Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
[ X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarter ended September 30, 1999.
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from _________ to ___________________.
Commission File Number: 0-14815
Progress Financial Corporation
(Exact name of registrant as specified in its charter)
Delaware 23-2413363
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
4 Sentry Parkway
Suite 200
Blue Bell, Pennsylvania 19422
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (610) 825-8800
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock ($1.00 par value) 5,593,371
------------------------------ -----------------------------
Title of Each Class Number of Shares Outstanding
as of October 31, 1999
<PAGE>
Progress Financial Corporation
Table of Contents
PART I - Interim Financial Information
Page
Item 1. Interim Financial Statements
Consolidated Interim Statements of Financial Condition as of
September 30, 1999 (unaudited) and December 31, 1998 (audited)...3
Consolidated Interim Statements of Operations for the three
and nine months ended September 30, 1999 and 1998 (unaudited)....4
Consolidated Interim Statements of Changes in
Shareholders' Equity and Comprehensive Income for
the nine months ended September 30, 1999 and 1998 (unaudited).....5
Consolidated Interim Statements of Cash Flows for the
nine months ended September 30, 1999 and 1998 (unaudited).........6
Notes to Consolidated Interim Financial Statements (unaudited)....7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (unaudited)................................13
Item 3. Quantitative and Qualitative Disclosures About Market Risk.......20
PART II - Other Information
Item 1. Legal Proceedings............................... ................21
Item 2. Changes in Securities............................................21
Item 3. Defaults upon Senior Securities..................................21
Item 4. Submission of Matters to a Vote of Security Holders..............21
Item 5. Other Information................................................21
Item 6. Exhibits and Reports on Form 8-K.................................21
Signatures.......................................................22
<PAGE>
PART I- INTERIM FINANCIAL INFORMATION
Item 1. Interim Financial Statements
<TABLE>
<CAPTION>
Consolidated Interim Statements of Financial Condition
(Dollars in thousands) September 30, December 31,
1999 1998
------------- ------------
(unaudited) (audited)
Assets Cash and due from banks:
<S> <C> <C>
Non-interest-earning $ 13,356 $ 14,189
Interest-earning 16,460 6,498
Loans held for sale (fair value: $9,181 in 1999 and $25,326 in 1998) 9,104 25,250
Investment securities:
Available for sale at fair value (amortized cost: $23,097 in 1999 and $18,208 in 24,493 17,909
1998)
Held to maturity at amortized cost (fair value: $27,660 in 1999 and $12,547 in 1998) 28,721 12,401
Mortgage-backed securities:
Available for sale at fair value (amortized cost: $123,555 in 1999 and $146,910 in 119,926 146,459
1998)
Loans and leases, net (net of reserves: $5,184 in 1999 and $4,490 in 1998) 452,497 394,246
Premises and equipment, net 14,380 10,707
Other assets 25,146 19,154
-------- --------
Total assets $704,083 $646,813
======== ========
Liabilities and Shareholders' Equity
Liabilities:
Deposits:
Non-interest-bearing $ 56,516 $ 54,934
Interest-bearing 435,040 353,228
Short-term borrowings 19,319 45,941
Other liabilities 12,427 15,250
Long-term debt:
Federal Home Loan Bank advances 80,000 83,000
Other debt 42,030 38,475
------- --------
Total liabilities 645,332 590,828
------- --------
Corporation-obligated mandatorily redeemable capital securities of subsidiary trust
holding solely junior subordinated debentures of the Corporation 14,446 14,431
Commitments and contingencies
Shareholders' equity:
Serial preferred stock - $.01 par value;1,000,000 shares authorized but unissued -- --
Junior participating preferred stock -$.01 par value;1,010 shares authorized but unissued -- --
Common stock - $1 par value; 12,000,000 shares authorized: 5,681,000 and 5,263,000
shares issued and outstanding at September 30, 1999 and December 31, 1998,
respectively; including treasury shares of 72,000 and 177,000, and unallocated 5,681 5,263
shares held by the Employee Stock Ownership Plan of 17,000 and 24,000 at
September 30, 1999 and December 31, 1998, respectively.
Other common shareholders' equity, net 40,181 36,786
Net accumulated other comprehensive loss (1,557) (495)
-------- -------
Total shareholders' equity 44,305 41,554
-------- -------
Total liabilities, Corporation-obligated mandatorily redeemable capital
securities of subsidiary trust holding solely junior subordinated
debentures of the Corporation and shareholders' equity $704,083 $646,813
======== ========
</TABLE>
See Notes to Consolidated Interim Financial Statements.
<PAGE>
Consolidated Interim Statements of Operations (unaudited)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
<S> <C> <C> <C> <C>
1999 1998 1999 1998
---- ---- ---- ----
Interest income:
Loans and leases, including fees $10,464 $9,102 $30,092 $26,054
Mortgage-backed securities 1,859 2,860 5,953 6,212
Investment securities 560 295 1,508 662
Other 285 9 645 48
------- ------- ------- -------
Total interest income 13,168 12,266 38,198 32,976
Interest expense:
Deposits 4,303 3,739 11,951 10,636
Short-term borrowings 527 1,249 1,767 2,531
Long-term debt 1,576 1,263 4,904 3,142
------- ------- ------- -------
Total interest expense 6,406 6,251 18,622 16,309
------- ------- ------- -------
Net interest income 6,762 6,015 19,576 16,667
Provision for possible loan and lease losses 658 233 2,323 659
------- ------- ------- -------
Net interest income after provision for possible loan and lease losses 6,104 5,782 17,253 16,008
------- ------- ------- -------
Non-interest income:
Service charges on deposits 572 455 1,513 1,231
Lease financing fees 334 315 1,198 1,064
Mutual fund, annuity and insurance commissions 713 -- 1,767 --
Teleservices fee income 1,377 277 2,610 789
Loan brokerage and advisory fees 522 583 1,697 1,418
Gain (loss) on sale of securities (66) 100 (222) 437
Client warrant income 2,775 -- 3,257 --
Fees and other 889 608 2,308 1,466
------- ------ ------- ------
Total non-interest income 7,116 2,338 14,128 6,405
------- ------ ------- ------
Non-interest expense:
Salaries and employee benefits 4,895 2,919 12,674 8,310
Occupancy 470 337 1,131 995
Data processing 339 287 821 798
Furniture, fixtures and equipment 429 267 1,144 803
Professional services 568 431 1,515 811
Capital securities expense 399 398 1,196 1,195
Other 2,653 1,288 5,637 3,964
------ ------ ------- ------
Total non-interest expense 9,753 5,927 24,118 16,876
------ ------ ------- ------
Income before income taxes and cumulative effect of accounting change 3,467 2,193 7,263 5,537
Income tax expense 1,210 801 2,553 2,028
------ ------ ------ ------
Income before cumulative effect of accounting change 2,257 1,392 4,710 3,509
Cumulative effect if accounting change (net of tax credit of $26) -- (46) -- (46)
------ ------- ------ -------
Net income $2,257 $1,346 $4,710 $3,463
====== ======= ====== =======
Basic earnings per common share before cumulative effect of
accounting change $.40 $.25 $.85 $.69
==== ==== ==== ====
Diluted earnings per common share before cumulative effect of
accounting change $.39 $.24 $.81 $.63
==== ==== ==== ====
Basic earnings per common share $.40 $.24 $.85 $.68
==== ==== ==== ====
Diluted earning per common share $.39 $.23 $.81 $.62
==== ==== ==== ====
Dividends per common share $.05 $.04 $.13 $.10
==== ==== ==== ====
Basic average common shares outstanding 5,634,130 5,484,234 5,482,856 5,051,061
========= ========= ========= =========
Diluted average common shares outstanding 5,865,209 5,978,048 5,818,296 5,555,741
========= ========= ========= =========
</TABLE>
See Notes to Consolidated Interim Financial Statements.
<PAGE>
Consolidated Interim Statements of Changes in Shareholders' Equity and
Comprehensive Income (unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Net
Unearned Accumulated
Unearned Compensation Other Total
Common Treasury ESOP Restricted Capital Retained Comprehensive Comprehensive Shareholders'
Stock Stock Shares Stock Surplus Earnings Income Income Equity
(Loss)
For the nine months ended September 30, 1999:
- --------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 $5,263 $(2,287) $(114) $ -- $39,586 $(399) $(495) $41,554
Exercise of stock warrants
(125,971 common shares; 122,088
treasury shares) 126 1,666 -- -- (442) -- -- 1,350
Issuance of stock under employee
benefit plans (107,709 treasury
shares; 21,772 common shares; 8,015 22 1,319 38 (1,094) 137 -- -- 422
ESOP shares)
Retirement of restricted stock
(197 common shares) -- -- -- 3 (3) -- -- --
Net income -- -- -- -- -- 4,710 -- $4,710 4,710
Other comprehensive loss,
net of tax (a) -- -- -- -- -- -- (1,062) (1,062) (1,062)
-------
Comprehensive income -- -- -- -- -- -- -- $3,648 --
=======
Purchase of treasury stock
(122,500 treasury shares) -- (1,656) -- -- -- -- -- (1,656)
Retirement of stock warrants -- -- -- -- (331) -- -- (331)
Cash dividend declared -- -- -- -- -- (682) -- (682)
Distribution of stock dividend
(269,667 common shares;
2,250 treasury shares;
799 ESOP shares) 270 -- -- -- 3,679 (3,949) -- --
----- ------- ------ ------- ------- ------- -------- --------
Balance at September 30, 1999 $5,681 $ (958) $(76) $(1,091)$42,626 $ (320) $(1,557) $44,305
====== ======== ====== ======= ======= ======= ======== ========
For the nine months ended September 30, 1998:
- --------------------------------------------
Balance at December 31, 1997 $4,126 $-- $(164) $ -- $20,950 $(10) $460 $25,362
Issuance of stock in stock offering
(792,800 common shares) 793 -- -- -- 13,468 -- -- 14,261
Exercise of stock warrants
(26,250 common shares) 26 -- -- -- 124 -- -- 150
Issuance of stock under employee
benefit plans (47,024 common shares;
7,525 ESOP shares) 47 -- 37 311 -- -- 395
Net income -- -- -- -- -- 3,463 -- $3,463 3,463
Other comprehensive loss,net of tax (a) -- -- -- -- -- -- (716) (716) (716)
-------
Comprehensive income -- -- -- -- -- -- $2,747
=======
Purchase of treasury stock
(71,000 treasury shares) -- (1,052) -- -- -- -- -- (1,052)
Investment in unconsolidated subsidiary
(21,153 common shares) 21 -- -- -- 309 -- -- 330
Cash dividend declared -- -- -- -- -- (455) -- (455)
Distribution of stock dividend
(249,653 common shares;
300 treasury shares;
1,644 ESOP shares) 249 -- -- -- 4,462 (4,711) -- --
------ -------- ------ ---- ------- -------- ------ -------
Balance at September 30,1998 $5,262 $(1,052) $(127) $ -- $39,624 $(1,713) $(256) $41,738
====== ======== ====== ==== ======= ======== ====== =======
(a) For the nine months ended September 30, 1999 1998
Calculation of other comprehensive loss net of tax:
Unrealized holding losses arising during the period, net of tax $(1,209) $(428)
Less: Reclassification for gains (losses) included in net income, net of tax (147) 288
-------- ------
Other comprehensive loss, net of tax $(1,062) $(716)
======== ======
</TABLE>
See Notes to Consolidated Interim Financial Statements
<PAGE>
<TABLE>
<CAPTION>
Consolidated Interim Statements of Cash Flows (unaudited)
(Dollars in thousands)
<S> <C> <C>
For the nine months ended September 30, 1999 1998
---- ----
Cash flows from operating activities:
Net income $4,710 $3,463
Add (deduct) items not affecting cash flows from operating activities:
Depreciation and amortization 1,450 1,039
Provision for possible loan and lease losses 2,323 659
Client warrant income (3,256) --
(Gain) loss on sale of securities available for sale 222 (437)
(Gain) loss on sale of loans and leases 34 (215)
Accretion of deferred loan and lease fees and expenses (1,809) (729)
Amortization of premiums/accretion of discounts on securities 796 789
Realized loss on transfer of mortgage-backed securities -- 72
Other, net 122 (71)
Proceeds from sales of loans held for sale 4,451 --
Originations of loans held for sale (11,365) --
Repayments on loans held for sale 4,766 --
(Increase) decrease in other assets (5,765) 1,035
Decrease in other liabilities (2,829) (29,439)
--------- --------
Net cash flows used in operating activities (6,150) (23,834)
--------- --------
Cash flows from investing activities:
Capital expenditures (4,765) (1,106)
Purchase of mortgage-backed securities available for sale (16,967) (140,117)
Purchase of investment securities available for sale (16,603) (8,502)
Purchase of investment securities held to maturity (6,846) (8,214)
Repayments on mortgage-backed securities held to maturity -- 8,788
Repayments on mortgage-backed securities available for sale 28,544 15,514
Proceeds from sales and calls of mortgage-backed securities available for sale 10,672 50,758
Proceeds from sales and calls of investment securities available for sale 5,458 4,301
Proceeds from sale of loans and leases 875 2,936
Proceeds from sales of real estate owned -- 583
Purchases of loans and leases (4,180) --
Net increase in loans and leases (37,200) (46,736)
-------- ---------
Net cash flows used in investing activities (41,012) (121,795)
-------- ---------
Cash flows from financing activities:
Net increase in demand, NOW and savings deposits 6,026 12,208
Net increase in time deposits 77,925 22,305
Net increase (decrease) in short-term borrowings (30,623) 21,158
Proceeds from issuance of long-term debt 4,000 67,000
Dividends paid (682) (455)
Purchase of treasury shares (1,656) (1,052)
Proceeds from exercise of stock warrants 1,350 150
Retirement of stock warrants (331) --
Proceeds from issuance of stock in stock offering -- 14,261
Net proceeds from issuance of stock under employee benefit plans 282 263
------- --------
Net cash flows provided by financing activities 56,291 135,838
------- --------
Net increase (decrease) in cash and cash equivalents 9,129 (9,791)
Cash and cash equivalents:
Beginning of year 20,687 19,386
--------- ---------
End of period $ 29,816 $ 9,595
========= =========
Supplemental disclosures:
Non-monetary transfers:
Transfer of loans held for sale to loans held in portfolio $ 18,177 $ --
========= =========
Transfer investments available for sale to investments held to maturity $ 9,464 $ --
========= =========
Transfer of mortgage-backed securities from held to maturity to $ -- $ 40,147
available for sale ========= =========
Decrease in net payable for trade dated securities transactions $ (5,582) $(21,192)
========= =========
Cash payments for:
Income taxes $ 2,458 $ 2,568
========= =========
Interest $ 17,824 $ 15,136
========= =========
</TABLE>
See Notes to Consolidated Interim Financial Statements.
<PAGE>
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(1) Basis of Presentation
In the opinion of management, the financial information reflects all
adjustments (consisting solely of normal recurring adjustments) necessary
for a fair presentation of the financial information as of September 30,
1999 and December 31, 1998 and for the three and nine months ended
September 30, 1999 and 1998 in conformity with generally accepted
accounting principles. These interim financial statements should be read
in conjunction with Progress Financial Corporation's (the "Company")
Annual Report on Form 10-K for the year ended December 31, 1998.
Operating results for the three and nine months ended September 30, 1999
are not necessarily indicative of the results that may be expected for
any other interim period or the entire year ending December 31, 1999.
Earnings per share have been adjusted to reflect all stock dividends and
prior period amounts have been reclassified when necessary to conform
with current period classification. The Company's principal subsidiaries
are Progress Bank (the "Bank"), Progress Realty Advisors, Inc., Progress
Capital, Inc., Procall Teleservices, Inc., Progress Development Corp.,
Progress Capital Management, Inc. and Progress Financial Resources, Inc.
All significant intercompany transactions have been eliminated.
(2) New Developments
On October 27, 1999, the Company announced the authorization of a new
stock repurchase program. The Company may repurchase up to 280,000
shares, or five percent, of its outstanding common stock.
On July 16, 1999, Ravisent Technologies, Inc. ("RVST"), a corporation on
which the Company holds warrants, went public at an initial offering
price of $12.00 per common share. The warrants were obtained through the
Company's Specialized Lending Division which provides customized
financial services to leading edge companies in technology, health care
and insurance. The Company holds warrants to purchase 50,000 common
shares of RVST at $3.56 per share. The Company is prohibited from selling
or otherwise disposing of the warrants or any shares of common stock
received from the exercise of such warrants for a period of 180 days from
July 16, 1999. On November 9, 1999, the closing price of a share of
common stock of RVST was $19.625.
On August 4, 1999, Internet Capital Group, Inc. ("ICGE"), a
business-to-business e-commerce company on which the Company holds
warrants, went public at an initial offering price of $12.00 per common
share. The Company provided a line of credit and received warrants to
purchase 12,750 shares of common stock of ICGE, with an exercise price of
$10.00, and an expiration of seven years from the date of issuance. The
Company also owns 20,833 shares of common stock and warrants of ICGE to
purchase 4,167 shares of common stock at an exercise price of $12.00
which it acquired through an investment in a convertible note of ICGE
made by its venture capital subsidiary. The Company's amortized cost of
this investment is $250,000 with a carry value of $1.8 million. The
Company is prohibited from selling or otherwise disposing of the warrants
or any shares of common stock received from the exercise of such warrants
or convertible note for a period of 180 days from August 4, 1999. The
trading of this stock, like many business-to-business e-commerce
companies, is very volatile. On November 9, 1999, the closing price of a
share of common stock of ICGE was $182.6875.
On August 9, 1999, US Interactive, Inc. ("USIT"), an internet
professional services firm on which the Company holds warrants, went
public at an initial offering price of $10.00 per common share. The
Company provided a line of credit and term loan and received warrants to
purchase 52,500 shares of common stock of USIT, with an exercise price of
$3.50 and an expiration of ten years from the date of issuance. The
Company is prohibited from selling or otherwise disposing of the warrants
or any shares of common stock received from the exercise of such warrants
for a period of 180 days from August 9, 1999. The trading of USIT common
stock, like many internet companies, is very volatile. On November 9,
1999, the closing price of a share of USIT common stock was $32.6875.
<PAGE>
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(3) Shareholders' Equity
Earnings per Share
The following table presents a summary of per share data and amounts for
the periods included. All prior period information has been restated to
reflect the 5% stock dividend distributed to stockholders on August 31,
1999.
<TABLE>
<CAPTION>
For the three months ended September 30,
1999 1998
-------------------------------- ------------------------------------
Per Share Per Share
<S> <C> <C> <C> <C> <C> <C>
Income Shares Amount Income Shares Amount
------ ------ --------- ------ ------ ---------
Basic Earnings Per Share:
Income available to
Common shareholders before cumulative
effect of accounting change $2,257 5,634,130 $.40 $1,392 5,484,234 $.25
Cumulative effect of accounting
change (net of tax benefit of $26) -- -- (46) (.01)
------ --------- ----- ------- --------- -----
Income available to common shareholders 2,257 5,634,130 $.40 1,346 5,484,234 $.24
Effect of Dilutive Securities:
Warrants -- -- -- 211,551
Options -- 231,079 -- 282,263
--------- ---------
Diluted Earnings Per Share:
Income available to common shareholders and
assumed conversions before cumulative
effect of accounting change 2,257 5,865,209 $.39 $1,392 5,978,048 $.24
Cumulative effect of accounting change (net
of income tax benefit of $26) -- -- (46) (.01)
------ ----- ------- -----
Income available to common shareholders
and assumed conversions $2,257 5,865,209 $.39 $1,346 5,978,048 $.23
====== ========= ===== ======= ========= =====
For the nine months ended September 30,
1999 1998
--------------------------------- ------------------------------------
Per Share Per Share
Income Shares Amount Income Shares Amount
------ ------ --------- ------ ------ ---------
Basic Earnings Per Share:
Income available to
Common shareholders before cumulative
effect of accounting change $4,710 5,482,856 $.85 $3,509 5,051,061 $.69
Cumulative effect of accounting
change (net of tax benefit of $26) -- -- (46) (.01)
------ --------- ---- ------- --------- -----
Income available to common shareholders 4,710 5,482,856 $.85 3,463 5,051,061 $.68
==== =====
Effect of Dilutive Securities:
Warrants -- 96,210 -- 215,984
Options -- 239,230 -- 288,696
--------- ---------
Diluted Earnings Per Share:
Income available to common shareholders and
assumed conversions before cumulative
effect of accounting change 4,710 5,818,296 $.81 $3,509 5,555,741 $.63
Cumulative effect of accounting change
(net of income tax benefit of $26) -- -- (46) (.01)
------ ---- ------- -----
Income available to common shareholders
and assumed conversions $4,710 5,818,296 $.81 $3,463 5,555,741 $.62
====== ========= ==== ======= ========= =====
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
Restricted Stock Awards
During the first quarter of 1999, the Company established its Restricted
Stock Award Plan under which 81,375 shares of common stock were reserved
for grant to employees of Progress Financial Resources, Inc. The Company
granted 13,657 and 65,521 shares, issued at market prices of $12.27 and
$13.81, respectively. The awards have a five-year vesting period and are
accounted for in accordance with Accounting Principles Board Opinion No.
25, and related interpretations, which provide for compensation expense
to be measured at the grant date and recognized as the awards vest.
Capital Resources
Under the Federal Deposit Insurance Corporation Improvement Act of 1991
specific capital categories were defined based on an institution's
capital ratios. To be considered "well capitalized," an institution must
generally have a tangible equity ratio of at least 2%, a Tier 1 or
leverage ratio of at least 5%, a Tier 1 risk-based capital ratio of at
least 6% and a total risk-based capital ratio of at least 10%.
At September 30, 1999, the Bank's tangible equity ratio was 6.44%, Tier 1
or leverage ratio was 6.44%, Tier 1 risk-based capital ratio was 9.10%,
and total risk-based capital ratio was 10.15%. As of September 30, 1999,
the Bank was classified as "well capitalized."
<PAGE>
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(4) Investment and Mortgage-Backed Securities
The following table sets forth the amortized cost, gross unrealized gains
and losses, estimated fair value and carrying value of investment and
mortgage-backed securities at the dates indicated:
<TABLE>
<CAPTION>
(Dollars in thousands) Gross Gross
Amortized Unrealized Unrealized Estimated Carrying
Cost Gains Losses Fair Value Value
--------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
At September 30, 1999
----------------------
Available for Sale:
Equity investments $ 5,198 $1,919 $ 309 $ 6,808 $ 6,808
U.S. Government Agencies 16,000 6 21 15,985 15,985
Corporate bonds 1,899 -- 199 1,700 1,700
Mortgage-backed securities 123,555 43 3,672 119,926 119,926
-------- ------ ------ -------- --------
Total available for sale $146,652 $1,968 $4,201 $144,419 $144,419
======== ====== ====== ======== ========
Held to Maturity:
Federal Home Loan Bank Stock $ 4,923 $ -- $ -- $ 4,923 $ 4,923
U.S. Government Agencies 14,324 51 261 14,114 14,324
Municipal bonds 9,474 -- 851 8,623 9,474
-------- ------ ------ -------- --------
Total held to maturity $ 28,721 $ 51 $1,112 $ 27,660 $ 28,721
======== ====== ====== ======== ========
(Dollars in thousands) Gross Gross
Amortized Unrealized Unrealized Estimated Carrying
Cost Gains Losses Fair Value Value
--------- ---------- ---------- ---------- ---------
At December 31, 1998
Available for Sale:
Equity investments $ 6,609 $ 197 $ 489 $ 6,317 $ 6,317
U.S. Government Agencies 2,000 1 -- 2,001 2,001
Municipal bonds 9,599 16 24 9,591 9,591
Mortgage-backed securities 146,910 168 619 146,459 146,459
-------- ------ ------ -------- --------
Total available for sale $165,118 $ 382 $1,132 $164,368 $164,368
======== ====== ====== ======== ========
Held to Maturity:
Federal Home Loan Bank Stock $ 4,923 $ -- $ -- $ 4,923 $ 4,923
U.S. Government Agencies 7,478 146 -- 7,624 7,478
-------- ------ ------ -------- --------
Total held to maturity $ 12,401 $ 146 $ -- $ 12,547 $ 12,401
======== ======= ====== ======== ========
</TABLE>
U.S. Government Agencies securities ("Agencies") and mortgage-backed
securities ("MBS") pledged as collateral for Federal Home Loan Bank (the
"FHLB") borrowings amounted to $14.3 million and $14.5 million,
respectively, at September 30, 1999, compared to $7.2 million and $26.2
million, respectively at December 31, 1998. Agencies pledged to the Federal
Reserve Bank (the "FRB") for Small Business Administration Loans amounted
to $979,000 at September 30, 1999 and $1.0 million at December 31, 1998.
MBS pledged under agreements to repurchase in connection with borrowings
amounted to $81.4 million at September 30, 1999 compared to $86.1 million
at December 31, 1998. MBS pledged as collateral for public funds amounted
to $13.2 million at September 30, 1999 compared to $15.6 million at
December 31, 1998. Agencies and MBS pledged to the FRB to secure borrowings
and Treasury, Tax and Loan balances amounted to $1.8 million at September
30, 1999 compared to $2.2 million at December 31, 1998.
<PAGE>
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(5) Loans and Leases, Net
The following table depicts the composition of the Company's loan and
lease portfolio at the dates indicated:
<TABLE>
<CAPTION>
(Dollars in thousands) September 30, 1999 December 31, 1998
------------------ -----------------
Amount Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C>
Single family residential real estate $ 40,817 8.92% $ 50,086 12.56%
Commercial real estate 145,880 31.87 109,130 27.37
Construction, net of loans in process 50,899 11.12 44,546 11.17
Consumer 32,309 7.06 27,807 6.98
Credit card receivables -- -- 931 .23
Commercial business 106,508 23.27 92,737 23.26
Lease financing 96,625 21.11 87,856 22.03
Unearned income (15,357) (3.35) (14,357) (3.60)
---------- ------- --------- -------
Total loans and leases 457,681 100.00% 398,736 100.00%
Allowance for possible loan and lease losses (5,184) ======= (4,490) =======
---------- --------
Net loans and leases $452,497 $394,246
========== ========
</TABLE>
(6) Allowance for Possible
Loan and Lease Losses
The following table details changes in the Company's allowance for
possible loan and lease losses for the periods indicated:
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30 Ended September 30,
<S> <C> <C> <C> <C>
(Dollars in thousands) 1999 1998 1999 1998
---- ---- ---- ----
Balance beginning of period $4,984 $4,307 $4,490 $3,863
Charge-offs:
Residential real estate -- -- 58 --
Consumer -- 40 1 70
Commercial business -- -- -- 2
Lease financing 572 11 1,857 139
------ ------ ------ ------
Total charge-offs 572 51 1,916 211
------ ------ ------ ------
Recoveries:
Residential real estate -- 1 -- 1
Consumer 3 -- 15 4
Commercial business 3 56 16 62
Lease financing 108 65 256 233
------ ------ ------ ------
Total recoveries 114 122 287 300
------ ------ ------ ------
Net charge-offs (recoveries) 458 (71) 1,629 (89)
Additions charged to operations 658 233 2,323 659
------ ------ ------ ------
Balance at end of period $5,184 $4,611 $5,184 $4,611
====== ====== ====== ======
</TABLE>
(7) Commitments and Contingencies
At September 30, 1999, the Company had $178.7 million in loan commitments
to extend credit, including unused lines of credit, and $3.5 million in
letters of credit outstanding.
<PAGE>
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(8) Segments
The following table sets forth selected financial information by business
segment for the periods indicated:
<TABLE>
<CAPTION>
Real Estate
<S> <C> <C> <C> <C> <C>
Banking Leasing Advisory Other Total
------- ------- -------- ----- -----
(Dollars in thousands)
Assets at:
September 30, 1999 $610,165 $81,021 $2,294 $10,603 $704,083
December 31, 1998 562,086 71,416 3,184 10,127 646,813
Revenues for:
the three months ended
September 30, 1999 6,522 1,443 634 5,279 13,878
September 30, 1998 5,910 1,417 625 401 8,353
the nine months ended
September 30, 1999 19,461 4,283 2,301 7,659 33,704
September 30, 1998 15,590 4,409 1,549 1,524 23,072
Net income for:
the three months ended
September 30, 1999 773 142 (64) 1,406 2,257
September 30, 1998 1,289 349 2 (294) 1,346
the nine months ended
September 30, 1999 3,420 353 (83) 1,020 4,710
September 30, 1998 2,510 1,414 (93) (368) 3,463
</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (unaudited)
The following discussion and analysis of financial condition and results of
operations should be read in conjunction with the Company's Consolidated
Financial Statements and accompanying notes and with the Company's Annual Report
to Stockholders and Form 10-K for the year ended December 31, 1998. Certain
reclassifications have been made to prior period data throughout the following
discussion and analysis for comparability with 1999 data.
When used in filings by the Company with the Securities and Exchange Commission,
in the Company's press releases or other public or shareholder communications,
or in oral statements made with the approval of an authorized executive officer,
the words or phrases "will likely result," "are expected to," "will continue,"
"is anticipated," "estimate," "project," or similar expressions are intended to
identify "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such statements are subject to certain
risks and uncertainties including changes in economic conditions in the
Company's market area, changes in policies by regulatory agencies, fluctuations
in interest rates, demand for loans in the Company's market area and competition
that could cause actual results to differ materially from historical earnings
and those presently anticipated or projected. The Company wishes to caution
readers not to place undue reliance on any such forward-looking statements,
which speak only as of the date made. The Company wishes to advise readers that
the factors listed above could affect the Company's financial performance and
could cause the Company's actual results for future periods to differ materially
from any opinions or statements expressed with respect to future periods in any
current statements.
SUMMARY
The Company recorded net income of $2.3 million or diluted earnings per share of
$.39 for the three months ended September 30, 1999 compared to $1.3 million
or $.23, respectively, for the three months ended September 30, 1998. Return on
average shareholders' equity was 20.73% and return on average assets was 1.31%
for the three months ended September 30, 1999 compared to 12.70% and .88%,
respectively, for the three months ended September 30, 1998.
The Company recorded net income of $4.7 million or diluted earnings per share of
$.81 for the nine months ended September 30, 1999 compared to net income of $3.5
million or diluted earnings per share of $.62 for the nine months ended
September 30, 1998. Return on average shareholders' equity was 14.80% and return
on average assets was .94% for the nine months ended September 30, 1999 compared
to 13.51% and .86%, respectively, for the nine months ended September 30, 1998.
Net interest income increased to $6.8 million from $6.0 million, and the net
interest margin increased to 4.24% from 4.16%, comparing the three months ended
September 30, 1999 and 1998. This increase is primarily due to a $8.5 million
increase in the positive variance between average interest-earning assets and
average interest-bearing liabilities.
Operating results for the three months ended September 30, 1999 and 1998
included $658,000 and $233,000, respectively, in the provision for possible loan
and lease losses. The increase in the provision for possible loan and lease
losses was primarily due to an increase in the loan and lease portfolio and an
increase in non-performing loans and leases. Non-interest income increased to
$7.1 million from $2.3 million for the three months ended September 30, 1999
compared to the same period in 1998. This increase was due to client warrant
income of $2.8 million, primarily the result of the expiration of restrictions
on the sale of warrants to acquire shares of common stock on VerticalNet, Inc.,
a customer of the Company; and a $2.1 million increase in fee based income. Loss
on the sale of securities was $66,000 for the three months ended September
30, 1999, compared to a gain of $100,000 for the same period in 1998.
Non-interest expense increased to $9.8 million for the three months ended
September 30, 1999 in comparison with $5.9 million for the same period in 1998.
This increase was primarily due to a $2.0 million increase in salaries and
employee benefits relating to additional employees of the newly formed insurance
business, Progress Financial Resources, Inc. ("PFR") and the staffing of
Progress Capital Management, Inc. ("PCM") to pursue our Small Business
Investment Corporation ("SBIC") license, and other new positions established
within the Company. Other non-interest expense included one-time charges of
$1.1 million associated with a leasing acquisition and unrelated other
adjustments.
<PAGE>
Net interest income increased to $19.6 million from $16.7 million, for the nine
months ended September 30, 1999 and 1998 primarily due to a $15.0 million
increase in the positive variance between average interest-earning assets and
average interest-bearing liabilities. The net interest margin was 4.22% for the
nine-months ended September 30, 1999 compared to 4.38% for the same period in
1998; the decline was primarily due to higher yielding commercial business loans
and leases during the first half of 1998.
Operating results for the nine months ended September 30, 1999 and 1998 included
$2.3 million and $659,000, respectively, in provision for possible loan and
lease losses. The increase in the provision for possible loan and lease losses
was due to increases in the loan and lease portfolio and non-performing loans
and leases; and an additional charge of $675,000, the result of a new charge-off
policy at Progress Leasing Company. Non-interest income increased to $14.1
million from $6.4 million for the nine months ended September 30, 1999
compared to the same period in 1998. This increase was partially due to an
increase in fee based income of $4.6 million as the Company continues to grow
its non-bank businesses. Client warrant income of $3.3 million was recognized
during the nine months ended September 30, 1999, primarily the result of the
expiration of restrictions on the sale of warrants to acquire shares of common
stock on VerticalNet, Inc., a customer of the Company. Loss on sale of
securities was $222,000 for the nine months ended September 30, 1999,
compared to a gain on sale of securities of $437,000 for the same period in
1998. Non-interest expense increased to $24.1 million for the nine months ended
September 30, 1999 in comparison with $16.9 million for the same period in 1998.
This increase was partially due to a $4.4 million increase in salaries and
employee benefits relating to employees of acquired and newly formed companies
and new positions established within the Company. Non-interest expense included
one-time charges of $1.1 million associated with a leasing acquisition and
unrelated other adjustments. Other non-interest expenses increased $1.8 million
mainly due to increases in professional services due to increased usage of an
interactive voice response system in handling new internal clients, the
outsourcing of the internal audit function, increased tax services and Year 2000
systems testing; and occupancy and furniture, fixtures and equipment expenses
due to new branch openings and recent acquisitions.
Total assets increased to $704.1 million at September 30, 1999 from $646.8
million at December 31, 1998 primarily due to a $58.3 million increase in net
loans and lease receivables. Deposits increased to $491.6 million at September
30, 1999 from $408.2 million at December 31, 1998 primarily due to branch
expansion in Bucks and Chester counties.
FINANCIAL CONDITION
Liquidity and Funding
The Company must maintain sufficient liquidity to meet the funding needs of
current loan demand, savings deposit withdrawals and to pay operating expenses.
The Company monitors its liquidity in accordance with internal guidelines and
applicable regulatory requirements. The Bank is required under applicable
federal regulations to maintain liquid assets of not less than 4% of its net
withdrawable accounts plus short-term borrowings. These levels are changed from
time to time by the Office of Thrift Supervision to reflect economic conditions.
The Bank's liquidity ratio at September 30, 1999 was 14.15%, which was
in excess of the current minimum requirement.
The Company's primary source of funds has historically consisted of: deposits;
amortization and prepayments of outstanding loans; borrowings from the Federal
Home Loan Bank ("FHLB") and other sources; and, sales of investment securities,
loans and mortgage-backed securities. During the nine months ended September 30,
1999, the Company used its resources primarily to meet its ongoing commitments
to fund existing and new loan commitments and maintain its liquidity.
For the nine months ended September 30, 1999, cash was used in operating and
investing activities and provided by financing activities. Operating activities
used $6.2 million of cash. Investing activities used $41.0 million in cash
primarily due to net increases in loans and leases. Financing activities
provided $56.3 million in cash primarily from net increases of $77.9 million in
time deposits, offset by decreases of $30.6 in short-term borrowings, as the
Company increased its emphasis on deposit funding.
<PAGE>
Year 2000
The Year 2000 issue concerns the potential impact of historic computer software
code that utilizes only two digits to represent the calendar year (i.e., "98"
FOR "1998"). Software so developed, and not corrected, could produce inaccurate
or unpredictable results commencing upon January 1, 2000, when current and
future dates present a lower two digit number than dates from the prior century.
The Company, similar to most financial service providers, is significantly
subject to the potential impact of the Year 2000 issue due to the nature of
financial information. Potential impacts to the Company may arise from software,
computer hardware, and other equipment both within the Company's direct control
and outside of the Company's ownership, yet with which the Company
electronically or operationally interfaces. Financial institution regulators
have intensively focused upon Year 2000 exposures, issuing guidance concerning
the responsibilities of senior management and directors. Year 2000 testing and
certification is being addressed as a key safety and soundness issue in
conjunction with regulatory exams.
In order to address the Year 2000 issue, the Company has developed and
implemented a five-phase plan divided into the following major components: 1)
awareness; 2) assessment; 3) renovation; 4) validation; and 5)
implementation. The Company has divided these phases into the following three
categories: 1) internal; 2) vendors; and 3) customers.
The company has completed all phases for the three categories. The Company
outsources its core data and item processing operations; a significant component
of the Year 2000 compliance was performed by its service providers. Based on
extensive interaction and testing with the Bank's primary vendors, the Company
is confident that it has performed all necessary preparation for Year 2000.
The Company has established a Year 2000 committee which meets bi-weekly and
reports at least quarterly to the Board of Directors on the progress toward
achieving and certifying Year 2000 compliance. The Company completed the Year
2000 preparation as of June 30, 1999.
The Company has no internally generated programmed software coding to correct,
as all of the software utilized by the Company is purchased or licensed form
external providers. The Company has determined that it has little or no exposure
to contingencies related to Year 2000 issues for products it has sold.
The Company continues to communicate with all of its significant suppliers and
customers to remediate any Year 2000 issues. The Company has received third
party vendor representations that their products and services are Year 2000
compliant. The response of certain third parties, however, is beyond the control
of the Company. To the extent that adequate responses have not been received to
date, the Company has developed contingency plans. At this time the Company
cannot estimate the additional cost, if any, that might develop from such
contingency plans.
The Company's total Year 2000 estimated project cost, which is based upon
currently available information, includes expenses for the review and testing
related to third parties, including government entities. However, there can be
no guarantee that the hardware, software, and systems of such third parties will
be without unfavorable Year 2000 impact and therefore present a material adverse
impact upon the Company.
Year 2000 compliance costs incurred during the nine months ended September 30,
1999 have totaled approximately $85,000, the majority of which is related to
consulting fees for systems testing. No material additional Year 2000 costs for
1999 are expected to be expensed. These costs are exclusive of internal costs
related with non-dedicated personnel which are not tracked separately. At this
time no significant projects have been delayed as a result of the Company's Year
2000 effort.
Despite the Company's activities with regard to the Year 2000 issue, there can
be no assurance that partial or total systems interruptions or the costs
necessary to update hardware and software would not have a material adverse
effect upon the Company's business, financial condition, results of operations,
and business prospects.
<PAGE>
Non-Performing and Underperforming Assets
The following table details the Company's non-performing and underperforming
assets at the dates indicated:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
September 30, December 31, September 30,
(Dollars in thousands) 1999 1998 1998
---- ---- ----
Loans and leases accounted for on a non-accrual basis $ 3,760 $3,683 $2,852
REO, net of related reserves -- -- --
------- ------ ------
Total non-performing assets 3,760 3,683 2,852
Accruing loans 90 or more days past due 7,282 4,030 3,723
------- ------ ------
Total underperforming assets $11,042 $7,713 $6,575
======= ====== ======
Non-performing assets as a percentage of net loans and leases
and other real estate owned .81% .88% .74%
==== ==== ====
Non-performing assets as a percentage of total assets .53% .57% .46%
==== ==== ====
Underperforming assets as a percentage of net loans and leases
and other real estate owned 2.39% 1.84% 1.71%
===== ===== =====
Underperforming assets as a percentage of total assets 1.57% 1.19% 1.07%
===== ===== =====
Allowance for possible loan and lease losses $5,184 $4,490 $4,611
====== ====== =======
Ratio of allowance for possible loan and lease losses to
non-performing loans and leases at end of period 137.87% 121.91% 161.68%
======= ======= =======
Ratio of allowance for possible loan and lease losses to
underperforming loans and leases at end of period 46.95% 58.21% 70.13%
======= ======== =======
</TABLE>
Non-performing assets increased to $3.8 million at September 30, 1999 from $3.7
million at December 31, 1998, and from $2.9 million at September 30, 1998
primarily due to an increase in non-accrual lease financing. The $3.8 million of
non-accrual loans at September 30, 1999 consisted of $1.8 million of lease
financing, $1.0 million of loans secured by single family residential property,
$583,000 of commercial business loans, $180,000 of commercial mortgages, and
$128,000 in consumer loans.
Accruing loans 90 or more days past due increased from $4.0 million at December
31, 1998 to $7.3 million at September 30, 1999. This increase was primarily due
to an increase in accruing 90-day-or-more delinquent commercial business loans.
The $7.3 million of accruing loans 90 or more days past due at September 30,
1999 consisted of $2.4 million of commercial mortgages, $3.0 million of
commercial business loans, $50,000 of loans secured by single family residential
property, $101,000 in consumer loans and $170,000 in lease financing.
Delinquencies
The following table sets forth information concerning the principal balances and
percent of the total loan and lease portfolio represented by delinquent loans
and leases at the dates indicated:
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1999 1998 1998
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands) Amount Percent Amount Percent Amount Percent
Delinquencies:
30 to 59 days $ 8,177 1.75% $ 7,305 1.72% $ 9,763 2.51%
60 to 89 days 1,151 .25 3,337 .79 1,939 .50
90 or more days 7,282 1.56 4,030 .95 3,723 .96
------- ----- ------- ----- ------- -----
Total $16,610 3.56% $14,672 3.46% $15,425 3.97%
======= ===== ======= ===== ======= =====
</TABLE>
<PAGE>
RESULTS OF OPERATIONS
Net Interest Income
The following tables set forth, for the periods indicated, tax-equivalent
information regarding (i) the total dollar amount of interest income on average
interest-earning assets and the resultant average yield; (ii) the total dollar
amount of interest expense on average interest-bearing liabilities and the
resultant average cost; (iii) net interest income; (iv) interest rate spread;
and (v) net interest margin. Information is based on average daily balances
during the indicated periods. For the purposes of this table, non-accrual loans
have been included in the appropriate average balance category.
<TABLE>
For the Three Months Ended September 30,
<CAPTION>
1999 1998
--------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands) Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
------- -------- ------ ------- -------- ------
Interest-earning assets:
Interest-earning deposits $ 21,726 $ 285 5.20% $ 821 $ 9 4.35%
Investment securities(1) 38,621 608 6.25 21,284 295 6.62
Mortgage-backed securities (1) 113,832 1,859 6.48 171,276 2,860 6.62
Single family residential loans 44,109 804 7.23 55,256 1,081 7.76
Commercial real estate loans (4) 152,461 3,289 8.56 122,657 2,777 8.98
Construction loans 52,724 1,335 10.05 32,766 916 11.09
Commercial business loans 105,225 2,220 8.37 79,806 1,918 9.53
Lease financing 77,263 2,196 11.28 63,396 1,864 11.67
Consumer loans 31,274 620 7.87 26,113 546 8.30
-------- ------ ----- ------- ------ ------
Total interest-earning assets 637,235 13,216 8.23 573,375 12,266 8.49
Non-interest-earning assets (5) 48,538 ------ 35,630 ------
-------- --------
Total assets $685,773 $609,005
======== ========
Interest-bearing liabilities:
Interest-bearing deposits:
NOW and Super NOW $ 79,027 546 2.74 $ 52,265 $ 376 2.85
Money market accounts 34,767 246 2.81 33,221 250 2.99
Passbook and statement savings 31,857 150 1.87 31,338 160 2.03
Time deposits 256,916 3,361 5.19 212,222 2,953 5.52
-------- ----- ----- -------- ----- -----
Total interest-bearing deposits 402,567 4,303 4.24 329,046 3,739 4.51
Short-term borrowings 27,906 527 7.49 82,957 1,249 5.97
Long-term debt 122,034 1,576 5.12 85,149 1,263 5.88
-------- ----- ----- -------- ----- -----
Total interest-bearing liabilities 552,507 6,406 4.60 497,152 6,251 4.99
Non-interest-bearing deposits 75,633 ----- ----- 55,397 ----- -----
-------- --------
Total liabilities 628,140 552,549
Capital securities 14,443 14,423
Stockholders' equity 43,190 42,033
-------- --------
Total liabilities, capital securities and $685,773 $609,005
stockholders' equity ======== ========
Net interest income: $6,810 $6,015
====== ======
Interest rate spread (2) 3.63% 3.50%
===== =====
Net interest margin (3) 4.24% 4.16%
===== =====
Average interest-earning assets to average 115.34% 115.33%
interest-bearing liabilities ======= =======
</TABLE>
(1) Includes investment and mortgage-backed securities classified as available
for sale. Yield information does not give effect to changes in fair values
that are reflected as a component of stockholders' equity.
(2) Interest rate spread represents the difference between the weighted average
yield on interest-earning assets, and the weighted average cost of
interest-bearing liabilities.
(3) Net interest margin represents net interest income divided by average
interest-earning assets.
(4) Includes loans held for sale.
(5) For the three months ended September 30, 1999 1998
Non-interest-earning assets:
Cash $14,209 $ 9,432
Allowance for possible loan and lease losses (4,974) (4,448)
Other assets 39,303 30,646
------- -------
Total non-interest-earning assets $48,538 $35,630
======= =======
Non-interest-bearing liabilities:
Non-interest-bearing deposits $57,660 $41,158
Other liabilities 17,973 14,239
------- -------
Total non-interest-bearing liabilities $75,633 $55,397
======= =======
<PAGE>
<TABLE>
For the Nine Months Ended September 30,
<CAPTION>
1999 1998
--------------------------- ---------------------------
(Dollars in thousands) Average Yield/ Average Yield/
<S> <C> <C> <C> <C> <C> <C>
Balance Interest Rate Balance Interest Rate
------- -------- ------ ------- -------- ------
Interest-earning assets:
Interest-earning deposits $ 17,115 $ 645 5.04% $ 1,407 $ 48 4.56%
Investment securities(1) 35,188 1,649 6.27 16,202 662 5.46
Mortgage-backed securities (1) 125,779 5,953 6.33 127,914 6,212 6.49
Single family residential loans 46,868 2,564 7.31 56,021 3,210 7.66
Commercial real estate loans (4) 144,124 9,291 8.62 118,446 7,919 8.94
Construction loans 48,595 3,654 10.05 28,654 2,381 11.11
Commercial business loans 101,763 6,493 8.53 74,789 5,498 9.83
Lease financing 74,955 6,309 11.25 59,192 5,423 12.25
Consumer loans 30,153 1,781 7.90 25,655 1,623 8.46
-------- ------ ----- ------- ------ -----
Total interest-earning assets 624,540 38,339 8.21 508,280 32,976 8.67
------ ----- ------
Non-interest-earning assets (5) 43,207 31,812
-------- --------
Total assets $667,747 $540,092
======== ========
Interest-bearing liabilities:
Interest-bearing deposits:
NOW and Super NOW $79,018 $1,610 2.72 $ 46,191 $ 902 2.61
Money market accounts 35,180 722 2.74 33,007 747 3.03
Passbook and statement savings 31,924 457 1.91 31,557 572 2.42
Time deposits 235,870 9,162 5.19 202,890 8,415 5.55
------- ------ ----- ------- ------ ----
Total interest-bearing deposits 381,992 11,951 4.18 313,645 10,636 4.53
Short-term borrowings 36,822 1,767 6.42 55,652 2,531 6.08
Long-term debt 123,234 4,904 5.32 71,507 3,142 5.87
------- ------ ----- ------- ------ ----
Total interest-bearing liabilities 542,048 18,622 4.59 440,804 16,309 4.95
------ ----- ------ ----
Non-interest-bearing deposits 68,721 50,600
------- -------
Total liabilities 610,769 491,404
------- -------
Capital securities 14,438 14,421
Stockholders' equity 42,540 34,267
-------- --------
Total liabilities, capital securities and $667,747 $540,092
stockholders' equity ======== ========
Net interest income: $19,717 $16,667
======= =======
Interest rate spread (2) 3.62% 3.72%
===== =====
Net interest margin (3) 4.22% 4.38%
===== =====
Average interest-earning assets to average 115.22% 115.31%
interest-bearing liabilities ======= =======
</TABLE>
(1) Includes investment and mortgage-backed securities classified as available
for sale. Yield information does not give effect to changes in fair values
that are reflected as a component of stockholders' equity.
(2) Interest rate spread represents the difference between the weighted average
yield on interest-earning assets, and the weighted average cost of
interest-bearing liabilities.
(3) Net interest margin represents net interest income divided by average
interest-earning assets.
(4) Includes loans held for sale.
(5) For the nine months ended September 30, 1999 1998
---- ----
Non-interest-earning assets:
Cash $14,443 $ 9,432
Allowance for possible loan and lease losses (4,705) (4,244)
Other assets 33,469 26,624
------- -------
Total non-interest-earning assets $43,207 $31,812
======= =======
Non-interest-bearing liabilities:
Non-interest-bearing deposits $54,603 $39,482
Other liabilities 14,118 11,118
------- -------
Total non-interest-bearing liabilities $68,721 $50,600
======= =======
<PAGE>
Net interest income, on a tax-equivalent basis, amounted to $6.8 million for the
three months ended September 30, 1999 in comparison with $6.0 million
for the same period in 1998. Net interest income for the three months ended
September 30, 1999 was positively impacted by a $63.9 million increase
in average interest-earning assets, while average interest-bearing liabilities
increased $55.4 million. The net interest margin increased 8 basis points
primarily due to the $8.5 million increase in the positive variance between
average interest-earning assets and average interest-bearing liabilities.
On a tax-equivalent basis, total interest income increased to $13.2 million for
the three months ended September 30, 1999 compared to $12.3 million for the same
period in 1998 due to growth in average interest-earning assets of $63.9
million. This growth relates to a combination of higher commercial business,
real estate and construction loans and lease production. Average loans and
leases increased $83.1 million compared to the three months ended September 30,
1998.
<PAGE>
Total interest expense increased to $6.4 million for the three months ended
September 30, 1999 compared to $6.3 million for the same period in 1998.
Interest expense on deposits increased $564,000 as the average balance of
interest-bearing deposits increased $73.5 million. This increase was offset by a
reduction in interest expense on total borrowings of $409,000, as the average
balance decreased $18.2 million. This increase in deposits was necessary to fund
the increase in interest-earning assets.
Net interest income, on a tax-equivalent basis, amounted to $19.7 million for
the nine months ended September 30, 1999 in comparison with $16.7
million for the same period in 1998. Net interest income for the nine months
ended September 30, 1999 was positively impacted by a $116.3 million
increase in average interest-earning assets, while average interest-bearing
liabilities increased $101.2 million. The net interest margin decreased 16 basis
points due to higher yields on commercial business loans and lease financing
during the first half of 1998.
On a tax-equivalent basis, total interest income increased to $38.3 million for
the nine months ended September 30, 1999 compared to $33.0 million for the same
period in 1998 due to growth in average interest-earning assets of $116.3
million. This growth relates to a combination of higher commercial business,
real estate and construction loans and lease production. Average loans and
leases increased $83.7 million compared to the nine months ended September 30,
1998.
Total interest expense increased to $18.6 million for the nine months ended
September 30, 1999 compared to $16.3 million for the same period in 1998.
Interest expense on deposits increased $1.3 million as the average balance of
interest-bearing deposits increased $68.3 million. Interest expense on total
borrowings increased $998,000 as the average balance of total borrowings
increased $32.9 million. This increase in deposits and total borrowings was
necessary to fund the increase in interest-earning assets.
Provision for Possible Loan and Lease Losses
During the three months ended September 30, 1999, the Company recorded a
$658,000 provision for possible loan and lease losses compared with $233,000 for
the comparable period in 1998. The increase in the provision for possible loan
and lease losses was primarily due to an increase in the loan and lease
portfolio and an increase in non-performing loans and leases. Net charge-offs
amounted to $458,000 during the third quarter of 1999 in comparison with net
recoveries of $71,000 during the comparable period in 1998.
During the nine months ended September 30, 1999, the Company recorded a $2.3
million provision compared with $659,000 for the comparable period in 1998. The
increase in the provision for possible loan and lease losses was partially due
to increases in the loan and lease portfolio and non-performing loans and
leases; and included an additional $675,000 as a result of the present level of
delinquencies and charge-offs within the leasing portfolio. The charge-off
policy of the leasing division has been revised such that all leases past 180
days are charged off. In addition, the Company has committed additional
resources to improve collection efforts in the leasing division. Net charge-offs
amounted to $1.6 million during the nine months ended September 30, 1999 in
comparison with net recoveries of $89,000 during the comparable period in 1998.
At September 30, 1999, the allowance for possible loan and lease losses amounted
to $5.2 million or 1.11% of total loans and leases and 137.87% of total
non-performing loans and leases. At December 31, 1998, the allowance for
possible loan and lease losses amounted to $4.5 million or 1.06% of total loans
and leases and 121.91% of total non-performing loans and leases. The Company's
allowance for possible loan and lease losses increased by $694,000 from December
31,1998. The $989,000 increase in provision for possible loan and lease losses,
excluding the additional charge of $675,000, for the nine months ended
September 30, 1999 was considered necessary by management to maintain the
allowance for possible loan and lease losses at an adequate level. The ratio of
delinquent loans and leases to the total loan and lease portfolio increased to
3.56% at September 30, 1999 from 3.46% at December 31, 1998.
<PAGE>
Non-Interest Income
Total non-interest income increased to $7.1 million from $2.3 million for the
three months ended September 30, 1999 compared to the same period in 1998. This
increase was due to client warrant income of $2.8 million, primarily the result
of the expiration of restrictions on the sale of warrants to acquire shares of
common stock on VerticalNet, Inc., a customer of the Company; and a $2.1 million
increase in fee based income. Fee based income increased due to mutual fund,
annuity and insurance commissions of $713,000 earned by PFR and a $1.1 million
increase in teleservices fee income due to new inbound clients. Loss on the sale
of securities was $66,000 for the three months ended September 30, 1999,
compared to a gain of $100,000 for the same period in 1998.
Total non-interest income increased to $14.1 million from $6.4 million for the
nine months ended September 30, 1999 compared to the same period in 1998.
This increase was partially due to an increase in fee based income of $4.6
million as the Company continues to grow its non-bank businesses. Mutual fund,
annuity and insurance commissions of $1.8 million were earned by PFR.
Teleservices fee income increased $1.8 million in comparison to the nine months
ended September 30, 1998 due to new inbound clients. Other non-bank fees
including lease financing, loan brokerage and advisory, and investment advisory
fees increased $591,000 in comparison with the nine months ended
September 30, 1998. Client warrant income of $3.3 million was recognized
during the nine months ended September 30, 1999. The Company recognized $2.7
million in client warrant income due to the expiration of restrictions on the
sale of warrants to acquire shares of common stock on VerticalNet, Inc., a
customer of the Company; and $518,000 due to the initial public offering of IQE
plc on the EASDAQ exchange. The Company recognized income of $625,000 from
equity participations in commercial loans during the nine months ended September
30, 1999. Loss on sale of securities was $222,000 for the nine months ended
September 30, 1999, compared to a gain on sale of securities of $437,000
for the same period in 1998.
Non-interest Expense
Total non-interest expense increased to $9.8 million for the three months ended
September 30, 1999 in comparison with $5.9 million for the same period in 1998.
This increase was primarily due to a $2.0 million increase in salaries and
employee benefits relating to additional employees of the newly formed insurance
business, PFR, and the staffing of PCM to pursue our SBIC license, and other new
positions established within the Company. Occupancy and furniture, fixtures and
equipment expenses increased $295,000 in comparison to the three months ended
September 30, 1998 due to new branch openings and recent acquisitions.
Professional services expense increased by $137,000 primarily due to the
increased usage of an interactive voice response system and the outsourcing of
the internal audit function. Other non-interest expense included one-time
charges of $1.1 million associated with a acquisition and unrelated other
adjustments.
Non-interest expense increased to $24.1 million for the nine months ended
September 30, 1999 in comparison with $16.9 million for the same period in 1998.
This increase was partially due to a $3.9 million increase in salaries and
employee benefits relating to employees of acquired and newly formed companies
and new positions established within the Company. Professional services expense
increased by $704,000 primarily due to the increased usage of an interactive
voice response system, the outsourcing of the internal audit function,
consulting fees for Year 2000 systems testing, and increased tax services.
Occupancy and furniture, fixtures and equipment expenses increased $477,000 in
comparison to the nine months ended September 30, 1998 due to new branch
openings and recent acquisitions. Other non-interest expense included one-time
charges of $1.1 million associated with a leasing acquisition and
unrelated other adjustments
Item 3. Quantitative and Qualitative Disclosures About Market Risk
For information regarding market risk, see the Company's Annual Report on Form
10-K for the year ended December 31, 1998, Item 7 and Item 7A, filed
with the Securities and Exchange Commission on March 29, 1999. The market risk
of the Company has not experienced any significant changes as of September 30,
1999.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in routine legal proceedings occurring in the ordinary
course of business which management, after reviewing the foregoing actions with
legal counsel, is of the opinion that the liability, if any, resulting from such
actions will not have a material effect on the financial condition or results of
operations of the Company.
Item 2. Changes in Securities
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) List of Exhibits
(27) Financial Data Schedule for the nine months ended September 30, 1999
(b) Reports on Form 8-K
On August 4, 1999, the Company filed a Current Report on Form 8-K with the
Securities and Exchange Commission reporting under Item 5 the announcement
of its second quarter 1999 earnings and declaration of its 3rd quarter 1999
cash dividend.
On August 31, 1999, the Company filed a Current Report on Form 8-K with the
Securities and Exchange Commission reporting under Item 5 the announcement
of a warrant position in Internet Capital Group, Inc., US Interactive, Inc.
and Ravisent Technologies, Inc.
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Progress Financial Corporation
/s/ W. Kirk Wycoff
------------------------------------------
November 12, 1999 W. Kirk Wycoff, Chairman,
President and Chief Executive Officer
/s/ Michael B. High
------------------------------------------
November 12, 1999 Michael B. High,
Senior Vice President and
Chief Financial Officer
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