-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Rc+frPAuy75MKQr+iBuacJXZciDW1d5ZktTiaSTLoZQlbGeejb0O3STghDy+MlF6 tmkCQCbpA8uqCiW4tkc8cA== 0000790183-01-500015.txt : 20010515 0000790183-01-500015.hdr.sgml : 20010515 ACCESSION NUMBER: 0000790183-01-500015 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PROGRESS FINANCIAL CORP CENTRAL INDEX KEY: 0000790183 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 232413363 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-72543 FILM NUMBER: 1631500 BUSINESS ADDRESS: STREET 1: 4 SENTRY PARKWAY SUITE 200 CITY: BLUE BELL STATE: PA ZIP: 19422-0764 BUSINESS PHONE: 6108258800 MAIL ADDRESS: STREET 1: 4 SENTRY PARKWAY STREET 2: SUITE 200 CITY: BLUE BELL STATE: PA ZIP: 19422-0764 10-Q 1 e10q-1stqtr2001.txt 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, 2001. 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) 5,583,895 ------------------------------ ---------------------------------- Title of Each Class Number of Shares Outstanding as of April 30, 2001 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, 2001 (unaudited) and December 31, 2000 (audited)............3 Consolidated Interim Statements of Operations for the three months ended March 31, 2001 and 2000 (unaudited)............4 Consolidated Interim Statements of Changes in Shareholders' Equity and Comprehensive Income for the three months ended March 31, 2001 and 2000 (unaudited)........5 Consolidated Interim Statements of Cash Flows for the three months ended March 31, 2001 and 2000 (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...........15 PART II - Other Information Item 1. Legal Proceedings....................................................16 Item 2. Changes in Securities................................................16 Item 3. Defaults upon Senior Securities......................................16 Item 4. Submission of Matters to a Vote of Security Holders..................16 Item 5. Other Information....................................................16 Item 6. Exhibits and Reports on Form 8-K.....................................16 Signatures...........................................................17 PART I- INTERIM FINANCIAL INFORMATION Item 1. Interim Financial Statements
Consolidated Interim Statements of Financial Condition (Dollars in thousands) March 31, December 31, 2001 2000 ----------- ------------ (unaudited) (audited) Assets Cash and due from banks: Non-interest-earning $ 14,009 $ 25,360 Interest-earning 16,548 59,637 Investment and mortgage-backed securities [Note 5]: Available for sale at fair value (amortized cost: $246,970 and $207,795) 247,257 205,166 Held to maturity at amortized cost (fair value: $37,350 and $40,225) 37,278 41,940 Loans and leases, net [Note 6] (net of reserves [Note 7]: $7,708 and $7,407) 548,749 535,712 Investments in unconsolidated entities [Note 8] 4,545 9,266 Premises and equipment, net 19,491 18,343 Other assets 17,030 18,825 -------- -------- Total assets $904,907 $914,249 ======== ======== Liabilities, Capital Securities and Shareholders' Equity Liabilities: Deposits: Non-interest-bearing $ 67,105 $ 88,356 Interest-bearing 528,067 529,187 Short-term borrowings 67,738 79,360 Other liabilities 20,695 31,954 Long-term debt: Federal Home Loan Bank advances 127,000 102,000 Other debt 19,000 10,000 Subordinated debt 3,000 3,000 -------- -------- Total liabilities 832,605 843,857 -------- -------- Corporation-obligated mandatorily redeemable capital securities of subsidiary trust holding solely junior subordinated debentures of the Corporation [Note 9] 20,239 20,232 Commitments and contingencies [Note 10] Shareholders' equity [Note 4]: 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: 5,834,000 and 5,814,000 shares issued and outstanding; including treasury shares of 185,000 and 5,834 5,814 125,000 Other common shareholders' equity, net 46,099 46,145 Net accumulated other comprehensive income (loss) 130 (1,799) -------- -------- Total shareholders' equity 52,063 50,160 -------- -------- Total liabilities, capital securities and shareholders' equity $904,907 $914,249 ======== ======== See Notes to Consolidated Interim Financial Statements.
Consolidated Interim Statements of Operations (unaudited) (Dollars in thousands, except per share data)
For the Three Months Ended March 31, 2001 2000 ------ ------ Interest income: Loans and leases, including fees $12,675 $11,945 Mortgage-backed securities 3,277 2,064 Investment securities 990 963 Other 356 239 ------- ------- Total interest income 17,298 15,211 ------- ------- Interest expense: Deposits 6,666 5,209 Short-term borrowings 647 888 Long-term and subordinated debt 1,866 1,518 ------- ------- Total interest expense 9,179 7,615 ------- ------- Net interest income 8,119 7,596 Provision for loan and lease losses 1,047 1,058 ------- ------- Net interest income after provision for loan and lease losses 7,072 6,538 ------- ------- Non-interest income: Service charges on deposits 585 542 Lease financing fees 277 290 Mutual fund, annuity and insurance commissions 800 879 Loan brokerage and advisory fees 223 521 Private equity fund management fees 614 374 Gain (loss) on sale of securities 1,258 (112) Loss in unconsolidated entities (27) (955) Client warrant income (loss) (1,959) 2,600 Fees and other 1,287 741 ------- ------- Total non-interest income 3,058 4,880 ------- ------- Non-interest expense: Salaries and employee benefits 4,990 4,784 Occupancy 613 595 Data processing 215 405 Furniture, fixtures and equipment 546 468 Professional services 815 615 Capital securities expense 561 399 Other 1,780 1,928 ------- ------- Total non-interest expense 9,520 9,194 ------- ------- Income from continuing operations before income taxes 610 2,224 Income tax expense 185 739 ------- ------- Income from continuing operations 425 1,485 Discontinued operations (Note 2): Income from discontinued teleservices operations, net of tax -- 53 ------- ------- Net income $ 425 $ 1,538 ======= ======= Basic income from continuing operations per common share $.07 $.25 ==== ==== Diluted income from continuing operations per common share $.07 $.25 ==== ==== Basic earnings per common share $.07 $.26 ==== ==== Diluted earning per common share $.07 $.26 ==== ==== Dividends per common share $.06 $.05 ==== ==== Basic average common shares outstanding 5,684,940 5,846,695 ========= ========= Diluted average common shares outstanding 5,829,134 6,048,070 ========= ========= See Notes to Consolidated Interim Financial Statements.
Consolidated Interim Statements of Changes in Shareholders' Equity and Comprehensive Income (unaudited) (Dollars in thousands) 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, 2001: - ------------------------------------------ Balance at December 31, 2000 $5,814 $(1,245) $-- $ (858) $44,400 $3,848 $(1,799) $50,160 Issuance of stock under employee benefit plans (21,343 common shares) 21 -- -- 197 124 -- -- 342 Retirement of restricted stock awards (1,042 common shares) (1) -- -- 12 (11) -- -- -- Net income -- -- -- -- -- 425 -- $ 425 425 Other comprehensive income, net of tax (a) -- -- -- -- -- -- 1,929 1,929 1,929 ------ Net comprehensive income $2,354 ====== Purchase of treasury stock (60,000 treasury shares) -- (451) -- -- -- -- -- (451) Cash dividend declared -- -- -- -- -- (342) -- (342) ------ -------- ---- ----- ------- ------ ------ ------- Balance at March 31, 2001 $5,834 $(1,696) $-- $(649) $44,513 $3,931 $ 130 $52,063 ====== ======== ==== ===== ======= ====== ====== ======= For the three months ended March 31, 2000: - ------------------------------------------ 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 12 29 13 192 147 -- -- 393 shares) Net income -- -- -- -- -- 1,538 -- $1,538 1,538 Other comprehensive loss, net of tax (a) -- -- -- -- -- -- (3,257) (3,257) (3,257) ------- Net comprehensive loss ($1,719) ======= Purchase of treasury stock (53,000 treasury shares) -- (611) -- -- -- -- -- (611) Acquisition of subsidiary (60,000 treasury shares) -- 800 -- -- -- -- -- 800 Cash dividend declared -- -- -- -- -- (279) -- (279) ------ ------- ---- ----- ------- ------- ------- ------- Balance at March 31, 2000 $5,692 $(1,745) $(51) $(859) $42,759 $2,620 $(2,023) $46,393 ====== ======= ===== ===== ======= ======= ======== ======= (a) For the three months ended March 31, 2001 2000 ---- ---- Calculation of other comprehensive income (loss) net of tax: Unrealized holding gains (losses) arising during the period, net of tax $2,759 ($3,331) Less: Reclassification for gains (losses) included in net income, net of tax 830 (74) ------ ------ Other comprehensive income (loss), net of tax $1,929 $(3,257) ====== ======== See Notes to Consolidated Interim Financial Statements.
Consolidated Interim Statements of Cash Flows (unaudited) (Dollars in thousands) For the three months ended March 31, 2001 2000 - ------------------------------------- ------ ------ Cash flows from operating activities: Income from continuing operations $ 425 $ 1,485 Add (deduct) items not affecting cash flows from operating activities: Depreciation and amortization 660 594 Provision for loan and lease losses 1,047 1,058 Client warrant (income) loss 1,959 (2,600) (Gain) loss on sale of securities available for sale (1,258) 112 Gain on sale of loans and leases (302) (35) Accretion of deferred loan and lease fees and expenses (575) (734) Amortization of premiums/accretion of discounts on securities 112 91 Loss in unconsolidated entities 27 955 Other, net 166 (35) Net proceeds from sales of trading securities -- 996 (Increase) decrease in other assets (10) 659 Increase (decrease) in other liabilities (11,500) 15,215 -------- -------- Net cash flows provided by (used in) continuing operations (9,249) 17,761 Net cash flows provided by discontinued teleservices operations -- 90 -------- -------- Net cash flows provided by (used in) operating activities (9,249) 17,851 Cash flows from investing activities: Capital expenditures (1,753) (1,923) Purchases of investments and mortgage-backed securities available for sale (82,744) (26,447) Purchases of investment securities held to maturity (429) (261) Repayments on investment and mortgage-backed securities available for sale 11,771 3,807 Proceeds from sales, maturity and calls of investment and mortgage-backed securities available for sale 30,275 1,795 Proceeds from call of investment security held to maturity 5,099 -- Proceeds from sale of investment in NewSeasons Assisted Living Communities Series B and C preferred stock 1,792 -- Proceeds from sale of loans and leases 8,589 5,935 Proceeds from sale of AMIC division of Progress Reality Services, Inc. 500 -- Investment in real estate owned (447) -- Proceeds from sale of real estate owned 816 -- Net increase in loans and leases (17,470) (43,570) Net investment in unconsolidated entities (535) (361) Other, net -- (200) --------- -------- Net cash flows used in investing activities (44,536) (61,225) --------- -------- Cash flows from financing activities: Net increase (decrease) in demand, NOW and savings deposits (10,021) 26,927 Net decrease in time deposits (12,350) (726) Net increase (decrease) in short-term borrowings (11,622) 16,344 Proceeds from issuance of long-term debt 44,000 -- Repayment of long-term debt (10,000) -- Dividends paid (342) (279) Purchase of treasury shares (451) (611) Net proceeds from issuance of stock under employee benefit plans 131 148 --------- -------- Net cash flows provided by (used in) financing activities (655) 41,803 --------- -------- Net decrease in cash and cash equivalents (54,440) (1,571) Cash and cash equivalents: Beginning of year 84,997 39,926 --------- -------- End of period $30,557 $38,355 ========= ======== Supplemental disclosures: Non-monetary transfers: Notes received in sale of NewSeasons Assisted Living Communities Series B and C preferred stock $ 4,180 $ -- ======= ======== Treasury shares issued in purchase of subsidiary $ -- $ 800 ========= ======== See Notes to Consolidated Interim Financial Statements.
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 March 31, 2001 and December 31, 2000 and for the three months ended March 31, 2001 and 2000 in conformity with accounting principles generally accepted in the United States of America. 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, 2000. Operating results for the three months ended March 31, 2001 are not necessarily indicative of the results that may be expected for any other interim period or the entire year ending December 31, 2001. 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., Progress Financial Resources, Inc. and KMR Management, 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 presentation has been changed to reflect the requirement of Accounting Principles Board Opinion No. 30, "Reporting the Results of Operations," so that discontinued operations of Procall Teleservices, Inc. are separated from the continued operations of the Company as a whole. (3) Recent Accounting Pronouncements In September 2000, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 140, "Accounting for Transfers and Extinguishments of Liabilities," ("FAS 140"). FAS 140 is effective for all transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. FAS 140 established new collateral pledged and accepted disclosure requirements, revised collateral recognition requirements and established new securitization disclosures effective for fiscal years ending after December 15, 2000. The Company does not expect a material change to its results of operations as a result of adopting FAS 140. (4) Shareholders' Equity Stock Repurchase Program On December 14, 2000, the Company announced the authorization of a new stock repurchase program to repurchase up to 285,000 shares, or five percent, of its outstanding common stock. Under this new program 2,300 shares were repurchased during 2000 and 60,000 shares were repurchased during the three months ended March 31, 2001. NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED) (Continued) 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 shareholders on August 11, 2000.
For the three months ended March 31, (Dollars in thousands, except per share data) 2001 2000 ------------------------------------------------------------------------- Per Share Per Share Income Shares Amount Income Shares Amount ------ -------- --------- ------ ------ --------- Basic Earnings Per Share: Income from continuing operations available to common shareholders $425 5,684,940 $.07 $1,485 5,846,695 $.25 Income from discontinued operations -- 5,684,940 -- 53 5,846,695 .01 ---- ---- ------ ---- Total income available to common shareholders 425 5,684,940 $.07 1,538 5,846,695 $.26 ==== ==== Effect of Dilutive Securities: Options -- 144,194 -- -- 201,375 -- --------- --------- Diluted Earnings Per Share: Income from continuing operations available to common shareholders and assumed conversions 425 5,829,134 $.07 1,485 6,048,070 $.25 Income from discontinued operations -- 5,829,134 -- 53 6,048,070 .01 ---- ---- ------ ---- Total income available to common shareholders and assumed conversions $425 5,829,134 $.07 $1,538 6,048,070 $.26 ==== ========= ==== ====== ========= ====
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, 2001, the Bank's tangible equity ratio was 6.95%, Tier 1 or leverage ratio was 6.95%, Tier 1 risk-based capital ratio was 10.61%, and total risk-based capital ratio was 11.86%. As of March 31, 2001, the Bank was classified as "well capitalized." NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED) (Continued) (5) 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:
Gross Gross (Dollars in thousands) Amortized Unrealized Unrealized Estimated Carrying At March 31, 2001 Cost Gains Losses Fair Value Value ----------------- ---------- ---------- ---------- ---------- ------- Available for Sale: Equity investments $ 3,330 $ 7 $ 410 $ 2,927 $ 2,927 U.S. Government Agencies 1,000 6 -- 1,006 1,006 Bank deposits 391 -- -- 391 391 Corporate bonds 1,915 -- 413 1,502 1,502 Mortgage-backed securities 240,334 1,921 824 241,431 241,431 -------- ------ ------ -------- -------- Total available for sale $246,970 $1,934 $1,647 $247,257 $247,257 ======== ====== ====== ======== ======== Held to Maturity: Federal Home Loan Bank Stock $ 6,500 $ -- $ -- $ 6,500 $ 6,500 U.S. Government Agencies 15,935 61 286 15,710 15,935 Municipal bonds 14,843 339 42 15,140 14,843 -------- ------ ------ -------- -------- Total held to maturity $ 37,278 $ 400 $ 328 $ 37,350 $ 37,278 ======== ====== ====== ======== ======== Gross Gross (Dollars in thousands) Amortized Unrealized Unrealized Estimated Carrying At December 31, 2000 Cost Gains Losses Fair Value Value -------------------- ---------- ---------- ------------ ---------- -------- Available for Sale: Equity investments $ 5,436 $ 4 $2,446 $ 2,994 $ 2,994 U.S. Government Agencies 16,524 163 -- 16,687 16,687 Bank deposits 447 -- -- 447 447 Corporate bonds 1,913 -- 343 1,570 1,570 Mortgage-backed securities 183,475 1,561 1,568 183,468 183,468 -------- ------ ------ -------- -------- Total available for sale $207,795 $1,728 $4,357 $205,166 $205,166 ======== ====== ====== ======== ======== Held to Maturity: Federal Home Loan Bank Stock $ 6,350 $ -- $ -- $ 6,350 $ 6,350 U.S. Government Agencies 20,755 360 1,885 19,230 20,755 Municipal bonds 14,835 202 392 14,645 14,835 -------- ----- ------ -------- --------- Total held to maturity $ 41,940 $ 562 $2,277 $ 40,225 $ 41,940 ======== ===== ====== ======== =========
(6) Loans and Leases, Net The following table depicts the composition of the Company's loan and lease portfolio at the dates indicated:
(Dollars in thousands) March 31, 2001 December 31, 2000 -------------- ----------------- Amount Percent Amount Percent ------ ------- ------ ------- Commercial business $185,974 33.42% $175,972 32.40% Commercial real estate 184,957 33.24 178,874 32.93 Construction, net of loans in process 68,909 12.38 60,172 11.08 Single family residential real estate 32,861 5.91 34,676 6.39 Consumer loans 37,373 6.72 37,242 6.86 Lease financing 54,151 9.73 66,166 12.18 Unearned income (7,768) (1.40) (9,983) (1.84) --------- ------- --------- ------- Total loans and leases 556,457 100.00% 543,119 100.00% ======= ======= Allowance for loan and lease losses (7,708) (7,407) --------- --------- Net loans and leases $548,749 $535,712 ========= =========
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED) (Continued) (7) 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: (Dollars in thousands) For the Three Months Ended March 31, 2001 2000 ----- ------ Balance beginning of period $7,407 $5,927 Charge-offs: Commercial business 226 1,033 Commercial real estate 29 -- Single family residential real estate 10 23 Lease financing 517 477 ------ ------ Total charge-offs 782 1,533 ------ ------ Recoveries: Commercial business -- 4 Consumer loans 1 2 Lease financing 35 160 ------ ------ Total recoveries 36 166 ------ ------ Net charge-offs 746 1,367 Additions charged to operations 1,047 1,058 ------ ------ Balance at end of period $7,708 $5,618 ====== ====== (8) Investments in Unconsolidated Entities Investments in Unconsolidated Entities at March 31, 2001 and December 31, 2000 are detailed below:
(Dollars in thousands) March 31, 2001 December 31, 2000 ----------------------------------------------------------------------------------------------------------------------- Investment in Ben Franklin/Progress Capital Fund, L.P. (A) $2,214 $2,202 Other investments in unconsolidated entities (B) 2,331 7,064 ----------------------------------------------------------------------------------------------------------------------- Total Investments in Unconsolidated Entities $4,545 $9,266 ======================================================================================================================= (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: Summary of Operations (Dollars in thousands) ----------------------------------------------------------------------- For the three months ended March 31, 2001 2000 ------------------------------------------------------------------------------------------------------------------ Revenues $115 $ 114 Expenses 70 69 Net decrease in fair value of venture capital investments (17) (2,093) ------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in partners' capital resulting from operations $ 28 $(2,048) ================================================================================================================== The Company's equity (loss) in Ben Franklin $ 12 $ (854) ================================================================================================================== Balance Sheet Data (Dollars in thousands) March 31, 2001 December 31, 2000 ------------------------------------------------------------------------------------------------------------------ Assets: Venture capital investments, at fair value $3,950 $ 4,135 Cash and temporary investments 1,780 1,503 Other assets 105 181 ----------------------------------------------------------------------------------------------------------------- Total assets $5,835 $ 5,819 ================================================================================================================== Liabilities and Partners' Capital: Liabilities $ 5 $ 17 Partners' capital 5,830 5,802 ------------------------------------------------------------------------------------------------------------------ Total liabilities and partners' capital $5,835 $ 5,819 ==================================================================================================================
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED) (Continued) (B) During the first quarter of 2001, the Company sold its investment in NewSeasons Assisted Living Communities Series "B" and "C" preferred stock. At the date of sale, the carrying amount of this preferred stock was $5.2 million. (9) Capital Securities 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 (the "Trust II"), a statutory business trust created under the laws of Delaware, 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. During 1997 the Company issued $15.0 million of 10.5% capital securities due June 1, 2027 (the "Capital Securities"). The Capital Securities were issued by the Company's recently formed subsidiary, Progress Capital Trust I, a statutory business trust created under the laws of Delaware. The Company is the owner of all of the common securities of the Trust (the "Common Securities"). The Trust issued $15.0 million of 10.5% Capital Securities (and together with the Common Securities, the "Trust Securities"), the proceeds from which were used by the Trust, along with the Company's $464,000 capital contribution for the Common Securities, to acquire $15.5 million aggregate principal amount of the Company's 10.5% Junior Subordinated Deferrable Interest Debentures due June 1, 2027 (the "Debentures"), which constitute the sole assets of the Trust. The Company has, through the Declaration of Trust establishing the Trust, Common Securities and Capital Securities Guarantee Agreements, the Debentures and a related Indenture, taken together, irrevocably and unconditionally guaranteed all of the Trust's obligations under the Trust Securities. (10) Commitments and Contingencies At March 31, 2001, the Company had $193.8 million in loan commitments to extend credit, including unused lines of credit, and $10.7 million in letters of credit outstanding (11) Segments The following table sets forth selected financial information by business segment for the periods indicated:
Private Insurance/ Equipment Equity Fund Wealth Other Banking Leasing Management Management Segments Corporate Total ------- --------- ----------- ---------- -------- --------- ----- (Dollars in thousands) Total Assets at: March 31, 2001 $846,902 $45,948 $153 $1,374 $1,199 $9,331 $904,907 December 31, 2000 842,901 54,886 114 1,640 1,176 13,532 914,249 Revenues from continuing operations for: the three months ended March 31, 2001 9,368 1,203 614 790 586 (1,384) 11,177 March 31, 2000 7,795 1,620 373 869 185 1,634 12,476 Income from continuing operations for: the three months ended March 31, 2001 1,636 169 62 (56) 61 (1,447) 425 March 31, 2000 686 261 50 (154) 18 624 1,485
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED) (Continued) (12) Qualified Thrift Lender Test All savings associations are required to meet a qualified thrift lender ("QTL") test set forth in Section 10(m) of the Home Owners' Loan Act ("HOLA") and regulations of the Office of Thrift Supervision ("OTS) thereunder to avoid certain restrictions on their operations. Currently, the QTL test requires that 65% of an institution's "portfolio assets" (as defined) consist of certain housing, small business, and consumer related assets on a monthly average basis in 9 out of every 12 months. The Company previously reported that the Bank only complied with this test for 8 out 12 months during 2000. After additional analysis and research, an error was discovered in the calculation of the 2000 QTL ratios; consequently, the Company believes the Bank was in compliance during 2000 and continued to be in compliance during the first quarter of 2001. The Company anticipates formal communication from the OTS requalifying the Bank as a QTL. At March 31, 2001 approximately 66.67% of the Bank's assets were invested in qualified thrift investments. 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, 2000. Certain reclassifications have been made to prior period data throughout the following discussion and analysis for comparability with 2001 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 $425,000, or diluted earnings per share of $.07, for the three months ended March 31, 2001 compared to $1.5 million, or $.26, respectively, for the three months ended March 31, 2000. Results for the three months ended March 31, 2001 included losses of $2.0 million from client warrants, due to the permanent impairment during the quarter of U.S. Interactive, Inc. common stock obtained through the exercise of client warrants, compared to gains of $2.6 million for the comparable period in 2000, which were primarily due to market appreciation on these same warrants recorded in accordance with FASB 133. The loss was partially offset by a $1.3 million gain on sales of securities in the first quarter of 2001 compared to a $112,000 loss in the first quarter of 2000. Operating earnings, which excludes gains (losses) on sales of securities, equity (loss) in unconsolidated entities, client warrant income (loss), additional loan loss provisions, income from discontinued operations and conversion costs, net of tax, for the first quarter of 2001 were $1.2 million, or diluted earnings per share of $.21, compared to $853,000, or diluted earnings per share of $.14, in the first quarter of 2000. Return on average shareholders' equity was 3.31% and return on average assets was .20% for the three months ended March 31, 2001 compared to 12.81% and .79%, respectively, for the three months ended March 31, 2000. Net interest income increased to $8.1 million from $7.6 million, and the net interest margin decreased to 4.03% from 4.28%, comparing the three months ended March 3, 2001 and 2000. This margin stability in an environment of sharply declining rates evidences the Company's commitment to managing interest rate risk. Non-interest income decreased $1.8 million for the three months ended March 31, 2001 compared to the same period in 2000 primarily due to losses of $2.0 million from client warrants, due to the permanent impairment of U.S. Interactive, Inc. common stock obtained through the exercise of client warrants, compared to gains of $2.6 million for the comparable period in 2000, which were primarily due to market appreciation on these same warrants recorded in accordance with FASB 133. The loss was partially offset by a $1.3 million gain on sales of securities in the first quarter of 2001 compared to a $112,000 loss in the first quarter of 2000. Non-interest expense increased by $326,000 primarily due to growth in the Company's financial services operations. Total assets decreased slightly to $904.9 million at March 31, 2001 from $914.2 million at December 31, 2000. Total deposits decreased to $595.2 million at March 31, 2001 from $617.5 million at December 31, 2000 primarily due to the maturity of wholesale brokered certificates of deposit of $15.0 million. 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. 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, 2001, 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, 2001, cash was used by operating activities primarily for the payment of other liabilities. Cash was used in investing activities primarily due to purchases of mortgage-backed securities. Cash was used by financing activities, primarily due to net decreases in deposits partially offset by the net issuance of borrowings. Non-Performing and Underperforming Assets The following table details the Company's non-performing and underperforming assets at the dates indicated:
March 31, December 31, March 31, (Dollars in thousands) 2001 2000 2000 ---- ---- ---- Loans and leases accounted for on a non-accrual basis $ 6,002 $ 4,034 $4,139 Other real estate owned, net of related reserves 1,356 1,750 -- ------- ------- ------ Total non-performing assets 7,358 5,784 4,139 Accruing loans 90 or more days past due 2,971 4,502 4,569 -------- -------- ------- Total underperforming assets $10,329 $10,286 $8,708 ======== ======== ======= Non-performing assets as a percentage of net loans and leases and other real estate owned 1.34% 1.08% .77% ======== ======== ======= Non-performing assets as a percentage of total assets .81% .63% .50% ======== ======== ======= Underperforming assets as a percentage of net loans and leases and other real estate owned 1.88% 1.91% 1.63% ======== ======== ======= Underperforming assets as a percentage of total assets 1.14% 1.13% 1.06% ======== ======== ======= Allowance for loan and lease losses $ 7,708 $ 7,407 $5,618 ======== ======== ======= Ratio of allowance for loan and lease losses to non-performing loans and leases at end of period 128.42% 183.61% 135.73% ======= ======= ======= Ratio of allowance for loan and lease losses to underperforming loans and leases at end of period 85.90% 86.77% 64.52% ======== ======== ========
Non-performing assets increased to $7.4 million at March 31, 2001 from $5.8 million at December 31, 2000, and from $4.1 million at March 31, 2000. The increase in non-performing assets since December 31, 2000 was primarily related to a $1.2 million increase in non-accrual lease financing receivables and a $726,000 increase in non-accrual commercial business loans. The $6.0 million of non-accrual loans at March 31, 2001 primarily consisted of: $2.4 million of lease financing; $1.8 million commercial business loans; $712,000 of loans secured by single family residential property; and $621,000 of commercial mortgages. Accruing loans 90 or more days past due decreased from $4.5 million at December 31, 2000 to $3.0 million at March 31, 2001. The $3.0 million of accruing loans 90 or more days past due at March 31, 2001 primarily consisted of $2.3 million of commercial mortgages and $510,000 of commercial business loans. 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:
March 31, 2001 December 31, 2000 March 31, 2000 --------------- ----------------- -------------- (Dollars in thousands) Amount Percent Amount Percent Amount Percent ------ ------- ------ ------- ------ ------- Delinquencies: 30 to 59 days $ 7,980 1.44% $ 6,255 1.15% $ 5,086 .94% 60 to 89 days 2,339 .42 1,480 .27 1,342 .25 90 or more days 2,971 .53 4,502 .83 4,569 .85 ------- ----- ------- ----- ------- ----- Total $13,290 2.39% $12,237 2.25% $10,997 2.04% ======= ===== ======= ===== ======= =====
RESULTS OF OPERATIONS Net Interest Income Net interest income, on a tax-equivalent basis, increased $551,000, and the net interest margin decreased to 4.03% from 4.28%, comparing the three months ended March 31, 2001 and 2000. The Company's cost of funds increased 40 basis points, whereas its rate on earning assets decreased 1 basis point and the positive effect of net interest-free funding sources increased 16 basis points in comparison with the three months ended March 31, 2000. The decrease in the margin was primarily due to higher yielding certificates of deposit. Provision for Loan and Lease Losses During the three months ended March 31, 2001, the Company recorded a $1.0 million provision for loan and lease losses; a slight decrease of $11,000 compared with the same period in 2000. Although the Company's total classified loans increased $1.9 million from December 31, 2000, $4.5 million in loans were moved into a higher risk classification; resulting in the Company recording an additional provision of $500,000 during the first quarter of 2001. The three months ended March 31, 2000 included an additional provision of $450,000 due to the liquidation and partial charge-off of a large commercial business loan and a more aggressive charge-off policy for the lease portfolio. At March 31, 2001, the allowance for loan and lease losses amounted to $7.7 million or 1.39% of total loans and leases and 128.42% of total non-performing loans and leases. At December 31, 2000, the allowance for loan and lease losses amounted to $7.4 million or 1.36% of total loans and leases and 183.61% of total non-performing loans and leases. Non-interest Income Non-interest income for the three months ended March 31, 2001, amounted to $3.1 million, compared to $4.9 million for the same period in 2000. During the quarter, the Company recognized losses of $2.0 million from client warrants compared to gains of $2.6 million in the same period of 2000. Loss in the unconsolidated entities was $27,000 during the quarter ended March 31, 2001 compared with losses of $955,000 in the 2000 quarter. The 2000 losses in the unconsolidated entities primarily relate to the Ben Franklin mezzanine debt fund and NewSpring Ventures capital fund. Securities gains of $1.3 million were realized during the first quarter of 2001 compared to losses of $112,000 for the same quarter of 2000. Securities gains during 2001 included a $708,000 gain on the disposition of the Company's investment in NewSeasons Assisted Living Communities Series B and C stock. Fee income increased $650,000 primarily due to management fees generated by the Company's subsidiary Progress Capital Management, Inc., and consulting fees generated by the Company's subsidiary KMR Management, Inc. Non-interest Expense Total non-interest expense was $9.5 million for the quarter ended March 31, 2001 compared to $9.2 million for the quarter ended March 31, 2000. Excluding non-recurring expense of $124,000 in 2000 related to conversion costs, non-interest expense increased $450,000. This increase was primarily due to increases in salaries and employee benefits of $206,000 as a result of additional employees to staff new bank branches, the acquisition of KMR Management, Inc., and from other new positions established within the Company. Professional services expense increased $200,000 mainly due to the business activities of KMR. Capital securities expense increased $162,000 due to the issuance of $6.0 million of 11.445% capital securities in July 2000. 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, 2000, Item 7A, filed with the Securities and Exchange Commission on March 22, 2001. The market risk of the Company has not experienced any significant changes as of March 31, 2001. 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 None. (b) Reports on Form 8-K On January 26, 2001, the Company filed a Current Report on Form 8-K/A with the Securities and Exchange Commission reporting under Item 5 the announcement of its fourth quarter 2000 earnings, the distribution of a analyst package and the declaration of its quarterly cash dividend. 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 10, 2001 /s/ W. Kirk Wycoff - -------------------- -------------------------------------- Date W. Kirk Wycoff, Chairman, President and Chief Executive Officer May 10, 2001 /s/ Michael B. High - --------------------- --------------------------------------- Date Michael B. High, Executive Vice President and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----