wycoff dated July 23, 2002.
99.1 Certification of Chief Executive Officer
99.2 Certification of Chief Financial Officer
(b) Reports on Form 8-K
1. On April 22, 2002, the Company filed a Current Report for
April 22, 2002 announcing first quarter 2002 earnings and the
distribution of an earnings package to analysts.
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 9, 2002 /s/ W. Kirk Wycoff
- --------------------------- ------------------------------------------
Date W. Kirk Wycoff, Chairman, President and
Chief Executive Officer
August 9, 2002 /s/ Michael B. High
- --------------------------- -------------------------------------------
Date Michael B. High, Chief Financial Officer
and Chief Operating Officer
EXHIBIT 10
AGREEMENT
AGREEMENT, dated this 23rd day of July 2002, between Progress Financial
Corporation (the "Corporation"), a Delaware-chartered corporation, Progress Bank
(the "Bank"), a federally chartered savings bank and a wholly-owned subsidiary
of the Corporation, and W. Kirk Wycoff (the "Executive").
WITNESSETH
WHEREAS, the Executive is presently an officer of the Corporation and the
Bank (together the "Employers");
WHEREAS, the Employers desire to be ensured of the Executive's continued
active participation in the business of the Employers;
WHEREAS, the Employers and the Executive have entered into an employment
agreement dated March 1, 1997 (the "1997 Agreement");
WHEREAS, the parties have previously agreed to certain amendments to the
1997 Agreement; and
WHEREAS, the parties have determined it is in their best interests to amend
and restate the 1997 Agreement to reflect the prior amendments;
NOW THEREFORE, in consideration of the premises and the mutual agreements
herein contained, the parties hereby agree as follows:
1. Definitions. The following words and terms shall have the meanings set
forth below for the purposes of this Agreement:
(a) Average Annual Compensation. The Executive's "Average Annual
Compensation" for purposes of this Agreement shall be deemed to mean the average
level of compensation paid to the Executive by the Employers or any subsidiary
thereof during the most recent five taxable years preceding the Date of
Termination, including Base Salary and benefits and bonuses under any employee
benefit plans of the Employers.
(b) Base Salary. "Base Salary" shall have the meaning set forth in Section
3(a) hereof.
(c) Cause. Termination of the Executive's employment for "Cause" shall mean
termination because of personal dishonesty, incompetence, willful misconduct,
breach of fiduciary duty involving personal profit, intentional failure to
perform stated duties, willful violation of any law, rule or regulation (other
than traffic violations or similar offenses) or final cease-and-desist order or
material breach of any provision of this Agreement. For purposes of this
paragraph, no act or failure to act on the Executive's part shall be considered
"willful" unless done, or omitted to be
done, by the Executive not in good faith and without reasonable belief that the
Executive's action or omission was in the best interest of the Employers.
(d) Change in Control of the Corporation. "Change in Control of the
Corporation" shall mean a change in control of a nature that would be required
to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A
promulgated under the Securities Exchange Act of 1934, as amended ("Exchange
Act"), or any successor thereto, whether or not any security of the Corporation
is registered under the Exchange Act; provided that, without limitation, such a
change in control shall be deemed to have occurred if (i) any "person" (as such
term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Corporation representing 25% or more of the
combined voting power of the Corporation's then outstanding securities; or (ii)
during any period of two consecutive years, individuals who at the beginning of
such period constitute the Board of Directors of the Corporation cease for any
reason to constitute at least a majority thereof unless the election, or the
nomination for election by stockholders, of each new director was approved by a
vote of at least two-thirds of the directors then still in office who were
directors at the beginning of the period.
(e) Code. "Code" shall mean the Internal Revenue Code of 1986, as amended.
(f) Date of Termination. "Date of Termination" shall mean (i) if the
Executive's employment is terminated by the Employers for Cause or for
Disability, the date specified in the Notice of Termination, and (ii) if the
Executive's employment is terminated for any other reason, the date on which a
Notice of Termination is given or as specified in such Notice.
(g) Disability. Termination by the Employers of the Executive's employment
based on "Disability" shall mean termination because of death or because of any
physical or mental impairment which qualifies the Executive for disability
benefits under the applicable long-term disability plan maintained by the
Employers or, if no such plan applies, which would qualify the Executive for
disability benefits under the Federal Social Security System.
(h) IRS. "IRS" shall mean the Internal Revenue Service.
(i) Notice of Termination. Any purported termination of the Executive's
employment by the Employers for any reason, including without limitation for
Cause, Disability or Retirement, or by the Executive for any reason, shall be
communicated by written "Notice of Termination" to the other party hereto. For
purposes of this Agreement, a "Notice of Termination" shall mean a dated notice
which (i) indicates the specific termination provision in this Agreement relied
upon, (ii) sets forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of the Executive's employment under the
provision so indicated, (iii) specifies a Date of Termination, which shall be
not less than thirty (30) nor more than ninety (90) days after such Notice of
Termination is given, except in the case of the Employers' termination of the
Executive's employment for Cause, and (iv) is given in the manner specified in
Section 10 hereof.
(j) Retirement. "Retirement" shall mean voluntary termination by the
Executive in accordance with the Employers' retirement policies, including early
retirement, generally applicable to the Employers' salaried employees.
2. Term of Employment.
(a) The Employers hereby employ the Executive as President and Chief
Executive Officer of the Corporation and the Bank, and the Executive hereby
accepts said employment and agrees to render such services to the Employers on
the terms and conditions set forth in this Agreement. Unless extended as
provided in this Section 2, the term of employment under this Agreement shall be
for three years, commencing on the date of this Agreement. Prior to the first
annual anniversary of the date of this Agreement and each annual anniversary
thereafter, the Boards of Directors of the Employers shall consider, review
(with appropriate corporate documentation thereof, and after taking into account
all relevant factors, including the Executive's performance) and, if
appropriate, explicitly approve a one-year extension of the remaining term of
this Agreement. The term of this Agreement shall continue to extend each year if
the Boards of Directors so approve such extension unless the Executive gives
written notice to the Employers of the Executive's election not to extend the
term, with such notice to be given not less than ninety (90) days prior to any
such anniversary date. If the Executive gives timely notice that the term will
not be extended as of any annual anniversary date, or if the Employers fail to
give written notice of their election to extend as of any annual anniversary
date, then this Agreement shall terminate at the conclusion of its remaining
term. References herein to the term of this Agreement shall refer both to the
initial term and successive terms.
(b) During the term of this Agreement, the Executive shall perform such
executive services for the Employers as may be consistent with his titles and
from time to time assigned to him by the Employers' Boards of Directors.
3. Compensation and Benefits.
(a) The Employers shall compensate and pay Executive for his services
during the term of this Agreement at a minimum base salary of $500,000 per year
commencing March 1, 2002, ("Base Salary"), which may be increased from time to
time in such amounts as may be determined by the Boards of Directors of the
Employers and may not be decreased without the Executive's express written
consent. In addition to his Base Salary, the Executive shall be entitled to
receive during the term of this Agreement such bonus payments as may be
determined by the Boards of Directors of the Employers. In that regard, for the
term of the Agreement, the Executive shall be entitled to participate in a bonus
plan whereby he would be potentially entitled to receive a bonus potentially
equal to a maximum of 50% of his Base Salary, subject to the accomplishment of
certain goals established or to be established by the Boards of Directors of the
Employers. In the event that it is determined by the Boards of Directors of the
Employers that, with respect to any particular fiscal year during the term of
the Agreement, the Executive is expending in excess of 10% of his time on
matters primarily related to the business of the Corporation, the Corporation
and the Bank
will pay their respective pro rata portion of the Executive's compensation
with respect to such fiscal year; otherwise, the Bank shall pay all of the
Executive's compensation.
(b) During the term of this Agreement, the Executive shall be entitled to
participate in and receive the benefits of any pension or other retirement
benefit plan, profit sharing, stock option, employee stock ownership, or other
plans, benefits and privileges given to employees and executives of the
Employers, to the extent commensurate with his then duties and responsibilities,
as fixed by the Boards of Directors of the Employers, except that the bonus
arrangement set forth in Section 3(a) hereof shall be provided to the Executive
in lieu of any other bonus plan or arrangement given to other employees and
executives of the Employers. The Employers shall not make any changes in such
plans, benefits or privileges which would adversely affect the Executive's
rights or benefits thereunder, unless such change occurs pursuant to a program
applicable to all executive officers of the Employers and does not result in a
proportionately greater adverse change in the rights of or benefits to the
Executive as compared with any other executive officer of the Employers. Nothing
paid to the Executive under any plan or arrangement presently in effect or made
available in the future shall be deemed to be in lieu of the salary payable to
the Executive pursuant to Section 3(a) hereof.
(c) During the term of this Agreement, the Executive shall be entitled to
an annual expense allowance (exclusive of standard health benefits available to
employees) not to exceed 10.0% of his Base Salary.
(d) During the term of this Agreement, the Executive shall be entitled to
four (4) weeks of paid annual vacation in accordance with the policies as
established from time to time by the Boards of Directors of the Employers. The
Executive shall be entitled to receive any additional compensation from the
Employers for failure to take a vacation and shall be able to accumulate unused
vacation time from one year to the next.
4. Expenses. The Employers shall reimburse the Executive or otherwise
provide for or pay for all reasonable expenses incurred by the Executive in
furtherance of, or in connection with the business of the Employers, including,
but not by way of limitation, automobile (including costs of leasing, insurance,
repairs, maintenance, and licensing) and traveling expenses, and all reasonable
entertainment expenses (whether incurred at the Executive's residence, while
traveling or otherwise), subject to such reasonable documentation and other
limitations as may be established by the Boards of Directors of the Employers.
If such expenses are paid in the first instance by the Executive, the Employers
shall reimburse the Executive therefor.
5. Termination.
(a) The Employers shall have the right, at any time upon prior Notice of
Termination, to terminate the Executive's employment hereunder for any reason,
including without limitation termination for Cause, Disability or Retirement,
and the Executive shall have the right, upon prior Notice of Termination, to
terminate his employment hereunder for any reason.
(b) In the event that (i) the Executive's employment is terminated by the
Employers for Cause or Retirement or Disability, or (ii) the Executive
terminates his employment hereunder other than in connection with a Change in
Control of the Corporation, the Executive shall have no right pursuant to this
Agreement to compensation or other benefits for any period after the applicable
Date of Termination except as otherwise provided herein.
(c) In the event that (i) the Executive's employment is terminated by the
Employers for other than Cause, Retirement or Disability or (ii) such employment
is terminated by the Executive (a) due to a material breach of this Agreement by
the Employers, which breach has not been cured within fifteen (15) days after a
written notice of non-compliance has been given by the Executive to the
Employers, or (b) at the time of or in connection with a Change in Control of
the Corporation, then the Employers or their successors shall, subject to the
provisions of Section 6 hereof, if applicable, and regardless of whether or not
the Executive is subsequently re-hired by the Employers or their successors,
(A) pay to the Executive a cash severance amount equal to 2.99 times the
Executive's Average Annual Compensation, with such amount to be paid at the
Executive's election in either a lump sum within five business days of the
Date of Termination or in thirty-six (36) equal monthly installments
beginning with the first business day of the month following the Date of
Termination, and
(B) maintain and provide for a period ending at the earlier of (i) the
expiration of the remaining term of employment pursuant hereto prior to the
Notice of Termination or (ii) the date of the Executive's full-time
employment by another employer (provided that the Executive is entitled
under the terms of such employment to benefits substantially similar to
those described in this subparagraph (B)), at no cost to the Executive, the
Executive's continued participation in all group insurance, life insurance,
health and accident, disability and other employee benefit plans, programs
and arrangements in which the Executive was entitled to participate
immediately prior to the Date of Termination (other than stock option and
restricted stock plans of the Employers), provided that in the event that
the Executive's participation in any plan, program or arrangement as
provided in this subparagraph (B) is barred, or during such period any such
plan, program or arrangement is discontinued or the benefits thereunder are
materially reduced, the Employers shall arrange to provide the Executive
with benefits substantially similar to those which the Executive was
entitled to receive under such plans, programs and arrangements immediately
prior to the Date of Termination.
(d) If a Change in Control of the Corporation occurs and the Executive's
employment is not terminated at the time of or in connection with such Change in
Control, but the Executive's employment is terminated subsequent to the Change
in Control of the Corporation by either the Executive or the Employers (or their
successors) for any reason other than Cause, Retirement or Disability, then the
Employers or their successors shall, subject to the provisions of Section 6
hereof, pay to the Executive the cash severance amount set forth in Section
5(c)(A) hereof and provide the benefits set forth in Section 5(c)(B) hereof on a
pro rata basis as set forth below. The
amount of the cash severance set forth in Section 5(c)(A) hereof and the time
period set forth in Section 5(c)(B) hereof shall each be reduced by a fraction,
the numerator of which is the number of days the Executive was employed by the
Employers or their successors subsequent to the date of the Change in Control of
the Corporation, and the denominator of which is the total number of days
remaining in the Executive's term of employment as of the date of the Change in
Control of the Corporation.
(e) In the event of the failure by the Employers to elect or to re-elect or
to appoint or to re-appoint the Executive to the offices of President and Chief
Executive Officer of the Corporation and the Bank or a material change made by
the Employers in the Executive's functions, duties or responsibilities as
President and Chief Executive Officer of the Corporation and President and Chief
Executive Officer of the Bank without the Executive's express written consent,
the Executive shall be entitled to terminate his employment hereunder and shall
be entitled, subject to the provisions of Section 6 hereof, to the payments and
benefits provided for in Section 5(c)(A) and (B).
6. Limitation of Benefits under Certain Circumstances. If the payments and
benefits pursuant to Section 5 hereof, either alone or together with other
payments and benefits which the Executive has the right to receive from the
Employers, would constitute a "parachute payment" under Section 280G of the
Code, the payments and benefits pursuant to Section 5 hereof shall be reduced,
in the manner determined by the Executive, by the amount, if any, which is the
minimum necessary to result in no portion of the payments and benefits under
Section 5 being non-deductible to either of the Employers pursuant to Section
280G of the Code and subject to the excise tax imposed under Section 4999 of the
Code. The determination of any reduction in the payments and benefits to be made
pursuant to Section 5 shall be based upon the opinion of independent tax counsel
selected by the Employers' independent public accountants and paid by the
Employers. Such counsel shall be reasonably acceptable to the Employers and the
Executive; shall promptly prepare the foregoing opinion, but in no event later
than thirty (30) days from the Date of Termination; and may use such actuaries
as such counsel deems necessary or advisable for the purpose. In the event that
the Employers and/or the Executive do not agree with the opinion of such
counsel, (i) the Employers shall pay to the Executive the maximum amount of
payments and benefits pursuant to Section 5, as selected by the Executive, which
such opinion indicates that there is a high probability do not result in any of
such payments and benefits being non-deductible to the Employers and subject to
the imposition of the excise tax imposed under Section 4999 of the Code and (ii)
the Employers may request, and the Executive shall have the right to demand that
the Employers request, a ruling from the IRS as to whether the disputed payments
and benefits pursuant to Section 5 hereof have such consequences. Any such
request for a ruling from the IRS shall be promptly prepared and filed by the
Employers, but in no event later than thirty (30) days from the date of the
opinion of counsel referred to above, and shall be subject to the Executive's
approval prior to filing, which shall not be unreasonably withheld. The
Employers and the Executive agree to be bound by any ruling received from the
IRS and to make appropriate payments to each other to reflect any such rulings,
together with interest at the applicable federal rate provided for in Section
7872(f)(2) of the Code. Nothing contained herein shall result in a reduction of
any payments or benefits to which the Executive may be entitled upon termination
of employment under any
circumstances other than as specified in this Section 6, or a reduction in the
payments and benefits specified in Section 5 below zero.
7. Mitigation; Exclusivity of Benefits.
(a) Except as set forth in Section 5(c)(B) hereto, the Executive shall not
be required to mitigate the amount of any benefits hereunder by seeking other
employment or otherwise, nor shall the amount of any such benefits be reduced by
any compensation earned by the Executive as a result of employment by another
employer after the Date of Termination or otherwise.
(b) The specific arrangements referred to herein are not intended to
exclude any other benefits which may be available to the Executive upon a
termination of employment with the Employers pursuant to employee benefit plans
of the Employers or otherwise.
8. Withholding. All payments required to be made by the Employers hereunder
to the Executive shall be subject to the withholding of such amounts, if any,
relating to tax and other payroll deductions as the Employers may reasonably
determine should be withheld pursuant to any applicable law or regulation.
9. Assignability. The Employers may assign this Agreement and its rights
and obligations hereunder in whole, but not in part, to any corporation, bank or
other entity with or into which the Employers may hereafter merge or consolidate
or to which the Employers may transfer all or substantially all of its assets,
if in any such case said corporation, bank or other entity shall by operation of
law or expressly in writing assume all obligations of the Employers hereunder as
fully as if it had been originally made a party hereto, but may not otherwise
assign this Agreement or its rights and obligations hereunder. The Executive may
not assign or transfer this Agreement or any rights or obligations hereunder.
10. Notice. For the purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by certified or
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth below:
To the Employers: Progress Financial Corporation
Progress Bank
4 Sentry Parkway, Suite 230
Blue Bell, Pennsylvania 19422
To the Executive: W. Kirk Wycoff
875 Lantern Lane
Blue Bell, Pennsylvania 19422
11. Amendment; Waiver. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by
the Executive and such officer or officers as may be specifically designated by
the Boards of Directors of the Employers to sign on their behalf. No waiver by
any party hereto at any time of any breach by any other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time.
12. Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the United States
where applicable and otherwise by the substantive laws of the Commonwealth of
Pennsylvania.
13. Nature of Obligations. Nothing contained herein shall create or require
the Employers to create a trust of any kind to fund any benefits which may be
payable hereunder, and to the extent that the Executive acquires a right to
receive benefits from the Employers hereunder, such right shall be no greater
than the right of any unsecured general creditor of the Employers.
14. Headings. The section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
15. Validity. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and effect.
16. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
17. Regulatory Actions. The following provisions shall be applicable to the
parties to the extent that they are required to be included in employment
agreements between a savings association and its employees pursuant to Section
563.39(b) of the Regulations Applicable to all Savings Associations, 12 C.F.R.
ss.563.39(b), or any successor thereto, and shall be controlling in the event of
a conflict with any other provision of this Agreement, including without
limitation Section 5 hereof.
(a) If the Executive is suspended from office and/or temporarily prohibited
from participating in the conduct of the Employers' affairs pursuant to notice
served under Section 8(e)(3) or Section 8(g)(1) of the Federal Deposit Insurance
Act ("FDIA")(12 U.S.C. ss.ss.1818(e)(3) and 1818(g)(1)), the Employers'
obligations under this Agreement shall be suspended as of the date of service,
unless stayed by appropriate proceedings. If the charges in the notice are
dismissed, the Employers may, in their discretion: (i) pay the Executive all or
part of the compensation withheld while its obligations under this Agreement
were suspended, and (ii) reinstate (in whole or in part) any of its obligations
which were suspended.
(b) If the Executive is removed from office and/or permanently prohibited
from participating in the conduct of the Employers' affairs by an order issued
under Section 8(e)(4) or
Section 8(g)(1) of the FDIA (12 U.S.C. ss.ss.1818(e)(4) and (g)(1)), all
obligations of the Employers under this Agreement shall terminate as of the
effective date of the order, but vested rights of the Executive and the
Employers as of the date of termination shall not be affected.
(c) If the Bank is in default, as defined in Section 3(x)(1) of the FDIA
(12 U.S.C. ss.1813(x)(1)), all obligations under this Agreement shall terminate
as of the date of default, but vested rights of the Executive and the Employers
as of the date of termination shall not be affected.
(d) All obligations under this Agreement shall be terminated pursuant to 12
C.F.R. ss.563.39(b)(5) (except to the extent that it is determined that
continuation of the Agreement for the continued operation of the Employers is
necessary): (i) by the Director of the Office of Thrift Supervision ("OTS"), or
his/her designee, at the time the Federal Deposit Insurance Corporation ("FDIC")
or the Resolution Trust Corporation enters into an agreement to provide
assistance to or on behalf of the Bank under the authority contained in Section
13(c) of the FDIA (12 U.S.C. ss.1823(c)); or (ii) by the Director of the OTS, or
his/her designee, at the time the Director or his/her designee approves a
supervisory merger to resolve problems related to operation of the Bank or when
the Bank is determined by the Director of the OTS to be in an unsafe or unsound
condition, but vested rights of the Executive and the Employers as of the date
of termination shall not be affected.
18. Regulatory Prohibition. Notwithstanding any other provision of this
Agreement to the contrary, any payments made to the Executive pursuant to this
Agreement, or otherwise, are subject to and conditioned upon their compliance
with Section 18(k) of the FDIA (12 U.S.C.ss.1828(k)) and any regulations
promulgated thereunder.
2
IN WITNESS WHEREOF, this Agreement has been executed as of the date first
above written.
Attest: PROGRESS FINANCIAL CORPORATION
/s/ Eric J. Morgan By: /s/ Michael B. High
- ------------------------- ----------------------------------------
Michael B. High
Chief Operating Officer and
Chief Financial Officer
By: /s/ William O. Daggett, Jr.
----------------------------------------
William O. Daggett, Jr.
Director
Attest: PROGRESS BANK
/s/ Eric J. Morgan By: /s/ Michael B. High
- ------------------------- ----------------------------------------
Michael B. High
Chief Operating Officer and
Chief Financial Officer
By: /s/ William O. Daggett, Jr.
----------------------------------------
William O. Daggett, Jr.
Director
Attest: W. KIRK WYCOFF
/s/ Eric J. Morgan By: /s/ W. Kirk Wycoff
- ------------------------- ----------------------------------------
W. Kirk Wycoff, Individually
Exhibit 99.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)
The undersigned executive officer of Progress Financial Corporation (the
"Registrant") hereby certifies that the Registrant's Form 10-Q for the quarter
ended June 30, 2002 fully complies with the requirements of Section 13(a) of the
Securities Exchange Act of 1934 and that the information contained therein
fairly presents, in all material respects, the financial condition and results
of operations of the Registrant.
/s/ W. Kirk Wycoff
------------------------------------------
Name: W. Kirk Wycoff
Title: President and Chief Executive Officer
Date: August 9, 2002
Exhibit 99.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)
The undersigned executive officer of Progress Financial Corporation (the
"Registrant") hereby certifies that the Registrant's Form 10-Q for the quarter
ended June 30, 2002 fully complies with the requirements of Section 13(a) of the
Securities Exchange Act of 1934 and that the information contained therein
fairly presents, in all material respects, the financial condition and results
of operations of the Registrant.
/s/ Michael B. High
-----------------------------------------------
Name: Michael B. High
Title: Chief Operating Officer and
Chief Financial Officer
Date: August 9, 2002