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 March 31, 2000.
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) 5,510,025
- ------------------------------ ------------------------------
Title of Each Class Number of Shares Outstanding
as of April 30, 2000
<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
March 31, 2000 (unaudited) and December 31, 1999 (audited)..........3
Consolidated Interim Statements of Operations for the
three months ended March 31, 2000 and 1999 (unaudited)..............4
Consolidated Interim Statements of Changes in Shareholders'
Equity and Comprehensive Income for the three months
ended March 31, 2000 and 1999 (unaudited)...........................5
Consolidated Interim Statements of Cash Flows for the
three months ended March 31, 2000 and 1999 (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.........16
PART II - Other Information
Item 1.Legal Proceedings..................................................17
Item 2.Changes in Securities..............................................17
Item 3.Defaults upon Senior Securities....................................17
Item 4.Submission of Matters to a Vote of Security Holders................17
Item 5.Other Information..................................................17
Item 6.Exhibits and Reports on Form 8-K...................................17
Signatures.........................................................18
<PAGE>
PART I- INTERIM FINANCIAL INFORMATION
Item 1. Interim Financial Statements
<TABLE>
Consolidated Interim Statements of Financial Condition
<CAPTION>
(Dollars in thousands) March 31, December 31,
2000 1999
(unaudited) (audited)
Assets
Cash and due from banks:
<S> <C> <C>
Non-interest-earning $ 18,687 $ 15,648
Interest-earning 19,668 24,278
Trading securities -- 3,267
Investment and mortgage-backed securities:
Available for sale at fair value (amortized cost: $170,280 in 2000 and $147,529 in 167,329 149,518
1999)
Held to maturity at amortized cost (fair value: $33,151 in 2000 and $32,914 in 1999) 34,578 34,309
Loans and leases, net (net of reserves: $5,618 in 2000 and $5,927 in 1999) 535,084 497,738
Investments in unconsolidated entities 10,833 11,427
Premises and equipment, net 18,083 16,443
Other assets 18,487 12,906
-------- --------
Total assets $822,749 $765,534
======== ========
Liabilities and Shareholders' Equity
Liabilities:
Deposits:
Non-interest-bearing $ 80,230 $ 65,305
Interest-bearing 467,410 456,134
Short-term borrowings 71,111 50,767
Other liabilities 35,149 19,068
Long-term debt:
Federal Home Loan Bank advances 85,000 85,000
Other debt 20,000 24,000
Subordinated debt 3,000 3,000
------- --------
Total liabilities 761,900 703,274
------- --------
Corporation-obligated mandatorily redeemable capital securities of subsidiary trust
holding solely junior subordinated debentures of the Corporation 14,456 14,451
Commitments and contingencies (Note 8)
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: 5,692,000 and 5,680,000
shares issued and outstanding at March 31, 2000 and December 31, 1999, respectively;
including treasury shares of 143,000 and 152,000, and unallocated shares held
by the Employee Stock Ownership Plan of 11,000 and 14,000 at March 31, 2000
and December 31, 1999, respectively. 5,692 5,680
Other common shareholders' equity, net 42,724 40,895
Net accumulated other comprehensive income (loss) (2,023) 1,234
-------- --------
Total shareholders' equity 46,393 47,809
-------- --------
Total liabilities, Corporation-obligated mandatorily redeemable capital
securities and shareholders' equity $822,749 $765,534
======== ========
</TABLE>
<PAGE>
See Notes to Consolidated Interim Financial Statements.
<TABLE>
Consolidated Interim Statements of Operations (unaudited)
(Dollars in thousands, except per share data)
For the Three Months
Ended March 31,
2000 1999
---- ----
Interest income:
<S> <C> <C>
Loans and leases, including fees $11,945 $ 9,557
Mortgage-backed securities 2,064 2,125
Investment securities 963 422
Other 239 193
------- -------
Total interest income 15,211 12,297
------- -------
Interest expense:
Deposits 5,209 3,768
Short-term borrowings 888 665
Long-term and subordinated debt 1,518 1,649
------ -------
Total interest expense 7,615 6,082
------ -------
Net interest income 7,596 6,215
Provision for loan and lease losses 1,058 449
------ -------
Net interest income after provision for loan and lease losses 6,538 5,766
------ -------
Non-interest income:
Service charges on deposits 542 420
Lease financing fees 387 387
Mutual fund, annuity and insurance commissions 879 480
Teleservices fee income 944 243
Loan brokerage and advisory fees 521 523
Loss on sale of securities (112) (160)
Equity (loss) in unconsolidated entities (955) 56
Client warrant income 2,600 --
Fees and other 1,018 813
------- -------
Total non-interest income 5,824 2,762
------- -------
Non-interest expense:
Salaries and employee benefits 5,370 3,504
Occupancy 639 345
Data processing 407 218
Furniture, fixtures and equipment 525 290
Professional services 706 367
Capital securities expense 399 398
Other 2,001 1,322
------- -------
Total non-interest expense 10,047 6,444
------- -------
Income before income taxes 2,315 2,084
Income tax expense 777 761
------- -------
Net income $ 1,538 $ 1,323
======= =======
Basic earnings per common share $.28 $.25
==== ====
Diluted earning per common share $.27 $.23
==== ====
Dividends per common share $.05 $.04
==== ====
Basic average common shares outstanding 5,568,668 5,353,839
========= =========
Diluted average common shares outstanding 5,772,301 5,755,879
========= =========
</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>
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) (Loss)
-----------------------------------------------------------------------------------------------
For the three months ended March 31, 2000:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1999 $5,680 $(1,963) $(64) $(1,051) $42,612 $1,361 $1,234 $47,809
Issuance of stock under employee
benefit plans (12,252 common shares;
2,197 treasury shares;
2,731 ESOP shares) 12 29 13 192 147 -- -- 393
Net income -- -- -- -- -- 1,538 -- $1,538 1,538
Other comprehensive loss,
net of tax (a) -- -- -- -- -- -- (3,257) (3,257) (3,257)
--------
Comprehensive loss -- -- -- -- -- -- -- $(1,719)
========
Purchase of treasury stock
(53,000 treasury shares) -- (611) -- -- -- -- -- (611)
Acquisition of subsidiary -- 800 -- -- -- -- -- 800
(60,000 treasury shares)
Cash dividend declared -- -- -- -- -- (279) -- (279)
------ ------- ---- ------ ------- ------ ------- -------
Balance at March 31, 2000 $5,692 $(1,745) $(51) $(859) $42,759 $2,620 $(2,023) $46,393
====== ======= ==== ====== ======= ====== ======= =======
For the three months ended March 31, 1999:
Balance at December 31, 1998 $5,263 $(2,287) $(114) $ -- $39,586 $ (399) $(495) $41,554
Issuance of stock under employee
benefit plans (7,562 common shares;
107,709 treasury shares; 2,580 ESOP 8 1,319 12 (1,066) (91) -- -- 182
shares)
Net income -- -- -- -- -- 1,323 -- $1,323 1,323
Other comprehensive loss,net of tax(a) -- -- -- -- -- -- (376) (376) (376)
-------
Comprehensive income -- -- -- -- -- -- $ 947
Purchase of treasury stock ======
(37,500 treasury shares) -- (472) -- -- -- -- -- (472)
Retirement of stock warrants -- -- -- -- (331) -- -- (331)
Cash dividend declared -- -- -- -- -- (203) -- (203)
------ ------- ---- ------ ------- ------ ----- ------
Balance at March 31, 1999 $5,271 $(1,440) $(102) $(1,066) $39,164 $721 $(871) $41,677
====== ======== ====== ======== ======= ====== ===== =======
(a) For the three months ended March 31, 2000 1999
---- ----
Calculation of other comprehensive loss net of tax:
Unrealized holding losses arising during the period, net of tax $(3,331) $(482)
Less: Reclassification for losses included in net income, net of tax (74) (106)
------- -----
Other comprehensive loss, net of tax $(3,257) $(376)
======= =====
</TABLE>
See Notes to Consolidated Interim Financial Statements
<PAGE>
<TABLE>
<CAPTION>
Consolidated Interim Statements of Cash Flows (unaudited)
(Dollars in thousands)
For the three months ended March 31, 2000 1999
Cash flows from operating activities: ---- ----
<S> <C> <C>
Net income $1,538 $1,323
Add (deduct) items not affecting cash flows from operating activities:
Depreciation and amortization 663 419
Provision for loan and lease losses 1,058 449
Client warrant income (2,600) --
Loss on sale of securities available for sale 112 160
Gain on sale of loans and leases (35) --
Accretion of deferred loan and lease fees and expenses (734) (519)
Amortization of premiums/accretion of discounts on securities 91 317
(Equity) loss in unconsolidated entities 955 (56)
Other, net (35) 52
Proceeds from sales of loans held for sale -- 4,451
Originations of loans held for sale -- (7,020)
Repayments on loans held for sale -- 4,723
Net proceeds from sales of trading securities 996 --
(Increase) decrease in other assets 538 (676)
Increase (decrease) in other liabilities 15,173 (5,385)
------ ------
Net cash flows provided by (used in) operating activities 17,720 (1,762)
------ ------
Cash flows from investing activities:
Capital expenditures (2,153) (552)
Purchases of investments and mortgage-backed securities available for sale (26,447) (800)
Purchases of investment securities held to maturity (261) (6,346)
Repayments on investment and mortgage-backed securities available for sale 3,807 11,831
Proceeds from sales and calls of investment and mortgage-backed securities available for sale 1,795 4,793
Proceeds from sale of loans and leases 5,935 --
Net increase in loans and leases (43,570) (13,701)
Other, net (200) --
------- -------
Net cash flows used in investing activities (61,094) (4,775)
------- -------
Cash flows from financing activities:
Net increase in demand, NOW and savings deposits 26,927 2,180
Net increase (decrease) in time deposits (726) 24,528
Net increase (decrease) in short-term borrowings 16,344 (6,072)
Proceeds from issuance of long-term debt -- 4,000
Dividends paid (279) (203)
Purchase of treasury shares (611) (472)
Retirement of stock warrants -- (331)
Net proceeds from issuance of stock under employee benefit plans 148 131
------- -------
Net cash flows provided by financing activities 41,803 23,761
------- -------
Net increase (decrease) in cash and cash equivalents (1,571) 17,224
Cash and cash equivalents:
Beginning of year 39,926 20,687
------- -------
End of period $38,355 $37,911
======= =======
Supplemental disclosures:
Non-monetary transfers:
Treasury shares issued in purchase of subsidiary $ 800 $ --
======= =======
Transfer of loans held for sale to loans held in portfolio $ -- $ 2,822
======= =======
</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 March 31, 2000
and December 31, 1999 and for the three months ended March 31, 2000 and
1999 in conformity with generally accepted accounting principles in the
United States. 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, 1999. Operating
results for the three months ended March 31, 2000 are not necessarily
indicative of the results that may be expected for any other interim
period or the entire year ending December 31, 2000. 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 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 March 22, 2000, EMAX Solutions Partners, Inc., ("EMAX"), a corporation
on which the Company holds warrants, announced that it was acquired by
SciQuest.com ("SQST"). 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 15,600 common shares of EMAX at an
average exercise price of $4.82 per share. In accordance with the terms
of the acquisition, the Company's warrants can be exchanged into 7,598
warrants to purchase common shares of SQST at an average exercise price
of $2.35. At May 3, 2000, the closing sales price of a share of common
stock of SQST on The Nasdaq(R) Market was $15.3125.
In January 2000, the Company acquired KMR Management, Inc. ("KMR"), a
Pennsylvania based corporation. KMR provides financial and operational
management consulting services for commercial clients. The acquisition
was accounted for under the purchase method of accounting. The purchase
price was $1.0 million, which included the issuance of 60,000 treasury
shares. Goodwill of $1.0 million was created in the transaction, which
will be amortized over a ten-year period.
(3) Shareholders' Equity
Stock Repurchase Program
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. Under this new
program 76,800 shares were repurchased during 1999 and 53,000 shares were
repurchased during the three months ended March 31, 2000.
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 March 31,
(Dollars in thousands, except per share
data) 2000 1999
--------------------------------- -------------------------------------
Per Share Per Share
Income Shares Amount Income Shares Amount
------ ------ --------- ------ ------ ---------
Basic Earnings Per Share
<S> <C> <C> <C> <C> <C> <C>
Income available to common shareholders $1,538 5,568,668 $.28 $1,323 5,353,839 $.25
Effect of Dilutive Securities: ==== ====
Warrants -- -- -- 168,337
Options -- 203,633 -- 233,703
--------- ---------
Diluted Earnings Per Share
Income available to common shareholders
and assumed conversions $1,538 5,772,301 $.27 $1,323 5,755,879 $.23
====== ========= ==== ====== ========= ====
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED) (Continued)
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 March 31, 2000, the Bank's tangible equity ratio was 6.22%, Tier 1 or
leverage ratio was 6.22%, Tier 1 risk-based capital ratio was 9.05%, and
total risk-based capital ratio was 10.06%. As of March 31, 2000, 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>
<CAPTION>
Gross Gross
(Dollars in thousands) Amortized Unrealized Unrealized Estimated Carrying
Cost Gains Losses Fair Value Value
--------- ---------- ---------- ---------- --------
At March 31, 2000
Available for Sale:
<S> <C> <C> <C> <C> <C>
Equity investments $ 6,011 $4,264 $ 794 $ 9,481 $ 9,481
U.S. Government Agencies 21,000 -- 524 20,476 20,476
Corporate bonds 2,431 -- 221 2,210 2,210
Mortgage-backed securities 140,838 -- 5,676 135,162 135,162
-------- ------ ------ -------- --------
Total available for sale $170,280 $4,264 $7,215 $167,329 $167,329
======== ====== ====== ======== ========
Held to Maturity:
Federal Home Loan Bank Stock $ 4,923 $ -- $ -- $ 4,923 $ 4,923
U.S. Government Agencies 14,842 25 347 14,520 14,842
Municipal bonds 14,813 1 1,106 13,708 14,813
-------- ------ ------ -------- --------
Total held to maturity $ 34,578 $ 26 $1,453 $ 33,151 $ 34,578
======== ====== ====== ======== ========
Gross Gross
(Dollars in thousands) Amortized Unrealized Unrealized Estimated Carrying
Cost Gains Losses Fair Value Value
--------- ---------- --------- ---------- --------
At December 31, 1999
Available for Sale:
Equity investments $ 4,564 $7,598 $ -- $ 12,162 $ 12,162
U.S. Government Agencies 17,107 -- 330 16,777 16,777
Corporate bonds 1,900 -- 207 1,693 1,693
Mortgage-backed securities 123,958 2 5,074 118,886 118,886
-------- ------ ------ -------- --------
Total available for sale $147,529 $7,600 $5,611 $149,518 $149,518
======== ====== ====== ======== ========
Held to Maturity:
Federal Home Loan Bank Stock $ 4,923 $ -- $ -- $ 4,923 $ 4,923
U.S. Government Agencies 14,581 30 356 14,255 14,581
Municipal bonds 14,805 1 1,070 13,736 14,805
-------- ------ ------ -------- --------
Total held to maturity $ 34,309 $ 31 $1,426 $ 32,914 $ 34,309
======== ====== ====== ======== ========
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED) (Continued)
(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) March 31, 2000 December 31, 1999
-------------- -----------------
Amount Percent Amount Percent
----- ------- ------ -------
<S> <C> <C> <C> <C>
Commercial business $ 147,433 27.27% $ 119,807 23.79%
Commercial real estate 164,897 30.50 162,588 32.28
Construction, net of loans in process 57,597 10.65 58,813 11.68
Single family residential real estate 42,359 7.83 40,554 8.05
Consumer loans 34,663 6.41 34,918 6.93
Lease financing 111,518 20.62 103,536 20.56
Unearned income (17,765) (3.28) (16,551) (3.29)
-------- ------ -------- ------
Total loans and leases 540,702 100.00% 503,665 100.00%
Allowance for loan and lease losses (5,618) ====== (5,927) ======
-------- --------
Net loans and leases $535,084 $497,738
======== ========
</TABLE>
(6) Allowance for Loan and Lease Losses
The following table details changes in the Company's allowance for loan
and lease losses for the periods indicated:
<TABLE>
For the Three Months
Ended March 31,
(Dollars in thousands) 2000 1999
---- ----
<S> <C> <C>
Balance beginning of period $5,927 $4,490
Charge-offs:
Commercial business 1,033 --
Single family residential real estate 23 58
Consumer loans -- 1
Lease financing 477 101
------ -----
Total charge-offs 1,533 160
------ -----
Recoveries:
Commercial business 4 6
Consumer loans 2 9
Lease financing 160 60
------ -----
Total recoveries 166 75
------ -----
Net charge-offs (recoveries) 1,367 85
Additions charged to operations 1,058 449
------ ------
Balance at end of period $5,618 $4,854
====== ======
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED) (Continued)
(7) Investments in Unconsolidated Entities
<TABLE>
<CAPTION>
Investments in Unconsolidated Entities at March 31, 2000 and
December 31, 1999 are detailed below:
March 31, December 31,
(Dollars in thousands) 2000 1999
-----------------------------------------------------------------------------------------------
<S> <C> <C>
Investment in Ben Franklin/Progress Capital Fund, L.P. (A) $ 3,916 $ 4,771
Other investments in unconsolidated entities 6,917 6,656
-----------------------------------------------------------------------------------------------
Total Investments in Unconsolidated Entities $10,833 $11,427
==============================================================================================
</TABLE>
(A) The Company owns approximately 36% of the Ben Franklin/Progress
Capital Fund, L.P.("Ben Franklin"), which was formed on December
30, 1997, and accounts for its investment under the equity method.
Condensed financial data of Ben Franklin follows:
<TABLE>
<CAPTION>
For the three months ended
March 31,
(Dollars in thousands) 2000 1999
-------------------------------------------------------------------------------------
Summary of Operations
--------------------------------------------------------
<S> <S> <C> <C>
Revenues $ 114 $78
Expenses 69 69
Net decrease in fair value of venture capital
investments (2,093) --
--------------------------------------------------------------------------------------
Net increase (decrease) in partners' capital
resulting from operations $(2,048) $ 9
======================================================================================
The Company's equity (loss) in Ben Franklin $ (854) $ 3
======================================================================================
March 31, December 31,
(Dollars in thousands) 2000 1999
--------------------------------------------------------------------------------------
Balance Sheet Data
--------------------------------------------------------
Assets:
Venture capital investments, at fair value $ 6,632 $ 9,830
Cash and temporary investments 3,343 2,258
Other assets 149 100
--------------------------------------------------------------------------------------
Total assets $10,124 $12,188
======================================================================================
Liabilities and Partners' Capital:
Liabilities $ 20 $ 36
Partners' capital 10,104 12,152
--------------------------------------------------------------------------------------
Total liabilities and partners' capital $10,124 $12,188
======================================================================================
</TABLE>
(8) Commitments and Contingencies
At March 31, 2000, the Company had $224.6 million in loan commitments to
extend credit, including unused lines of credit, and $6.0 million in
letters of credit outstanding.
<PAGE>
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED) (Continued)
(9) Segments
The following table sets forth selected financial information by business
segment for the periods indicated:
<TABLE>
<CAPTION>
Equipment Real Estate
Banking Leasing Advisory Teleservices Other Total
------- --------- ----------- ------------ ----- -----
(Dollars in thousands)
Assets at:
<S> <C> <C> <C> <C> <C> <C>
March 31, 2000 $715,075 $92,703 $2,115 $1,772 $11,084 $822,749
December 31, 1999 659,750 85,159 2,380 1,715 16,530 765,534
Revenues for:
the three months ended
March 31, 2000 7,216 1,620 580 1,053 2,951 13,420
March 31, 1999 6,441 1,415 614 373 134 8,977
Net income for:
the three months ended
March 31, 2000 671 261 14 53 539 1,538
March 31, 1999 1,415 348 (38) 6 (408) 1,323
</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
on Form 10-K for the year ended December 31, 1999. Certain reclassifications
have been made to prior period data throughout the following discussion and
analysis for comparability with 2000 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 $1.5 million or diluted earnings per share of
$.27 for the three months ended March 31, 2000 compared to $1.3 million or
$.23, respectively, for the three months ended March 31, 1999. Return on average
shareholders' equity was 12.81% and return on average assets was .79% for the
three months ended March 31, 2000 compared to 12.88% and .82%, respectively, for
the three months ended March 31, 1999.
Net interest income increased to $7.6 million from $6.2 million, and the net
interest margin increased to 4.28% from 4.13%, comparing the three months ended
March 31, 2000 and 1999. The Company has effectively managed its increasing cost
of funds by deploying capital into higher yielding investments and variable rate
loans which resulted in a $1.4 million increase in net interest income.
Non-interest income increased $3.1 million primarily due to $2.6 million of
client warrant income which was recorded due to the expiration of restrictions
on client warrants. Those gains were partially offset by net unrealized losses
in the mezzanine and venture capital funds amounting to $955,000 during the
first quarter. These losses represent a partial reversal of unrealized gains
reported in the fourth quarter of 1999. Additionally, fee based income increased
$1.4 million, primarily due to teleservices fees and mutual fund, annuity and
insurance commissions. These increases were offset by a $609,000 increase in the
provision for loan and lease losses, primarily due to a commercial loan
charge-off and a more aggressive leasing charge-off policy, which was
implemented in the second quarter of 1999, and by a $3.6 million increase in
non-interest expense as a result of our objectives to diversify our business and
grow the Company.
Total assets increased to $822.7 million at March 31, 2000 from $765.5 million
at December 31, 1999 primarily due to loan growth. Total deposits increased to
$547.6 million at March 31, 2000 from $521.4 million at December 31, 1999.
Deposit growth was primarily the result of new commercial business customer
relationships and retail branch expansion.
<PAGE>
FINANCIAL CONDITION
Liquidity and Funding
The Company must maintain sufficient liquidity to meet its funding requirements
for loan and lease commitments, scheduled debt repayments, operating expenses,
and deposit withdrawals. The Bank is the primary source of working capital for
the Company. At March 31, 2000, the Bank met all regulatory capital liquidity
requirements. Regulations currently in effect require the Bank to maintain
liquid assets of not less than 4% of its net withdrawable accounts plus
short-term borrowings. At March 31, 2000, the Bank's liquidity ratio of 8.74%
was in excess of the current minimum requirement.
The Company's need for liquidity is affected by loan demand and net changes in
retail deposit levels. The Company can minimize the cash required during the
times of heavy loan demand by modifying its credit policies or reducing its
marketing efforts. Liquidity demand caused by net reductions in retail deposits
are usually caused by factors over which the Company has limited control. The
Company derives its liquidity from both its assets and liabilities. Liquidity is
derived from assets by receipt of interest and principal payments and
prepayments, by the ability to sell assets at market prices and by utilizing
unpledged assets as collateral for borrowings. Liquidity is derived from
liabilities by maintaining a variety of funding sources, including retail
deposits, FHLB borrowings and securities sold under agreement to repurchase.
The Company's primary sources of funds have historically consisted of deposits,
amortization and prepayments of outstanding loans, FHLB borrowings and
securities sold under agreement to repurchase and sales of investment and
mortgage-backed securities. During the three months ended March 31, 2000, the
Company used its capital resources primarily to meet its ongoing commitments to
fund maturing savings certificates and deposit withdrawals, fund existing and
continuing loan commitments, and maintain its liquidity. For the three months
ended March 31, 2000, cash was provided by operating activities. Cash was used
in investing activities primarily due to net origination of loans and purchases
of mortgage-backed securities. Cash was provided by financing activities,
primarily due to net increases in demand deposits and short-term borrowings.
Non-Performing and Underperforming Assets
The following table details the Company's non-performing and underperforming
assets at the dates indicated:
<TABLE>
<CAPTION>
March 31, December 31, March 31,
(Dollars in thousands) 2000 1999 1999
--------- ------------ ---------
<S> <C> <C> <C>
Loans and leases accounted for on a non-accrual basis $4,139 $5,701 $4,407
REO, net of related reserves -- 66 --
------ ------ ------
Total non-performing assets $4,139 $5,767 $4,407
Accruing loans 90 or more days past due 4,569 2,336 2,123
------ ------ ------
Total underperforming assets $8,708 $8,103 $6,530
====== ====== ======
Non-performing assets as a percentage of net loans and leases
and other real estate owned .77% 1.16% 1.02%
====== ====== ======
Non-performing assets as a percentage of total assets .50% .75% .66%
====== ====== ======
Underperforming assets as a percentage of net loans and leases
and other real estate owned 1.63% 1.63% 1.51%
====== ====== ======
Underperforming assets as a percentage of total assets 1.06% 1.06% .98%
====== ====== ======
Allowance for loan and lease losses $5,618 $5,927 $4,854
====== ====== ======
Ratio of allowance for loan and lease losses to
non-performing loans and leases at end of period 135.73% 103.96% 110.14%
====== ====== ======
Ratio of allowance for loan and lease losses to
underperforming loans and leases at end of period 64.52% 73.75% 74.33%
====== ====== =====
</TABLE>
<PAGE>
Non-performing assets decreased to $4.1 million at March 31, 2000 from $5.7
million at December 31, 1999, and from $4.4 million at March 31, 1999. The
decrease in non-performing assets since December 31, 1999 was primarily related
to the charge-off of a portion of a large commercial business loan. The $4.1
million of non-accrual loans at March 31, 2000 consisted of $996,000 of lease
financing, $1.6 million of loans secured by single family residential property,
$1.0 million of commercial business loans, $155,000 of commercial mortgages and
$364,000 in consumer loans.
Accruing loans 90 or more days past due increased from $2.3 million at December
31, 1999 to $4.6 million at March 31, 2000. This increase was primarily due to
an increase in accruing 90-day-or-more delinquent commercial business loans. The
$4.6 million of accruing loans 90 or more days past due at March 31, 2000
consisted of $2.4 million of commercial mortgages, $1.7 million of commercial
business loans, $493,000 in construction loans and $7,000 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>
March 31, 2000 December 31, 1999 March 31, 1999
(Dollars in thousands) Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
Delinquencies:
<S> <C> <C> <C> <C> <C> <C>
30 to 59 days $ 5,086 .94% $ 7,488 1.49% $ 7,312 1.68%
60 to 89 days 1,342 .25 1,288 .26 3,320 .76
90 or more days 4,569 .85 2,336 .46 2,123 .49
------- ---- ------- ---- ------- ----
Total $10,997 2.04% $11,112 2.21% $12,755 2.93%
======= ==== ======= ==== ======= ====
</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>
<CAPTION>
For the Three Months Ended March 31, 2000 1999
--------------------------- --------------------------
(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 $16,945 $ 239 5.67% $16,294 $ 193 4.80%
Trading securities 1,077 -- -- -- -- --
Investment securities(1) 65,847 1,043 6.37 31,131 467 6.08
Mortgage-backed securities (1) 116,534 2,064 7.12 139,048 2,125 6.20
Commercial business loans 130,946 2,899 8.90 95,429 2,064 8.77
Commercial real estate loans (4) 166,847 3,602 8.68 137,349 2,937 8.67
Construction loans 59,720 1,519 10.23 44,280 1,092 10.00
Single family residential real estate loans 40,686 759 7.50 49,358 897 7.37
Consumer loans 34,853 677 7.81 28,956 571 8.00
Lease financing 88,474 2,497 11.35 73,389 1,996 11.03
------- ------ ----- ------- ------ -----
Total interest-earning assets 721,929 15,299 8.52 615,234 12,342 8.14
------- ------ ----- ------- ------ -----
Non-interest-earning assets:
Cash 16,426 13,770
Allowance for loan and lease losses (5,994) (5,165)
Other assets 46,394 29,512
------- ------
Total non-interest-earning assets 56,826 38,117
------- ------
Total assets $778,755 $653,351
======== ========
Interest-bearing liabilities:
Interest-bearing deposits:
NOW and Super NOW $83,141 641 3.10 $78,084 534 2.77
Money market accounts 35,855 266 2.98 36,142 240 2.69
Passbook and statement savings 31,452 139 1.78 31,753 155 1.98
Time deposits 306,189 4,163 5.47 219,496 2,839 5.25
-------- ----- ----- -------- ----- ----
Total interest-bearing deposits 456,637 5,209 4.59 365,475 3,768 4.18
Short-term borrowings 62,383 888 5.73 44,191 665 6.10
Long-term debt 110,000 1,518 5.55 123,395 1,649 5.42
-------- ----- ----- -------- ----- ----
Total interest-bearing liabilities 629,020 7,615 4.87 533,061 6,082 4.63
-------- ----- ----- ------- ----- ----
Non-interest-bearing liabilities:
Non-interest-bearing deposits 69,559 52,049
Other liabilities 17,425 12,150
------- -------
Total non-interest-bearing liabilities 86,984 64,199
------- -------
Total liabilities 716,004 597,260
------- -------
Capital securities 14,453 14,433
Stockholders' equity 48,298 41,658
-------- --------
Total liabilities, capital securities and $778,755 $653,351
stockholders' equity ======== ========
Net interest income: $7,684 $6,260
====== ======
Interest rate spread (2) 3.65% 3.51%
===== =====
Net interest margin (3) 4.28% 4.13%
===== =====
Average interest-earning assets to average 114.77% 115.42%
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.
Net interest income, on a tax-equivalent basis, amounted to $7.7 million for the
three months ended March 31, 2000 in comparison with $6.3 million for the same
period in 1999. Average earning assets for the first quarter of 2000 were $721.9
million compared to $615.2 million for the same period in 1999. The growth in
assets relates to higher loan and lease production. Average loans and leases
increased $92.8 million to $521.5 million compared to the same quarter of 1999.
Consequently, tax-equivalent net interest income for the first quarter of 2000
increased $1.4 million or 23% over the same period in 1999. The net interest
margin increased 15 basis points primarily due to a 14 basis point increase in
the Company's interest rate on earning assets over its cost of funds.
<PAGE>
Provision for Loan and Lease Losses
During the quarter ended March 31, 2000, the Company recorded a $1.1 million
provision for loan and lease losses compared with $449,000 for the comparable
period in 1999. The increase of $609,000 was the result of a large commercial
business loan liquidation and partial charge-off and a more aggressive
charge-off policy implemented in the second quarter of 1999 for the lease
portfolio. The current level of delinquent and nonaccrual leases has declined
from $7.2 million at March 31, 1999 to $1.5 million at March 31, 2000.
At March 31, 2000, the allowance for possible loan and lease losses amounted to
$5.6 million or 1.04% of total loans and leases and 135.73% of total
non-performing loans and leases. At December 31, 1999, the allowance for
possible loan and lease losses amounted to $5.9 million or 1.18% of total loans
and leases and 103.96% of total non-performing loans and leases.
Non-Interest Income
Non-interest income for the quarter ended March 31, 2000 amounted to $5.8
million, compared to $2.8 million for the same period in 1999. The Company
recognized $2.6 million of client warrant income during the period due to the
expiration of restrictions on the sale of warrants to acquire common stock of US
Interactive, Inc., RAVISENT Technologies, Inc. and EMAX Solutions Partners, Inc.
Teleservices fee income increased $701,000 over the first quarter of 1999 due to
revenue from new inbound clients. Mutual fund, annuity and insurance commissions
increased $399,000 over the first quarter of 1999. Service charges on deposits
increased $122,000 over the first quarter of 1999. These increases were
partially offset by net unrealized losses in the mezzanine and venture capital
funds amounting to $955,000 during the quarter.
Non-interest Expense
Total non-interest expense was $10.0 million for the quarter ended March 31,
2000 compared to $6.4 million for the quarter ended March 31, 1999. The
increase in non-interest expense for the quarter ended March 31, 2000 over the
comparable quarter in 1999 was primarily due to increases in salaries and
employee benefits of $1.9 million as a result of additional employees to staff
three new bank branches, recent acquisitions, the staffing of Progress Capital
Management, Inc. to pursue our SBIC license, and from other new positions
established within the Company. Occupancy and furniture, fixtures and equipment
expenses increased $529,000 mainly due to a new operations center, new branch
openings and recent acquisitions. Professional services expense increased
$339,000 due to consulting and legal costs associated with recent acquisitions
and the increased usage of an interactive voice response system in handling new
inbound clients. The $679,000 increase in other non-interest expense included
nonrecurring system conversion related expenses of approximately $124,000. The
Company experienced increases in loan expense, advertising, state franchise
taxes, telephone and goodwill amortization as it expanded its non-banking
businesses, and opened three new bank branches and a new operations center since
the first quarter of 1999.
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, 1999, Item 7A, filed with the Securities
and Exchange Commission on March 29, 2000. The market risk of the Company has
not experienced any significant changes as of March 31, 2000.
<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 three months ended March 31, 2000
(b) Reports on Form 8-K
On March 23, 2000, the Company filed a Current Report on Form 8-K with the
Securities and Exchange Commission reporting under Item 5 the announcement
of its fourth quarter 1999 earnings, declaration of its 1st quarter 2000
cash dividend and distribution of an earnings package to analysts.
<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
May 11, 2000 /s/ W. Kirk Wycoff
- ------------------ ---------------------------------------
Date W. Kirk Wycoff, Chairman, President and
Chief Executive Officer
May 11, 2000 /s/ Michael B. High
- ------------------ ---------------------------------------
Date Michael B. High,
Executive 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> 3-Mos
<FISCAL-YEAR-END> Dec-31-2000
<PERIOD-START> Jan-01-2000
<PERIOD-END> Mar-31-2000
<EXCHANGE-RATE> 1
<CASH> 18,687
<INT-BEARING-DEPOSITS> 19,668
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 167,329
<INVESTMENTS-CARRYING> 34,578
<INVESTMENTS-MARKET> 33,151
<LOANS> 540,702
<ALLOWANCE> 5,618
<TOTAL-ASSETS> 822,749
<DEPOSITS> 547,640
<SHORT-TERM> 71,111
<LIABILITIES-OTHER> 35,149
<LONG-TERM> 108,000
0
0
<COMMON> 5,692
<OTHER-SE> 40,701
<TOTAL-LIABILITIES-AND-EQUITY> 822,749
<INTEREST-LOAN> 11,945
<INTEREST-INVEST> 3,027
<INTEREST-OTHER> 239
<INTEREST-TOTAL> 15,211
<INTEREST-DEPOSIT> 5,209
<INTEREST-EXPENSE> 7,615
<INTEREST-INCOME-NET> 7,596
<LOAN-LOSSES> 1,058
<SECURITIES-GAINS> (112)
<EXPENSE-OTHER> 10,047
<INCOME-PRETAX> 2,315
<INCOME-PRE-EXTRAORDINARY> 2,315
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,538
<EPS-BASIC> 0.28
<EPS-DILUTED> 0.27
<YIELD-ACTUAL> 4.28
<LOANS-NON> 4,139
<LOANS-PAST> 4,569
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,927
<CHARGE-OFFS> 1,533
<RECOVERIES> 166
<ALLOWANCE-CLOSE> 5,618
<ALLOWANCE-DOMESTIC> 5,618
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
