Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
[ X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarter ended June 30, 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) 5,367,414
Title of Each Class Number of Shares Outstanding
as of July 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
June 30,1999 (unaudited)and December 31,1998(audited)............3
Consolidated Interim Statements of Operations for the three
and six months ended June 30, 1999 and 1998 (unaudited)..........4
Consolidated Interim Statements of Changes in Stockholders' Equity
for the six months ended June 30, 1999 and 1998 (unaudited)......5
Consolidated Interim Statements of Cash Flows for the
six months ended June 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)...............................12
Item 3. Quantitative and Qualitative Disclosures About Market Risk........19
PART II - Other Information
Item 1. Legal Proceedings................................................20
Item 2. Changes in Securities............................................20
Item 3. Defaults upon Senior Securities..................................20
Item 4. Submission of Matters to a Vote of Security Holders..............20
Item 5. Other Information................................................20
Item 6. Exhibits and Reports on Form 8-K.................................20
Signatures.......................................................21
<PAGE>
PART I- INTERIM FINANCIAL INFORMATION
Item 1. Interim Financial Statements
<TABLE>
Consolidated Interim Statements of Financial Condition
<CAPTION>
(Dollars in thousands) June 30, December 31,
1999 1998
-------- ------------
(unaudited) (audited)
Assets Cash and due from banks:
<S> <C> <C>
Non-interest earning $14,113 $ 14,189
Interest earning 11,743 6,498
Loans held for sale (fair value: $9,120 in 1999 and $25,326 in 1998) 9,155 25,250
Investment securities
Available for sale at fair value(amortized cost:$7,437 in 1999 and $18,208 in 1998) 7,165 17,909
Held to maturity at amortized cost (fair value: $27,963 in 1999 and $12,547 in 1998) 28,459 12,401
Mortgage-backed securities:
Available for sale at fair value(amortized cost: $120,095 in 1999 and $146,910 in 1998) 117,629 146,459
Loans and leases, net (net of reserves: $4,984 in 1999 and $4,490 in 1998) 442,812 394,246
Premises and equipment, net 12,065 10,707
Other assets 23,230 19,723
-------- ---------
Total assets $666,371 $647,382
======== =========
Liabilities and Stockholder's Equity
Liabilities:
Deposits:
Non-interest bearing $ 57,201 $ 54,934
Interest-bearing 387,927 353,228
Short-term borrowings 31,978 45,941
Other liabilities 9,337 15,250
Long-term debt:
Federal Home Loan Bank advances 80,000 83,000
Other debt 42,182 38,475
-------- ---------
Total liabilities 608,625 590,828
-------- ---------
Corporation-obligated mandatorily redeemable capital securities of subsidiary trust
holding solely junior subordinated debentures of the Corporation 15,000 15,000
Commitments and contingencies
Stockholders' 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: 5,397,000 and 5,263,000
shares issued and outstanding at June 30, 1999 and December 31, 1998,
respectively; including treasury shares of 0 and 177,000, and unallocated
shares held by the Employee Stock Ownership Plan of 19,000 and 24,000 at
June 30, 1999 and December 31, 1998, respectively. 5,397 5,263
Other common stockholders' equity, net 39,245 36,786
Net accumulated other comprehensive loss (1,896) (495)
-------- ---------
Total stockholders' equity 42,746 41,554
--------- ---------
Total liabilities, Corporation-obligated mandatorily redeemable capital
securities of subsidiary trust holding solely junior subordinated
debentures of the Corporation and stockholders' equity $666,371 $647,382
========= =========
See Notes to Consolidated Interim Financial Statements.
</TABLE>
<PAGE>
<TABLE>
Consolidated Interim Statements of Operations (unaudited)
(Dollars in thousands, except per share data)
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
---- ---- ---- ----
Interest income:
<S> <C> <C> <C> <C>
Loans and leases, including fees $10,071 $8,659 $19,628 $16,952
Mortgage-backed securities 1,969 1,877 4,094 3,352
Investment securities 526 226 948 367
Other 167 16 360 39
------- ------ ------- -------
Total interest income 12,733 10,778 25,030 20,710
Interest expense:
Deposits 3,880 3,547 7,648 6,897
Short-term borrowings 575 702 1,240 1,282
Long-term debt 1,679 1,068 3,328 1,879
------- ------ ------- ------
Total interest expense 6,134 5,317 12,216 10,058
------- ------ ------- ------
Net interest income 6,599 5,461 12,814 10,652
Provision for possible loan and lease losses 1,216 224 1,665 426
------- ------ ------- ------
Net interest income after provision for possible loan and lease losses 5,383 5,237 11,149 10,226
------- ------ ------- ------
Non-interest income:
Service charges on deposits 521 409 941 776
Lease financing fees 477 384 864 749
Mutual fund, annuity and insurance commissions 574 -- 1,054 --
Teleservices fee income 990 338 1,233 512
Loan brokerage and advisory fees 652 390 1,175 835
Gain (loss) on sale of securities 4 122 (156) 337
Client warrant income 482 -- 482 --
Fees and other 550 619 1,419 858
------- ------ ------- -------
Total non-interest income 4,250 2,262 7,012 4,067
------- ------ ------- -------
Non-interest expense:
Salaries and employee benefits 4,275 2,773 7,779 5,391
Occupancy 316 353 661 658
Data processing 264 262 482 511
Furniture, fixtures and equipment 425 282 715 536
Professional services 580 189 947 380
Capital securities expense 399 399 797 797
Other 1,662 1,472 2,984 2,676
------- ------ ------- -------
Total non-interest expense 7,921 5,730 14,365 10,949
------- ------ ------- -------
Income before income taxes 1,712 1,769 3,796 3,344
Income tax expense 582 648 1,343 1,227
------- ------ ------- -------
Net income $ 1,130 $1,121 $ 2,453 $ 2,117
======= ====== ======= =======
Basic earnings per common share $ .22 $ .23 $ .48 $ .46
======= ====== ======= =======
Diluted earnings per common share $ .21 $ .21 $ .45 $ .41
======= ====== ======= =======
Dividends per common share $ .04 $ .03 $ .08 $ .06
======= ====== ======= =======
Basic average common shares outstanding 5,198,004 4,854,734 5,148,906 4,602,630
========= ========= ========= =========
Diluted average common shares outstanding 5,504,047 5,389,865 5,495,757 5,121,013
========= ========= ========= =========
See Notes to Consolidated Interim Financial Statements.
</TABLE>
<PAGE>
<TABLE>
Consolidated Interim Statements of Changes in Stockholders' Equity (unaudited)
(Dollars in thousands)
<CAPTION>
Net
Unearned Accumulated
Unearned Compensation Other Total
Common Treasury ESOP Restricted Capital Retained Comprehensive ComprehensiveStockholders'
Stock Stock Shares Stock Surplus Earnings Income Income Equity
(Loss)
--------- -------- -------- ------------- --------- -------- ------------- ------------ -----------
For the six months ended June 30, 1999:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 $5,263 $(2,287) $(143) $ -- $39,615 $(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; 8,113 common
shares; 5,315 ESOP shares) 8 1,319 32 (1,094) (38) -- -- 227
Net income -- -- -- -- -- 2,453 -- $2,453 2,453
Other comprehensive loss,
net of tax (a) -- -- -- -- -- -- (1,401) (1,401) (1,401)
-------
Comprehensive income -- -- -- -- -- -- -- $1,052 --
=======
Purchase of treasury stock
(52,500 treasury shares) -- (698) -- -- -- -- -- (698)
Retirement of stock warrants -- -- -- -- (331) -- -- (331)
Cash dividend declared -- -- -- -- -- (408) -- (408)
-------------------------------------------------------------------------------------------------
Balance at June 30, 1999 $5,397 $ -- $(111) $(1,094) $38,804 $1,646 $(1,896) $42,746
=================================================================================================
For the six months ended June 30, 1998:
Balance at December 31, 1997 $4,126 $-- $(174) $ -- $20,960 $(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
(30,102 common shares;
4,984 ESOP shares) 30 26 138 194
Net income 2,117 $2,117 2,117
Other comprehensive loss,
net of tax (a) (470) (470) (470)
-----
Comprehensive income $1,647
======
Purchase of treasury stock
(6,000 treasury shares) (117) (117)
Investment in unconsolidated
subsidiary
(21,153 common shares) 21 309 330
Cash dividend declared (247) (247)
--------------------------------------------------------------------------------------------------
Balance at June 30, 1998 $4,996 $(117) $(148) $-- $34,999 $1,860 $(10) $41,580
==================================================================================================
<FN>
(a)For the six months ended June 30, 1999 1998
---- ----
Calculation of other comprehensive loss net of tax:
Unrealized holding losses arising during the period, net of tax $(1,504) $(248)
Less: Reclassification for gains (losses) included in net income,
net of tax (103) 222
-------- ------
Other comprehensive loss, net of tax $(1,401) $(470)
======== ======
See Notes to Consolidated Interim Financial Statements
</FN>
</TABLE>
<PAGE>
<TABLE>
Consolidated Interim Statements of Cash Flows (unaudited)
(Dollars in thousands)
For the six months ended June 30, 1999 1998
- ----------------------------------- ----- ----
Cash flows from operating activities:
<S> <C> <C>
Net income $2,453 $2,117
Add (deduct) items not affecting cash flows from operating activities:
Depreciation and amortization 444 666
Provision for possible loan and lease losses 1,665 426
(Gain) loss on sale of securities available for sale 156 (337)
(Gain) loss on sale of loans and leases 34 (48)
Accretion of deferred loan and lease fees and expenses (1,187) (513)
Amortization of premiums/accretion of discounts on securities 578 1,542
Other, net 93 83
Proceeds from sales of loans held for sale 4,451 --
Originations of loans held for sale (11,261) --
Repayments on loans held for sale 4,737 --
Increase in other assets (2,569) 15,545
Decrease in other liabilities (5,930) (29,764)
-------- --------
Net cash flows used in operating activities (6,336) (10,283)
-------- --------
Cash flows from investing activities:
Capital expenditures (2,000) (935)
Purchase of mortgage-backed securities available for sale -- (129,827)
Purchase of investment securities available for sale (1,050) (4,849)
Purchase of investment securities held to maturity (6,594) (7,171)
Repayments on mortgage-backed securities held to maturity -- 8,788
Repayments on mortgage-backed securities available for sale 21,862 8,662
Proceeds from sales of mortgage-backed securities available for sale 4,227 29,920
Proceeds from sales and calls of investment securities available for sale 2,213 3,301
Proceeds from sale of loans and leases 875 768
Proceeds from sales of real estate owned -- 80
Net increase in loans and leases (31,785) (25,893)
-------- ---------
Net cash flows used in investing activities (12,252) (117,156)
-------- ---------
Cash flows from financing activities:
Net increase in demand, NOW and savings deposits 3,748 6,157
Net increase in time deposits 33,218 14,830
Net increase (decrease) in short-term borrowings (17,256) 51,013
Proceeds from issuance of long-term debt 4,000 35,000
Dividends paid (408) (247)
Purchase of treasury shares (698) (117)
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 134 111
-------- ---------
Net cash flows provided by financing activities 23,757 121,158
-------- ---------
Net increase (decrease) in cash and cash equivalents 5,169 (6,281)
Cash and cash equivalents:
Beginning of year 20,687 19,386
--------- ---------
End of period $ 25,856 $ 13,105
========= =========
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 $ --
========= =========
Decrease in net payable for trade dated securities transactions $ (5,582) $(11,342)
========= =========
Cash payments for:
Income taxes $ 1,802 $ 2,478
========= =========
Interest $ 11,245 $ 7,976
========= ========
</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 June 30, 1999
and December 31, 1998 and for the three and six months ended June 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 six
months ended June 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 February 11, 1999, VerticalNet, an entity on which the Company held
warrants to purchase 49,962 shares of common stock at a weighted average
price of $5.58 per share, completed its initial public offering. As of
June 30, 1999, the Company converted 38,269 warrants into 37,074 common
shares. On July 21, 1999 the Company converted the remaining 11,693
warrants into 9,960 common shares of VerticalNet. 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 February 11, 1999. At August 5, 1999, the closing
price of VerticalNet on the Nasdaq Stock Market was $66.125 per common
share; the closing price per common share has ranged between $35 and $140
from February 11, 1999 to August 5, 1999.
On July 16, 1999, Raviesent Technologies, Inc., 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 Raviesent
technologies 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. At August 5, 1999, the closing price of a share of common
stock of Ravisent Technologies was $9.625.
<PAGE>
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(3) Stockholders' 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,
1998.
<TABLE>
For the three months ended June 30,
1999 1998
-------------------------------------- --------------------------------
Per Share Per
Amount Share
Income Shares Income Shares Amount
<S> <C> <C> <C> <C> <C> <C>
Basic Earnings Per Share:
Income available to
common stockholders $1,130,000 5,198,004 $0.22 $1,121,000 4,854,734 $0.23
===== =====
Effect of Dilutive
Securities:
Warrants -- 64,743 -- 218,533
Options -- 241,300 -- 316,598
---------- --------- ---------- ---------
Diluted Earnings Per Share:
Income available to
common stockholders and
assumed conversions $1,130,000 5,504,047 $0.21 $1,121,000 5,389,865 $0.21
========== ========== ===== ========== ========= =====
For the six months ended June 30,
1999 1998
--------------------------------------- -------------------------------------
Per Share Per
Amount Share
Income Shares Income Shares Amount
------ ------ --------- ------ ------ ------
Basic Earnings Per Share:
Income available to
common stockholders $2,453,000 5,148,906 $0.48 $2,117,000 4,602,630 $0.46
===== =====
Effect of Dilutive
Securities:
Warrants -- 108,608 -- 212,318
Options -- 238,243 -- 306,065
---------- --------- ---------- ---------
Diluted Earnings Per Share:
Income available to
common stockholders and
assumed conversions $2,453,000 5,495,757 $0.45 $2,117,000 5,121,013 $0.41
========== ========== ===== ========== ========= ======
</TABLE>
Restricted Stock Awards
In February 1999, the Company established its Restricted Stock Award Plan
under which 77,500 shares of common stock were reserved. The Company
granted 75,417 shares, issued at the then current market price of $14.50.
The awards have a five-year vesting period and are accounted for in
accordance with Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," which provides for
compensation expense to be measured at the time when the service
requirement has been completed.
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%.
<PAGE>
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
At June 30, 1999, the Bank's tangible equity ratio was 6.58%, Tier 1 or
leverage ratio was 6.58%, Tier 1 risk-based capital ratio was 8.96%, and
total risk-based capital ratio was 10.00%. As of June 30, 1999, the Bank
was classified as "well capitalized."
(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>
(Dollars in thousands)
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Estimated Carrying
Cost Gains Losses Fair Value Value
--------- ---------- --------- ---------- --------
At June 30, 1999
Available for Sale:
<S> <C> <C> <C> <C> <C>
Equity investments $ 3,540 $ 68 $ 169 $ 3,439 $ 3,439
U.S. Government Agencies 2,000 -- 24 1,976 1,976
Corporate bonds 1,896 -- 146 1,750 1,750
Mortgage-backed securities 120,095 37 2,503 117,629 117,629
-------- ---- ------ -------- --------
Total available for sale $127,531 $105 $2,842 $124,794 $124,794
======== ==== ====== ======== ========
Held to Maturity:
Federal Home Loan Bank Stock $ 4,923 $ -- $ -- $ 4,923 $ 4,923
U.S. Government Agencies 14,072 98 168 14,002 14,072
Municipal bonds 9,464 -- 427 9,037 9,464
-------- ---- ------ -------- --------
Total held to maturity $ 28,459 $ 98 $ 595 $ 27,962 $ 28,459
======== ==== ====== ======== ========
(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. 1 million and $17.6 million,
respectively, at June 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 $988,000 at June 30, 1999 and $1.0 million at December 31,
1998. MBS pledged under agreements to repurchase in connection with
borrowings amounted to $84.1 million at June 30, 1999 compared to $86.1
million at December 31, 1998. MBS pledged as collateral for
public funds amounted to $14.0 million at June 30, 1999 compared to
$15.6 million at December 31, 1998. MBS pledged to the FRB to secure
borrowings and Treasury, Tax and Loan balances amounted to $1.4 million
at June 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) June 30, 1999 December 31, 1998
------------- -----------------
Amount Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C>
Single family residential real estate $ 45,749 10.22% $ 50,086 12.56%
Commercial real estate 134,029 29.93 109,130 27.37
Construction, net of loans in process 52,920 11.82 44,546 11.17
Consumer 30,687 6.85 27,807 6.98
Credit card receivables -- -- 931 .23
Commercial business 107,614 24.03 92,737 23.26
Lease financing 91,497 20.43 87,856 22.03
Unearned income (14,699) (3.28) (14,357) (3.60)
---------- ------- -------- -------
Total loans and leases 447,797 100.00% 398,736 100.00%
======= =======
Allowance for possible loan and
lease losses (4,984) (4,490)
---------- ---------
Net loans and leases $442,813 $394,246
========== =========
</TABLE>
(6) Allowance for Possible Loan and Lease Losses
<TABLE>
The following table details changes in the Company's allowance for
possible loan and lease losses for the periods indicated:
<CAPTION>
For the Three Months For the Six Months
Ended June 30 Ended June 30,
(Dollars in thousands) 1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Balance beginning of period $4,854 $4,120 $4,490 $3,863
Charge-offs:
Residential real estate -- -- 58 --
Consumer -- 30 1 30
Commercial business -- 2 -- 2
Lease financing 1,184 76 1,285 128
------ ------ ------ -----
Total charge-offs 1,184 108 1,344 160
------ ------ ------ -----
Recoveries:
Consumer 3 3 12 4
Commercial business 7 -- 13 6
Lease financing 88 68 148 168
------ ------ ------ ------
Total recoveries 98 71 173 178
------ ------ ------ ------
Net charge-offs (recoveries) 1,086 37 1,171 (18)
Additions charged to operations 1,216 224 1,665 426
------ ------ ------ ------
Balance at end of period $4,984 $4,307 $4,984 $4,307
====== ====== ====== ======
</TABLE>
(7) Commitments and Contingencies
At June 30, 1999, the Company had $195.8 million in loan commitments to
extend credit, including unused lines of credit, and $3.0 million in
letters of credit outstanding.
<PAGE>
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(8) Segments
<TABLE>
The following table sets forth selected financial information by business
segment for the periods indicated:
<CAPTION>
Real Estate
Banking Leasing Advisory Other Total
(Dollars in thousands) ------- ------- ----------- ----- -----
<S> <C> <C> <C> <C> <C>
Assets at:
June 30, 1999 $577,010 $74,794 $2,512 $12,055 $666,371
December 31, 1998 562,086 71,416 3,184 10,696 647,382
Revenues for:
the three months ended
June 30, 1999 6,498 1,425 1,053 1,873 10,849
June 30, 1998 5,006 1,648 464 605 7,723
the six months ended
June 30, 1999 12,939 2,840 1,667 2,380 19,826
June 30, 1998 9,680 2,992 924 1,123 14,719
Net income for:
the three months ended
June 30, 1999 1,232 (137) 19 16 1,130
June 30, 1998 636 626 (63) (78) 1,121
the six months ended
June 30, 1999 2,647 (211) (19) (386) 2,453
June 30, 1998 1,221 1,065 (95) (74) 2,117
</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 $1.1 million or diluted earnings per
share of $.21 for the three months ended June 30, 1999 and 1998. Return on
average stockholders' equity was 10.06% and return on average assets was .68%
for the three months ended June 30, 1999 compared to 12.89% and .85%,
respectively, for the three months ended June 30, 1998.
The Company recorded net income of $2.5 million or diluted earnings per share of
$.45 for the six months ended June 30, 1999, in comparison with net
income of $2.1 million or diluted earnings per share of $.41 for the six months
ended June 30, 1998. Return on average stockholders' equity was 11.72% and
return on average assets was .75% for the six months ended June 30, 1999
compared to 14.05% and .84%, respectively, for the six months ended June 30,
1998.
Net interest income was $6.6 million and $5.5 million for the three months
ended June 30, 1999 and 1998, respectively. Operating results for the three
months ended June 30, 1999 and 1998 included $ 1.2 million and $224,000,
respectively, in provision for possible loan and lease losses. The increase in
the provision for possible loan and lease losses included a non-recurring charge
of $675,000, the result of a new charge-off policy at Progress Leasing Company,
("PLC"). Non-interest income increased $2.0 million to $4.3 million for the
three months ended June 30, 1999 compared to the same period in 1998. This
increase primarily relates to non-bank fees which increased $1.5 million, and
client warrant income of $482,000. Gain on sale of securities was $4,000 for the
three months ended June 30, 1999, compared to $122,000 for the same period in
1998.
Non-interest expense totaled $7.9 million for the three months ended June 30,
1999 in comparison with $5.7 million for the same period in 1998. The increase
of $2.2 million was partially due to a $1.5 million increase in salaries and
employee benefits relating to employees of acquired and newly formed companies
and new positions established within the Company. Other expense increased
$689,000 mainly due to increases in professional services due to the increased
usage of an interactive voice response system in handling new inbound clients,
and outsourcing of the internal audit function, and furniture, fixtures and
equipment expenses due to new branch openings and recent acquisitions.
Net interest income was $12.8 million and $10.7 million for the six months
ended June 30, 1999 and 1998, respectively. Operating results for the six months
ended June 30, 1999 and 1998 included $1.7 million and $426,000, respectively,
in provision for possible loan and lease losses. The increase in the provision
for possible loan and lease losses included a non-recurring charge of $675,000,
the result of a new charge-off policy at PLC. Non-interest income increased $2.9
million to $7.0 million for the six months ended June 30, 1999 compared to the
same period in 1998. This increase primarily relates to non-bank fees which
increased $2.3 million and client warrant income of $482,000. Loss on sale of
securities was $156,000 for the six months ended June 30, 1999, compared to a
gain on sale of securities of $337,000 for the same period in 1998.
<PAGE>
Non-interest expense totaled $14.4 million for the six months ended June 30,
1999 in comparison with $10.9 million for the same period in 1998. The increase
of $3.5 million was partially due to a $2.4 million increase in salaries and
employee benefits relating to employees of acquired and newly formed companies
and new positions established within the Company. Other expense increased
$1.0 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 furniture, fixtures and equipment expenses
due to new branch openings and recent acquisitions.
Total assets increased $19.0 million to $666.4 million at June 30, 1999 from
$647.4 million at December 31, 1998. Net loans and lease receivables increased
$48.6 million. The net interest margin was 4.29% and 4.38% for the three-month
periods ended June 30, 1999 and 1998, respectively; and 4.21% and 4.52% for the
six-month periods ended June 30, 1999 and 1998, respectively.
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 June 30, 1999 was 6.97% 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 six months ended June 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 six months ended June 30, 1999, cash was used in operating and investing
activities and provided by financing activities. Operating activities used $6.4
million of cash. Investing activities used $12.3 million in cash primarily due
to net increases in loans and leases.Financing activities provided $23.8 million
in cash primarily from net increases of $33.2 million in time deposits as the
Company increased its emphasis on deposit funding.
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.
<PAGE>
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 six months ended June 30, 1999
have totaled approximately $60,000, the majority of which is related to
consulting fees for systems testing. Additional Year 2000 costs for 1999, which
are expensed on a current period basis, are estimated to be approximately
$210,000. 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.
Non-Performing and Underperforming Assets
<TABLE>
The following table details the Company's non-performing and underperforming
assets at the dates indicated:
<CAPTION>
June 30, December 31, June 30,
(Dollars in thousands) 1999 1998 1998
-------- ------------ --------
<S> <C> <C> <C>
Loans and leases accounted for on a non-accrual basis $4,776 $3,683 $2,182
REO, net of related reserves -- -- 300
------ ------ ------
Total non-performing assets 4,776 3,683 2,482
Accruing loans 90 or more days past due 5,210 4,030 2,277
------ ------ ------
Total underperforming assets $9,986 $7,713 $4,759
====== ====== ======
Non-performing assets as a percentage of net loans and leases
and other real estate owned 1.06% .88% .68%
====== ====== ======
Non-performing assets as a percentage of total assets .72% .57% .41%
====== ====== ======
Underperforming assets as a percentage of net loans and leases
and other real estate owned 2.21% 1.84% 1.30%
====== ====== ======
Underperforming assets as a percentage of total assets 1.50% 1.19% .79%
====== ====== ======
Allowance for possible loan and lease losses $4,984 $4,490 $4,307
====== ====== ======
Ratio of allowance for possible loan and lease losses to
non-performing loans and leases at end of period 104.36% 121.91% 197.39%
======= ======= ======
Ratio of allowance for possible loan and lease losses to
underperforming loans and leases at end of period 49.91% 58.21% 96.59%
======= ======= ======
</TABLE>
<PAGE>
Non-performing assets increased $1.1 million to $4.8 million at June 30,
1999 from $3.7 million at December 31, 1998, primarily due to an increase in
non-accrual lease financing. The $4.8 million of non-accrual loans at June 30,
1999 consisted of $2.4 million of lease financing, $1.2 million of loans secured
by single family residential property, $1.0 million of commercial business
loans, $180,000 of commercial mortgages, and $7,000 in consumer loans.
Accruing loans 90 or more days past due increased $1.2 million from $4.0
million at December 31, 1998 to $5.2 million at June 30, 1999. This increase was
primarily due to an increase in accruing 90-day-or-more delinquent commercial
business loans. The $5.2 million of accruing loans 90 or more days past due at
June 30, 1999 consisted of $1.9 million of commercial mortgages, $3.2 million of
commercial business loans, $48,000 of loans secured by single family residential
property, and $15,000 in lease financing.
Delinquencies
<TABLE>
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:
<CAPTION>
June 30, December 31, June 30,
1999 1998 1998
---- ---- ----
(Dollars in thousands) Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
Delinquencies:
<S> <C> <C> <C> <C> <C> <C>
30 to 59 days $ 3,684 .81% $ 7,305 1.76% $12,638 3.42%
60 to 89 days 2,792 .61 3,337 .81 2,590 .70
90 or more days 5,210 1.14 4,030 .97 2,277 .61
------- ---- ------- ---- ------- ----
Total $11,686 2.56% $14,672 3.54% $17,505 4.73%
======= ==== ======= ==== ======= ====
</TABLE>
<PAGE>
RESULTS OF OPERATIONS
Net Interest Income
Net interest income, on a tax-equivalent basis, amounted to $6.6 million
for the three months ended June 30, 1999 in comparison with $5.5 million for the
same period in 1998. Net interest income for the three months ended June 30,
1999 was positively impacted by a $121.2 million increase in average
interest-earning assets, while average interest-bearing liabilities increased
$108.0 million. The net interest margin decreased 9 basis points due to lower
yields on commercial business loans and lease financing.
Net interest income, on a tax-equivalent basis, amounted to $12.9 million
for the six months ended June 30, 1999 in comparison with $10.7 million for the
same period in 1998. Net interest income for the six months ended June 30, 1999
was positively impacted by a $142.5 million increase in average interest-earning
assets, while average interest-bearing liabilities increased $124.2 million. The
net interest margin decreased 31 basis points due to lower yields on commercial
business loans, as the Prime Rate decreased 75 basis points since June 30, 1998,
and lease financing.
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 June 30, 1999 1998
--------------------------- ----------------------------
(Dollars in thousands)
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
------- -------- ------ ------- -------- ------
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C>
Interest-earning deposits $13,326 $ 167 5.03% $ 1,211 $ 16 5.30%
Investment securities(1) 35,810 574 6.43 16,224 226 6.17
Mortgage-backed securities (1) 124,458 1,969 6.35 121,954 1,877 6.17
Single family residential loans 47,136 863 7.34 56,059 1,038 7.43
Commercial real estate loans (4) 142,565 3,065 8.62 118,898 2,623 8.85
Construction loans 48,784 1,227 10.09 27,602 783 11.38
Commercial business loans 104,634 2,209 8.47 75,298 1,885 10.04
Lease financing 74,213 2,117 11.44 57,432 1,789 12.49
Consumer loans 30,229 590 7.83 25,314 541 8.57
-------- ------- ----- -------- ------ -----
Total interest-earning assets 621,155 12,781 8.25% 499,992 10,778 8.65%
Non-interest-earning assets (5) 43,529 ------ ----- 28,569 ------ -----
-------- --------
Total assets $664,684 $528,561
======== ========
Interest-bearing liabilities:
Interest-bearing deposits:
NOW and Super NOW $ 79,942 $ 530 2.66 $ 47,736 $ 308 2.59
Money market accounts 34,632 236 2.73 33,246 252 3.04
Passbook and statement savings 32,161 152 1.90 32,017 201 2.52
Time deposits 231,197 2,962 5.14 201,299 2,786 5.55
-------- ------ ---- -------- ----- ----
Total interest-bearing deposits 377,932 3,880 4.12 314,298 3,547 4.53
Short-term borrowings 38,137 575 6.05 48,376 702 5.82
Long-term debt 124,505 1,679 5.41 69,939 1,068 6.12
-------- ------ ---- -------- ----- ----
Total interest-bearing liabilities 540,574 6,134 4.55 432,613 5,317 4.93
------ ---- ----- ----
Non-interest-bearing deposits 66,335 46,066
-------- --------
Total liabilities 606,909 478,679
-------- --------
Capital securities 15,000 15,000
Stockholders' equity 42,775 34,882
-------- --------
Total liabilities, capital securities and $664,684 $528,561
stockhoders' equity ======== ========
Net interest income: $6,647 $5,461
====== ======
Interest rate spread (2) 3.70% 3.72%
===== =====
Net interest margin (3) 4.29% 4.38%
===== =====
Average interest-earning assets to average 114.91% 115.57%
interest-bearing liabilities ======= =======
<FN>
(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-earnings 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 June 30, 1999 1998
Non-interest-earning assets:
Cash $15,349 $ 9,138
Allowance for possible loan and lease losses (4,812) (4,218)
Other assets 32,992 23,649
------- ------
Total non-interest-earning assets $43,529 $28,569
======= =======
Non-interest-bearing liabilities:
Non-interest-bearing deposits $54,101 $39,054
Other liabilities 12,234 7,012
------- -------
Total non-interest-bearing liabilities $66,335 $46,066
======= =======
</FN>
</TABLE>
<TABLE>
For the Six Months Ended June 30, 1999 1998
<CAPTION>
--------------------------- ---------------------------
(Dollars in thousands)
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
------- -------- ----- ------- -------- ------
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C>
Interest-earning deposits $ 14,810 $ 360 4.90% $ 1,699 $ 39 4.63%
Investment securities(1) 33,471 1,041 6.27 13,662 367 5.42
Mortgage-backed securities (1) 131,753 4,094 6.27 106,236 3,352 6.36
Single family residential loans 48,247 1,760 7.36 56,403 2,129 7.61
Commercial real estate loans (4) 139,957 6,002 8.62 116,341 5,142 8.91
Construction loans 46,532 2,319 10.05 26,599 1,465 11.11
Commercial business loans 100,031 4,273 8.61 72,280 3,580 9.99
Lease financing 73,801 4,113 11.24 57,090 3,559 12.57
Consumer loans 29,592 1,161 7.91 25,425 1,077 8.54
------- ------ ----- -------- ------ -----
Total interest-earning assets 618,194 25,123 8.20% 475,735 20,710 8.78%
------ ----- ------ -----
Non-interest-earning assets (5) 41,106 30,435
------- --------
Total assets $659,300 $509,170
======== ========
Interest-bearing liabilities:
Interest-bearing deposits:
NOW and Super NOW $ 79,013 $ 1,064 2.72 $ 43,153 $ 526 2.46
Money market accounts 35,387 476 2.71 32,900 497 3.05
Passbook and statement savings 31,957 307 1.94 31,667 412 2.62
Time deposits 225,347 5,801 5.19 198,225 5,462 5.56
-------- ------- ---- -------- ------ ----
Total interest-bearing deposits 371,704 7,648 4.15 305,945 6,897 4.55
Short-term borrowings 41,361 1,240 6.05 44,130 1,282 5.86
Long-term debt 123,753 3,328 5.42 62,558 1,879 6.06
-------- ------- ---- -------- ------ ----
Total interest-bearing liabilities 536,818 12,216 4.59 412,633 10,058 4.92
------- ---- ------ ----
Non-interest-bearing deposits 65,266 48,153
-------- --------
Total liabilities 602,084 460,786
-------- --------
Capital securities 15,000 15,000
Stockholders' equity 42,216 30,384
-------- --------
Total liabilities, capital securities and $659,300 $506,170
stockholders' equity ======== ========
Net interest income: $12,907 $10,652
======= =======
Interest rate spread (2) 3.61% 3.86%
===== =====
Net interest margin (3) 4.21% 4.52%
===== =====
Average interest-earning assets to average 115.16% 115.29%
interest-bearing liabilities ======= =======
<FN>
(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-earnings 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 six months ended June 30, 1999 1998
Non-interest-earning assets: ---- ----
Cash $14,559 $9,224
Allowance for possible loan and lease losses (4,705) (4,142)
Other assets 31,252 25,353
------- -------
Total non-interest-earning assets $41,106 $30,435
======= =======
Non-interest-bearing liabilities:
Non-interest-bearing deposits $53,075 $38,494
Other liabilities 12,191 9,659
------- -------
Total non-interest-bearing liabilities $65,266 $48,153
======= =======
</FN>
</TABLE>
<PAGE>
On a tax-equivalent basis, total interest income amounted to $12.8 million for
the three months ended June 30, 1999, a $2.0 million or 18.58% increase when
compared to the same period in 1998 due to growth in average interest-earning
assets of $121.2 million. This growth relates to a combination of higher
commercial business and real estate loans and lease production. Average loans
and leases increased $87.0 million compared to the three months ended June 30,
1998.
Total interest expense amounted to $6.1 million for the three months ended June
30, 1999, an $817,000 or 15.37% increase in comparison to the same period in
1998. Interest expense on deposits increased $333,000 as the average balance of
interest-bearing deposits increased $63.6 million. Interest expense on long-term
debt increased $611,000, mainly due to a $32.5 million increase in average FHLB
advances and a $23.5 million increase in securities sold under agreement to
repurchase when compared to the three months ended June 30, 1998. This increase
in deposits and borrowings was necessary to fund the increase in
interest-earning assets.
On a tax-equivalent basis, total interest income amounted to $25.1 million for
the six months ended June 30, 1999, a $4.4 million or 21.31% increase when
compared to the same period in 1998 due to growth in average interest-earning
assets of $142.5 million. This growth relates to a combination of higher
commercial business and real estate loans and lease production and an increase
in mortgage-backed securities used to deploy capital raised in the second
quarter of 1998. Average loans and leases increased $84.0 million while
mortgage-backed securities increased $25.5 million compared to the six months
ended June 30, 1998.
Total interest expense amounted to $12.2 million for the six months ended June
30, 1999, a $2.2 million or 21.46% increase in comparison to the same period in
1998. Interest expense on deposits increased $751,000 as the average balance of
interest-bearing deposits increased $65.8 million. Interest expense on long-term
debt increased $1.4 million, mainly due to a $38.1 million increase in average
FHLB advances and a $23.8 million increase in securities sold under agreement to
repurchase when compared to the six months ended June 30, 1998. This increase in
deposits and borrowings was necessary to fund the increase in interest-earning
assets.
Provision for Possible Loan and Lease Losses
During the three months ended June 30, 1999, the Company recorded a $1.2
million provision for possible loan and lease losses compared with $224,000 for
the comparable period in 1998. The provision for possible loan and lease losses
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 $1.1 million during the second quarter of 1999 in comparison with
$37,000 during the comparable period in 1998.
During the six months ended June 30, 1999, the Company recorded a $1.7 million
provision compared with $426,000 for the comparable period in 1998. The
provision for possible loan and lease losses 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 $1.2 million during the six months
ended June 30, 1999 in comparison with $18,000 in net recoveries during the
comparable period in 1998.
At June 30, 1999, the allowance for possible loan and lease losses amounted to
$5.0 million or 1.09% of total loans and leases and 104.36% 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 $494,000, from
December 31,1998. The $564,000 increase in provision for possible loan and lease
losses, excluding the non-recurring charge of $675,000, of for the six months
ended June 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 decreased to
2.56% at June 30, 1999 from 3.54% at December 31, 1998.
Non-Interest Income
Total non-interest income amounted to $4.3 million for the three months ended
June 30, 1999, an increase of $2.0 million compared with the $2.3 million for
the three months ended June 30, 1998. This increase primarily relates to a $1.5
million increase in non-bank fees. Mutual fund, annuity and insurance
commissions of $574,000 were earned by PFR, teleservices fee income increased
$652,000 due to new inbound clients, loan brokerage and advisory fees increased
$262,000, and lease financing fees increased $93,000, in comparison with the
three months ended June 30, 1998. Service charges on deposits increased
$112,000. Gain on sale of securities was $4,000 compared to $122,000 for the
same period in 1998. The Company recognized $482,000 in client warrant income
due to the initial public offering of IQE plc on the EASDAQ exchange.
<PAGE>
Total non-interest income amounted to $7.0 million for the six months ended June
30, 1999, an increase of $2.9 million compared with $4.1 million for the six
months ended June 30, 1998. This increase primarily relates to mutual fund,
annuity and insurance commissions of $1.1 million earned by PFR. Teleservices
fee income increased $721,000 in comparison to the six months ended June 30,
1998 due to new inbound clients. Other non-bank fees including lease financing,
loan brokerage and advisory, and investment advisory fees increased $506,000 in
comparison with the six months ended June 30, 1998. The Company recognized
income of $625,000 from equity participations in commercial loans during the six
months ended June 30, 1999. The Company recognized $482,000 in client warrant
income due to the initial public offering if IQE plc on the EASDAQ exchange.
Loss on sale of securities was $156,000 compared to a gain of $337,000 for the
same period in 1998.
Non-interest Expense
Total non-interest expense amounted to $7.9 million for the three months ended
June 30, 1999, an increase of $2.2 million over the $5.7 million recognized
during the comparable 1998 period. This increase was partially due to increases
in salaries and employee benefits of $1.5 million relating to employees of
acquired and newly formed companies and new staffing requirements within the
Company. Professional services expense increased by $391,000 primarily due to
the increased usage of an interactive voice response system and the outsourcing
of the internal audit function. Furniture, fixtures and equipment expenses
increased $143,000 in comparison to the three months ended June 30, 1998
due to new branch openings and recent acquisitions.
Total non-interest expense amounted to $14.4 million for the six months ended
June 30, 1999, an increase of $3.5 million over the $10.9 million
recognized during the comparable 1998 period. This increase was partially due to
increases in salaries and employee benefits of $2.4 million relating to
employees of acquired and newly formed companies and new staffing requirements
within the Company. Professional services expense increased by $567,000
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. Furniture, fixtures and equipment
expenses increased $179,000 in comparison to the six months ended June 30, 1998
due to new branch openings and recent acquisitions.
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 June 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
The Company's annual meeting of stockholders was held on Tuesday, April 27, 1999
for the following purposes:
1) To elect four (4) directors for a three-year term and one (1) director
for a one-year term and until their successors are elected and qualified;
2) To amend the Company's 1993 Stock Incentive Plan to increase the number
of shares authorized under the plan;
3) To ratify the appointment by the Board of Directors of
PricewaterhouseCoopers L.L.P. as the Company's independent accountants for
the year ending December 31, 1999.
<TABLE>
All proposals were adopted by the Company's stockholders as follows:
Election of Directors
<CAPTION>
For Against Abstained/Not Voted
--- ------- -------------------
<S> <C> <C> <C>
G. Daniel Jones 4,259,387 167,593 0
Paul N. LaNoce 4,259,387 167,593 0
Janet E. Paroo 4,259,387 167,593 0
Kevin J. Silverang 4,259,387 167,593 0
John E. F. Corson 4,259,387 167,593 0
Proposal to amend the 1993 Stock Incentive Plan 4,078,154 303,997 44,829
Proposal to Ratify appointment of PricewaterhouseCoopers L.L.P.4,381,332 34,284 11,364
</TABLE>
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) List of Exhibits
(27) Financial Data Schedule for the six months ended June 30, 1999
(b) Reports on Form 8-K
On April 23, 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 first quarter 1999 earnings and declaration of its 2nd quarter 1999
cash dividend.
<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
August 13, 1999 /s/ W. Kirk Wycoff
- ----------------------- -------------------------------------
Date W. Kirk Wycoff, Chairman,
President and Chief Executive Officer
August 13, 1999 /s/ Michael B. High
- ----------------------- -------------------------------------
Date Michael B. High,
Senior Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 000790183
<NAME> Michael B. High
<MULTIPLIER> 1000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 6-Mos
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Jun-30-1999
<EXCHANGE-RATE> 1
<CASH> 14,113
<INT-BEARING-DEPOSITS> 11,743
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 124,794
<INVESTMENTS-CARRYING> 28,459
<INVESTMENTS-MARKET> 27,963
<LOANS> 442,812
<ALLOWANCE> 4,984
<TOTAL-ASSETS> 666,371
<DEPOSITS> 445,128
<SHORT-TERM> 31,987
<LIABILITIES-OTHER> 9,337
<LONG-TERM> 122,182
0
0
<COMMON> 5,397
<OTHER-SE> 37,349
<TOTAL-LIABILITIES-AND-EQUITY> 666,371
<INTEREST-LOAN> 19,628
<INTEREST-INVEST> 5,042
<INTEREST-OTHER> 360
<INTEREST-TOTAL> 25,030
<INTEREST-DEPOSIT> 7,648
<INTEREST-EXPENSE> 12,216
<INTEREST-INCOME-NET> 12,814
<LOAN-LOSSES> 1,665
<SECURITIES-GAINS> (156)
<EXPENSE-OTHER> 14,365
<INCOME-PRETAX> 3,796
<INCOME-PRE-EXTRAORDINARY> 3,796
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,453
<EPS-BASIC> 0.48
<EPS-DILUTED> 0.45
<YIELD-ACTUAL> 4.21
<LOANS-NON> 4,776
<LOANS-PAST> 5,210
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,490
<CHARGE-OFFS> 1,344
<RECOVERIES> 173
<ALLOWANCE-CLOSE> 4,984
<ALLOWANCE-DOMESTIC> 4,984
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
