<PAGE>

                      Securities and Exchange Commission
                            Washington, D.C. 20549

                                   Form 10-K
      Annual Report pursuant to Section 13 or 15 (d) of the Securities Exchange
      Act of 1934 for the fiscal year ended December 31, 1996

Commission File Number: 0-14815

                        PROGRESS FINANCIAL CORPORATION
            (Exact name of registrant as specified in its charter)



            Delaware                                             23-2413363
----------------------------------                     -------------------------
(State or other jurisdiction                           (I.R.S. Employer
of incorporation or organization)                       Identification Number)




4 Sentry Parkway - Suite 230
P.O. Box 3036
Blue Bell, Pennsylvania                                 19422-2311
----------------------------------------                ----------
(Address of principal executive offices)                (Zip Code)




Registrant's telephone number, including area code:     (610) 825-8800


Securities registered pursuant to Section 12(b) of
the Act:                                                Not applicable

Securities registered pursuant to Section 12(g) of      Common Stock,
the Act:                                                $1.00 par value
                                                        (Title of class)


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X  No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K. X

The aggregate market value of the voting stock, held by non-affiliates of the
Registrant as a group, was $29,203,401 as of March 7, 1997.

As of March 7, 1997, there were 3,775,748 issued and outstanding shares of the
Registrant's Common Stock.

Documents Incorporated By Reference:
(1) Portions of the Annual Report to Stockholders for the year ended December
31, 1996 are incorporated into Part II, items 5 through 8 of this Form 10-K.

(2) Portions of the definitive proxy statement for the 1997 Annual Meeting of
Stockholders are incorporated into Part III, Items 10 through 13 of this Form
10-K.



<PAGE>

                        PROGRESS FINANCIAL CORPORATION
                               Table of Contents

                                    PART 1                      Page

Item 1.    Business.............................................  3
Item 2.    Properties........................................... 16
Item 3.    Legal Proceedings.................................... 16
Item 4.    Submission of Matters to a Vote of
            Security Holders.................................... 16

                                    PART II

Item 5.    Market for the Registrant's Common Equity
            and Related Stockholder Matters..................... 16
Item 6.    Selected Consolidated Financial Data................. 16
Item 7.    Management's Discusion and Analysis of Financial
             Condition and Results of Operations................ 16
Item 8.    Financial Statements and Supplementary Data.......... 16
Item 9.    Changes in and Disagreements with Accountants
            on Accounting and Financial Disclosure.............. 16

                                   PART III

Item 10.   Directors and Executive Officers
            of the Registrant................................... 17
Item 11.   Executive Compensation............................... 17
Item 12.   Security Ownership of Certain Beneficial
            Owners and Management............................... 17
Item 13.   Certain Relationships and Related Transactions....... 17

                                    PART IV

Item 14.   Exhibits, Financial Statement Schedules
            and Reports on Form 8-K............................. 18

           Signatures........................................... 20
<PAGE>

                                    PART I

Item 1.   Business

General

Progress Financial Corporation (the "Company") was incorporated under the laws
of the State of Delaware in February 1986 by authorization of the Board of
Directors of Progress Federal Savings Bank (the "Bank") for the purpose of
becoming a unitary thrift holding company owning all of the outstanding stock of
the Bank. On July 18, 1986, pursuant to a plan of reorganization approved by the
Bank's shareholders, all of the outstanding shares of capital stock of the Bank
were converted into shares of capital stock of the Company on a share-for-share
basis so that the shareholders of the Bank became the shareholders of the
Company, and the Company became the sole shareholder of the Bank. The business
activity of the Company as a unitary thrift holding company consists primarily
of the operation of the Bank as a wholly-owned savings bank subsidiary.

The Company is authorized as a Delaware corporation to engage in any activity
permitted by the Delaware General Corporation Law. The holding company structure
permits the Bank, through the Company, to expand the size and scope of the
financial services offered beyond those that the Bank is permitted to offer.

The Bank is a Federally chartered stock savings bank conducting community
banking business through seven offices in Montgomery County, Pennsylvania, one
office in Delaware County, Pennsylvania, one office in Chester County,
Pennsylvania and one office in the Andorra community of Philadelphia,
Pennsylvania.

The principal business of the Bank consists of attracting deposits from the
general public through its offices and using such deposits to originate loans
secured by first mortgage liens on existing single-family residential real
estate and existing multi-family residential and commercial real estate,
construction loans, commercial business loans consisting primarily of loans to
small and medium-sized businesses, and various consumer loans. The Bank
originates single-family residential real estate loans for sale in the secondary
market and secured consumer loans, such as home equity loans and lines of
credit. The Bank also originates commercial business loans to small and
medium sized businesses in the communities its branches serve and commercial
real estate (including multi-family residential) and residential construction
loans. In addition, the Bank invests in mortgage-backed securities which are
insured or guaranteed by the U.S. Government and agencies thereof and other
similar investments permitted by applicable laws and regulations. The Bank is
also involved in real estate development and related activities, through its
subsidiaries, primarily to facilitate the completion and sale of certain
property held as real estate owned ("REO").

The Company also conducts commercial mortgage banking and brokerage services for
institutional real estate investors and lenders as well as real estate owners
and developers and provides asset management services through its subsidiaries,
Progress Realty Advisors, L.P. ("PRA"), Progress Capital Inc., ("PCI) and
Progress Asset Management Company ("PAM"). PRA was established in September
1993, while PCI and PAM were both established during 1996.

On January 31, 1996, the Company successfully completed the offering of 500,000
shares of common stock at a price of $5.25 per share.

On October 1, 1996 the Company acquired all of the outstanding stock of The
Equipment Leasing Company ("ELC"). ELC primarily leases computer and
telecommunication equipment. ELC became a wholly-owned subsidiary of Progress
Bank. Quaker State Financial Corporation ("QSFC") was merged into ELC and
continues to operate as Quaker State Leasing Company.

Competition

The Company faces strong competition both in attracting deposits and making
loans. As a provider of a wide range of financial services, the Company competes
with national and state banks, savings and loan associations, securities
dealers, brokers, mortgage bankers, finance and insurance companies, and other
financial service companies. The ability of the Company to attract and retain
deposits depends on its ability to generally provide a rate of return, liquidity
and risk comparable to that offered by competing investment opportunities. The
Company competes for loans principally through the interest rates and loan fees
it charges and the efficiency and quality of services it provides borrowers.

Subsidiaries

At December 31, 1996, in addition to the Bank, the Company had three other
subsidiaries, Progress Realty Advisors, L.P. ("PRA"), Progress Capital, Inc.,
("PCI") and Progress Asset Management Company ("PAM"). PRA, which was formed in
September 1993, provides loan sale advisory, commercial mortgage banking, and
commercial mortgage brokerage services to both institutional real estate
investors and lenders, as well as real estate owners and developers. PCI and PAM
were both formed in 1996. PCI is the corporate general partner of a venture
fund, co-sponsored by the Ben Franklin Technology Center of Southeastern PA. The
venture fund will target early-stage Pennsylvania companies with proven,
innovative products. PAM is a Registered Investment Advisor that provides short
term cash investment services.

                                       3
<PAGE>

                          REGULATION AND SUPERVISION

General

Two of the Company's non-banking subsidiaries (PRA and PAM) are subject to the
laws of the Commonwealth of Pennsylvania. PCI is a Delaware corporation. The
Company, as a unitary thrift holding company is subject to comprehensive
examination, supervision and regulation by the Office of Thrift Supervision
("OTS"). As a subsidiary of a unitary thrift holding company, the Bank is
subject to certain restrictions in its dealings with the Company and affiliates
thereof.

The Bank

Insurance of Deposits

The Bank's deposits are insured by the Savings Association Insurance Fund
("SAIF") to a maximum of $100,000 for each depositor. The Federal Deposit
Insurance Corporation ("FDIC") requires an annual audit by independent
accountants and may also examine Federal savings banks whose deposits are
insured.

Federal law requires that the FDIC maintain the reserve level of each of the
SAIF and the Bank Insurance Fund ("BIF") at 1.25% of insured deposits. The BIF
reached this level during 1995. A one-time assessment on thrift institutions
sufficient to recapitalize the SAIF was enacted in September 1996. On September
30 1996, the Bank paid a special one-time premium of $1.8 million to capitalize
SAIF. Deposit insurance premiums in 1997 will be 6.48 cents per $100 of
deposits, compared to an average 27.49 cents per $100 of deposits in 1996.
Deposit insurance is payable on a quarterly basis.

Qualified Thrift Lender Test

All savings associations are required to meet a qualified thrift lender ("QTL")
test set forth in Section 10(m) of the Home Owners' Loan Act ("HOLA") and
regulations of the OTS thereunder to avoid certain restrictions on their
operations.

Currently, the QTL test requires that 65% of an institution's "portfolio assets"
(as defined) consist of certain housing and consumer related assets on a monthly
average basis in 9 out of every 12 months.

At December 31, 1996, approximately 71.3% of the Bank's assets were invested in
qualified thrift investments, which was in excess of the percentage required to
qualify under the QTL test. For all 12 months of 1996, the bank exceeded the QTL
requirement.

Federal Home Loan Bank System

The Bank is a member of the FHLB which administers the home financing credit
function and serves as a source of liquidity for member savings associations and
commercial banks within its assigned region. It makes loans to members (i.e.,
advances) in accordance with policies and procedures establish by its Board of
Directors. As of December 31, 1996, the Bank's advances from the FHLB amounted
to $18.0 million.

As a member, the Bank is required to purchase and maintain stock in the FHLB of
Pittsburgh in an amount equal to the greater of 1% of its mortgage related
assets or .3% of total assets. At December 31, 1996, the Bank had $1.9 million
in FHLB stock, which was in compliance with this requirement.

Federal Limitations on Transactions with Affiliates

Transactions between savings associations and any affiliate are governed by
Sections 23A and 23B of the Federal Reserve Act. In addition to the restrictions
imposed, no savings associations may (i) loan or otherwise extend credit to an
affiliate which engages only in activities which are permissible for bank
holding companies, or (ii) purchase or invest in any stocks, bonds, debentures,
notes, or similar obligations of any affiliate, except for affiliates which are
subsidiaries of the savings association.

In addition, Section 12 CRF-215 (Regulation O) of the Code of Federal
Regulations places restrictions on loans by savings associations to executive
officers, directors, and principal stockholders of the Company and the Bank. At
December 31, 1996, the Bank was in compliance with this regulation.

                                       4

<PAGE>

Employees

As of December 31, 1996, the Company and PCI had no employees. The Bank had 143
full-time and 22 part-time employees, while PRA had 11 full-time and 4 part-time
employees. PAM had 2 full-time and no part-time employees.


Statistical Information


Statistical information is furnished pursuant to the requirements of Guide 3
(Statistical Disclosure by Bank Holding Companies) promulgated under the
Securities Act of 1933. The information required herein is incorporated by
reference from pages 10 to 18 of the Company's Annual Report to Stockholders.
Additional disclosures required in Guide 3 and not incorporated by reference are
included below.


Tabular information is provided in thousands of dollars except for share and per
share data.


                                       5
<PAGE>

Investment Securities

Investment securities are comprised of the following at December 31, 1996, 1995
and 1994:

<TABLE>
<CAPTION>
                                                                      1996
                                                                      ----
                                                  Held to Maturity            Available for Sale
                                                  ----------------            ------------------

                                             Amortized       Estimated      Amortized   Estimated
                                                Cost         Fair Value       Cost      Fair Value
--------------------------------------------------------------------------------------------------
   <S>                                       <C>             <C>            <C>         <C>
   FHLB of Pittsburgh stock, pledged          $  1,937       $  1,937       $    --     $    --
   U.S. agency obligations                         ---            ---         3,468       3,418
   Equity investments                              ---            ---            30          44
--------------------------------------------------------------------------------------------------
       Total investment securities            $  1,937       $  1,937       $ 3,498     $ 3,462
==================================================================================================
<CAPTION>
                                                                      1995
                                                                      ----
                                                  Held to Maturity            Available for Sale
                                                  ----------------            ------------------

                                             Amortized       Estimated      Amortized   Estimated
                                                Cost         Fair Value       Cost      Fair Value
--------------------------------------------------------------------------------------------------
   <S>                                       <C>             <C>            <C>         <C>
   FHLB of Pittsburgh stock, pledged          $  2,149       $  2,149       $    --     $    --
   U.S. agency obligations                         ---            ---         5,497       5,474
   Equity investments                              ---            ---            30          30
--------------------------------------------------------------------------------------------------
       Total investment securities            $  2,149       $  2,149       $ 5,527     $ 5,504
==================================================================================================
<CAPTION>
                                                                      1994
                                                                      ----
                                                  Held to Maturity            Available for Sale
                                                  ----------------            ------------------

                                             Amortized       Estimated      Amortized   Estimated
                                                Cost         Fair Value       Cost      Fair Value
--------------------------------------------------------------------------------------------------
   <S>                                       <C>             <C>            <C>         <C>
   FHLB of Pittsburgh stock, pledged          $  2,303       $  2,303       $    --     $    --
   U.S. agency obligations                      10,564          9,625         4,999       4,597
   Equity investments                              ---            ---            30          30
--------------------------------------------------------------------------------------------------
       Total investment securities            $ 12,867       $ 11,928       $ 5,029     $ 4,627
==================================================================================================
</TABLE>

The investment securities which are classified as held to maturity and available
for sale have a weighted average coupon rate of 6.25% and 6.52%, respectively,
at December 31, 1996.

                                       6
<PAGE>

Mortgage-Backed Securities

The following table details the Bank's mortgage-backed securities by
classification at December 31, 1996, 1995 and 1994.

<TABLE>
<CAPTION>
                                                                   1996
                                                                   ----
                                               Held to Maturity            Available for Sale
                                               ----------------            ------------------

                                           Amortized   Estimated Fair   Amortized   Estimated Fair
                                             Cost           Value          Cost         Value
--------------------------------------------------------------------------------------------------
<S>                                        <C>         <C>              <C>         <C>
     GNMA                                  $  22,759     $  22,217      $  21,770     $  21,839
     FNMA                                      7,321         7,219          7,335         7,188
     FHLMC                                    17,254        17,099          7,229         7,172
     Collateralized mortgage
       obligations                                --            --          3,000         2,940
     Non-agency pass through certificate          --            --          3,605         3,599
--------------------------------------------------------------------------------------------------
                                           $  47,334     $  46,535      $  42,939     $  42,738
==================================================================================================

<CAPTION>
                                                                   1995
                                                                   ----
                                               Held to Maturity            Available for Sale
                                               ----------------            ------------------

                                           Amortized   Estimated Fair   Amortized   Estimated Fair
                                             Cost           Value          Cost         Value
--------------------------------------------------------------------------------------------------
<S>                                        <C>         <C>              <C>         <C>
     GNMA                                  $  26,618     $  26,113      $     168     $     168
     FNMA                                      8,620         8,529          8,801         8,631
     FHLMC                                    17,595        17,448         19,040        18,863
     Collateralized mortgage
       obligations                                --            --          7,501         7,440
     Non-agency pass through certificate          --            --          1,734         1,740
--------------------------------------------------------------------------------------------------
                                           $  52,833     $  52,090      $  37,244     $  36,842
==================================================================================================

<CAPTION>
                                                                   1994
                                                                   ----
                                               Held to Maturity            Available for Sale
                                               ----------------            ------------------

                                           Amortized   Estimated Fair   Amortized   Estimated Fair
                                             Cost           Value          Cost         Value
--------------------------------------------------------------------------------------------------
<S>                                        <C>         <C>              <C>         <C>
     GNMA                                  $  29,325     $  27,080      $     227     $     219
     FNMA                                     21,577        19,932          1,098         1,014
     FHLMC                                    42,771        40,093          3,429         3,155
     Collateralized mortgage
       obligations                                --            --          4,998         4,715
--------------------------------------------------------------------------------------------------
                                           $  93,673     $  87,105      $   9,752     $   9,103
==================================================================================================
</TABLE>

                                       7
<PAGE>

Mortgage-Backed Securities (continued)

The following table sets forth the activity in the Bank's mortgage-backed
securities portfolio during the periods indicated:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
For the years ended December 31,                                            1996          1995           1994
------------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>           <C>            <C>
Mortgage-backed securities at beginning of period                         $ 89,675      $ 102,776      $ 125,947

Purchases (1)                                                               52,800         11,577         26,555
Conversion of existing loans to mortgage-backed securities                   9,982            241         24,979
Sales of loans converted to securities                                      (9,982)          (241)       (24,979)
Sales from portfolio                                                       (34,924)       (11,182)       (19,833)
Repayments                                                                 (17,082)       (13,096)       (27,299)
Premium amortization                                                          (598)          (553)        (2,001)
Other                                                                           --            (94)            55
Change in unrealized loss on securities available for sale                     201            247           (648)
------------------------------------------------------------------------------------------------------------------
Mortgage-backed securities at end of period (2)                           $ 90,072      $  89,675      $ 102,776
------------------------------------------------------------------------------------------------------------------
Weighted average coupon at end of period                                      7.88%          7.63%          7.38%
==================================================================================================================
</TABLE>

(1) Includes applicable premiums and discounts.
(2) Includes $42.7 million, $36.8 million and $9.1 million of mortgage-backed
    securities classified as available for sale at estimated fair value at
    December 31, 1996, 1995 and 1994, respectively.

Loan and Lease Portfolio

The principal categories in the Bank's loan and lease portfolio are residential
real estate loans, which are secured by single-family (one-to-four units)
residences; commercial real estate loans, which are secured by multi-family
(over five units) residential and commercial real estate; loans for the
construction of single-family, multi-family and commercial properties, including
land acquisition and development loans; commercial business loans, lease
financing, consumer loans and credit card receivables. Substantially all of the
Bank's mortgage loan portfolio consists of conventional mortgage loans, which
are loans that are neither insured by the Federal Housing Administration nor
partially guaranteed by the Department of Veterans Affairs.

The Bank's net loan and lease portfolio, including loans held for sale, totalled
$252.2 million at December 31, 1996 or 65.7% of its total assets, an increase of
$27.4 million or 12.2% from the $224.8 million outstanding at December 31, 1995.
The following table depicts the composition of the Bank's portfolio at December
31 of the years indicated net of unearned income.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                1996                 1995                  1994                   1993                  1992
                                ----                 ----                  ----                   ----                  ----
                          Amount    Percent    Amount    Percent     Amount    Percent      Amount    Percent     Amount    Percent
------------------------------------------------------------------------------------------------------------------------------------
<S>                       <C>       <C>        <C>       <C>         <C>       <C>          <C>       <C>         <C>       <C>
Real estate loans:
 Single family
   residential (1)        $ 64,259    25.17%    $ 91,091    40.21%    $ 99,917    48.12%    $ 80,196    45.26%    $ 54,560    34.27%
 Commercial
   real estate              90,350    35.38       81,535    36.00       71,273    34.33       68,530    38.69       70,646    44.38
 Construction               20,692     8.10       14,230     6.28        5,379     2.59        3,922     2.22        6,038     3.79
------------------------------------------------------------------------------------------------------------------------------------
   Total real estate
     loans                 175,301    68.65      186,856    82.49      176,569    85.04      152,648    86.17      131,244    82.44
------------------------------------------------------------------------------------------------------------------------------------
 Commercial business        30,384    11.90       17,244     7.61       12,005     5.78        9,250     5.22       12,025     7.56
------------------------------------------------------------------------------------------------------------------------------------
 Lease financing            25,870    10.13          ---      ---          ---      ---         ---       ---          ---      ---
------------------------------------------------------------------------------------------------------------------------------------
Consumer loans:
 Consumer                   22,898     8.97       21,666     9.57       19,027     9.17       15,257     8.61       15,928    10.00
 Credit card receivables       885      .35          757      .33           24      .01          ---      ---          ---      ---
------------------------------------------------------------------------------------------------------------------------------------
 Total consumer loans       23,783     9.32       22,423     9.90       19,051     9.18       15,257     8.61       15,928    10.00
------------------------------------------------------------------------------------------------------------------------------------
Total loans and leases     255,338   100.00%     226,523   100.00%     207,625   100.00%     177,155   100.00%     159,197   100.00%
Allowance for possible
 loan and lease losses      (3,177)               (1,720)               (1,503)               (2,113)               (2,703)
------------------------------------------------------------------------------------------------------------------------------------
 Net loans and leases     $252,161              $224,803              $206,122              $175,042              $156,494
====================================================================================================================================
</TABLE>

(1) Includes $599,000, $3.2 million and $351,000 of loans classified as held for
    sale at December 31, 1996, 1995 and 1994, respectively.

                                       8
<PAGE>

Loan and Lease Portfolio (continued)

The following table sets forth the scheduled contractual amortization of loans
and leases in the Bank's total loan and lease portfolio (including loans
classified as held for sale) at December 31, 1996. Loans and leases having no
stated schedule of repayments and no stated maturity are reported as due in one
year or less. The following table also sets forth the dollar amount of loans and
leases which are scheduled to mature after one year which have fixed or
adjustable rates.

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
                                Real Estate     Real Estate       Lease       Commercial
                                 Mortgage       Construction    Financing      Business      Consumer       Total
-------------------------------------------------------------------------------------------------------------------
      <S>                       <C>              <C>            <C>             <C>          <C>          <C>
      Amounts due
        One year or less        $  9,199         $ 12,921        $11,345        $14,810      $ 1,255      $ 49,530
        After one year through
          five years              27,724            7,771         14,468         11,514        8,083        69,560
        Beyond five years        117,686               --             57          4,060       14,445       136,248
-------------------------------------------------------------------------------------------------------------------
          Total                 $154,609         $ 20,692        $25,870        $30,384      $23,783      $255,338
===================================================================================================================
      Interest rate terms on
        amounts due after one
        year:
      Fixed                     $ 54,343         $     --        $14,525        $ 6,789      $16,560      $ 92,217
-------------------------------------------------------------------------------------------------------------------
      Adjustable                $ 91,067         $  7,771        $    --        $ 8,785      $ 5,968      $113,591
-------------------------------------------------------------------------------------------------------------------
</TABLE>
Scheduled contractual principal repayments do not reflect the actual maturities
of loans and leases. The average maturity of loans and leases is less than their
average contractual terms because of prepayments and, in the case of
conventional mortgage loans due and payable in the event, among other things,
that the borrower sells the real property subject to the mortgage and the loan
is not repaid. The average life of mortgage loans tends to increase when current
mortgage loan rates are higher than rates on existing mortgage loans and,
conversely, decrease when rates on existing mortgages are lower than current
mortgage loan rates (due to refinancing of adjustable-rate and fixed rate loans
at lower rates). Under the latter circumstances, the weighted average yield on
loans decreases as higher yielding loans are paid or refinanced at lower rates.

The following table shows total loans and leases originated, purchased, sold and
repaid during the periods ended December 31 for the years indicated.

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
                                                                            1996           1995            1994
-------------------------------------------------------------------------------------------------------------------
     <S>                                                                 <C>             <C>             <C>
     Loan originations:
     Single family residential                                           $ 17,018        $ 18,404        $ 56,210
     Commercial real estate                                                25,503          23,773          20,335
     Construction                                                          25,711          21,798           7,833
     Lease financing                                                        9,059              --              --
     Commercial business                                                   33,024          11,201          18,168
     Consumer                                                              11,643           9,398           8,943
-------------------------------------------------------------------------------------------------------------------
           Total loans originated                                         121,958          84,574         111,489

     Leases acquired through the purchase of
              The Equipment Leasing Company                                20,025              --              --

     Purchases                                                                 --             447          10,827
-------------------------------------------------------------------------------------------------------------------
           Total loans originated and purchased                           141,983          85,021         122,316
-------------------------------------------------------------------------------------------------------------------
     Sales and loan principal reductions:
        Loans sold (1)                                                     30,787          16,230          34,026
        Loan principal reductions                                          80,640          49,205          55,760
-------------------------------------------------------------------------------------------------------------------
           Total loans sold and principal reductions                      111,427          65,435          89,786
-------------------------------------------------------------------------------------------------------------------
     Net change due to other items                                         (1,741)           (688)         (2,060)
-------------------------------------------------------------------------------------------------------------------
     Net increase (decrease) in loan and leases,
        net of unearned income                                           $ 28,815        $ 18,898        $ 30,470
===================================================================================================================
</TABLE>
(1) For the years ended December 31, 1996, 1995, and 1994, $10.0 million,
    $241,000, and $25.0 million of loans, respectively, were converted into
    mortgage-backed securities and subsequently sold.

                                       9


<PAGE>

Loan and Lease Portfolio (continued)

The accrual of interest on commercial and mortgage loans is generally
discontinued when loans become 90 days past due and when, in management's
judgement, it is determined that a reasonable doubt exists as to collectibility.
The accrual of interest is also discontinued on residential and consumer loans
when such loans become 90 days past due, except for those loans in the process
of collection which are secured by real estate with a loan to value less than
80% where the accrual of interest ceases at 180 days. Consumer loans generally
are charged-off when the loan becomes over 120 days delinquent, unless secured
by real estate and meeting the above mentioned criteria. When a loan is placed
on non-accrual status, interest accruals cease and uncollected accrued interest
is reversed and charged against current income. Additional interest income on
such loans is recognized only when received. A loan remains on non-accrual
status until the factors which indicate doubtful collectibility no longer exist,
or the loan is liquidated, or when the loan is determined to be uncollectable
and is charged-off against the allowance for possible loan losses.



The following table details the Bank's non-performing assets at December 31:
<TABLE>
<CAPTION>

---------------------------------------------------------------------------------------------------------------------------------
                                                  1996            1995            1994            1993            1992
---------------------------------------------------------------------------------------------------------------------------------
        <S>                                     <C>             <C>             <C>             <C>             <C>
        Loans and leases accounted for on a
          non-accrual basis                     $  1,371        $  3,879        $  4,369        $  5,743        $  6,539
        Accruing loans 90 or
          more days past due                          --              --             182             308             423
---------------------------------------------------------------------------------------------------------------------------------
            Total non-performing loans
              and leases                           1,371           3,879           4,551           6,051           6,962
        REO, net of related reserves (1)           2,150             728           4,534          11,577          27,867
---------------------------------------------------------------------------------------------------------------------------------

            Total non-performing assets         $  3,521        $  4,607        $  9,085        $ 17,628        $ 34,829
---------------------------------------------------------------------------------------------------------------------------------
        Non-performing loans and leases as a
          percentage of total loans and leases      0.54%           1.74%           2.19%           3.42%           4.37%
=================================================================================================================================

        Non-performing assets as a
          percentage of total assets                0.91%           1.33%           2.61%           5.29%          11.95%
=================================================================================================================================
</TABLE>

(1)  Includes real estate acquired by foreclosure and by deed in lieu of
     foreclosure. Prior to 1993, also includes loans deemed insubstance
     foreclosure.

Gross interest income that would have been recorded during 1996, 1995, and 1994
if the Company's non-performing loans and leases at the end of such periods had
been performing in accordance with their terms during such periods was $193,000,
$242,000 and $430,000, respectively. The amount of interest income that was
actually recorded during 1996, 1995 and 1994 with respect to such non-performing
loans and leases amounted to approximately $114,000, $174,000, and $23,000,
respectively.

The $1.4 million of non-accrual loans and leases at December 31, 1996 consists
of $723,000 of loans secured by single-family residential property, $127,000 of
loans secured by commercial property, $28,000 of commercial business loans,
$287,000 of consumer loans and $207,000 of lease financing. The $2.2 million of
real estate owned at December 31, 1996 consists of two commercial properties,
two residential properties and four undeveloped residential lots.



                                      10
<PAGE>

Delinquenies

All loans and leases are reviewed on a regular basis and are placed on
non-accrual status when, in the opinion of management, the collection of
additional interest is deemed insufficient to warrant further accrual.

The following table sets forth information concerning the principal balances and
percent of the total loan portfolio represented by delinquent loans at the dates
indicated:

<TABLE>
<CAPTION>

------------------------------------------------------------------------------------------------------------------------
As of December 31,                                                  1996                1995              1994
------------------------------------------------------------------------------------------------------------------------
                                                              Amount   Percent     Amount   Percent   Amount   Percent
                                                              ------   -------     ------   -------   ------   -------
<S>                                                           <C>      <C>         <C>      <C>       <C>      <C>
Delinquencies

  30 to 59 days                                               $2,535      1.00%     $ 2,973    1.33%   $  719      .35%

  60 to 89 days                                                  392       .15          450     .20       282      .14

  90 or more days and non-accrual loans and leases (1)         1,371       .54        3,879    1.74     4,551     2.19
------------------------------------------------------------------------------------------------------------------------
        Total                                                 $4,298      1.69%     $ 7,302    3.27%  $ 5,552     2.68%
========================================================================================================================
</TABLE>
(1)  December 31, 1994 includes $182,000 of loans that are accruing interest.


                                      11
<PAGE>

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.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
December 31,                   1996                  1995                 1994                  1993                  1992
------------------------------------------------------------------------------------------------------------------------------------
                                  Percent of            Percent of           Percent of            Percent of           Percent of
                                Loans to Total        Loans to Total       Loans to Total        Loans to Total       Loans to total
                                  Loans and             Loans and            Loans and             Loans and            Loans and
                         Amount     Leases     Amount     Leases    Amount     Leases      Amount    Leases     Amount    Leases
------------------------------------------------------------------------------------------------------------------------------------
<S>                      <C>    <C>            <C>    <C>           <C>    <C>             <C>   <C>            <C>   <C>

Residential real estate  $  129     25.17%     $  148     40.21%    $  268     48.12%      $  194    45.26%     $  168    34.27%

Commercial real estate    1,620     35.38       1,045     36.00        917     34.33        1,403    38.69       1,908    44.38

Real estate construction    257      8.10         286      6.28        125      2.59          149     2.22         207     3.79

Commercial business         387     11.90         166      7.61        152      5.78          294     5.22         315     7.56

Lease financing             630     10.13          --        --         --        --           --       --          --       --

Consumer                    154      9.32          75      9.90         41      9.18           73     8.61         105    10.00
------------------------------------------------------------------------------------------------------------------------------------
   Total                 $3,177    100.00%     $1,720    100.00%    $1,503    100.00%      $2,113   100.00%     $2,703   100.00%
====================================================================================================================================
</TABLE>


                                      12
<PAGE>

Allowances for Possible Loan and Lease Losses (continued)

The following table details the Bank's allowance for possible loan and lease
losses for the periods indicated:

<TABLE>
<CAPTION>

------------------------------------------------------------------------------------------------------------------------
For the years ended December 31,          1996             1995             1994             1993              1992
------------------------------------------------------------------------------------------------------------------------
    <S>                               <C>              <C>              <C>              <C>               <C>
    Average loans outstanding         $  231,153       $  213,525       $  189,053       $  166,419        $  180,695
------------------------------------------------------------------------------------------------------------------------
    Balance beginning of period       $    1,720       $    1,503       $    2,113       $    2,703        $    5,483


    Charge-offs:
    Residential real estate                   25               20               --              148                86
    Commercial real estate                    --               --            1,160              810             1,395
    Real estate construction                  --              100               50                5               626
    Commercial business                        7              281               88              283               814
    Lease financing                           65               --               --               --                --
    Consumer                                  80               26               20               89               209
------------------------------------------------------------------------------------------------------------------------
           Total charge-offs                 177              427            1,318            1,335             3,130
------------------------------------------------------------------------------------------------------------------------

    Recoveries:
      Residential real estate                  2               --               --               42                 5
      Commercial real estate                  30               --               --               --                --
      Real estate construction                --                1              137               72                 4
      Commercial business                     26                3               36              137                36
      Lease financing                         20               --               --               --                --
      Consumer                                19               15               14               25                30
------------------------------------------------------------------------------------------------------------------------
           Total recoveries                   97               19              187              276                75
------------------------------------------------------------------------------------------------------------------------

    Net charge-offs                           80              408            1,131            1,059             3,055

    Provision for possible
      loan and lease losses                  687              625              521              368               275

    Allowance assumed
      through acquisitions (1)               850               --               --              101                --
------------------------------------------------------------------------------------------------------------------------
           Total additions                 1,537              625              521              469               275
------------------------------------------------------------------------------------------------------------------------

    Balance at end
    of period                           $  3,177         $  1,720        $   1,503        $   2,113         $   2,703
========================================================================================================================

    Ratio of net charge-offs during
      the period to average loans
      and leases outstanding
      during the period                      .03%             .19%             .60%             .64%             1.69%
========================================================================================================================

    Ratio of allowance for possible
      loan and lease losses to non-
      performing loans and leases
      at end of period                    239.05%           44.34%           33.03%           34.92%            38.83%
========================================================================================================================
</TABLE>

(1) Allowance assumed through acquisitions represents The Equipment Leasing
Company in 1996 and the Rosemont, Pennsylvania branch of Progress Bank in 1993.

An allowance for possible loan and lease losses is maintained at a level that
management considers adequate to provide for potential losses based upon an
evaluation of known and inherent risks in the portfolio. Management's periodic
evaluation of the adequacy of the allowance is based upon examination of the
portfolio, past loss experience, adverse situations that may affect the
borrower's ability to repay, the estimated value of any underlying collateral,
current economic conditions, the results of the most recent regulatory
examinations, and other relevant factors. While management uses the best
information available to make such evaluations, future adjustments to the
allowance may be necessary if economic conditions differ substantially from the
assumptions used in making such evaluations.

                                      13
<PAGE>

Average Balances of the Company's Deposits

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
For the years ended December 31,                1996                  1995                  1994                  1993
                                                ----                  ----                  ----                  ----
                                            Amount    Rate        Amount    Rate        Amount    Rate        Amount    Rate
--------------------------------------------------------------------------------------------------------------------------------
<S>                                       <C>         <C>       <C>         <C>       <C>         <C>       <C>         <C>
Interest-bearing deposits:
NOW and Super NOW                         $ 27,977    2.12%     $ 26,661    2.69%    $ 21,932     2.43%     $ 17,488    2.39%
Money market accounts                       33,781    3.03        35,577    3.10       41,428     2.75        42,128    2.82
Passbook and statement
  savings                                   28,258    2.85        27,290    2.87       27,808     2.95        21,212    2.94
Time deposits                              178,677    5.37       177,972    5.46      168,250     4.56       159,973    4.47
--------------------------------------------------------------------------------------------------------------------------------
  Total interest-bearing deposits          268,693    4.47%      265,500    4.62%     259,418     3.92%      240,801    3.89%
--------------------------------------------------------------------------------------------------------------------------------
Non-interest-bearing deposits               25,521                20,210               16,713                 13,778
--------------------------------------------------------------------------------------------------------------------------------
  Total deposits                          $294,214              $285,710             $276,131               $254,579
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>

The following table presents the interest rate and maturity information for the
Bank's time deposits at December 31, 1996.

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
                                                                          Maturity Date
--------------------------------------------------------------------------------------------------------------------------------
                                            One Year                                                  Over
                                            or less           1-2 Years          2-3 Years          3 Years          Total
--------------------------------------------------------------------------------------------------------------------------------
<S>                                        <C>                <C>                <C>                <C>            <C>
Interest Rate
-------------
  2.00  -  3.99%                           $     95            $   121            $    62           $   47         $    325
  4.00  -  5.99%                            119,332             19,045              4,690            4,160          147,227
  6.00  -  7.99%                             13,017              5,402              3,546            5,656           27,621
  8.00  -  9.99%                                 --                 52                 36               10               98
 10.00  - 11.99%                                 --                 --                 --               14               14
--------------------------------------------------------------------------------------------------------------------------------
                                           $132,444            $24,620            $ 8,334           $9,887         $175,285
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>

The Bank's time deposits of $100,000 or more totalled $23.0 million at December
31, 1996, which mature as follows:
$9.8 million within three months; $7.3 million between three and six months;
$3.8 million between six and twelve months; and $2.1 million after twelve
months.

The ability of the Bank to attract and maintain deposits and the Bank's cost of
funds on these deposit accounts have been, and will continue to be,
significantly affected by economic and competitive conditions.

                                      14
<PAGE>

Borrowings

The following table presents certain information regarding borrowings:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
For the years ended December 31,                    1996       1995       1994
--------------------------------------------------------------------------------
    <S>                                          <C>        <C>        <C>
    Average balance outstanding                  $ 41,092   $ 47,177   $ 45,515
    Maximum amount outstanding at
        any month-end during the period            67,905     53,845     60,244
    Weighted average interest rate
        during the period                            6.47%      6.54%      5.14%
      Weighted average interest rate
        at end of the period                         6.72%      6.70%      6.55%

</TABLE>

Included in borrowings at December 31, 1996 were securities sold under
agreements to repurchase of $29.0 million, FHLB advances of $18.0 million,
subordinated debt of $3.0 million and an Employee Stock Option Plan note payable
of $220,000. Borrowings increased $21.9 million from year end 1995.

Recent Accounting Pronouncement

In February 1997, the FASB issued Statement of Financial Accounting Standards
No. 128, "Earnings Per Share" ("SFAS 128"). SFAS 128 specifies the computation,
presentation, and disclosure requirements for earnings per share. The statement
is effective for the Company for interim and annual periods ending after
December 15, 1997. SFAS 128 requires restatement of all prior-period per share
data that is presented on a comparative basis. Management expects basis earnings
per share to increase due to the implementation of this Statement.



                                      15
<PAGE>

Item 2.         Properties

The Company's and the Bank's executive offices are located at 4 Sentry Parkway,
Suite 230, Blue Bell, Pennsylvania.  The Bank conducts business from ten branch
offices in Bridgeport, Plymouth Meeting, Conshohocken, King of Prussia,
Lansdale, Norristown, Jeffersonville, Paoli, and Rosemont, Pennsylvania and the
Andorra community of Philadelphia, one of which one is owned and nine are
leased.

Item 3.         Legal Proceedings

The Company is involved in routine legal proceedings occurring in the ordinary
course of business which management, after reviewing the foregoing actions with
legal counsel, is of the opinion that the liability, if any, resulting from
such actions will not have a material effect on the financial condition or
results of operations of the Company.

Item 4.         Submissions of Matters to a Vote of Security Holders

Not applicable.


                                    PART II

Item 5.         Market for Registrant's Common Equity and Related Stockholder
                Matters.

The information required herein is incorporated by reference from page 39 of the
Company's 1996 Annual Report to Stockholders, which is included herein as
Exhibit 13 ("Annual Report")

Item 6.         Selected Financial Data.

The information required herein is incorporated by reference from page 9 of the
Company's 1996 Annual Report to Stockholders.

Item 7.         Management's Discussion and Analysis of Financial Condition and
                Results of Operations.

The information required herein is incorporated by reference from pages 10 to 18
of the Company's 1996 Annual Report to Stockholders.

Item 8.         Financial Statements and Supplementary Data.

The information required herein is incorporated by reference from pages 19 to 40
of the Company's 1996 Annual Report to Stockholders.

Item 9.         Changes in and Disagreements with Accountants on Accounting and
                Financial Disclosure.

Not applicable.


                                      16

<PAGE>


                                   PART III


Item 10.  Directors and Executive Officers of the Registrant


The information contained in the section titled "Election of Directors" in the
Company's definitive Proxy Statement for the 1996 Annual Meeting to be held May
13, 1997 (the "Proxy Statement"), with respect to the Directors of the Company
is incorporated herein by reference.

Item 11.  Executive Compensation

The information appearing in the caption "Executive Compensation and
Transactions" in the Proxy Statement is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management

The information appearing in the captions "Security Ownership of Certain
Beneficial Owners" and "Election of Directors" (with respect to security
ownership by Directors) in the Proxy Statement is incorporated herein by
reference.

Item 13. Certain Relationships and Related Transactions

The information appearing in the caption "Indebtedness of Management" in the
Proxy Statement is incorporated herein by reference.



                                      17



<PAGE>

                                    PART IV

Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K

a.    The financial statements listed on the index set forth in Item 8 of this
      Annual Report on Form 10-K are filed as part of this Annual Report.

      Financial Statement schedules are not required under the related
      instructions of the Securities and Exchange Commission or are inapplicable
      and, therefore, have been omitted.

b.    The following exhibits are incorporated by reference herein or are filed
      as part of this Annual Report:

      No.                 Exhibits
      ---                 --------

      *3.1    Certificate of Incorporation (Exhibit 3.1 to the Company's Annual
              Report on Form 10-K for the year ended December 31, 1987)

      *3.2    By-Laws(Exhibit 3.2 to the Company's Registration Statement
              No. 33-3685 On Form S-4, filed with the Securities and Exchange
              Commission on March 3, 1986[the "1986 Form S-4"])

      *10.1   Key Employee Stock Compensation Program (Exhibit 28 to the
              Company's Registration Statement No. 33-10160 on Form S-8, filed
              with the Securities and Exchange Commission on November 13, 1986)

      *10.2   Amendment dated December 15, 1987 to Key Employee Stock
              Compensation Program (Exhibit 4.2 to the Company's Registration
              Statement, No. 33-19570)

      *10.3   1993 Stock Incentive Plan (Exhibit 10.3 to the Company's Annual
              Report in Form 10-K for the year ended December 31, 1994)

      *10.4   1993 Directors' Stock Option Plan (Exhibit 10.4 to the Company's
              Annual Report on Form 10-K for the year ended December 31, 1994)

      *10.5   Employment Agreement between Progress Financial Corporation,
              Progress Federal Savings Bank and W. Kirk Wycoff dated January 1,
              1995 (Exhibit 10.6 to the Company's Registration Statement,
              No. 33-60817 on Form S-1, filed with the Securities and Exchange
              Commission on August 9, 1995)

      13      1996 Annual Report to Stockholders

      21      Subsidiaries of the Registrant

      23      Consent of Independent Accountants


                                      18
<PAGE>

Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(continued)

c.   On October 15, 1996, the Company filed a Current Report on Form 8-K with
     the Securities and Exchange Commission reporting under Item 5 that it had
     reached an agreement to purchase The Equipment Leasing Company, Timonium,
     Maryland. Under the terms of the purchase agreement, The Equipment Leasing
     Company will become a wholly owned subsidiary of Progress Bank, a
     subsidiary of the Company.

     On October 23, 1996, the Company filed a Current Report on Form 8-K with
     the Securities and Exchange Commission reporting under Item 2 that it had
     completed its previously announced acquisition of The Equipment Leasing
     Company, Timonium, Maryland for a cash price of $6.6 million. The Company
     reported under Item 7 that financial statements and pro forma financial
     information of The Equipment Leasing Company are not available as of the
     date of the report but will be filed by amendment as soon as practicable,
     but in no event later than 60 days after October 23, 1996.

     On December 23, 1996, the Company filed a Current Report on Form 8-K with
     the Securities and Exchange Commission. The Current Report included under
     Item 7, financial statements, pro forma financial information and exhibits
     of The Equipment Leasing Company.

* Incorporated by reference.

                                      19


<PAGE>

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto being duly authorized.



                                PROGRESS FINANCIAL CORPORATION



   March 28, 1997               BY:
--------------------                  --------------------------------------
        Date                          W. Kirk Wycoff, Chairman, President
                                      and Chief Executive Officer


Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates
indicated.


                                                            March 28, 1997
-----------------------------------------              -------------------------
W. Kirk Wycoff, Chairman, President                              Date
and Chief Executive Officer

                                                            March 28, 1997
-----------------------------------------              -------------------------
William O. Daggett, Jr., Director                                Date

                                                            March 28, 1997
-----------------------------------------              -------------------------
Joseph R. Klinger, Director                                      Date

                                                            March 28, 1997
-----------------------------------------              -------------------------
John E. Flynn Corson, Director                                   Date

                                                            March 28, 1997
-----------------------------------------              -------------------------
Donald F.U. Goebert, Director                                    Date

                                                            March 28, 1997
-----------------------------------------              -------------------------
Paul M. LaNoce, Director                                         Date

                                                            March 28, 1997
-----------------------------------------              -------------------------
William L. Mueller, Director                                     Date

                                                            March 28, 1997
-----------------------------------------              -------------------------
Charles J. Tornetta, Director                                    Date

                                                            March 28, 1997
-----------------------------------------              -------------------------
Janet E. Paroo, Director                                         Date

                                                            March 28, 1997
-----------------------------------------              -------------------------
H. Wayne Griest, Director                                        Date

                                                            March 28, 1997
-----------------------------------------              -------------------------
A. John May, III, Director                                       Date

                                                            March 28, 1997
-----------------------------------------              -------------------------
Frederick E. Schea,                                              Date
Sr. Vice President and
Chief Financial Officer

                                      20