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, 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) 5,525,262
------------------------------ ----------------------------
Title of Each Class Number of Shares Outstanding
as of July 31, 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
June 30, 2000 (unaudited) and December 31, 1999 (audited)............3
Consolidated Interim Statements of Operations for the
three and six months ended June 30, 2000 and 1999 (unaudited)........4
Consolidated Interim Statements of Changes in
Shareholders' Equity and Comprehensive Income for
the six months ended June 30, 2000 and 1999 (unaudited)..............5
Consolidated Interim Statements of Cash Flows for the six months
ended June 30, 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)...................................13
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
Consolidated Interim Statements of Financial Condition
<TABLE>
(Dollars in thousands) June 30, December 31,
2000 1999
---------- -----------
(unaudited) (audited)
<CAPTION>
Assets
Cash and due from banks:
<S> <C> <C>
Non-interest-earning $ 16,926 $ 15,648
Interest-earning 18,658 24,278
Trading securities -- 3,267
Investment and mortgage-backed securities:
Available for sale at fair value (amortized cost:$187,182 in 2000 and $147,529 in 1999) 181,609 149,518
Held to maturity at amortized cost (fair value: $33,440 in 2000 and $32,914 in 1999) 35,103 34,309
Loans and leases, net (net of reserves: $6,527 in 2000 and $5,927 in 1999) 535,354 497,738
Investments in unconsolidated entities 10,022 11,427
Premises and equipment, net 17,609 15,600
Other assets 24,028 15,968
Net assets of discontinued teleservices operations -- 1,188
-------- --------
Total assets $839,309 $768,941
======== ========
Liabilities and Shareholders' Equity
Liabilities:
Deposits:
Non-interest-bearing $ 79,213 $ 65,305
Interest-bearing 491,120 456,134
Short-term borrowings 72,630 50,767
Other liabilities 16,590 22,475
Long-term debt:
Federal Home Loan Bank advances 100,500 85,000
Other debt 15,000 24,000
Subordinated debt 3,000 3,000
-------- --------
Total liabilities 778,053 706,681
-------- --------
Corporation-obligated mandatorily redeemable capital securities of subsidiary trust
holding solely junior subordinated debentures of the Corporation 14,461 14,451
Commitments and contingencies (Note 10)
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 June 30, 2000 and
December 31, 1999, respectively; including treasury shares of
169,000 and 152,000, and unallocated shares held by the
Employee Stock Ownership Plan of 0 an 14,000 at June 30, 2000 5,692 5,680
and December 31, 1999, respectively.
Other common shareholders' equity, net 44,852 40,895
Net accumulated other comprehensive income (loss) (3,749) 1,234
-------- --------
Total shareholders' equity 46,795 47,809
-------- --------
Total liabilities, Corporation-obligated mandatorily redeemable capital
securities and shareholders' equity $839,309 $768,941
======== ========
</TABLE>
See Notes to Consolidated Interim Financial Statements.
<PAGE>
Consolidated Interim Statements of Operations (unaudited)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
2000 1999 2000 1999
---- ----- ---- ----
Interest income:
<S> <C> <C> <C> <C>
Loans and leases, including fees $12,506 $10,071 $24,451 $19,628
Mortgage-backed securities 2,462 1,969 4,526 4,094
Investment securities 1,016 526 1,979 948
Other 347 167 586 360
------- ------- ------- -------
Total interest income 16,331 12,733 31,542 25,030
------- ------- ------- -------
Interest expense:
Deposits 5,632 3,880 10,841 7,648
Short-term borrowings 1,082 575 1,970 1,240
Long-term and subordinated debt 1,686 1,679 3,204 3,328
------- ------- ------- -------
Total interest expense 8,400 6,134 16,015 12,216
-------- ------- ------- -------
Net interest income 7,931 6,599 15,527 12,814
Provision for loan and lease losses 1,175 1,216 2,233 1,665
------- ------- ------- -------
Net interest income after provision for loan and lease losses 6,756 5,383 13,294 11,149
------- ------- ------- -------
Non-interest income:
Service charges on deposits 687 521 1,229 941
Lease financing fees 374 401 664 669
Mutual fund, annuity and insurance commissions 960 574 1,839 1,054
Loan brokerage and advisory fees 541 652 1,062 1,175
Gain (loss) on sale of securities 2 4 (110) (156)
Equity (loss) in unconsolidated entities (1,042) 48 (1,997) 104
Client warrant income 985 482 3,585 482
Fees and other 1,417 578 2,532 1,510
------- ------- ------- -------
Total non-interest income 3,924 3,260 8,804 5,779
------- ------- ------- -------
Non-interest expense:
Salaries and employee benefits 5,087 3,885 9,871 7,159
Occupancy 513 291 1,108 607
Data processing 231 263 636 480
Furniture, fixtures and equipment 560 394 1,028 653
Professional services 524 397 1,139 763
Capital securities expense 399 399 798 797
Other 1,828 1,631 3,756 3,014
------- ------- ------- -------
Total non-interest expense 9,142 7,260 18,336 13,473
------- ------- ------- -------
Income from continuing operations before income taxes 1,538 1,383 3,762 3,455
Income tax expense 529 447 1,268 1,202
------- ------- ------- -------
Income from continuing operations 1,009 936 2,494 2,253
Discontinued operations (Note 2):
Gain on sale of discontinued teleservices operations,net of tax 1,513 -- 1,513 --
Income from discontinued teleservices operations, net of tax 61 194 114 200
------- ------- ------- -------
Net income $ 2,583 $ 1,130 $ 4,121 $ 2,453
======= ======= ======= =======
Basic income from continuing operations per common share $.18 $.17 $.45 $.42
===== ===== ===== ====
Diluted income from continuing operations per common share $.18 $.16 $.44 $.39
===== ===== ===== ====
Basic earnings per common share $.46 $.21 $.74 $.46
===== ===== ===== ====
Diluted earning per common share $.45 $.19 $.72 $.42
===== ===== ===== ====
Dividends per common share $.05 $.04 $.10 $.08
===== ===== ===== ====
Basic average common shares outstanding 5,519,440 5,457,518 5,544,054 5,385,965
========== ========== ========== =========
Diluted average common shares outstanding 5,720,185 5,834,733 5,743,395 5,767,923
========== ========== ========== =========
</TABLE>
See Notes to Consolidated Interim Financial Statements.
<PAGE>
Consolidated Interim Statements of Changes in Shareholders' Equity and
Comprehensive Income (unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Net
Unearned Accumulated
Unearned Compensation Other Total
Common Treasury ESOP Restricted Capital Retained Comprehensive Comprehensive Shareholders'
Stock Stock Shares Stock Surplus Earnings Income Income Equity
(Loss) (Loss)
------ -------- -------- ---------- ------- -------- ------------- ------------- -------------
For the six months ended June 30, 2000:
<S> <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;
3,654 treasury shares; 12 48 64 192 207 -- -- 523
14,011 ESOP shares)
Net income -- -- -- -- -- 4,121 -- $ 4,121 4,121
Other comprehensive loss,
net of tax (a) -- -- -- -- -- -- (4,983) (4,983) (4,983)
-------
Comprehensive loss -- -- -- -- -- -- -- $ (862)
=======
Purchase of treasury stock
(81,000 treasury shares) -- (920) -- -- -- -- -- (920)
Acquisition of subsidiary -- 800 -- -- -- -- -- 800
(60,000 treasury shares)
Cash dividend declared -- -- -- -- -- (555) -- (555)
------ ------ ----- ------ ------- ------ ------- -------
Balance at June 30, 2000 $5,692 $(2,035) $ -- $ (859) $42,819 $4,927 $(3,749) $46,795
====== ======= ===== ======= ======= ====== ======= =======
For the six months ended June 30, 1999:
Balance at December 31, 1998 $5,263 $(2,287) $(114) $ -- $39,586 $(399) $(495) $41,554
Exercise of stock warrants
(125,971 common shares; 122,088
treasury shares) 126 1,666 -- -- (442) -- -- 1,350
Issuance of stock under employee
benefit plans (8,113 common shares;
107,709 treasury shares;
5,315 ESOP shares) 8 1,319 25 (1,066) (59) -- -- 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 $ -- $ (89) $(1,066) $38,754 $1,646 $(1,896) $42,746
====== ====== ===== ======= ======= ====== ======= =======
(a) For the six months ended June 30, 2000 1999
---- ----
Calculation of other comprehensive loss net of tax:
Unrealized holding losses arising during the period, net of tax $(5,055) ($1,504)
Less: Reclassification for losses included in net income, net of tax (72) (103)
------- -------
Other comprehensive loss, net of tax $(4,983) $(1,401)
======== ========
</TABLE>
See Notes to Consolidated Interim Financial Statements
<PAGE>
<TABLE>
<CAPTION>
Consolidated Interim Statements of Cash Flows (unaudited)
(Dollars in thousands)
For the six months ended June 30, 2000 1999
---------------------------------- ---- ----
Cash flows from operating activities:
<S> <C> <C>
Income from continuing operations $2,494 $2,253
Add (deduct) items not affecting cash flows from operating activities:
Depreciation and amortization 1,317 373
Provision for loan and lease losses 2,233 1,665
Client warrant income (3,585) (482)
Loss on sale of securities available for sale 110 156
(Gain) loss on sale of loans and leases (159) 34
Accretion of deferred loan and lease fees and expenses (1,166) (1,187)
Amortization of premiums/accretion of discounts on securities 151 578
(Equity) loss in unconsolidated entities 1,997 (104)
Other, net 162 93
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
Net proceeds from sales of trading securities 996 --
(Increase) decrease in other assets 636 702
Increase (decrease) in other liabilities (3,259) (6,182)
------ -------
Net cash flows provided by (used in) continuing operations 1,927 (4,174)
Net cash flows used in discontinued teleservices operations (1,923) (277)
------ -------
Net cash flows provided by (used in) operating activities 4 (4,451)
Cash flows from investing activities:
Capital expenditures (3,035) (1,683)
Purchases of investments and mortgage-backed securities available for sale (47,404) (1,050)
Purchases of investment securities held to maturity (778) (6,594)
Repayments on investment and mortgage-backed securities available for sale 7,595 21,862
Proceeds from sales and calls of investment and
mortgage-backed securities available for sale 3,058 6,440
Proceeds from sale of loans and leases 6,447 875
Proceeds from sale of discontinued teleservices operations 4,935 --
Net increase in loans and leases (50,663) (31,785)
Net investment in unconsolidated entities (231) (1,952)
Other, net (200) (250)
------- -------
Net cash flows used in investing activities (80,276) (14,137)
------- --------
Cash flows from financing activities:
Net increase in demand, NOW and savings deposits 30,422 3,748
Net increase in time deposits 18,472 33,218
Net increase (decrease) in short-term borrowings 2,863 (17,256)
Proceeds from issuance of long-term debt 25,500 4,000
Dividends paid (555) (408)
Purchase of treasury shares (920) (698)
Proceeds from exercise of stock warrants -- 1,350
Retirement of stock warrants -- (331)
Net proceeds from issuance of stock under employee benefit plans 148 134
------- -------
Net cash flows provided by financing activities 75,930 23,757
------- -------
Net increase (decrease) in cash and cash equivalents (4,342) 5,169
Cash and cash equivalents:
Beginning of year 39,926 20,687
------- -------
End of period $35,584 $25,856
======= =======
Supplemental disclosures:
Non-monetary transfers:
Treasury shares issued in purchase of subsidiary $ 800 $ --
======= =======
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
======= =======
Cash payments for:
Income taxes for continuing operations $ 473 $ 1,780
Income taxes for discontinued operations $ 176 $ 22
======= =======
Interest for continuing operations $16,143 $11,245
======= =======
</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 necessary for a fair presentation of the financial
information as of June 30, 2000 and December 31, 1999 and for the three
and six months ended June 30, 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 and six
months ended June 30, 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., Progress Development Corp.,
Progress Capital Management, Inc. and Progress Financial Resources, Inc.
All significant intercompany transactions have been eliminated.
(2) Discontinued Operations
During the second quarter of 2000, the Company decided to sell its
teleservicing assets to move toward focusing on its core financial
services competencies. Prior period information has been restated for the
discontinuance of this operation.
On May 19, 2000, the Company sold the assets of Procall Teleservices,
Inc., its business-to-business teleservices subsidiary. The Company
recognized a gain on this sale of $2.5 million pretax, $1.5 million net
of tax of $1.0 million, or diluted earnings per share of $.26, during the
second quarter of 2000. Income from discontinued teleservices operations
for the three months ended June 30,2000 amounted to $103,000 pre-tax
($61,000,net of taxes of $42,000) compared to $329,000 pre-tax($194,000,
net of taxes of $135,000)for the three months ended June 30, 1999.
Income from discontinued teleservices operations for the six months ended
June 30, 2000 amounted to $194,000 pre-tax($114,000,net of taxes of
$80,000)compared to $341,000 pre-tax ($200,000, net of taxes of $141,000)
for the six months ended June 30, 1999.
(3) Subsequent Events
In July 2000, the Company issued 6,000 shares, or $6.0 million, of
11.445% trust preferred securities, $1,000 liquidation amount per
security, due July 19, 2030 (the "Trust Preferred Securities"), in a
private offering managed by First Union Securities, Inc. The Trust
Preferred Securities represent undivided beneficial interests in Progress
Capital Trust II, a statutory business trust created under the laws of
Delaware (the "Trust II"), which was established by the Company for the
purpose of issuing the Trust Preferred Securities. The Company has fully,
irrevocably and unconditionally guaranteed all of the Trust II's
obligations under the Trust Preferred Securities. Net proceeds from the
sale of the securities will be used for general purposes, including but
not limited to, capital contributions to the Bank to fund its growth and
for repurchases of the Company's common stock under its existing stock
repurchase program.
(4) New Developments
On June 1, 2000, M-Corp., a corporation on which the Company held
warrants, was acquired by Ramesys Holdings Limited ("Ramesys"). 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 received
a cash distribution and a convertible note from Ramesys; a total value of
approximately $61,000 was recorded in client warrant income.
On March 22, 2000, EMAX Solutions Partners, Inc., ("EMAX"), a corporation
on which the Company held warrants, obtained through the Company's
Specialized Lending Division, announced that it was acquired by
SciQuest.com ("SQST"). The Company held 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
could be exchanged into 7,598 warrants to purchase common shares of SQST
at an average exercise price of $2.35. During the second quarter of 2000
the Company sold its warrants on EMAX back to the company. Client warrant
income of $163,000 for the three months ended June 30, 2000, $340,000 for
the six months ended June 30, 2000, was recognized on these warrants.
<PAGE>
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED) (Continued)
In January 2000, the Company acquired KMR Management, Inc. ("KMR"); a
Pennsylvania based corporation which 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.
(5) Shareholders' Equity
Stock Repurchase Program
On October 27, 1999, the Company announced the authorization of a new
stock repurchase program to 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 80,500 shares were repurchased
during the six months ended June 30, 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 June 30,
(Dollars in thousands, except per share data) 2000 1999
---------------------------------- -------------------------------------
Per Sare Per Share
Income Shares Amount Income Shares Amount
------ ------ -------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Basic Earnings Per Share:
Income from continuing operations available
to common shareholders $1,009 5,519,440 $.18 $ 936 5,457,518 $.17
Income from discontinued teleservices operations 1,574 5,519,440 .28 194 5,457,518 .04
------- ---- ----- ----
Total income available to common shareholders 2,583 5,519,440 $.46 1,130 5,457,518 $.21
==== ====
Effect of Dilutive Securities:
Warrants -- -- -- -- 124,121 --
Options -- 200,745 -- -- 253,094 --
--------- ---------
Diluted Earnings Per Share:
Income from continuing operations available
to common shareholders and assumed conversions 1,009 5,720,185 $.18 936 5,834,733 $.16
Income from discontinued teleservices operations 1,574 5,720,185 .27 194 5,834,733 .03
------- ---- ----- ----
Total income available to common shareholders and
assumed conversions $2,583 5,720,185 $.45 $1,130 5,834.733 $.19
====== ========= ==== ====== ========= ====
For the six months ended June 30,
(Dollars in thousands, except per share data) 2000 1999
--------------------------------- ---------------------------------
Per Share Per Share
Income Shares Amount Income Shares Amount
------ ------ --------- ------ ------ ---------
Basic Earnings Per Share:
Income from continuing operations available
to common shareholders $2,494 5,544,054 $.45 $2,253 5,385,965 $.42
Income from discontinued teleservices operations 1,627 5,544,054 .29 200 5,385,965 .04
------ ---- ------ ----
Total income available to common shareholders 4,121 5,544,054 $.74 2,453 5,385,965 $.46
==== ====
Effect of Dilutive Securities:
Warrants -- -- -- -- 138,447 --
Options -- 199,341 -- -- 243,511 --
--------- -------
Diluted Earnings Per Share:
Income from continuing operations available
to common shareholders and assumed conversions 2,494 5,743,395 $.44 2,253 5,767,923 $.39
Income from discontinued teleservices operations 1,627 5,743,395 .28 200 5,767,923 .03
------ ---- ----- ----
Total income available to common shareholders and
assumed conversions $4,121 5,743,395 $.72 $2,453 5,767.923 $.42
====== ========= ==== ====== ========= ====
</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 June 30, 2000, the Bank's tangible equity ratio was 6.42%, Tier 1 or
leverage ratio was 6.42%, Tier 1 risk-based capital ratio was 9.24%, and
total risk-based capital ratio was 10.37%. As of June 30, 2000, the Bank
was classified as "well capitalized."
(6) 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 June 30, 2000
<S> <C> <C> <C> <C> <C>
Available for Sale:
Equity investments $ 6,515 $1,595 $1,965 $ 6,145 $ 6,145
U.S. Government Agencies 21,000 -- 486 20,514 20,514
Corporate bonds 2,432 -- 261 2,171 2,171
Mortgage-backed securities 157,235 124 4,580 152,779 152,779
---------- ------ ------ -------- --------
Total available for sale $187,182 $1,719 $7,292 $181,609 $181,609
========== ====== ====== ======== ========
Held to Maturity:
Federal Home Loan Bank Stock $ 5,175 $ -- $ -- $ 5,175 $ 5,175
U.S. Government Agencies 15,108 15 446 14,677 15,108
Municipal bonds 14,820 -- 1,232 13,588 14,820
----------- ------- ------- -------- ----------
Total held to maturity $ 35,103 $ 15 $1,678 $ 33,440 $ 35,103
========== ======= ====== ======== =========
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)
(7) 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, 2000 December 31, 1999
------------- -----------------
Amount Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C>
Commercial business $ 149,790 27.64% $ 119,807 23.79%
Commercial real estate 171,459 31.64 162,588 32.28
Construction, net of loans in process 44,752 8.26 58,813 11.68
Single family residential real estate 40,281 7.43 40,554 8.05
Consumer loans 37,901 6.99 34,918 6.93
Lease financing 116,172 21.44 103,536 20.56
Unearned income (18,474) (3.40) (16,551) (3.29)
---------- ---------- ---------- --------
Total loans and leases 541,881 100.00% 503,665 100.00%
======= =======
Allowance for loan and lease losses (6,527) (5,927)
---------- ---------
Net loans and leases $535,354 $497,738
========== =========
</TABLE>
(8) 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>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
(Dollars in thousands) 2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Balance beginning of period $5,618 $4,854 $5,927 $4,490
Charge-offs:
Commercial business -- -- 1,033 --
Single family residential real estate 29 -- 52 58
Consumer loans -- -- -- 1
Lease financing 513 1,184 990 1,285
----- ----- ----- ------
Total charge-offs 542 1,184 2,075 1,344
----- ----- ----- ------
Recoveries:
Commercial business 60 7 64 13
Commercial real estate 7 -- 7 --
Consumer loans 8 3 10 12
Lease financing 201 88 361 148
----- ----- ----- -----
Total recoveries 276 98 442 173
----- ----- ----- ----
Net charge-offs (recoveries) 266 1,086 1,633 1,171
Additions charged to operations 1,175 1,216 2,233 1,665
-------- ----- ------ ------
Balance at end of period $6,527 $4,984 $6,527 $4,984
======== ====== ======= ======
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED) (Continued)
(9) Investments in Unconsolidated Entities
Investments in Unconsolidated Entities at June 30, 2000 and December
31, 1999 are detailed below:
<TABLE>
<CAPTION>
June 30, December 31,
(Dollars in thousands) 2000 1999
--------------------------------------------------------------- ------------- ------------------
<S> <C> <C>
Investment in Ben Franklin/Progress Capital Fund, L.P. (A) $ 2,999 $ 4,771
Other investments in unconsolidated entities 7,023 6,656
--------------------------------------------------------------- ------------- ------------------
Total Investments in Unconsolidated Entities $10,022 $11,427
=============================================================== ============= ==================
(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>
<TABLE>
<CAPTION>
For the six months ended
June 30,
(Dollars in thousands) 2000 1999
--------------------------------------------------------------------- ----------------
Summary of Operations
--------------------------------------------------------
<S> <C> <C>
Revenues $ 218 $166
Expenses 140 139
Net decrease in fair value of venture capital
investments (4,398) --
-------------------------------------------------------- ------------- ----------------
Net increase (decrease) in partners' capital
resulting from operations $ (4,320) $ 27
======================================================== ============= ================
The Company's equity (loss) in Ben Franklin $ (1,802) $ 10
======================================================== ============= ================
June 30, December 31,
(Dollars in thousands) 2000 1999
-------------------------------------------------------- ------------- ----------------
Balance Sheet Data
--------------------------------------------------------
Assets:
Venture capital investments, at fair value $ 5,887 $ 9,830
Cash and temporary investments 1,837 2,258
Other assets 111 100
-------------------------------------------------------- ------------- ----------------
Total assets $ 7,835 $12,188
======================================================== ============= ================
Liabilities and Partners' Capital:
Liabilities $ 3 $ 36
Partners' capital 7,832 12,152
-------------------------------------------------------- ------------- ----------------
Total liabilities and partners' capital $ 7,835 $12,188
======================================================== ============= ================
</TABLE>
(10) Commitments and Contingencies
At June 30, 2000, the Company had $206.6 million in loan commitments to
extend credit, including unused lines of credit, and $9.7 million in
letters of credit outstanding.
<PAGE>
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED) (Continued)
(11) Segments
The following table sets forth selected financial information by
business segment for the periods indicated:
<TABLE>
<CAPTION>
Equipment Real Estate
Banking Leasing Advisory Other Total
------- --------- ----------- ----- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Assets of continuing operations at:
June 30, 2000 $727,162 $97,669 $2,249 $12,229 $839,309
December 31, 1999 659,750 85,159 2,380 20,464 767,753
Revenues from continuing operations for:
the three months ended
June 30, 2000 7,874 1,780 610 1,591 11,855
June 30, 1999 6,498 1,425 1,053 883 9,859
the six months ended
June 30, 2000 15,090 3,400 1,190 4,651 24,331
June 30, 1999 12,939 2,840 1,667 1,147 18,593
Income from continuing operations for:
the three months ended
June 30, 2000 1,070 370 42 (423) 1,059
June 30, 1999 1,232 (137) 19 (178) 936
the six months ended
June 30, 2000 1,741 631 56 116 2,544
June 30, 1999 2,647 (211) (19) (586) 2,253
</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, not undertake, and specifically disclaims
any obligation, to publicly release any revision which may be made to such
forward-looking statements to reflect events or circumstances after the date of
such statements. The Company wishes to advise readers that the factors listed
above could affect the Company's financial performance and could cause the
Company's actual results for future periods to differ materially from any
opinions or statements expressed with respect to future periods in any current
statements.
SUMMARY
The Company recorded net income of $2.6 million, or diluted earnings per share
of $.45, for the three months ended June 30, 2000 compared to $1.1 million, or
$.19, respectively, for the three months ended June 30, 1999. Income from
continuing operations amounted to $1.0 million, or diluted earnings per share of
$.18, for the three months ended June 30, 2000 compared to $936,000 or $.16,
respectively, for the three months ended June 30, 1999. During the second
quarter of 2000 the Company sold the assets of Procall Teleservice, Inc., its
teleservices operations resulting in a gain of $2.5 million pretax, $1.5 million
net of tax or diluted earnings per share of $.26. Return on average
shareholders' equity was 22.69% and return on average assets was 1.27% for the
three months ended June 30, 2000 compared to 10.60% and .68%, respectively, for
the three months ended June 30, 1999.
The Company recorded net income of $4.1 million, or diluted earnings per share
of $.72, for the six months ended June 30, 2000 compared to $2.5 million, or
$.42, respectively, for the six months ended June 30, 1999. Income from
continuing operations amounted to $2.5 million, or diluted earnings per share of
$.44, for the six months ended June 30, 2000 compared to $2.3 million or $.39,
respectively, for the six months ended June 30, 1999. During the second quarter
of 2000 the Company sold the assets of its teleservices operations resulting in
a gain of $2.5 million pretax, $1.5 million net of tax or diluted earnings per
share of $.26. Return on average shareholders' equity was 17.60% and return on
average assets was 1.04% for the six months ended June 30, 2000 compared to
11.72% and .75%, respectively, for the six months ended June 30, 1999.
Net interest income increased to $7.9 million from $6.6 million, and the net
interest margin decreased slightly to 4.25% from 4.29%, comparing the three
months ended June 30, 2000 and 1999. Despite numerous rate increases by the
Federal Reserve, the Company has sufficiently 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 tax equivalent net interest
income.
Net interest income increased to $15.5 million from $12.8 million, and the net
interest margin increased slightly to 4.26% from 4.21%, comparing the six months
ended June 30, 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 $2.8 million increase in tax equivalent net
interest income.
Non-interest income increased $664,000 for the three months ended June 30, 2000
compared to the same period in 1999 primarily due to a $1.6 million increase in
fee income of which: $565,000 was generated by the Company's subsidiary Progress
Capital Management, Inc. ("PCM"), which manages the mezzanine debt and venture
capital funds; $432,000 from bank-related fees; and $386,000 from mutual fund,
annuity and insurance commissions. Client warrant income increased $503,000 due
to the expiration of restrictions on client warrants. These gains were partially
offset by net decrease of $1.1 million in the equity of unconsolidated
subsidiaries primarily due to unrealized losses in the mezzanine and venture
capital funds during the second quarter. These losses represent a partial
reversal of unrealized gains reported in the fourth quarter of 1999.
Non-interest expense increased by $1.9 million primarily due to growth in the
Company's financial services operations.
<PAGE>
Non-interest income increased $3.0 million for the six months ended June 30,
2000 compared to the same period in 1999 primarily due to a $3.1 million
increase in client warrant income which was recorded due to the expiration of
restrictions on client warrants and a $2.3 million increase in fee income of
which: $774,000 was generated by the Company's subsidiary PCM, which manages the
mezzanine debt and venture capital funds; $785,000 from mutual fund, annuity and
insurance commissions; and $537,000 from bank-related fees. Those gains were
partially offset by net unrealized losses in the mezzanine and venture capital
funds resulting in a net decrease of $2.1 million in the equity in
unconsolidated subsidiaries. These losses represent a partial reversal of
unrealized gains reported in the fourth quarter of 1999. These increases were
offset by a $568,000 increase in the provision for loan and lease losses,
primarily due to a commercial loan charge-off during the first quarter of 2000,
a more aggressive leasing charge-off policy, which was implemented in the second
quarter of 1999, and loan and lease growth. Non-interest expense increased $4.9
million primarily due to growth in the Company's financial services operations.
Total assets increased to $839.3 million at June 30, 2000 from $768.9 million at
December 31, 1999 primarily due to loan growth of $38.2 million and an increase
in mortgage-backed securities of $33.9 million. Total deposits increased to
$570.3 million at June 30, 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.
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 June 30, 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 June 30, 2000, the Bank's liquidity ratio of 10.13%
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 six months ended June 30, 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 six months
ended June 30, 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 issuance of long-term borrowings.
<PAGE>
Non-Performing and Underperforming Assets
The following table details the Company's non-performing and underperforming
assets at the dates indicated:
<TABLE>
<CAPTION>
June 30, December 31, June 30,
(Dollars in thousands) 2000 1999 1999
---- ---- ----
<S> <C> <C> <C>
Loans and leases accounted for on a non-accrual basis $ 4,027 $5,701 $4,776
Other real estate owned, net of related reserves 5,692 66 --
--------- ------- ------
Total non-performing assets 9,719 5,767 $4,776
Accruing loans 90 or more days past due 3,049 2,336 5,210
-------- ------- ------
Total underperforming assets $12,768 $8,103 $9,986
======= ====== ======
Non-performing assets as a percentage of net loans and leases
And other real estate owned 1.80% 1.16% 1.06%
======= ====== =====
Non-performing assets as a percentage of total assets 1.16% .75% .72%
======== ======= ======
Underperforming assets as a percentage of net loans and leases
And other real estate owned 2.36% 1.63% 2.21%
======= ===== =====
Underperforming assets as a percentage of total assets 1.52% 1.05% 1.50%
====== ===== ======
Allowance for loan and lease losses $6,527 $5,927 $4,984
====== ====== ======
Ratio of allowance for loan and lease losses to
Non-performing loans and leases at end of period 162.08% 103.96% 104.36%
======= ======= =======
Ratio of allowance for loan and lease losses to
Underperforming loans and leases at end of period 92.24% 73.75% 49.91%
======== ======= ========
</TABLE>
Non-performing assets increased to $9.7 million at June 30, 2000 from $5.8
million at December 31, 1999, and from $4.8 million at June 30, 1999. The
increase in non-performing assets since December 31, 1999 was primarily related
to $5.7 million in residential real estate development projects, classified as
other real estate owned, acquired by the Company through deeds in lieu of
foreclosure as a result of defaulted loans. The $4.0 million of non-accrual
loans at June 30, 2000 consisted of $988,000 of lease financing, $1.1 million of
loans secured by single family residential property, $1.0 million of commercial
business loans, $568,000 of commercial mortgages and $379,000 in consumer loans.
Accruing loans 90 or more days past due increased from $2.3 million at December
31, 1999 to $3.0 million at June 30, 2000. This increase was primarily due to an
increase in accruing 90-day-or-more delinquent commercial business loans. The
$3.0 million of accruing loans 90 or more days past due at June 30, 2000
consisted of $1.6 million of commercial mortgages, $1.4 million of commercial
business loans, and $59,000 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>
June 30, 2000 December 31, 1999 June 30, 1999
-------------- ----------------- -------------
(Dollars in thousands) Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
Delinquencies:
<S> <C> <C> <C> <C> <C> <C>
30 to 59 days $1,808 .33% $ 7,488 1.49% $ 3,684 .81%
60 to 89 days 1,447 .27 1,288 .26 2,792 .61
90 or more days 3,049 .56 2,336 .46 5,210 1.14
------ ---- ------- ---- ------- ----
Total $6,304 1.16% $11,112 2.21% $11,686 2.56%
====== ==== ======= ===== ======= ====
</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 June 30, 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 $22,015 $347 6.34% $13,326 $ 167 5.03%
Trading securities -- -- -- -- -- --
Investment securities(1) 65,198 1,095 6.75 35,810 574 6.43
Mortgage-backed securities (1) 134,391 2,462 7.37 124,458 1,969 6.35
Commercial business loans 140,605 3,194 9.14 104,634 2,209 8.47
Commercial real estate loans (5) 172,716 3,808 8.87 142,565 3,065 8.62
Construction loans 50,959 1,333 10.52 48,784 1,227 10.09
Single family residential real estate loans 41,205 774 7.55 47,136 863 7.34
Consumer loans 36,850 740 8.08 30,229 590 7.83
Lease financing 95,065 2,665 11.27 74,013 2,117 11.44
------- ------ ----- ------- ------ -----
Total interest-earning assets 759,004 16,418 8.70 621,155 12,781 8.25
-------- ------ ----- ------- ------ -----
Non-interest-earning assets:
Cash 15,146 15,349
Allowance for loan and lease losses (5,827) (4,812)
Other assets 51,834 32,430
-------- ------
Total non-interest-earning assets 61,153 43,967
-------- ------
Total assets $820,157 $664,122
======== ========
Interest-bearing liabilities:
Interest-bearing deposits:
NOW and Super NOW $ 93,225 774 3.34 $79,942 530 2.66
Money market accounts 36,234 281 3.12 34,632 236 2.73
Passbook and statement savings 30,699 134 1.76 32,161 152 1.90
Time deposits 312,146 4,443 5.72 231,197 2,962 5.14
------- ----- ----- -------- ----- -----
Total interest-bearing deposits 472,304 5,632 4.80 377,932 3,880 4.12
Short-term borrowings 72505 1,082 6.00 38,137 575 6.05
Long-term debt 115,875 1,686 5.85 124,505 1,679 5.41
------- ----- ----- -------- ----- -----
Total interest-bearing liabilities 660,684 8,400 5.11 540,574 6,134 4.55
------- ----- ----- -------- ----- -----
Non-interest-bearing liabilities:
Non-interest-bearing deposits 72,505 54,101
Other liabilities 23,689 12,234
------- ------
Total non-interest-bearing liabilities 99,235 66,335
------- -------
Total liabilities 759,919 606,909
------- -------
Capital securities 14,458 14,438
Stockholders' equity 45,780 42,775
------- -------
Total liabilities, capital securities and $820,157 $664,122
stockholders' equity ======== ========
Net interest income: $8,018 $6,647
====== ======
Interest rate spread (2) 3.59 3.70
Effect of net interest-free funding sources(3) .66 .59
----- ----
Net interest margin (4) 4.25% 4.29%
====== =====
Average interest-earning assets to average 114.88% 114.91%
======= =======
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) Represents the difference between the weighted average yield on
interest-earning assets, and the weighted average cost of interest-bearing
liabilities.
(3) Represents the effect on the net interest margin of the difference between
non-interest earning assets and non-interest-bearing liabilities, capital
securities and shareholders equity.
(4) Represents net interest income divided by average interest-earning assets.
(5) Includes loans held for sale.
Net interest income, on a tax-equivalent basis, increased $1.4 million, and the
net interest margin decreased slightly to 4.25% from 4.29%, comparing the three
months ended June 30, 2000 and 1999, despite numerous rate increases by the
Federal Reserve. The Company's cost of funds increased 56 basis points, whereas
its rate on earning assets increased 45 basis points and the positive effect of
net interest-free funding sources increased 7 basis points in comparison with
the three months ended June 30, 1999.
<PAGE>
For the Six Months Ended June 30,
<TABLE>
<CAPTION>
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 $19,376 $ 586 6.08% $14,810 $ 360 4.90%
Trading securities 527 -- -- -- --
Investment securities(1) 65,534 2,138 6.56 33,471 1,041 6.27
Mortgage-backed securities (1) 125,452 4,526 7.26 131,753 4,094 6.27
Commercial business loans 135,760 6,093 9.03 100,031 4,273 8.61
Commercial real estate loans (5) 169,801 7,410 8.78 139,957 6,002 8.62
Construction loans 55,375 2,852 10.36 46,532 2,319 10.05
Single family residential real estate loans 40,939 1,533 7.53 48,247 1,760 7.36
Consumer loans 35,850 1,417 7.95 29,592 1,161 7.91
Lease financing 91,769 5,162 11.31 73,801 4,113 11.24
------- ------ ----- ------- ------ -----
Total interest-earning assets 740,383 31,717 8.61 618,194 25,123 8.20
------- ------ ----- ------- ------ -----
Non-interest-earning assets:
Cash 15,826 14,559
Allowance for loan and lease losses (5,911) (4,705)
Other assets 48,709 30,690
------- ------
Total non-interest-earning assets 58,624 40,544
------- ------
Total assets $799,007 $658,738
======== ========
Interest-bearing liabilities:
Interest-bearing deposits:
NOW and Super NOW $88,160 1,415 3.23 $79,013 1,064 2.72
Money market accounts 36,022 547 3.05 35,387 476 2.71
Passbook and statement savings 31,077 273 1.77 31,957 307 1.94
Time deposits 309,140 8,606 5.60 225,347 5,801 5.19
------- ------ ----- -------- ----- ----
Total interest-bearing deposits 464,399 10,841 4.69 371,704 7,648 4.15
Short-term borrowings 66,772 1,971 5.93 41,361 1,240 6.05
Long-term debt 113,643 3,204 5.67 123,753 3,328 5.42
------- ------ ----- -------- ------ -----
Total interest-bearing liabilities 644,814 16,015 4.99 536,818 12,216 4.59
------- ------ ----- -------- ------ -----
Non-interest-bearing liabilities:
Non-interest-bearing deposits 72,537 53,075
Other liabilities 20,092 12,191
------- ------
Total non-interest-bearing liabilities 92,629 65,266
------- ------
Total liabilities 737,443
-------
Capital securities 14,471 14,438
Stockholders' equity 47,093 42,216
------- ------
Total liabilities, capital securities and $799,007 $658,738
stockholders' equity ======== ========
Net interest income: $15,702 $12,907
======= =======
Interest rate spread (2) 3.62 3.61
Effect of net interest-free funding sources(3)
.64 .60
------ -----
Net interest margin (4) 4.26% 4.21%
====== ======
Average interest-earning assets to average 114.82% 115.16%
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) Represents the effect on the net interest margin of the difference between
non-interest earning assets and non-interest-bearing liabilities, capital
securities and shareholders equity.
(4) Net interest margin represents net interest income divided by average
interest-earning assets.
(5) Includes loans held for sale.
Net interest income, on a tax-equivalent basis, increased $2.8 million and the
net interest margin increased slightly to 4.26% from 4.21%, comparing the six
months ended June 30, 2000 and 1999. The Company has effectively managed its
increasing cost of funds by deploying capital into higher yielding investments
and variable rate loans. Average loans and leases increased $91.3 million and
investment securities increased $32.1 million comparing the six months ended
June 30, 2000 to the same period in 1999. The Company's cost of funds increased
40 basis points, whereas its rate on earning assets increased 41 basis points
and the positive effect of net interest-free funding sources increased 4 basis
points in comparison with the six months ended June 30, 1999.
<PAGE>
Provision for Loan and Lease Losses
During the three months ended June 30, 2000, the Company recorded a $1.2 million
provision for loan and lease losses; a slight decrease compared with the same
period in 1999. The provision was the result of loan and lease growth compared
to the second quarter of 1999 when a more aggressive charge-off policy was
implemented for the lease portfolio and a significant provision was made for
deterioration within the lease portfolio.
During the six months ended June 30, 2000, the Company recorded a $2.2 million
provision for loan and lease losses compared with $1.7 million for the
comparable period in 1999. The increase of $568,000 was the result of a large
commercial business loan liquidation and partial charge-off during the first
quarter of 2000, loan and lease growth, and a more aggressive charge-off policy
implemented in the second quarter of 1999 for the lease portfolio.
At June 30, 2000, the allowance for possible loan and lease losses amounted to
$6.5 million or 1.20% of total loans and leases and 162.08% 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 three months ended June 30, 2000 amounted to $3.9
million, compared to $3.3 million for the same period in 1999. The Company
recognized $985,000 of client warrant income during the 2000 period primarily
due to the expiration of restrictions on the sale of warrants to acquire common
stock of Internet Capital Group. Management fees increased $565,000, which were
primarily generated by the Company's subsidiary PCM, which manages the mezzanine
debt and venture capital funds. Mutual fund, annuity and insurance commissions
increased $386,000 over the three months ended June 30, 1999. Service charges on
deposits increased $166,000 over the three months ended June 30, 1999. Other
Bank related fees increased $266,000 over the three months ended June 30, 1999.
These gains were partially offset by a net decrease of $1.1 million in the
equity of unconsolidated subsidiaries primarily due to unrealized losses in the
mezzanine and venture capital funds during the second quarter. These losses
represent a partial reversal of unrealized gains reported in the fourth quarter
of 1999.
Non-interest income for the six months ended June 30, 2000 amounted to $8.8
million, compared to $5.8 million for the same period in 1999. The Company
recognized $3.6 million of client warrant income during the 2000 period due to
the expiration of restrictions on the sale of warrants to acquire common stock
of Internet Capital Group, US Interactive, Inc., RAVISENT Technologies, Inc. and
EMAX Solutions Partners, Inc. Management fees increased $774,000, which were
primarily generated by the Company's subsidiary PCM, which manages the mezzanine
debt and venture capital funds. Mutual fund, annuity and insurance commissions
increased $785,000 over the six months ended June 30, 1999. Service charges on
deposits increased $288,000 over the six months ended June 30, 1999. Other Bank
related fees increased $249,000 over the six months ended June 30, 1999. These
gains were partially offset by a net decrease of $2.1 million in the equity of
unconsolidated subsidiaries primarily due to unrealized losses in the mezzanine
and venture capital funds during the six months ended June 30 2000. These losses
represent a partial reversal of unrealized gains reported in the fourth quarter
of 1999.
Non-interest Expense
Total non-interest expense was $9.1 million for the three months ended June 30,
2000 compared to $7.3 million for the three months ended June 30, 1999. The
increase in non-interest expense for the three months ended June 30, 2000 over
the comparable period in 1999 was primarily due to increases in salaries and
employee benefits of $1.2 million as a result of additional employees to staff
four new bank branches, the recent acquisition of KMR Management, Inc. ("KMR"),
the staffing of PCM and from other new positions established within the Company.
Occupancy and furniture, fixtures and equipment expenses increased $388,000
mainly due to a new operations center, bringing data processing in-house and new
branch openings. Professional services expense increased $127,000 primarily due
to consulting costs associated with the business generated by the Company's
subsidiaries PCM, which manages the mezzanine debt and venture capital funds,
and KMR, which provides financial and operational management consulting services
for the Company's commercial clients. The $197,000 increase in other
non-interest expense included nonrecurring system conversion related expenses of
approximately $119,000.
Total non-interest expense was $18.3 million for the six months ended June 30,
2000 compared to $13.5 million for the six months ended June 30, 1999. The
increase in non-interest expense for the six months ended June 30, 2000 over the
comparable period in 1999 was primarily due to increases in salaries and
employee benefits of $2.7 million as a result of additional employees to staff
new bank branches, the recent acquisition of KMR, the staffing of PCM and from
other new positions established within the Company. Occupancy and furniture,
fixtures and equipment expenses increased $876,000 mainly due to a new
operations center, bringing data processing in-house
<PAGE>
and new branch openings.Professional services expense increased $376,000
primarily due to consulting costs associated with the business generated by the
Company's subsidiaries PCM and KMR; and legal costs associated with aggressive
collection efforts on charged-off loans and leases. The $742,000 increase in
other non-interest expense included nonrecurring system conversion related
expenses of approximately $243,000. The Company also experienced increases in
loan expense, advertising and state franchise taxes as it expanded its
non-banking businesses, and opened four new bank branches and a new operations
center since June 30, 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 June 30, 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
The Company's annual meeting of shareholders was held on Tuesday, April 25, 2000
for the following purposes:
1) To elect four directors for a three-year term and until their successors
are elected and qualified;
2) To adopt the Company's 2000 Incentive Stock Option 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, 2000;
4) To consider and vote upon a shareholder proposal, if presented at the Annual
Meeting; and
5) To transact such other business as may properly come before the meeting or
any adjournment thereof.
The first three proposals were adopted by the Company's shareholders, the fourth
proposal was rejected, and no other business was brought before the meeting
under the fifth proposal. The following are the results of the shareholders'
votes:
Abstained/
For Against Not Voted
--------- ------- ---------
1) Election of directors:
John E. F. Corson 4,474,135 -- 25,383
A. John May, III 4,474,774 -- 24,744
Charles J. Tornetta 4,474,881 -- 24,637
W. Kirk Wycoff 4,359,329 -- 140,189
2) Proposal to adopt the Company's
2000 Incentive Stock Option Plan 4,279,229 191,438 28,851
3) Proposal to ratify the appointment
of PricewaterhouseCoopers L.L.P. 4,463,355 22,896 13,267
4) Proposal to consider and vote
upon a shareholder proposal 403,603 1,668,499 39,730
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, 2000
(b) Reports on Form 8-K
On June 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 first quarter 2000 earnings and distribution of an earnings package
to analysts.
On June 23, 2000, the Company filed a Form 8-K reporting under Item 5 the
sale of the assets of Procall Teleservices, Inc.
On June 23, 2000, the Company filed a Form 8-K reporting under Item 5 the
announcement of the declaration of its 2nd quarter 2000 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 14, 2000 /s/ W. Kirk Wycoff
--------------------------- -------------------------------
Date W. Kirk Wycoff, Chairman, President and
Chief Executive Officer
August 14, 2000 /s/ Michael B. High
--------------------------- -------------------------------
Date Michael B. High,
Executive Vice President and
Chief Financial Officer
