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, 1997
Commission File Number: 0-14815
PROGRESS FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 23-2413363
- - ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
4 Sentry Parkway - Suite 230
P. O. Box 3036
Blue Bell, Pennsylvania 19422-0764
- - ---------------------------------------- ----------
(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: Non applicable
--------------
Securities registered pursuant to
Section 12(g) of the Act: Common Stock, $1.00 par value
-----------------------------
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /X/
The aggregate market value of the voting stock, held by non-affiliates of the
Registrant as a group, was $64,621,484 as of March 6, 1998.
As of March 6, 1998, there were 4,161,656 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, 1997 are incorporated into Part II, Items 5 through 8 of this Form 10-K.
(2) Portions of the definitive proxy statement for the 1998 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 I Page
Item 1. Business.......................................................................3
Item 2. Properties....................................................................15
Item 3. Legal Proceedings.............................................................15
Item 4. Submission of Matters to a Vote of Security Holders...........................15
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters.....15
Item 6. Selected Consolidated Financial Data..........................................15
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.....................................................15
Item 7A. Quantitative and Qualitative Disclosure about Market Risk.....................15
Item 8. Financial Statements and Supplementary Data...................................15
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure......................................................15
PART III
Item 10. Directors and Executive Officers of the Registrant............................16
Item 11. Executive Compensation........................................................16
Item 12. Security Ownership of Certain Beneficial Owners and Management................16
Item 13. Certain Relationships and Related Transactions................................16
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K...............17
Signatures....................................................................18
2
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 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. During 1998, the Bank opened an additional office in Montgomery
County.
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"). Through its leasing subsidiary, The
Equipment Leasing Company ("ELC"), also doing business as Quaker State Leasing
Company ("QSL"), the Bank provides equipment leases to small and medium sized
businesses.
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 through its subsidiary, Progress Realty Advisors, L. P.
("PRA"). PRA was established in September 1993. Procall Teleservices, Inc.
("PTI") was formed in the second quarter of 1997. PTI is responsible for
outbound calling in a telemarketing/telesales environment and provides customer
and call center service for the Bank.
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.
3
Subsidiaries
At December 31, 1997, in addition to the Bank, the Company had four other
subsidiaries, Progress Realty Advisors, Inc. ("PRA"), Progress Capital, Inc.
("PCI"), Procall Teleservices, Inc. ("PTI") and Progress Capital Management,
Inc. ("PCM"). PRA, which was formed in September 1993, provides loan sales
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 was formed in 1996, and 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. PTI was formed in the second quarter
of 1997. PTI is responsible for outbound calling in a telemarketing/telesales
environment and provides customer and call center service for the Bank. PCM was
formed December 30, 1997 and provides management advisory services primarily to
the venture fund just described.
4
REGULATION AND SUPERVISION
General
One of the Company's non-banking subsidiaries (PRA) is 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 1998, will be 6.22 cents per $100 of
deposits, compared to an average 7.89 cents per $100 of deposits in 1997.
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, small business, and consumer related
assets on a monthly average basis in 9 out of every 12 months, which the Bank
complied with.
At December 31, 1997, approximately 71.42% 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.
Federal Home Loan Bank System
The Bank is a member of the Federal Home Loan Bank of Pittsburgh ("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 established by its Board of Directors. As of December
31, 1997, the Bank's advances from the FHLB amounted to $33.5 million.
As a member, the Bank is required to purchase and maintain stock in the FHLB in
an amount equal to the greater of 1% of its mortgage related assets or .3% of
total assets. At December 31, 1997, the Bank had $1.7 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
Section 23A and 23B of the Federal Reserve Act. In addition to the restrictions
imposed, no savings associations may (i) loan or otherwise extend credit to an
affiliate, except for any affiliate which engages only in activities which are
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, 1997, the Bank was in compliance with this regulation.
5
Employees
As of December 31, 1997, the Company and PCI had no employees. The Bank and its
leasing companies had 153 full-time and 21 part-time employees, while PRA had 20
full-time employees. PTI had 8 full-time and 2 part-time employees. PTI also
utilizes personnel obtained through an employment services agency.
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 12 to 19 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.
6
Investment Securities
Investment securities are comprised of the following at December 31, 1997, 1996,
and 1995:
1997
----
Held to Maturity Available for Sale
---------------- ------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
- - -------------------------------------------------------------------------------------------------------------------
FHLB stock $1,728 $1,728 $ -- $ --
FHLB investment securities 2,323 2,342 -- --
U.S. agency obligations -- -- 3,000 3,001
Equity investments -- -- 2,924 3,394
- - -------------------------------------------------------------------------------------------------------------------
Total investment securities $4,051 $4,070 $5,924 $6,395
===================================================================================================================
1996
----
Held to Maturity Available for Sale
---------------- ------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
- - -------------------------------------------------------------------------------------------------------------------
FHLB stock $ 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 stock $ 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
===================================================================================================================
The investment securities which are classified as held to maturity and available
for sale have a weighted average coupon rate of 6.66% and 4.95%, respectively,
at December 31, 1997.
7
Mortgage-Backed Securities
The following table details the Bank's mortgage-backed securities by
classification at December 31, 1997, 1996, and 1995.
1997
----
Held to Maturity Available for Sale
---------------- ------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
- - -------------------------------------------------------------------------------------------------------------------
GNMA $19,509 $19,247 $39,553 $39,772
FNMA 15,900 15,871 914 904
FHLMC 14,012 13,976 1,336 1,315
Non-agency pass through certificate -- -- 2,443 2,527
- - -------------------------------------------------------------------------------------------------------------------
Total investment securities $49,421 $49,094 $44,246 $44,518
===================================================================================================================
1996
----
Held to Maturity Available for Sale
---------------- ------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair 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
- - -------------------------------------------------------------------------------------------------------------------
Total investment securities $47,334 $46,535 $42,939 $42,738
===================================================================================================================
1995
----
Held to Maturity Available for Sale
---------------- ------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
- - -------------------------------------------------------------------------------------------------------------------
GNMA $26,618 $26,113 $ 168 $ 168
FNMA 8,620 8,529 8,801 8,631
FHLMC 17,595 17,448 19,040 18,863
Collateralized mortgage obligations -- -- 7,501 7,440
Non-agency pass through certificate -- -- 1,734 1,740
- - -------------------------------------------------------------------------------------------------------------------
Total investment securities $52,833 $52,090 $37,244 $36,842
===================================================================================================================
8
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, 1997 1996 1995
- - -----------------------------------------------------------------------------------------------------------------
Mortgage-backed securities at beginning of period 90,072 $89,675 $102,776
Purchases (1) 54,672 52,800 11,577
Conversion of existing loans to mortgage-backed securities -- 9,982 241
Sales of loans converted to securities -- (9,982) (241)
Sales from portfolio (33,428) (34,924) (11,182)
Repayments (17,176) (17,082) (13,096)
Premium amortization (675) (598) (553)
Other -- -- (94)
Change in unrealized loss on securities available for sale 474 201 247
- - -----------------------------------------------------------------------------------------------------------------
Mortgage-backed securities at end of period (2) 93,939 90,072 89,675
- - -----------------------------------------------------------------------------------------------------------------
Weighted average coupon at end of period 7.97% 7.88% 7.63
==================================================================================================================
- - --------------
(1) Includes applicable premiums and discounts.
(2) Includes $44.5 million, $42.7 million and $36.8 million of mortgage-backed
securities classified as available for sale at estimated fair value at
December 31, 1997, 1996 and 1995, 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, totaled
$325.9 million at December 31, 1997 or 66.1% of its total assets, an increase of
$73.8 million or 29.2% from the $252.2 million outstanding at December 31, 1996.
The following table depicts the composition of the Bank's portfolio at December
31 for the years indicated net of unearned income.
- - --------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
- - --------------------------------------------------------------------------------------------------------------------------
Real estate loans:
Single family
Residential(1) 56,565 17.18% $64,259 25.17% $91,091 40.21% $99,917 48.12% $80,196 45.26%
Commercial
Real estate 109,938 33.40 90,350 35.38 81,535 36.00 71,273 34.33 68,530 38.69
Construction 26,695 8.11 20,692 8.10 14,230 6.28 5,379 2.59 3,922 2.22
- - --------------------------------------------------------------------------------------------------------------------------
Total real estate
Loans 193,198 58.69 175,301 68.65 186,856 82.49 176,569 85.04 152,648 86.17
- - --------------------------------------------------------------------------------------------------------------------------
Commercial business 69,312 21.05 30,384 11.90 17,244 7.61 12,005 5.78 9,250 5.22
- - --------------------------------------------------------------------------------------------------------------------------
Lease financing 41,137 12.50 25,870 10.13 -- -- -- -- -- --
- - --------------------------------------------------------------------------------------------------------------------------
Consumer loans
Consumer 24,639 7.48 22,898 8.97 21,666 9.57 19,027 9.17 15,257 8.61
Credit card receivables 918 .28 885 .35 757 .33 24 .01 -- --
- - --------------------------------------------------------------------------------------------------------------------------
Total consumer loans 25,557 7.76 23,783 9.32 22,423 9.90 19,051 9.18 15,257 8.61
- - --------------------------------------------------------------------------------------------------------------------------
Total loans and leases 329,204 100.00% 255,338 100.00% 226,523 100.00% 207,625 100.00% 177,155 100.00%
Allowance for possible
Loan and lease losses (3,287) (3,177) (1,720) (1,503) (2,113)
- - --------------------------------------------------------------------------------------------------------------------------
Net loans and leases 325,917 252,161 224,803 206,122 175,042
==========================================================================================================================
- - -----------
(1) Includes $373,000, $599,000, $3.2 million, $351,000 and $16.8 million of
loans classified as held for sale at December 31, 1997, 1996, 1995, 1994 and
1993, respectively.
9
Loans 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, 1997. 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 $ 3,961 $22,766 $13,889 $34,984 $ 2,095 $ 77,695
After one year through five years 33,059 3,785 27,235 25,213 7,312 96,604
Beyond five years 129,483 144 13 9,115 16,150 154,905
- - -----------------------------------------------------------------------------------------------------------------------
Total 166,503 26,695 41,137 69,312 25,557 329,204
=======================================================================================================================
Interest rate terms on amounts due after
one year:
Fixed $79,021 $ -- $27,248 $18,754 $17,607 $142,630
- - -----------------------------------------------------------------------------------------------------------------------
Adjustable $83,521 $ 3,929 $ -- $15,574 $ 5,855 $108,879
- - -----------------------------------------------------------------------------------------------------------------------
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 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.
- - ---------------------------------------------------------------------------------------------------------------
1997 1996 1995
- - ---------------------------------------------------------------------------------------------------------------
Loan originations:
Single family residential $3,692 $17,018 $18,404
Commercial real estate 42,155 25,503 23,773
Construction 35,300 25,711 21,798
Lease financing 31,381 9,059 0
Commercial business 52,390 33,024 11,201
Consumer 7,168 11,643 9,398
- - ---------------------------------------------------------------------------------------------------------------
Total loans and leases originated 172,086 121,958 84,574
Leases acquired through the purchase of The Equipment Leasing
Company -- 20,025 --
Purchases -- -- 447
- - ---------------------------------------------------------------------------------------------------------------
Total loans and leases originated and purchased 172,086 141,983 85,021
- - ---------------------------------------------------------------------------------------------------------------
Sales and loan/lease principal reductions:
Loans and leases sold (1) 3,347 30,787 16,230
Loan and lease principal reductions 89,665 80,640 49,205
- - ---------------------------------------------------------------------------------------------------------------
Total loans/leases sold and principal reductions 93,012 111,427 65,435
- - ---------------------------------------------------------------------------------------------------------------
Net change due to other items (5,208) (1,741) (688)
- - ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in loan and leases, net of unearned income $73,866 $28,815 $18,898
===============================================================================================================
- - ------------
(1) For the year ended December 31, 1997 there were no loans converted into
mortgage-backed securities and subsequently sold. For the years ended
December 31, 1996 and 1995, $10.0 million, and $241,000, of loans,
respectively, were converted into mortgage-backed securities and
subsequently sold.
10
Loans 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 uncollectible
and is charged-off against the allowance for possible loan losses.
The following table details the Bank's non-performing assets at December 31:
- - --------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- - --------------------------------------------------------------------------------------------------------------------
Loans and leases accounted for on a non-accrual basis $2,089 $1,328 $3,879 $4,369 $5,743
Accruing loans 90 or more days past due 2,721 4,077 -- 182 308
- - --------------------------------------------------------------------------------------------------------------------
Total non-performing loans and leases 4,810 5,405 3,879 4,551 6,051
REO, net of related reserves 380 2,150 728 4,534 11,577
- - --------------------------------------------------------------------------------------------------------------------
Total non-performing assets $5,190 $7,555 $4,607 $9,085 17,628
- - --------------------------------------------------------------------------------------------------------------------
Non-performing loans and leases as a percentage of
total loans and leases 1.48% 2.15% 1.74% 2.19% 3.42%
- - --------------------------------------------------------------------------------------------------------------------
Non-performing assets as a percentage of total assets .50% 0.91% 1.33% 2.61% 5.29%
- - --------------------------------------------------------------------------------------------------------------------
Gross interest income that would have been recorded during 1997, 1996, and 1995
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 $172,000,
$193,000, and $242,000, respectively. The amount of interest income that was
actually recorded during 1997, 1996, and 1995 with respect to such
non-performing loans and leases amounted to approximately $138,000, $114,000,
and $174,000, respectively.
The $2.1 million of non-accrual loans and leases at December 31, 1997 consists
of $1.3 million of loans secured by single-family residential property, $125,000
of loans secured by commercial property, $116,000 of commercial business loans,
$347,000 of consumer loans and $171,000 of lease financing. The $380,000 of real
estate owned at December 31, 1997 consists of one residential property and one
undeveloped residential lot.
Delinquencies
All loans and leases are reviewed on a regular basis and are placed on
non-accrual status when, in the opinion of management, the collection of
additional interest is deemed 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, 1997 1996 1995
- - --------------------------------------------------------------------------------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
Delinquencies:
30 to 59 days $4,820 1.46% $2,535 .99% $2,973 1.31%
60 to 89 days 1,696 .52 392 .15 450 .20
90 or more days 2,721 .83 4,077 1.60 -- --
- - --------------------------------------------------------------------------------------------
Total $9,237 2.81% $7,004 2.74% $3,423 1.51%
============================================================================================
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, 1997 1996 1995 1994 1993
Percent of Percent of Percent of Percent of Percent of
Loans to Loans to Loans to Loans to Loans to
Total Loans Total Loans Total Loans Total Loans Total Loans
Amount And Leases Amount And Leases Amount And Leases Amount And Leases Amount And Leases
- - --------------------------------------------------------------------------------------------------------------------------
Residential real estate $ 127 17.18% $ 129 25.17% $ 148 40.21% $268 45.26% $ 194 45.26%
Commercial real estate 1,120 33.40 1,620 35.38 1,045 36.00 917 38.69 1,403 38.69
Real estate construction 290 8.11 257 8.10 286 6.28 125 2.22 149 2.22
Commercial business 749 21.05 387 11.90 166 7.61 152 5.22 294 5.22
Lease financing 870 12.50 630 10.13 -- -- -- -- -- --
Consumer 131 7.76 154 9.32 75 9.90 41 8.61 73 8.61
- - --------------------------------------------------------------------------------------------------------------------------
Total $3,287 100.00% $3,177 100.00% $1,720 100.00% $1,503 100.00% $2,113 100.00%
==========================================================================================================================
12
The following table details the Bank's allowance for possible loan and lease
losses for the periods indicated:
- - --------------------------------------------------------------------------------------------------------------------------
For the years ended December 31, 1997 1996 1995 1994 1993
- - --------------------------------------------------------------------------------------------------------------------------
Average loans outstanding $290,597 $231,153 $213,525 $189,053 $166,419
- - --------------------------------------------------------------------------------------------------------------------------
Balance beginning of period $ 3,177 $ 1,720 $ 1,503 $ 2,113 $ 2,703
Charge-offs:
Residential real estate 2 25 20 -- 148
Commercial real estate 394 -- -- 1,160 810
Real estate construction -- -- 100 50 5
Commercial business 292 7 281 88 283
Lease financing 365 65 -- -- --
Consumer 100 80 26 20 89
- - --------------------------------------------------------------------------------------------------------------------------
Total charge-offs 1,153 177 427 1,318 1,335
- - --------------------------------------------------------------------------------------------------------------------------
Recoveries:
Residential real estate -- 2 -- -- 42
Commercial real estate -- 30 -- -- --
Real estate construction -- -- 1 137 72
Commercial business 20 26 3 36 137
Lease financing 103 20 -- -- --
Consumer 19 19 15 14 25
- - --------------------------------------------------------------------------------------------------------------------------
Total recoveries 142 97 19 187 276
- - --------------------------------------------------------------------------------------------------------------------------
Net charge-offs 1,011 80 408 1,131 1,059
Provision for possible loan and lease losses 1,121 687 625 521 368
Allowances assumed through acquisitions (1) -- 850 -- -- 101
- - --------------------------------------------------------------------------------------------------------------------------
Total additions 1,121 1,537 625 521 469
- - --------------------------------------------------------------------------------------------------------------------------
Balance at end of period 3,287 3,177 1,720 1,503 2,113
==========================================================================================================================
Ratio of net chargeoffs during the period to
average loans and leases outstanding during
the period .35% .03% .19% .60% .64%
==========================================================================================================================
Ratio of allowance for possible loan and lease
losses to non-performing loans and leases at
end of period (2) 68.35% 58.78% 44.34% 33.03% 34.92%
==========================================================================================================================
(1) Allowance assumed through acquisitions represents The Equipment Leasing
Company in 1996 and the Rosemont, Pennsylvania branch of Progress Bank in 1993.
(2) Includes loans 90 or more days deliquent and still accruing.
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, 1997 1996 1995 1994 1993
Amount Rate Amount Rate Amount Rate Amount Rate Amount Rate
- - ---------------------------------------------------------------------------------------------------------------------------
Interest-bearing deposits:
NOW and Super NOW $31,688 2.14% $27,977 2.12% $26,661 2.69% $21,932 2.43% $17,488 2.39%
Money market accounts 37,199 3.17 33,781 3.03 33,577 3.10 41,428 2.75 42,128 2.82
Passbook and statement savings 29,698 2.73 28,258 2.85 27,290 2.87 27,808 2.95 21,212 2.94
Time deposits 177,860 5.45 178,677 5.37 177,972 5.46 168,250 4.56 159,973 4.47
- - ---------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
deposits 276,445 4.47% 268,693 4.47% 265,500 4.62% 259,418 3.92% 240,801 3.89%
- - ---------------------------------------------------------------------------------------------------------------------------
Non-interest-bearing deposits 35,292 25,521 20,210 16,713 13,778
- - ---------------------------------------------------------------------------------------------------------------------------
Total deposits 311,737 294,214 285,710 276,131 254,579
- - ---------------------------------------------------------------------------------------------------------------------------
The following table presents the interest rate and maturity information for the
Bank's time deposits at December 31, 1996.
- - ---------------------------------------------------------------------------------------------------------------------
Maturity Date
One year or less 1-2 Years 2-3 Years Over 3 Years Total
- - ---------------------------------------------------------------------------------------------------------------------
Interest Rate
2.00 - 3.99% $ 171 $ 42 $ 24 $ 32 $ 269
4.00 - 5.99% 121,032 20,685 7,379 5,260 154,356
6.00 - 7.99% 15,205 10,659 10,698 1,402 37,964
8.00 - 9.99% 19 38 -- 15 72
10.00 - 11.99% -- -- 16 16
- - ---------------------------------------------------------------------------------------------------------------------
$136,427 $31,424 $18,101 $6,725 $192,677
- - ---------------------------------------------------------------------------------------------------------------------
The Bank's time deposits of $100,000 or more totaled $34.7 million at December
31, 1997 which mature as follows: $22.8 million within three months; $1.8
million between three and six months; $6.1 million between six and twelve
months; and $4.0 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.
Borrowings
The following table presents certain information regarding borrowings:
- - --------------------------------------------------------------------------------------------------------------------------
For the years ended December 31, 1997 1996 1995
- - --------------------------------------------------------------------------------------------------------------------------
Average balance outstanding $67,489 $41,092 $47,177
Maximum amount outstanding at any month-end during the period 84,628 67,905 53,845
Weighted average interest rate during the period 6.30% 6.47% 6.54%
Weighted average interest rate at end of period 6.18% 6.72% 6.70%
Included in borrowings at December 31, 1997 were securities sold under
agreements to repurchase of $34.5 million, FHLB advances of $33.5 million,
subordinated debt of $3.0 million and an Employee Stock Option Plan note payable
of $176,000. Borrowings increased $20.9 million from year-end 1996.
Recent Accounting Pronouncement
During June of 1997, the Financial Accounting Standard Board released FAS 130
entitled "Reporting Comprehensive Income." This statement, effective for fiscal
years beginning after December 15, 1997, established Standards for reporting and
display of comprehensive income and its components in Financial Statements.
Under the statement, certain items currently reported directly in a separate
component of equity but excluded from net income will be reported in a separate
financial statement that it displayed as prominently as other financial
statements.
Currently, the company reports unrealized gains and losses as certain securities
classified as available-for-sale as a separate component of equity. Under FAS
150, these would also be displayed as a component of comprehensive income.
14
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 is owned and nine are leased.
During 1998, the Bank opened an additional office in Montgomery County. The Bank
also conducts equipment leasing business in leased facilities in Baltimore, MD,
Blue Bell, PA and during 1998 in Bethlehem, PA. The Company, through PRA has
leased locations in Blue Bell, PA, Richmond, VA, Woodbridge, NJ and Chesapeake,
VA.
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 1997 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 11 of the
Company's 1997 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 12 to 19
of the Company's 1997 Annual Report to Stockholders.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
The information required herein is incorporated by reference from pages 17 to 19
of the Company's 1997 Annual Report to Stockholders.
Item 8. Financial Statements and Supplementary Data
The information required herein is incorporated by reference from pages 20 to 39
of the Company's 1997 Annual Report to Stockholders.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
15
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 1997 Annual Meeting to be held May
6, 1998 (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.
16
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])
*4.1 Amended and Restated Declaration of Trust relating to Progress
Capital Trust I, dated as of June 3, 1997, between Progress
Financial Corporation and the trustees named therein. (Exhibit 4.4
to the Company's Registration Statement on Form S-4, File No. 333-
38447, filed with the Commission on October 22, 1997)
*4.2 Indenture, dated as of June 3, 1997, between Progress Financial
Corporation and The Bank of New York, as trustee, relating to Junior
Subordinated Deferrable Interest Debentures due 2027 of Progress
Financial Corporation. (Exhibit 4.1 to the Company's Registration
Statement on Form S-4, File No. 333-38447, filed with the Commission
on October 22, 1997)
*4.3 Series B Capital Securities Guarantee Agreement, dated as of
December 11, 1997, relating to the Capital Securites of Progress
Capital Trust I. (Exhibit 4.6 to the Company's Registration
Statement on Form S-4, File No. 333-38447, filed with the Commission
on October 22, 1997)
*10.1 Key Employee Stock Compensation Program (Exhibit 28 to the Company's
Registration Statement No. 33-01060 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 as amended in 1997. (As filed with the
Company's definitive proxy statement for the 1997 Annual Meeting of
Stockholders)
*10.4 1993 Directors' Stock Option Plan as amended in 1997. (As filed with
the Company's definitive proxy statement for the 1997 Annual Meeting
of Stockholders)
10.5 Employment Agreement between Progress Financial Corporation,
Progress Bank and W. Kirk Wycoff dated March 1, 1997.
13 1997 Annual Report to Stockholders
21 Subsidiaries of the Registrant
23 Consent of Independent Accountants
No reports on Form 8-K were filed for the quarter ended December 31, 1997.
*Incorporated by reference.
17
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 24, 1998 BY: /s/ W. Kirk Wycoff
- - --------------------------- -------------------
Date W. Kirk Wycoff, Chairman, President and
Chief Executive Officer
Pursuant to the Requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates
indicated.
/s/ W. Kirk Wycoff March 24, 1998
- - ------------------------------------ ----------------
W. Kirk Wycoff, Chairman, President Date
and Chief Executive Officer
/s/ John E. F. Corson March 24, 1998
- - ------------------------------------ ----------------
John E. Flynn Corson, Director Date
/s/ William O. Daggett, Jr. March 24, 1998
- - ------------------------------------ ----------------
William O. Daggett, Jr., Director Date
/s/ Donald F. U. Goebert March 24, 1998
- - ------------------------------------ ----------------
Donald F. U. Goebert, Director Date
/s/ H. Wayne Griest March 24, 1998
- - ------------------------------------ ----------------
H. Wayne Griest, Director Date
/s/ Joseph R. Klinger March 24, 1998
- - ------------------------------------ ----------------
Joseph R. Klinger, Director Date
/s/ Paul M. LaNoce March 24, 1998
- - ------------------------------------ ----------------
Paul M. LaNoce, Director Date
- - ------------------------------------ ----------------
A. John May, III, Director Date
/s/ William L. Mueller March 24, 1998
- - ------------------------------------ ----------------
William L. Mueller, Director Date
- - ------------------------------------ ----------------
Janet E. Paroo, Director Date
/s/ Charles J. Tornetta March 24, 1998
- - ------------------------------------ ----------------
Charles J. Tornetta, Director Date
/s/ Frederick E. Schea March 24, 1998
- - ------------------------------------ ----------------
Frederick E. Schea, Sr. Vice President Date
and Chief Financial Officer
18